Feedback of the Week -
I see the natural competition among different business units/facilities having “overlapping” product lines as a serious obstacle to Yokoten. In fact, the distinction between "natural competition" and "Yokoten" suggests a kind of tradeoff analysis for corporate management.On the one hand, corporate may prefer to allow (encourage?) natural competition, as this creates performance incentives for local management, but on the other hand local management is less likely to share information if doing so means losing position vis-à-vis their "competitors". I've seen this in more than one company, and it is even worse when the "competing" facilities are in different countries, where cross-cultural differences exacerbate the sense of competition.
One may prefer not to see this as a tradeoff, instead preferring to eliminate the "natural competition" altogether, in favor of "Yokoten". In this case it becomes necessary somehow to guarantee a safe arena in which falling behind an internal competitor results not in losing face but in a sense of collective failure for all differential outcomes.But, in turn, this suggests that corporate management has a responsibility to share information with local management, so that differential outcomes that are the result of (say) market forces (such as new actual competitors) rather than local performance are made available to shield failing managers from undue loss of face when the fault was not theirs.
Put another way, I do not see Yokoten as being effective unless it is integrated vertically as well as horizontally within an organization (especially within a supply chain). Standards of openness and sharing can be defeated when even one "cheater" still exists. Truly, the idea of Yokoten requires a thorough change in corporate culture (if not human nature).
On Barriers to Inventory Optimization:
I would agree that in many companies, inventory levels are a consequence of other decisions made elsewhere in the organization, often without much information about what the downstream impact on things like inventory might be. For instance, a decision to run more of one product versus due to an unplanned outage at a plant, or a decision to promise a customer a shorter order lead time ‘cutoff’, or even a decision to serve a customer from a different warehouse. The impact on inventory can be a difficult question to answer, however, as the tradeoff between service level and inventory is non-linear, and is highly dependent on parameters that may be uncertain (e.g., variability in plant yields, transport times and demand levels).
The unfortunate result is that many people in many different functions end up directly or indirectly using inventory to ‘hedge’ their own areas of accountability (e.g., the plant manager that keeps a bit extra of a critical raw material so they are never caught short, no matter what the supplier’s policy says, the sales manager that pads the forecast to ensure he is not left without a sale due to lack of product availability, etc).
The big leap that most organizations need to take is to separate the decision on _policies_ from those of _execution_. Policies are what service levels are what the company chooses to promise – both to its end customers, and internally from procurement to production and from production to product/sales. These are inherently strategic and cross-functional, and need to be taken in the context of substantial tradeoffs between costs and revenues, taking explicit account for the variability inherent in the future environment. Once policies have been set (and a process agreed to adjust them on a periodic basis) then the accountability for execution can be pushed down to the functional ‘experts’ – e.g., it is up to production to figure out whether to buffer with capacity or inventory in order to meet an output product policy based on an input service policy, it is up to product/sales to recoup the projected revenue associated with an improved service policy, and it is up to procurement to find suppliers that can meet both component cost and delivery service levels. Inventory becomes an explicit planned cost, a central part of the policy-setting decision process.
Too often, companies blur the questions of policy and execution, trying to make decisions at the level of ‘how to prioritize orders’, ‘who is responsible for the forecast’ or ‘how do we somehow reconcile what we can produce with what we think we can sell this month’. At this level of horse-trading, all of the organizational incentives lead each functional area to ‘hoard’ in order to get the better of the negotiation each month in terms of their own objectives. It is not until organizations make holistic, fact-based policy setting the foundation of the way they hold each of the many functions accountable that they will be able to make rational decisions on the inherently cross-functional decision of how much inventory to hold where.
Bradley J. Corrodi
On Fuel Prices – Panic or Act:
We've had 30 years of leadership vacuum concerning a viable energy policy. The lack of a coherent energy policy and a realistic path to "energy independence" for the US is the root cause of most all of our economic and international problems today and for the years to come.
We should have "energy bonds" just like we had war bonds in WWII as a means to support R&D into this critical sector.
Our biggest problem is our biggest opportunity. Once we figure out what to do it is likely manufacturing processes will have to kick in to gear to assist with the conversion. A great way for some of our excess capacity to be put to use..that is until we outsource everything...But it will buy us some time while we re-orient our workforce.
I just read your article on oil and it's affect on supply chain, particularly transportation. The other part of the supply chain and procurement dilemma with respect to oil is for those manufactured products that contain oil or resin...those prices are skyrocketing as well.
SVP, Business Development
With regard to your recent article on the price of oil…..
For our customers that deliver in “milk-runs” using their own fleet, I am seeing heightened interest in smaller, local distribution facilities stocking high movers with slow movers being trucked (trunked?) in daily and cross-docked out with the orders. This decentralized (hub-and-spoke) design has been in vogue at times in the past, but seems to make more sense than shipping out of a centralized facility in longer routes. Of course, it means building and equipping more distribution facilities and having the ability to fulfill one order from multiple centers.
Bruce E. Welty
Scenic Technology Corporation
Supply Chain and Digitization:
Great Article, of which I agree with many points. My comments are along the line that my customers are less concerned about the when and if concerns but more along the lines of how do we proceed and where is the thought leadership, the experience, the best practice and the references. Nobody wants to "bleed".
Lastly I would comment that all this has a huge impact on copyrights and in the future, patents. We have already seen this in the music and entertainment industries with the fight to control distribution and secure revenue leakage. But with patents now we can determine the usage of the delivery mechanism and see who is infringing on them.
Michael W. Meissner
Programme Director/Solutions Architect