On Sales and Operations Planning:
I turned to the internet to find a way to explain again for the 100x to folks in my company that what we are doing to improve forecasting is at the wrong point. I read the article in SCDigest and it helped at least demonstrate I am not insane. We suffer at many levels, for example:
- incentives for marketing and sales is to over deliver, beat contract, etc.
- no one in Marketing or Sales has working capital, forecast error, etc. as an objective
- SC is trying to own and run our S&OP process
- the business president and on down within marketing complain about how long it takes....they would rather focus on marketing is a good quote
- we are now searching for new tools, APO, etc. thinking that this will drive the change
- we are hiring consultants to help us analyze historical data to show marketing what we could have done
- the sales over achievers award KPIs is ONLY based on beating the sales $$ values -- nothing about accuracy, customer service, etc.
- capital and working capital are now being randomly cut to address longer term projected gaps.....where in the past these were crutches for the SC to compensate for
- a poor S&OP process....now the crutches are gone, and I started an over/under pool to see when we collapse
- a big driver is also there are distinct annual contracts functional and in short the business and SC maintain 2 separate P&Ls
For so many people it is now a learned behavior and most do not see the issue, since we complain a lot but in the end work 17 hours again fire fighting to fix things that in my last company never happened. Perhaps the only way to change the behavior is to get everyone to switch jobs for 1 month and see what it is like to have someone piss down your neck constantly...using bad assumptions driven by misaligned incentive programs.
For all of the MBAs in the building, one would think we could screw the S&OP bulb into the right socket....or any socket for that matter. It just is not that hard....but then again if we audited how many of these same people had balanced check books at home, the issue would become clear.
Are there any GOOD companies out there would are looking for an absolute passionate, Innovative, results orientated, driven individual that just wants to get it done and move on.
HELP!!!
Duane Raible
On SCDigest's Inventory Report:
We have not done a good job at reducing inventory. I would suggest that much of the reduction has been a combination of finally writing off dogs that have set for years in warehouses and some blind luck on consumer demand.
In the 15 years you cite, we have expanded our global sourcing with extended, lengthy supply chains. We put much emphasis on managing transport and less on managing supplier performance. So how do we go from suppliers in Chicago to suppliers in Shanghai and reduce inventory. I would also question whetheraccounting games are being played. When title pass is the common game of deferring responsibility for inventory and treating it as off-the-books. Given Sarbanes-Oxley, I wonder how much of that game is valid still.
As for the Lean impact, lean has struggled to succeed, especially with inventory. Again lean, like SCM, runs contrary to what accounting does. Lean and SCM view inventory as "bad", reduce it, pull it through your system, compress time to reduce the need for inventory. Accounting sees inventory as an asset. Lean and SCM see it as a waste.
"Insanity it doing the same thing over and over and expecting different results." That quote from Franklin (or Einstein" reflect the state of supply chain management. SCM has not fulfilled its promise and potential. SCM--and Lean--need Purposeful Abandonment and getting rid of the legacy Supply Chains that companies have had for too many years.
I am not cynical. I just believe we have been approaching SCM incorrectly, restricted by organization functional silos,legacy supply chain management approaches and accounting systems that date back to the Model A. All this to manage processes that flow horizontally across and within organizations while managing product and information flows that span continents.
Okay, I will get off my soapbox.
Tom Craig
LTD Management
Logistics / Supply Chain Management Consulting
Thanks for pulling together timely information like the Inventory data in this article. Although absolutes like higher turns or lower DIOs are motherhood and apple pie to all of us supply chain geeks, has anyone written anything relative to what I now refer to as “Lean Gone Wild”?
This is the phenomenon where contract manufacturers are being driven to reduce inventories at the expense of creating material shortages that interrupt their own ability to ship revenue. This usually occurs as a result of a de-commit by a supplier. The result can be increased expenses involved in resolving these shortages like expedited freight and supply chain man hours wasted expediting suppliers, and overtime. Or in the worst case manifestation, missing revenue shipments and creating customer satisfaction issues.
This also sometimes leads to changes in the behavior of the OEMs in that they can try to compensate by driving material earlier than they really need it to protect against stock outs. This behavior completes the perfect circle of “Lean Gone Wild.”
John Vacca
Supply Chain Manager
Stratus Technologies
I work in the Supply Chain for medical devices. We have faced a considerable pressure on reducing inventory levels for our products driven primarily by the need to reduce expiry write-offs. However, it seems to me the industry seems to be trapped in a vicious cycle, forced to keep more inventory at accounts to reserve shelf space (an important driver to increase unit sales) from competition. This leads to a fight for shelf space at accounts at the cost of DIO and turns. It seems that Inventory Management in our industry should include a broad-based collaboration between collaborators, customers (and maybe even competitors) which will enhance the efficiency of the entire supply chain.
