@ Supply Chain Management

SC Digest released its Logistics Cost Survey for 2006 in March of the year. I’m catching up on it here.

Bill Waddell at Lean Affiliates writes about Principles for Real Manufacturing Transformation:

Sixteen years ago, Peter Drucker’s article, “The Emerging Theory of Manufacturing”, appeared in the Harvard Business Review. That is probably about the right incubation period for the rest of us to catch up to his thinking. Drucker points to four principles that defines what’s needed for real transformation, and establishes the critical role of the chief executive. These principles are:

1. Integrate the factory into the total value stream
2. Instill a statistical quality focus across the entire company
3. Implement a completely new accounting model
4. Treat the entire business as a system

Remember that Drucker is writing this at about the time that Six Sigma had just appeared on the scene but his recommendation seems to be spot on. Bill goes on to elucidate the differences between looking lean and being lean and how the above principles, proposed by Drucker in his “The Emerging Theory of Manufacturing” are essential to a lean transformation.
1. Integrate the factor into the total value stream: A quote from Taiichi Ohno of Toyota captures the central thought here –

All we are doing is looking at the time line, from the moment the customer gives us an order to the point where we collect the cash. And we are reducing the time line by reducing the non-value adding wastes.

. Bill calls this idea – “from call to cash”, meaning that every activity that occurs in the intervening period and process space is evaluated on the basis of its integrity with respect to the value to customer that each activity confers. Such totality begs for C-level executive involvement, not in sense of micro management but in the authority conferred to such a process overhaul.
2. Instill a statistical quality focus across the entire company: Ever since the surpassing of Newtonian physics, scientists have been engaged in the description of the natural world through statistical techniques. However, the education system relies primarily on the promulgation of facts implying the completeness of the description which actually only statistically implied. Its nice to see that businesses that imbibe this statistical approach to their activities are achieving coherence with the kind of descriptive and prescriptive pattern inference also called science. Though, I think that the day is so far off into the future when accountants shall describe a firms financial activities in statistical terms – what a sea change that would be? The other key takeaway is the relentless focus on quality that such statistical processes describe.
3. Implement a completely new accounting model: Accounting is quite integral to how management decisions are made and how they’re represented to the world at large. However, if even half as much continual transformation and improvement were carried out in the accounting departments as are carried out in the manufacturing department, the manufacturing department might be four times better than it is today. Yes, the ratios of supposed benefit are imaginary. However, that management often makes decisions based on accounting gimmickry is and should be the object of scorn because accounting doesn’t report information in a way that lends itself to decision making. While accounting should be about informing business decisions, I suspect accounting is really about accounting. And that’s Drucker’s view as well though I suppose I am twice as cynical as he is prescient.
4. Treat the Entire Business as a System:The central point here is that the manufacturer within his ecosystem provides a solution over and above providing a product/widget/service. Therefore, a manufacturer is as much part of the solution as he is part of the problem that crops up because of a particular deficiency in the solution that he provides. The expectation of a customer is not how finely finished a product might be (if that were the sole contribution of the manufacturer) but that it meets or exceeds his expectations of product peformance and value.

In the end, abstractions such as performance and value are what the manufacturer or business is aiming at fulfilling. The problem with abstraction is that people abstract without particular attention to reason or logic. One part of the business should be about addressing those abstractions in a value laden way but another part of the business should be about clarifying the abstractions, informing and educating the customer as well.

Supply Chain Execution Applications Lead SCM Market Growth, says Arc Advisory Group.
What are the key takeaways?

1. Supply Chain Execution (SCE) solutions that include Collaborative Production Management, Warehouse and Transportation Management is a key growth area.
2. Supply Chain Synchronization – The role of a manufacturing plant is becoming the focal point in a supply chain network and is often the determining factor of its overall performance. While costs remain an important issue of performance in the customer-centric and demand-driven environments, other factors such as time-to-volume, determining the correct product mix, and having the flexibility, adaptability, and responsiveness to exploit market opportunities are increasingly becoming important to success. Supply chain synchronization depends on supply chain solutions that provide accurate real-time information from operations to enable improved decision-making at all levels of the company and for trading partners in the supply chain.

The cool dudes and dudettes!
Supply & Demand Chain Executive honors today’s supply chain leaders in many categories.

If I were to saunter down to a manufacturing/operations floor and impress upon the line managers that what they should really be doing in their operations is creating competitive advantage, chances are I’d be shown the door toute suite. Perhaps, I should be. A wise consultant does not get his head chopped off by spouting well worn academic/business terminology even if it is essential to business survival.
T’is something that I have learnt from working with managers – a commandment to savor – Thou shall not confuse the managers you seek to change.
What is the Competitive Advantage Model of Michael Porter?

