@ Supply Chain Management


Before thinking out of the box, how about thinking in the box?

This weekend, my wife and I were out shopping for a crib for my five month old son. And we visited the Burlington Coat Factory, Appleton, WI to get one. We also decided to get some beddings for the crib. All in all a successful trip.
So, here’s what happened. The bedding was originally at $159.90 and it gets on wife’s nerves no end that if asked about the price, I would invariably reply $159 or $159.90 whereupon she would round up the value to $160. Nevertheless, it was marked down to $139.98 which made it a great buy. It was further discounted at a 25% off as well. Ofcourse, that made it a great must buy. So far so good.
Only having driven all the way back to Green Bay, did we discover that the 25% was applied to the original price (that of $159.98). And that’s where the fun begins.
So we drove back again the next day, Sunday, to settle the matter and we line up at the returns center. Since, I was looking for some dress shirts, I proceeded to the aisle leaving my wife to settle the matter. The matter is rather simple, as far as we can see it, apply the discount to the marked down price of $139.98 which should cost us a grand total of $104.98 instead of the $119.92 that we had been charged the previous day.
Five minutes later, my wife searches me out and says – No go. The returns clerk had informed her that the original price of bedding was $159.90 to which the discount had been applied and so the charged price was $119.92. This even though, she had shown him the marked down tag of $139.98. Said I, “This is silly,” and so took the bedding back to the returns center.
This time round, the line at the returns center was rather long and so I did the next best thing which was take the adjacent line and in due time I was waited upon by a teenager (a girl who could be in my estimate about 12-13 years of age). That’s when the fun really begins. I explain the situation to her, show her the tag, prove further that there is a 25% discount and on and on. She scans the bar code and the price reflected in the register is the original price of $159.90 and so apparently there’s nothing that she can do. I show her the tag on the item itself which reads – $139.98 but the system retrieved only the original price.
And that is when the fun really begins.
The returns clerk (a guy about 25-ish) leans over and tries to convince me that if I applied 25% to the original price of $159.90 or the marked down price of $139.98, I would obtain the same price. In fact, he walked over and tried to convince me about that – “Its all percentages – you’ll get the same value.” I’m not kidding. By this time, I should have spent about 5 mins in this entire process growing quite incredulous.
Ofcourse, the checkout girl is getting a little confused with all these numbers flying about especially with the percentages. So she does the next best thing rather than trusting a customer (Is the customer still king?), which is turning to a co-worker – another teenaged boy (of the same age or close enough).
Now, he thinks for awhile about the conundrum – what is 25% of $139.98 which should then be subtracted from $139.98 to obtain the right price? So he writes down dutifully on a scrap of paper and instructs his co-worker (and friend, I must say) to multiply out $139.98 * 0.25. Ofcourse, all this is flabbergasting to me. No, not the fact that they don’t have a calculator but as I tried to explain to both these teenagers that all you have to do is divide $139.98 by 4 (which I hope you’d agree is a far easier prospect than straight out multiplying $139.98 * 0.25 on a scrap of paper) and then subtract that value from $139.98 to get the right amount.
So the checkout girl ignores me and sets about the task of multiplying out the values. She doesn’t finish the task though – a lot of numbers here and there but no result. So her manager appears on the scene and proceeds to ascertain what the situation is. And so starts the process all over again. I explain my situation as clearly as I can.
NO GO! Even with the manager.
The manager (a woman of about 40 years of age) is befuddled by the system though. Not with the math. But ofcourse, we all get to the math sooner or later. The manager however wanted to find a calculator as I was trying to explain to her that the right value was $104.98 and how to obtain it rather simply. Meanwhile, the returns clerk comes over once more to explain his version of math to the manager.
Alright, you shouldn’t take a customer at his word. So not being able to find a calculator, she gets the manager of the Baby department after a few bell buzzes. So here I am having to explain the situation a third time to the second manager. She goes through the process of scanning the bar code, looking at the tag and declares that she will have to override the system which she proceeds to do. Long story short, I get my discount. The whole affair took a good half an hour of my life which I won’t get back but my wife and I could not help but talk about it on the drive back to Green Bay.
You’re free to draw your own conclusions about this episode and what it says about the acquisition of the most basic skills through education and a dependence on technology and how clueless that can leave you. Here’s my conclusion – “If you don’t do the numbers when you have to, the numbers will do you in when you don’t want them to.” There are enough characters promoting the importance of thinking out of the box but the need of the hour is to first teach people to know that there is a box – A REAL UNDENIABLE BOX – which needs to be thought about first before thinking out of it.

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SAP Warns, Sending Shockwaves Through Enterprise Software

SeekingAlpha reports about the results that SAP AG reported today – SAP Warns, Sending Shockwaves Through Enterprise Software.
Eric Savitz of Barron’s reports,

Bad news for the enterprise software sector this afternoon, as SAP (SAP) just warned that fourth quarter software revenue growth came in short of previous guidance. This is a bit confusing, so bear with me. SAP reports product revenues, software revenues, and total revenues, and it reports on both an actual and constant-currency basis. But the bottom line is that software sales came up short for both the quarter and the full year.