Debmalya Chatterjee
On EPC/RFID:
I believe you fail to appreciate the difference between the current Wal-Mart RFID program and EPC. The current program is a pallet level WMS label and not true item level EPC. It is item level EPC where true gains will be seen and this is a long way in the future for many of the same reasons noted in your article.
My point is that it is not until EPC is item level that significant gains should be expected. It's really a slightly optimized bar code at the pallet/case level. We are shipping RFID to Wal-Mart, made the capital expenditures in printers and readers and are struggling to find ways to generate a return from our internal processes. ROI is insignificant - it's a compliance issue.
Only when EPC is at the item level will significant gains be made. Imagine rolling your cart through a reader and having your transaction completed - the labor savings and service improvements would be very significant. Reduced stock outs from faster replenishment at the shelf level will increase sales. Perhaps overlooked, the shrinkage reductions alone could justify the investment. Rolling your cart through that reader would also register that CD inside your jacket. I have heard shrinkage estimates in the range of 5-10%. Factor that into Wal-Mart's numbers and the savings are quickly into the billions.
However much Wal-Mart is struggling at the moment, their initiative is the primary reason that RFID has progressed to the stage that it has - a stage we must get through to reach the ultimate goal.
Hope you understand our desire to remain anonymous.
Supply Chain Manager
Apparel Company
Name withheld by request
On Logistics Flow Modeling:
My experience is that few firms understand physical flows and an even lesser number conduct modeling.
If one maps out flows for a organization using a multi-tier DC network, the flows among DC’s are complex. Within a given large automated DC, there can be multiple flows: conveyable flow (e.g., receiving dock to outbound dock), conveyable short-term stock (e.g. 24 hours), conveyable stock, non-con flow, non-con stock and repack. The constraints are many, such as the sortation capacity (cartons/hour) and storage capacity (pallets/rack opening capacity). The overall mix of flow types plus service requirements and constraints determines the overall DC capacity utilization—answering a potential question of is there enough DC capacity as well as where it is placed (aka strategic network modeling).
In a similar manner, there are transportation constraints—which are complex, but easier to manage by contracting capacity as needed.
If one understands the physical requirements and constraints, knowing the associated variable costs is the logical next step. Using activity-based costing (ABC) remains a foundational element. One can then make informed tactical decisions, changing flows from one type to another to improve service, reduce inventory, lower variable costs or a combination of these three.
But before one can make these tactical flow decisions, there are external factors to consider. For example, what is the impact of package quantity or buying in full truckload for stock in terms of supplier costs or discounts?
I suggest that contribution to overhead and income with consideration for inventory carrying costs is the correct metric. The contribution metric is essentially using cash—what profit remains after relevant costs are considered.
To your question, adding "dialogs" and "capabilities" to traditional physical flow modeling is very useful for assessing alternative flows as well as managing the quantities moving in different flow paths. Many firms would gain significant income benefit from an improved understanding of current flows, constraints and costs—often without capital investment.
Again, I enjoy your insights.
John White
White Supply Chain and Operations
On Network Planning and Competitive Advantage:
We made the change to owning the network optimization process internally because we felt it needed to be a core competency of our supply chain team. Before that, we bought the capability through consulting partners that did high quality work but there was never any knowledge transfer. The beverage industry has been changing rapidly and I can’t imagine not having the technology and expertise in house. Two years ago, we mainly supported the annual budget process; today, we routinely have 3-5 optimization projects going at once and are doing multiple year models.
Acceptance internally did not come easy. A lack of understanding about how the models worked and what they were most useful for lead to some early dismissing of the results. Over time, we refined the models and educated other functions and acceptance has improved. Our modeling software isn’t integrated with our supply chain planning system and we’ll remedy that in the next year. Improving understanding and integrating with our planning system will get us to the next level of value.
Jeff Stites
Vice President, Supply Chain
Cott Beverages, Inc.
On WMS and RFID:
I think the periscope versus sonar analogy is a great one, however, in my years of studying RFID and trying to determine where it will fit into my company's supply chain processes, there are many barricades to realizing this sonar-level activity, and many of these barricades also exist in the world of sonar.
First and foremost, the sonar can only see the 'big picture' view. For instance, if you have a pallet of books (which happens to be primarily what I deal with working for a leading children's book publisher) submersed under water, and those books are stored 24 in a case, 48 cases per skid...the sonar will be able to tell you the dimensions of the skid load and possibly the density of the load, but certainly not exactly what boxes are on the load or more importantly, what is in each box. If and RFID interrogator could capture 100% read rates on each the cartons that are on a pallet, this would be a beautiful reality. Since RFID has been discussed at forums and shows earlier this decade, the technology experts were telling the public that carton level reads on a full pallet would be a "no-brainer". That excited me like no technology that I have seen in the past 15 years. As in IT Director, responsible for WMS and EDI systems, this concept shed a whole new (and very bright) light on upcoming changes and efficiencies.
I was enthused and ready to embrace this technology as it matured. Well, apparently it is still maturing, because vendors are telling me that I cannot and will not be able to expect 100% read rates at the carton level.