Competitive strategy is about taking offensive or defensive action to create a defendable position in an industry in order to cope successfully with competitive forces and generate a superior return on investment (ROI).

And more or less:

The basis of above-average performance within an industry is sustainable competitive advantage of which there are two essential types:
1. Cost leadership (low cost)
2. Differentiation
No matter the scope of the above two types, the resultant competitive strategy is:
3. Focus

If one were to adpat such a model into one’s framework of developing a supply chain, it is quite obvious that both cost leadership and differentiation can be adapted.
Here’s a view of how a firm can create sustainable competitive advantage by Innovation labs.

The only way a competitive advantage of any kind can be made to sustain is through innovation.
This might logically lead you to ask how we define innovation. In our view, innovation is improvement in the value that a company offers to its customers, or reduction in the cost of delivering value to customers.

They go on to differentiate continuous innovation which is characterized as small and incremental and discontinuous innovation which is characterized by breakthroughs and disruptions. But is there any reason to think that even innovation can be sustainable ad infinitum – I think not. How about the process of continuous and discontinuous innovation? Perhaps, they can be sustained a little longer than the actual service/product created.
Going back to the outline from Porter’s model:
More than cost leadership, which may be a function of continuous improvement and strategic decision making to outsource or offshore low-value added activities, differentiation – real differentiation, seems to be the more significant lever of creating true sustained competitive advantage. How? – I’ll try to elucidate that in the next few posts.

The article deals with a new book put out by two partners at PRTM – Shoshanah Cohen and Joseph Roussel called Supply Chain Management: The 5 Disciplines for Top Performance.

Too many senior officers don’t view their supply chain as a strategic business asset,” commented Cohen, co-author and partner at PRTM. “But when aligned with the overall business strategy, supply chain management provides major opportunities to impact both the top- and bottom-lines.”

The above is probably because there is a disconnect between business strategy (which thanks to Porter’s work) and supply chain strategy which has always been seen as an operational thingy that happens regardless. The companies that have successfully competed using their supply chains (eg: Dell, Walmart) as a competitive advantage view things slightly differently.
According to the authors,

The five core disciplines for top supply chain performance are:
1. View your supply chain as a strategic asset
2. Develop an end-to-end process architecture
3. Design your organization for performance
4. Build the right collaborative model
5. Use metrics to drive business success

Again, here the operational thingy of a supply chain seems to figure prominently and perhaps for the right reason – because a top performing supply chain is primarily about execution and getting things done. However, what about the very structure of the supply chain, which components should be finely tuned and focussed on relentlessly etc etc? You can only get things done within the framework that is imposed on from above by a company culture, philosopy or business strategy. As more and more companies turn onto the quest of using their supply chains as a strategic asset, I’d hope to see the supply chain strategy rise up to the level of being a business strategy.
And that should be a whole lot of fun!

Is RFID reshaping Supply Chain Management?
If you go by the talk of the town or are collared by the US Department of Defense or Walmart, then chances are that RFID is one of those uber initiatives that are top priority. From my viewpoint, which is from that of a large warehouser (GENCO is a large warehousing company principally) and that of a 3PL provider, RFID is at the pilot stage but nothing more than that.
What RFID does of course, in theory, is create a feedback situation i.e. if you’re aware or even comfortable using an analogy from Control Theory. In the past, the only recourse that managers typically had to determine whether something was stocked in the warehouse was to trust that the ERP/WMS system said that it was so. Frequently, such trust could often turn out to be misplaced, the magnitude of the error quite likely to be directly proportional to the state of completion/success/health of the ERP/WMS processes.
So along comes RFID (there are two main kinds: Passive and Active RFID) to close the loop in a sense that a WMS/ERP system could ascertain the actual state of affairs (I guess damaged tags being an issue not addressed yet).
Passive RFID refers to the technology that uses tags that need to be powered by the reader and then transmit information to the reader. They’re cheaper and will probably be the backbone of the first wave of adopters.
Active RFID refers to tags that contain power elements such as batteries and transmit information to the reader by themselves and also can be linked to other sensors (such as temperature/pressure sensors).
No new technology comes into being without a wrangle over standards. However, RFID seems to have escaped the brunt of such a battle. The EPCGlobal standard for RFID is the standard for embedding information in RFID.
What is of great interest to me is the increase in SKU level informaiton that is going to at once flood all levels of the supply chain. In order to manage a supply chain information, one thinks that one would require accurate and detailed information. That will quite likely happen with the widespread adoption of RFID. However, what are also equally necessary are data collection, manipulation and reporting tools (such as those from Business Objects or the like) that create a better reporting structure.