@ Supply Chain Management


REA, a semantic model for Internet supply chain collaboration

REA (Resource-Event-Agent) is a semantic model for internet based Supply Chain collaboration developed by Dr. William McCarthy of Michigan State University. In this presentation for the ACM Conference on Object-Oriented Programming, Systems, Languages, and Applications (OOPSLA 2000), Dr. McCarthy and Robert Haugen, Logistical Software LLC outline a web-based semantic model for collaboration.
Before I dived into this thing – I asked myself what do these good people mean by using the word semantic in a semantic model for internet based supply chain collaboration? You can look up the definition here

se.man.tic: Spelled Pronunciation[si-man-tik]
– adjective
of, pertaining to, or arising from the different meanings of words or other symbols
Eg: semantic change; semantic confusion.

So in other words, a semantic model is really a language meaning based model. So, what do the authors mean by using the term sematic model?

By “semantic model” we mean a computer software model of real-world supply chain activities. Another term for semantic model from the field of knowledge representation is “ontology”: the set of classes, relationships, and functions in a universe of discourse.

The authors also try to differentiate it from XML in the following way:

We use the term “semantic model” to differentiate from something like XML, the eXtensible Markup Language, which is often touted as the language of the semantic Web. XML is just a format; it has no content. A semantic model describes the content of the semantic Web: that is, what classes of objects, relationships, and functions are involved in supply chain collaboration. The REA semantic model can be expressed in many formats: XML, UML (the Universal Modeling Language), a relational database, and/or an object-oriented programming language. Using XML as the lingua franca, any REA-based system should be able to interoperate with any other REA-based system, because they understand business objects and events in the same way.

The authors also supply an outline of the aims of using the REA semantic model:

  1. supply chain collaboration requires a standard semantic model that all trading partners can use;
  2. to achieve Tim Berners-Lee’s vision (in other words, so that anybody can do business with anybody anywhere), the model must be a generally-recognized, non-proprietary Internet standard;
  3. the model must be broad (covering the whole supply chain) and deep (covering all relevant business activities);
  4. REA is the broadest and deepest currently available semantic model for supply chain collaboration;
  5. and REA is non-proprietary, in the public domain, open for developing into an Internet standard.

So what should the REA semantic model achieve in practical operational terms?

As a semantic Web, REA can link economic events together across different companies, industries, and nations. The links are activity-to-activity or agent-to-agent or person-to-person, not just company-to-company. This means each individual in a REA supply chain can be linked directly to each other individual.

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Oh, the emails you’ll get…

This is one blog post that you’ve got to read… by Joel Spolsky.
Joel writes about an email he recently received,

A management consultant at Bain wrote me a nice email, that included the following sentence:

“Our team is conducting a benchmarking effort to gather an outside-in view on development performance metrics and best practice approaches to issues of process and organization from companies involved in a variety of software development (and systems integration).”

And notes Joel wryly,

I didn’t understand a thing he wrote. The email contained a lot of words (“benchmarking,” “outside in,” “performance metrics,” “best practice,” “process and organization”) each of which set off a loud buzzing alarm-like sound in my head. The noise from the buzzing was so loud and so distracting that I found myself completely unable to parse the email.

And all I can say is : Bwahahahhahah!!
Don’t forget to read the productivity shell game whether it is true or not.

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Using Prediction Markets for Collaboration

Prediction Markets Blog talks about Using Prediction Markets for Collaboration the use of collaborative tools and lists a few applications of such technology.
The post lists three particular directions for collaborative products namely:
New Lines of Communication

Prediction markets have the ability to open up new lines of communication within the organization. In a lot of companies, especially large ones, the executives don’t get to hear what the “normal” employees on the ground are thinking because the two groups are insulated by multiple layers of management hierarchy.

This is precisely what is called “Going to the Gemba” in Lean thinking and that’s really what this sort of collaboration technology opens up. However, there is more than merely creating a common place/market where people can interact but actually going down to the floor and physically interacting with people is the way to go. Perhaps, collaboration takes us part of the way there but I don’t think that it can or should be a substitute for taking the time and effort of going to the gemba.
Collaborative Brainstorming

GE and many other firms utilize markets because they are trying to figure out how to devote their time and resources to the best ideas. By allowing individual traders to create new “stocks” in the market, many more ideas are brought to the table than if the process were to remain centralized.