The SAP stock (SAP) is off more than 10% as I write and Oracle (ORCL) is also taking a late afternoon dive.

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SCM Newz roundup

1. IBM Goes Up Against Oracle, SAP In Product Lifecycle Management
IBM is partnering with UGS to deliver a version of UGS’s core product – TeamCenter Express targeted at small and midsize businesses, reports CRN Online. The gist of the partnership centers around:

The Teamcenter system competes with an Oracle PLM product launched in mid-2003 and an SAP offering. IBM is eager to market Teamcenter Express because it often generates a demand for IBM’s own WebSphere middleware and data translation products.
PLM for the most part has been a concern of large companies with complex products enjoying long shelf lives. UGS Teamcenter, for example, is the tracking system for the Lockheed Martin F-35 Strike Fighter aircraft, with hundreds of suppliers and partners.
If the IBM-UGS partnership is a sign of the times, small and midsize businesses with complex products want the benefits of collaborative product data management as well.

In so doing, IBM would be stepping on the toes of Oracle and SAP, not to mention other CAD/CAE providers such as Dassault (makers of CATIA).

2. Kimberly-Clark Outsources Some Sourcing, Supply Management Services
Since Kimberly Clark (KC), has a major operation right here in Neenah, WI (about 40 miles south of where I live), I get to hear about the goings on there. It helps that I have friends and relatives who work there. SDExec.com reports,

Kimberly-Clark Corp. has signed a five-year contract with procurement services provider ICG Commerce, outsourcing to the firm certain sourcing and supply management activities.

And the particular corporate logic behind this move,

“By selecting ICG Commerce, Kimberly-Clark’s sourcing and supply management staff will focus their expertise on such critical business purchases as raw materials and packaging supplies, while leveraging ICG Commerce’s market knowledge, sourcing strategies and procurement experience to reduce costs and improve efficiency.”

3. Click Commerce Offers New Warehouse Management Solution
A new offering from SCM software provider ClickCommerce is highlighted in this report from SDExec.com.

On-demand supply chain management solutions Click Commerce Inc. introduced WMX, a new warehouse management solution

Further more,

Click Commerce said WMX addresses the challenges of today’s complex supply chain environments: visibility and control within and beyond the four walls of a warehouse. Based on service-oriented architecture (SOA), a modular design principle, the WMX enables companies to integrate with third-party systems, reducing implementation time and costs.
In addition, the new product incorporates configurable, rules-based business processes, which gives companies the flexibility to adapt their warehouses to changing conditions. For example, the solution enables companies to start operations at new warehouses quickly and cost-effectively automate processes to meet their customers’ needs. In addition, Click Commerce WMX supports technologies such as voice-enabled warehouse activities and radio frequency identification (RFID).
Click Commerce WMX also supports return and repair business processes. These post-sale operations are becoming an additional revenue source for companies and another way to differentiate themselves from their competitors. Click Commerce WMX is designed to manage the dynamic processing requirements of reverse logistics and help deliver improved customer service.

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Differences between ERP and PLM – A White Paper

I was forwarded this whitepaper written by Chuck Cilamore, CTO of Omnify Software. The topic of the whitepaper is to delineate the roles of ERP (Enterprise Resource Planning) and PLM (Product Lifecycle Management) in creating a successful collaborative environment. Omnify Software is a providers of PLM software for OEMs (Original Equipment Manufacturers) and EMS (Electronic Manufacturing Service) providers.
Chuck highlights the following as the essential difference between an ERP and PLM offering:

The manufacturer had an ERP system in place to manage all of the operations-centric business activities such as financials, purchasing, planning and work orders. But the ERP system did not address their engineering design requirements.

Furthermore, the real objective of the PLM is,

A PLM system is designed to manage the full gamut of engineering information in a single location through the many stages of a design. The enterprise server manufacturer used the PLM system to manage the lifecycle and all revisions of their Bill of Materials (a listing of components used in a product), provide revision control of engineering documents (such as assembly drawings, schematics and datasheets), electronically route approvals for New Part Requests (NPRs), manage and automate Engineering Change Orders (ECOs), and control Approved Manufacturer’s List (AML) changes. More importantly, the PLM system helped bridge the gap between engineering and manufacturing. By providing direct data sharing with the ERP system, any changes made in the PLM system were automatically uploaded to ERP so that engineering and manufacturing were always in synch.

The essential distinction being drawn between ERP and PLM by Chuck is a void that exists on the ERP side i.e. an ERP system doesn’t delve into the details and complexities of product development and lifecycle management. However, that void is something that ERP systems will expand into by acquiring some of the PLM players and integrating their products into the ERP suite of offerings. I saw the same thing happening with ERP players gobbling up TMS providers to precisely fill this gap that was perceived in their offerings.

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My best wishes…

Wishing you all a Merry Christmas, a great New Year ahead and the best opportunities to come.

P.S: I’m taking a much needed break and will return to blogging a little into the New Year 07.

