@ Supply Chain Management

The latest edition of GLCS magazine is out at the site. I scanned the magazine for reports of successes claimed by Supply Chain Software providers in various industries. Some of the successes reported were:

1. IBM reports that its new Dynamic Inventory Optimization Solution (DIOS) helped reduce inventory for a German Retailer – Max Bahr by upto 40%. This they did integrating Point of Sale (POS) transactions from Max Bahr’s 90 stores, analyzing them against a two year history of each product and calculate replenishment targets automatically and even turn 90% of them into orders.

Having attended the DIOS webinar, I must say that what I saw demonstrated seems to accomplish what has been described above. However, I am wary of producing/stocking to forecasts (even if they’re based on factual historical data) but that is probably better than not having an integrated system that actually does some data crunching which seems to have been the case at Max Bahr prior to DIOS introduction. In that case, what is the precise value and more importantly source of the value that introducing DIOS has created at Max Bahr?

2. Oracle integrates Demantra into its enterprise solutions offering. Demantra is focused on promotion forecasting and event planning and its integration into Oracle is claimed as a complementary move.
3. Kinaxis helps Varian Semiconductor respond rapidly to customer needs. Varian Semiconductor operates in a highly cyclical market that involves complex products that require significant customization and ongoing engineering updates. Varian also experiences long lead times from parts suppliers as well as short order lead times from customers. Kinaxis’s response management tool – RapidResponse allows Varian to perform what-if analyses in minutes versus hours with its ERP system.

Very interesting! After coming across RapidResponse and Response Management and quickly diving into the underlying Theory of Constraints, I think that this is very important on two levels. Firstly, that ERP while providing data exchange and visibility across the organization fails to help managers manage their business – meaning that ERP is not really serving the customers needs. Secondly, that RapidResponse works not only at the conceptual level but also from the point of view of ease of implementation and integration – that means that you’re using the ERP data backbone quite effectively.

4. SmartOps creates a model inventory plan for Caterpillar. Caterpillar aims to create competitive advantage by focusing on faster and more predictable product availability. SmartOps solution Multistage Inventory Planning and Optimization (MIPO) helped Caterpillar reduce total chain inventory, improve dealer and end customer satisfaction through improved product availability.

Only one comment to make – Is it so bad in the earth moving/agri-business industry that making one’s product available to its customers faster and more predictably (wonder what that means) is considered a competitive advantage? Is Komatsu listening?

5. Terra Technology provides Campbell Soup with a recipe for supply chain success. Campbell implemented a “Class A” sales and operations planning process (S&OP) by installing Terra Technology’s Real-Time Forecasting (RTF) and Real-Time Inventory (RTI). RTF’s approach to forecasting includes analyzing the most recent demand signals nightly and adjusting forecasts to better predict demand. Because RTF detects unexpected shifts in demand when they occur, Campbell is aware of them immediately instead of weeks later.

Can IBM’s DIOS and Terra Tech’s RTF be more alike? They’re probably not that similar but it does look like they’re competing in the same space. What really underlies this technological space is integrating POS data near real-time into a predictive engine and come up with new targets. Here is a comment from Steve Cortese, Campbell’s director of Supply Chain Infrastructure:

“We carry 20 percent less safety stock using RTI. At the same time we have become more responsive to our customers.”

There are two polar opposite ways of dealing with the uncertainty in demand that a firm might experience at the customer end. One way is to produce to a forecast of the demand and the other is to produce to the demand, the former is a version of reality created by sophisticated/unsophisticated algorithms while the latter is reality. The competition that these two possible ways of competing is really between the realized magnitude of error in the forecast and the ability of an organization to compress its actual lead times in fulfilling the demand. In the former case, while predictive forecasting is better than some forecasting is better than no forecasting, the competency that is being created/honed is How do I create a better idea of what the real demand is going to be?. In the latter case, the competency that is being created/honed is the ability of a firm to relentlessly execute its manufacturing/procurement plan in order to fulfil the demand, satisfy the customer etc. Which way do you think a firm should be headed?

Categorized as: Lean_, Supply Chain Management_, Review_, News_
Tags: Supply Chain Management, Supply Chain Planning, Supply Chain Execution, DIOS, Lean, Terra Technology, Predictive Forecasting

Cyber Sam has a post about systems thinking and how it is applied to Supply Chain Management at his site Cyber Sam. if you’ve taken a course in Systems thinking or familiar with the kind of beer that doesn’t leave you all woozy at the end of the night – then you’re used to the Beer game (or the Beer distribution game as it ought to be aptly called – first, its a game with a point to make and second, its about people and their behavior when it comes to basic cooperation). There are several version of the game available – one as a computer simulation across networked PCs or on the web and the other as a basic board game with players huddled at a table – the latter being, in my opinion, the right environs for this game.
If you are playing the game for the very first time, then you’d experience what is commonly termed as the Bullwhip effect. If you’re playing the game for the second or third time, then you’d experience what is commonly termed as the Bullwhip effect too (even with the hindsight provided by the first game).
Here’s a short and sweet description of the Bullwhip effect at Wikipedia.
How does the Bullwhip effect come to be?