I think this is a great idea and a space that could use more advertising as well.
Collaboration within the Supply Chain

One of the most compelling aspects of prediction markets is that they don’t have to be limited to just the employees. Since the market itself is web-based, you can cast a wide net of participation that includes vendors, retailers, and others along the supply chain. If you are a manufacturer of DVD players and are interested in forecasting what the consumer demand is going to be in two years, wouldn’t it be wise to allow your wholesale partners to weigh-in with their unique perspective on the situation? What more effective way to coordinate actions like this than with a prediction market?

There has been talk for ages about Supply Chain collaboration but the talk has not been followed by the walk, at least not as much as it should be. But things are changing now, slowly but changing. The arrival of new technology such as the one highlighted above might give it a boost and for good reasons. RFID is also entering this fray in a big way and will provide the data component of what is collaborated upon.

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SCM Newz roundup

EPCglobal initiates RFID container tracking pilot between Hong Kong and Japan reports eLogistics Trendwatch.

GS1 EPCglobal has announced that the Transportation & Logistics (TLS) Industry Action Group has initiated an RFID pilot program to enable visibility of containers transported by sea between Hong Kong and Japan.
The Japanese Ministry of Economics, Trade & Industry (METI) is an active participant in the TLS Action Group, and is providing extensive support for the pilot project. The first phase of the pilot, which is scheduled to be completed in February 2007, will assess the use of both passive and active UHF EPC/RFID tags for cartons and containers shipped by sea between Hong Kong and Japan. Associated data will also be exchanged through EPC Information Services (EPCIS).

And further more a second phase,

A second phase, scheduled for completion in September 2007, will be handled between Shanghai and Los Angeles.

DC Velocity reports on a “new” service from non-asset-based third-party logistics service provider – 4 Way Logistics. The service is new in the sense that these search option are now online rather than on the phone or through a routine (paid) RFP process that one ususally conducts for such services.

A new freight portal takes the tedium out of comparing rates, transit times and service area options for LTL transportation. The 4 Way Logistics Online LTL Marketplace allows clients to find an LTL solution in minutes with just a few clicks of a mouse. 4 Way Logistics is a non-asset-based third-party logistics service provider offering multimodal transportation services across the country and around the world. The company’s new online service takes the time and guesswork out of the LTL search process.

DC Velocity reports on a a new fuel optimization service that integrates with its IntelliRoute mileage and routing system from Rand McNally.

The IntelliRoute Fuel module allows motor carriers and shippers to estimate and plan truck routes based on current fuel prices and locations. The downloadable module provides fuel location pricing information, optimal fuel trip planning, and fuel query services that help fleet owners minimize fuel costs. IntelliRoute Fuel is powered in part by technology from FuelAdvice.com, an online resource for truckload carriers.

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Learning to manage complexity

In an article titled Learning to manage complexity, Jonathan Byrnes writes about how growing companies succumb to complexity – their own complexity brought about by growth.

“Success often hurts, and even mortally wounds, well-run small businesses.”

In the article, Jonathan recounts a particularly compelling observation by Daryl Wyckoff,

Wyckoff described a rather strange profitability pattern of trucking companies. Both small and large companies were very profitable, but the medium-sized companies were quite unprofitable.

That problem,

Wyckoff found that small trucking companies that were run by strong entrepreneurs, often hands-on managers, did well and grew. They continued to grow and prosper as long as the entrepreneur could see what was happening in the whole company and directly control all the activities. The problem was that as these small successful trucking companies grew, they typically established a network of terminal facilities. At some point, the complexity of this network prevented the entrepreneur from being able to know and personally manage the whole system.

