Frequently when we work with clients to implement decision support tools for supply chain scheduling and planning, they often have some unique constraint that is essential to model and may be unique to their environment. Some recent examples we have encountered include the following:
- When producing a batch in a make to order environment, the plant always produces some extra amount called the purge quantity which is stuck in the piping from the reactor to the packout line. After purging the line, this material is recycled into the next batch.
- A warehouse can have capacity constraints on both the
- Throughput based on the number and type of doors and
- Storage based on material characteristics such as hazardous material classifications.
- When working with a dairy industry client, the bill of materials changes throughout the year based on the component ratios of the milk produced by the cows which drives the product split.
These types of situations are a regular occurrence and require modeling tools that allow for the flexibility to deal with them. We will implement decision support tools either with a development suite such as Aspen Tech’s Supply Chain ManagementTM or develop an application that connects to an optimization engine such as FICO’s XpressTM. These tools provide a base starting point but then allow for adding modeling constraints that are required to include to get to a solution that the client can actually implement.
In addition, having this flexibility allows the work processes and tools that enable the work processes to evolve over time as the business needs change.
This flexibility though has to be balanced with some level of standardization. Therefore we will often build a new application by using a previous application as a starting point. For a production scheduling tool, there are many things that are common between different implementations including how to represent the schedule via an interactive Gantt chart, common basic reports, standard interfaces to external systems, etc. In a production planning tool, typically there are plants, warehouses and transshipment points to be modelled via a network representation; costs and capacities at each of these nodes in the network that need to be modelled; and an objective function that is either to minimize cost or maximize profit. All of these would be common elements between different planning model implementations.
- Flexibility allows for
- Modelling essential constraints that may be unique to a particular client’s environment but are required to get to a feasible solution that the client can actually implement.
- Changing the tool over time as the business needs change.
- Standardization allows for
- Faster / cheaper implementation.
- Faster / cheaper support.
- Ease of training when moving to a different role but using similar tools.
Having a hybrid of flexibility with standardization is the best of both worlds!
Here at Profit Point, we typically put in a fair amount of effort up front to scope out a project together with our client. This typically helps us and our client to set appropriate expectations and develop mutually agreeable deliverables. These are key to project success. But another key element to project success is getting good quality data that will allow our clients to make cost effective decisions from the analysis work we are doing or the software tool we are implementing.
Decision support models are notoriously data hogs. Whether we are working on a strategic supply chain network design analysis project or implementing a production scheduling tool or some optimization model, they all need lots and lots of data.
The first thing we do (which is usually part of our scoping effort) is identify each of the data types that will be required and what will be the source of this data. To do this we start with what decisions are trying to be made and what data is required to make them successfully. From there we identify if the data currently exists in some electronic form (such as an MRP system) or whether it will have to be collected and entered into some system (say a spreadsheet or database program) and then figure out how the data will get into the tool we are developing.
Second, we try to get sample data from each data source as early as possible. This allows us to see if the assumptions that were made as part of the scoping effort were valid. There is nothing like getting your hands on some real data to see if what you and your team were assuming is really true! Often there are some discoveries and revelations that are made by looking at real data that require design decisions to be made to be able to meet the project deliverables.
Third, to help with data validation we find it extremely helpful to be able to visualize the data in an appropriate way. This could take the form of graphs, maps, Gantt charts, etc. depending on the type of data and model we are working on. On a recent scheduling project, we had the schedulers review cycle times in a spreadsheet but it wasn’t until they saw the data in Gantt chart form that they noticed problems with the data that needed correcting.
Identifying data sources, getting data as early as possible and presenting the data in a visualized form are absolutely required to make a project successful. Omitting any of these steps will at least add to the project cost and / or duration or possibly doom the project to failure.
We just finished the fall soccer season in my home. I was thinking about watching my children play soccer when they were younger after a conversation with one of our consultants. He had just come back from visiting a prospective client where he was doing an assessment of their supply chain work processes and systems. Speaking frankly, this prospective client really did not have well defined work processes and certainly didn’t have systems implemented to enable good work processes. Mostly they seemed to run from one fire to the next and tried to do their best in tamping out the flames enough to be able to move onto the next crisis. Our consultant came back feeling dizzy from observing how they operated.
When my kids were younger and playing soccer, their style of play could be characterized as “kick and run”. They really either didn’t understand the concept of trying to possess the ball or couldn’t execute this strategy. If you have the ball, you have the opportunity to score. If your opponent does not have the ball, they can’t score. It’s a simple as that. After watching my kids play on Saturday mornings with this “kick and run” style, I would really enjoy going to see a local college team play. They have won numerous national championships and play at a very high level. They understand and are able to execute this “possess the ball” style of play. It was always helpful to see how the game should be played and get my perspective straightened out.
Perhaps the “possessing the ball” analog in the operation of a supply chain is “possessing the key information.” In soccer, you have to get the ball to your attackers at the right time and in the right place in order to score. Likewise, in the supply chain, you have to get the right information to the right people at the right time to beat the competition. If you are feeling dizzy from fighting fire after fire (playing “kick and run”) in your supply chain operations and don’t seem to be making any progress on making things better and more stable, it would be our privilege to help assess where you are at and work together to move your organization toward operating in championship form.