Supply chain experts have recognized that the Bullwhip Effect is a problem in forecast-driven supply chains.

The factors that contribute to the Bullwhip effect include:
Factors contributing to the Bullwhip Effect:

• Forecast Errors
• Lead Time Variability
• Batch Ordering
• Price Fluctuations
• Product Promotions
• Inflated Orders

And the solution is:

The alternative is to establish a demand-driven supply chain which reacts to actual customer orders. In manufacturing, this concept is called Kanban.

The Bullwhip effect is not mitigated by a group of intelligent people working together but streamlining the information chain to the point at which forecasting the demand chain is made sufficiently redundant. That’s a fancy way of saying that near total reliance on fancy predictive algorithms in order to drive your production and distribution organization is going to transfer customer and intermediary ordering behavior into your organization with a multiplier effect (the magnitude of the multiplier applied by the intermediaries in your distribution chain is dependent on past fulfillment history, profit margins that can be realized, gut instinct etc etc).
Don’t take my word for it but play the Beer Distribution Game for yourself and you’ll come away from it wiser and perhaps, just perhaps, willing to take a look at systems thinking.

Categorized as: Systems Thinking_
Tags: Systems Thinking, Bullwhip effect, Forecasting, Beer Game, Beer Distribution Game, Information Chain

Logistics Management has a new article that outlines why the Middle East is a booming regiong for logisitics and supply chain services. At least, that is the conclusion of a recent study released by the research firm – Transport Intelligence.

The logistics sector has been benefited as companies invest in upstream and downstream infrastructure projects. And, other opportunities are presenting themselves from investment in construction including tourism (hotels, amenities etc), reconstruction of Iraq, and transportation projects (ports, logistics parks and airports etc). In addition, the importance of consumer markets is increasing as GDP per head soars throughout the region.

That is the key takeaway from the article and I can personally attest to that having visited the Middle East not more than a few months ago on a supply chain consulting engagement. There’s a lot of oil money flowing in the region and that is being put to work building up infrastructure of all kinds. In short the area has been booming for a few years and could concievably continue to do so for a little longer. Current events, notwithstanding, this part of the world is pretty critical to the rest of the world and if there is something that a supply chain fits in nicely with – are the critical things that power/drive the rest of the world.

Categorized as: News_, Supply Chain Management_, Logistics_
Tags: Middle East, Logistics Services, Transportation

A featured story (in three parts no less) at the Council of Supply Chain Management’s website describes the Theory of Base6 – Successfully implementing the lean supply chain. The authors of the article are Robert Martichenko and Dr. Thomas Goldsby. In the first part of the article, a list of persistent ideas in business are listed on account o fthe fact that these ideas have some value proposition. The list includes:

1. Total Quality Management – Dr. W. Edwards Deming influence
2. Six Sigma – Dr. W. Edwards Deming influence – Motorola and GE developed
3. Lean Manufacturing – Dr. W. Edwards Deming influence -Taiichi Ohno, Eiji Toyoda, Shigeo Shingo, Toyota Motor Manufacturing developed
4. Theory of Constraints – Eliyahu Goldratt
5. ISO Certification – influenced by engineering groups from many countries
6. Good to Great – Jim Collins
7. Seven Habits of Highly Effective People – Steven Covey

Further, they distil the above business ideas around six common themes (hence, i suppose the term Base6) which are:

1. Customer Focus
2. Vision Deployment
3. Process Management
4. Teamwork
5. Quality at the Root
6. Continuous Improvement

Each theme is then expanded briefly in their article. I am waiting for the next part in the series to see how these themes are fleshed out in greater detail and how these themes are linked up towards developing and implementing a lean supply chain.

Categorized as: Reviews_, Lean_, Supply Chain Managment_, Process Management_
Tags: Theory of Base6, Lean, Lean Supply Chain, Six Sigma, Theory of Constraints, ISO, Quality, Continuous Improvement

Evolving Excellence has a great article (that gave me some pause when I read it) about the False God of the Almighty algorithm. The reason that I read the article at least twice and then all the following comments as well is because I do have a deep interest in algorithms as well as lean principles and the article made it seem as the twain shall never meet. Perhaps, they should and perhaps they shouldn’t but a larger point about invoking, adopting and implementing ERP systems was made which I find quite relevant. I am of the opinion that ERP systems are bound to face radical competition but I didn’t think about the source of that radical competition. The reasons for holding this opinion are as follows:
1. They’re too cumbersome to implement and consequently the failure rate is high for firms that go that route
2. The firm has to adapt its processes to what the ERP is mostly configured to do (No, you won’t hear that from any vendor. In fact, you’d hear exactly the opposite). This is quite akin to Ford’s famous quip a while ago, “You can have your car in any color as long as its black.”
But that is not what the article is really about. In a nutshell, the following quotes illustrate what the story is really about:

“These are two radically opposite worlds … One is the tech-savvy and IT-powered optimization world and the other is the pencil-and-paper problem-solving world. Which world should we live in?”

and,

“What do we know about SAP, and how well it integrates with lean principles (or lean implementations).”