And further more,

Some entrepreneurs figured out that they would have to manage their companies in a different way. They hired strong terminal managers, delegated authority, and managed through planning-and-control systems. These entrepreneurs were able to continue growing their companies and wound up having very profitable large companies. Other entrepreneurs, however, couldn’t let go. They tried to continue managing their growing companies as they always had. Costs went out of control, and profitability plunged. They had to retrench, and once again they found themselves managing small trucking companies.
Because they were strong entrepreneurs and the companies were small again, they were able to regain control of their companies. They once again made their companies prosper and grow, up to the point where they lost control, lost profitability, and had to retrench yet again. And so the cycle continued, causing the “Bermuda Triangle” Wyckoff described.
In later work, Wyckoff and others found the same pattern in the restaurant industry, the hotel industry, and other similar businesses.

This is something that I read about frequently happening in Silicon valley startups as well. Except that in this case because of the influence of VCs (Venture Capitalists) who are quite aware of this managerial competence gap that entrepreneurs and founders often have, they exert considerable influence and power in bringing in managers and technicians who are well qualified to take the firm into the second stage of growth.

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Understanding supply chain risk: A McKinsey Global Survey

Understanding supply chain risk: A McKinsey Global Survey (Free registration required) is a new article put out by McKinsey & Co in the McKinsey Quarterly online magazine. They surveyed executives at publicly and privately held businesses across a range of industries in September 2006.
The key findings:

Nearly two out of three executives say they face increasing risks to their ability to supply their customers with goods and services cost effectively

The executives identify a wide variety of risks; topping the list is the availability of well-trained labor.

The executives most likely to say that their company’s level of risk has risen are those in retailing, manufacturing, and energy; those in the energy industry are by far the most likely to say their risk has increased significantly.

The executives rank labor, regulation, and suppliers as the top three supply chain risks on which they focused during their most recent round of planning.

Executives at the smallest companies (those with annual revenues under $500 million and with fewer global resources) are also particularly likely to say that labor is a problem.

The degree of disconnection between risk and its mitigation may be one reason that executives rate “fairly poor” their company’s ability to mitigate their key supply chain risks, 39 percent say they are at best slightly capable of doing so. Furthermore, 41 percent of executives say that their company does not devote enough time or resources to mitigating risk-nearly five times the number who say that too much time and too many resources are allocated.

More than half of all respondents say their company either undertakes no formal risk assessment or conducts only a qualitative assessment.

Only 18 percent of respondents believe that the Sarbanes-Oxley reporting requirements3 help them reduce their supply chain risks.

I’ll just plug my fellow blogger riskape on this topic – Riskape. I’m sure that managing supply chain risk in a systematic manner is high up there in the area of real needs for supply chain professionals and I’m sure that I’ll be devoting more time to that as well.

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Fiscal Visibility In Supply Chain = Money Saved

Fiscal Visibility In Supply Chain = Money Saved is the title of a new opinion piece by author Michael Stolarczyk who also blogs at BlogonLog.
Michael notes,

A typical apparel company, for example, might source fabric from China, manufacture garments in Malaysia, send them to Italy for custom design work, then ship final products to a 3PL warehouse in the United States for delivery to major department stores around the country.

The above is an example of how dramatically the options for manufacturing, coupled with logistics options and supply chain technology, for any firm anywhere has shifted in less than two decades. However, this shift has also laid the axe to traditional notions of ownership and control driving up risks across the supply chain and thus inventories (in part to cover the lead times and in part to act as a buffer to rising risk) as well. You might have been used to bull whip effects in a supply chain on a domestic scale. What about bull whip effects on an international scale and what effects will such phenonmenon have on local economies that form part of such global supply chains?
Also remember that a customer’s notion of product availability has not been downgraded as a result of the increased lead times and coordination that firms have taken upon themselves. Instead, if anything, a customer’s notion of product availability and customer service has migrated northwards fueled by better communication and awareness i.e. trends are communicated in real-time these days.
So how have companies executed upon their strategic decision to outsource or offshore or some combination of the two?

“Poorly,” notes Michael,

The need for advanced solutions may seem obvious, but a surprising number of companies still have a long way to go when it comes to global supply chain technology sophistication.


On average, large companies report their global supply chains are only 50 percent as automated as their domestic supply chains.


The interesting news continues — only six percent qualify their global supply chains as highly automated, and a full 90 percent of all enterprises report their global supply chain technology is inadequate to provide timely information required for budget and cash-flow planning!

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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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August 2020