Building a lean supply chain

In the article Building a lean supply chain, Adam J Fein takes up the notion of building a lean supply chain and how far down along that path supply chain investments and executives really are. The article is dated Feb 2006 and so is not that far from the current state of affairs.
Adam Fein notes,

There is a widely held, but inaccurate, perception that new technologies have led directly to declines in the inventory-to-sales ratio, an important indicator of “buffer inventory” in the supply chain. In theory, information technology-based supply chain practices such as just-in-time (JIT) inventory management, warehouse automation, and the introduction of bar codes should have allowed companies to improve their management of orders and stockpiles of materials.

And further,

However, the empirical evidence for leaner supply chains is surprisingly weak. Economic research studies continue to find that aggregate manufacturing, wholesale, and retail inventory-to-sales ratios remain within historical ranges. For example, the inventory-to-sales ratio for wholesale distribution was essentially unchanged in the 1990s and has only begun trending down slightly in the past four years.

Adam Fein also refers us to the research paper on which this article is based on. From the article, Adam Fein notes the testimony of an official from the Federal Reserve Bank concerning inventory growth:

In testimony to the United States Senate, Federal Reserve Bank of New York Senior Vice President Charles Steindel stated that “…the inventory-sales ratio in manufacturing has declined almost continuously since the early 1990s, which we think is consistent with improved inventory management techniques.” (Steindel 1999). Vice Chairman of the Federal Reserve Board Ferguson offered additional support by noting that “… investments in information technologies have helped firms to cut back on the volume of inventories that they hold as a precaution against glitches in their supply chain or as a hedge against unexpected increases in aggregate demand” (Ferguson 2001).

Further more, he notes in his research paper,

Finally, at least some private companies invest in supply chain technology based on this belief. A 2003 survey found that 56 percent of supply chain management software buyers name “reducing inventory” as the most important factor fueling their investment in supply chain technology.

However, Adam Fein notes that inventory-sales ratios have not been declining,

Filardo (1995) argues the aggregate manufacturing, wholesale trade, and retail trade inventory-sales ratio have all remained within their historical ranges. Stock and Watson (2002) show that the relative volatility of inventories and sales has not changed as much as previously estimated by using more sensitive statistical tests. Khan (2003) questions the impact of technological innovation on the aggregate inventory-sales ratio by noting that the nominal inventory-sales ratio rose before it fell. Ginter and La Londe (2001), in one of the few studies to use financial statements from public companies instead of government data, conclude that some industries have seen substantial declines, while others have shown no improvement or shown an increase in inventory levels.

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Toyota, Toyota… Part 2

In Toyota, Toyota… Part 1, I looked into a recent challenge outlined by Toyota’s CEO, Katsuaki Watanabe, to his firm about competition in the auto business.
In this post, I want to look at older article from HBS Working Knowledge titled How Toyota Turns Workers Into Problem Solvers. The article is an interview by with Steven Spear from HBS. The other author in the background that is referred to is Professor H. Kent Bowen who teaches at HBS.
The rationale for studying Toyota’s Production System (TPS) long after a deluge of similar such efforts by various researchers and journalists in various quarters is articulated by Steven Spear as follows:

However, despite Toyota’s openness and the genuinely honest efforts by other companies over many years to emulate Toyota, no one had yet matched Toyota in terms of having simultaneously high-quality, low-cost, short lead-time, flexible production over time and broadly based across the system.
It was from observations such as these that Kent and I started to form the impression that despite all the attention that had already been paid to Toyota, something critical was being missed. Therefore, we approached people at Toyota to ask what they did that others might have missed.

And furthermore,

To paraphrase one of our contacts, he said, “It’s not that we don’t want to tell you what TPS is, it’s that we can’t. We don’t have adequate words for it. But, we can show you what TPS is.”
Over about a four-year period, they showed us how work was actually done in practice in dozens of plants. Kent and I went to Toyota plants and those of suppliers here in the U.S. and in Japan and directly watched literally hundreds of people in a wide variety of roles, functional specialties, and hierarchical levels. I personally was in the field for at least 180 working days during that time and even spent one week at a non-Toyota plant doing assembly work and spent another five months as part of a Toyota team that was trying to teach TPS at a first-tier supplier in Kentucky.

Empiricism is defined as a reliance on observations of phenomenon as perceived in experience of the observer. But for empiricism to be a profitable (and this word is used loosely), you need observers who bounce of ideas against each other, fine tuning their perceptiveness as they advance along the road of interpreting their experiences and observations of phenomenon. It is this collective work built on their shared individual observations, responses and ensuing discussion that in the most general sense creates a framework, specialized langugage and the basis of integrating future observations. In short, this is a body of knowledge that is not only true in the light of observations but also serves as a basis for the future.
What I think that the employees at Toyota were doing in their response is illustrating this problem of articulating this collective body of knowledge (of which culture is but a representation) pithily or in some easily transferrable form – or in other words, it is not in the saying, it is in the doing, the shared doing, structuring and integrating the learned lessons back into the doing on a continual basis. In this framework, there is an insistence on work, understanding it, refining it but in the back on one’s mind is a reflective process of adjusting work to reality.

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About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

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