The first thing to note is that optimization problems are notorious to handle all by themselves (but elegant in the formulations that have been drawn up) but when they’re applied to real world problems, the modeler first creates a system (an artificial world), then models the problem within the system and finally attempts to solve (hopefully) the problem to optimality (hopefully) in a brief flurry of command line code instructions. And voila, you have an optimal answer. However, the model, the answer and the system are first and foremost matters of interpretation. Why there is a lot of WIP sitting between two furious machines is not a matter of interpretation as much as it is a matter of fact. The other (secret and don’t you ever say that I said it) shady part of optimization applied to real world problems is that not all of what is called ‘optimal’ is truly optimal (or mathematically optimal) but no salesman will ever tell you that either out of sheer ignorance or cognizance that its the best that can be done. If I were to peer behind any ERP vendors so called optimization algorithms, I’d be sure to find (hopefully) a hybrid of optimization and heuristic algorithms embedded within that are spitting out answers. So that’s what really happens on the optimization side of things.
On the lean side of things (and as lean goes, I shall be very brief in my answer) – you work in a philosophical framework that is bent on eliminating waste in a real system.
So what happens when the optimization world of IT clashes against the problem solving world of lean (or at least that’s the way the clash is cast):

wasteful processes being proceduralized in algorithmic stone, monstrous amounts of extra inventory generated to accommodate the cascading “schedule risk” of individual operations, and of course implementation costs that can exceed $100 million buckaroos. And interestingly enough, several people chimed in with how they have gone back to using simple visual controls and Excel spreadsheets to schedule complex operations.

If one wants to clarify the clash, it would be instructive to consider some real evidence (as opposed to the neat tick-tock world of a an optimization/heuristic modeler) and that evidence is Toyota:

About the most complex type of factory is one that makes almost a thousand cars with several hundred permutations every day. And Toyota does it with no MRP-type shopfloor control. MRP is used to handle financials, inventory costing, and the like… but shop floor control is pure manual pull with a small number of e-kanban type applications.

This kind of evidence is particularly damning because in contrast to the system that the optimization resides in, the application of lean on a shop floor deals with reality – a tangible profit creating and wealth generating reality. You can’t explain that away. And,

Excellence through simplicity.” To me that quote from Lao Tzu has always epitomized one of the fundamental tenets of real lean. Don’t proceduralize complexity, and don’t make something more complex than it needs to be. Manufacturing really isn’t all that hard… you make something, preferably one of it, and you get it out of the operation as quick as possible. Once you remove the loads of WIP from the floor by focusing on the velocity of the single unit, you begin to realize how so much of that perceived complexity is due to not having an unwavering desire to get a product through the flow as quickly as possible.

The above discussion (or polemic, depending on how you see it) is why I go hmmmm… because ERP is asking for competition. So what am I going to do? That is the only question.

Tags: ERP, MRP, Job shop, Planning, Lean, Flow, Optimization, Heuristics, Algorithm, Supply Chain, Supply Chain Complexity

Gartner Research has published its magic quadrant (nothing magical about it but its an informative quadrant though) about the relative competitive position of Supply Chain Planning software vendors for the first half of 2006.

There are three key sectors (Process Manufacturing, Discrete Manufacturing and Distribution Intensive) for which the quadrants were created. They’re available free of charge at Oracle’s site (Magic Quadrants for Supply Chain Planning) at the following links:
1. Magic Quadrant for Supply Chain Planning in Process Manufacturing Industries, 1H06
2. Magic Quadrant for Supply Chain Planning in Discrete Manufacturing Industries, 1H06
3. Magic Quadrant for Supply Chain Planning in Distribution-Intensive Industries, 1H06
What I wanted to determine from perusing these quadrants was the criteria by which certain firms’ SCP software was categorized as visionary and others as followers or laggards. Here is the summary of firms seen as visionaries (as opposed to niche players) in various segments of the SCP marketplace.

According to the report, a visionary has to demonstrate:

• A developing global support strategy
• Five customer references in each targeted vertical industry
• Differentiated vertical-industry domain expertise and unique industry-specific functionality
• Development beyond a third vertical-industry-specific solution
• Development support for a multi-enterprise architecture on an SOA platform
• A targeted presence leading to influence and activity into how aspects of the market evolve