I still keep hoping that I will wake up and all of this talk about sub 100% read rates would just be a bad dream...
Now, some would argue that pallet level RFID tags would tell you what cartons are associated with which skid loads and then the carton information in your WMS system would tell you what is in each carton.
However, in the real world of WMS as it relates to lower prices items such as books, some of these assumptions are not true. For instance, we will process product and create kits and assortments for our customers, which results in a staggering 60% of shipments going out in boxes other than the cartons in which they were received. If we applied smart labels on carton level product at our manufacturing plants, this would be a large cost that would only primarily only help us in our storage systems.
Consider this, when fork truck drivers are moving boxes all day long, we can't afford to have them scan each carton to keep associations to some tagged 'pallet'. With that in mind, we really cannot afford to have carton to pallet level associations until at which point we have built skid loads for outbound shipping to our customers. Wouldn't it be a beautiful thing if we could then interrogate the entire skid load so that we could associate ALL of the cartons on the pallet with a pallet identifier, then we could simply scan skid level tags when staging shipments and loading
trucks? Yes, that would be beautiful, but step back to the fact that we
can't expect 100% read rates in such a configuration.
I've met with many other suppliers, and some of them are getting 100% read
rates by putting 4 or 5 antennas on a shrink wrap station. Great! Well, as it turns out, scanning toilet paper works much easier than scanning books, thick dense books, many with electronic components, chips, circuit boards and batteries. Yet, others have been preaching to me that not all read rates need to be at 100%. What? We have six DC's, 750,000 sq ft, store 24 million books and ship over 100 million books each year. We attain those numbers and still reach 99.997% inventory accuracy. If our 'skid level reads' yielded less than 100% we would be compromising the data integrity that we've work so hard to achieve.
So, for now, we will need to scan individual cartons as they are being loaded onto outbound shipping pallet loads, then we can roll that data up into an association with a pallet level tag. Well, we are now back to the periscope analogy, and our sonar investments have been for nothing. By the time we have tagged the pallet it had already made it through 90% of our WMS system, the opportunity for ROI has been reduced dramatically.
However, if we COULD scan a pallet and know exactly what cartons are on that pallet, we could use sonar type readers at various points throughout our distribution channel, such as when a skid load is pulled up to the production line for processing, or when a skid load is pulled off of the end of the production line for shipping or storage. We could use that same technology during inventory moves and it could be tied tightly into our Quality Control systems, shipping systems, staging and truck loading.
Until the point when RFID "Sonar" can tell me more than the shape of a skid load, the ROI is about as 'far away' as an "Oberon Class Harpoon"....
Kurt L Sholly
IT Director, EDI & WMS Systems
Publications International, LTD
On Coats North America - Supply Chain or Die:
I saw your article on the Coats NA Supply Chain project just now and wanted to respond. Having worked in Coats in the initial phase of my career this was of more than passing interest to me. While the content of the transformation described is not unique I think the challenges of supply chain transformation are different in each organization.
Of course financial crisis, change of ownership control, change of key executives are some common examples of triggers of a renewed focus on supply chain, I believe an integrated approach of Supply Chain and IT is a great way to develop the understanding of opportunities in organizations where technology and processes can be integrated to bring substantial value. Like the executive in the article, I manage both Supply Chain and IS and that has helped me introduce systems improvements integrated with operational goals that are visible and impactful on the bottom-line.
Resistance to change is usually a significant factor because of the encompassing nature of the changes in Supply Chain. But I believe transformation is as much about visioning and executing change as persuading and educating people on the financial and operational benefits of supply chain improvements. Communication is the key.
Lalit Panda
SVP SCM and IS
Harman Consumer Group
On China's “Dragons:"
China’s growth is staggering yes, particularly to those industries and employees who have been negatively impacted. But, not surprising.
China presents a conundrum to other geographies, particularly the US. In the beginning, the State Department and Chambers of Commerce presented China as a glorious opportunity for new business. Think of the millions of potential customers. They downplayed the competitive aspect, which now proves that China is the global manufacturing leader, and along with other Asian nations will soon also be, if not already, the global engineering center. Perhaps soon also the global innovation center.
Where does that leave the US? Will it simply be the global consumer nation? Or, will the US manufacturing engine continue to find ways to reduce costs and increase value to the customer, while at the same time China and other low cost countries see increases in wages, etc., which tend to balance the playing field?
I expect that we will see a balancing effect, perhaps not for another 10 years or so, but certainly at some point. Asia and China will grow in strength and will primarily serve their own local consumer requirements. They will continue to export, but not at the unbalanced rate we see currently. They will of course also import, but never at the levels that were suggested a few years back.
At the same time the US and other countries will see a move back to center with respect to consumer preferences. Local manufacturing will become more competitive and will ultimately regain much of the lost ground. But there will be other threats from Latin America and Africa to consider.
Steve Murray
Senior Research Analyst
Supply Chain Visions |