This month, Supply Chain Management Review is featuring a 3-part series by Dr. Alan Kosansky and Michael Taus of Profit Point entitled Managing for Catastrophes: Building a Resilient Supply Chain. In this article we discuss the five key elements to building a resilient supply chain and the steps you can take today to improve your preparedness for the next catastrophic disruption.
Once a futuristic ideal, the post-industrial, globally-interconnected economy has arrived. With it have come countless benefits, including unprecedentedly high international trade, lean supply chains that deliver low cost consumer goods and an improved standard of living in many developing countries. Along with these advances, this interdependent global economy has amplified collective exposure to catastrophic events. At the epicenter of the global economy is a series of interconnected supply chains whose core function is to continue to supply the world’s population with essential goods, whether or not a catastrophe strikes.
In the last several years, a number of man-made and natural events have lead to significant disruption within supply chains. Hurricane Sandy closed shipping lanes in the northeastern U.S., triggering the worst fuel shortages since the 1970s and incurring associated costs exceeding $70 billion. The 2011 earthquake and tsunami that struck the coast of Japan, home to the world’s 3rd largest economy representing almost nine percent of global GDP caused nearly $300 billion in damages. The catastrophic impact included significant impairment of country-wide infrastructure and had a ripple effect on global supply chains that were dependent on Japanese manufacturing and transportation lanes. Due to interconnected supply chains across a global economy, persistent disruption has become the new norm.
Are you ready to build a resilient supply chain?
Call us at (866) 347-1130 or contact us here.
A special thanks to the folks at Supply Chain Opz for including us in the Supply Chain Power 50: Best Supply Chain Blogs of 2014. The list includes our esteemed colleagues at SCM World, Supply & Demand Chain Executive, Supply Chain Management Review and more.
We don’t write about supply chains so that we can get awards or be included on lists. We write about the topic because we love helping supply chain innovators discover the next evolution of their business, because we love making things better and because we hate the status quo, especially if it’s wasteful.
That being said, it sure is nice to get recognized by our peers. And for that, we say thanks!
If you would like to stay updated on our research and writings, you can follow us here:
Additive manufacturing or 3D printing is a process of making three-dimensional solid objects from a digital model. It is achieved by laying down successive layers of material, as opposed to the traditional machining techniques of removing material by drilling and cutting. 3D printing is usually performed by a materials printer using digital technology.
Taking a digital image of a toy and printing out a near-perfect replica of it seems sci-fi and surreal, but rapid technological advances in 3D printing being developed make this and even more possible. Printing metal parts with increased strength makes machines even more viable and cost-effective in manufacturing. Additionally, an entire part can be 3D printed in a single machine, eliminating multiple touch points in traditional manufacturing and reducing failures. The newest futuristic trend in 3D printing is to go huge: using robotics to deposit building materials in an orchestrated and precise way to build large structures made up tons of interconnecting parts.
3D printing is a reality. A recent Forbes magazine article, “What Can 3D Printing Do? Here are 6 Creative Examples” lists several ways in which 3D printing have been used:
- In 2012, doctors from University of Michigan developed a tracheal splint made from a polymer and created directly from a CT scan of a baby’s trachea/bronchus using image-based computer model with laser-based 2D printing to product the splint.
- Both General Motors and Ford Motor Company have used 3D printing to make prototypes of vehicle parts used in testing and design.
- Nasa has used 3D printing recently to make a rocket engine injector and use it for major hot fire testing.
- Defense Distributed, a high tech gunsmith group, created the world’s first 3D printed gun called the “Liberator”.
- Prosthetics including a 3D printed bionic ear created by Princeton University scientists have been developed.
Although 3D printing has been around since the 1980’s, a differentiating trend has emerged this year that could make 2014 pivotal: 3D printing machines are now being used to manufacture a large variety of consumer products not just heavy machinery and structural components such as aircraft parts. The printers are expensive and the 3D pictures required to print are difficult for most – a mainstream breakthrough in 3D printing could be seen in the near future as printers become cheaper and easier to use.
What could the Supply Chain of tomorrow look like if and when 3D printing takes off? It has the potential to transform certain parts of manufacturing and supply chains over the long term. Traditional supply chains are often characterized by mass production of products driven by forecasts and pushed to customers through a warehouse distribution network, with long lead times, high transportation costs and large carbon footprints. A 3D supply chain would be distinguished by having customized production, be “pulled” by customer demand, locally printed and distributed, have short lead times, low transportation costs as well as low carbon footprint. It will create a demand for smaller factories that would take offshore manufacturing and bring it close to the consumer. Goods will be cheaper to reproduce domestically versus manufactured offshore and shipped from low-wage countries. Because new technologies currently being developed result in a significant proportion of manufacturing becoming automated large and costly work forces would be reduced. In addition to distribution cost reduction, storage would also be a reduced as products could be made quickly in response to demand as opposed to meeting service levels via inventory and safety stocks.
Although it is a huge leap to go from printing a single object on a 3D printer to replacing an entire manufacturing enterprise and thus allowing any business or individual to become its own homegrown factory, Gartner Group calls it the “beginning of the Digital Industrial Revolution which threatens to reshape how we create physical goods”. If that “threat” becomes reality, then it promises to reshape how we consider and optimize our current Supply Chain.
February 19th, 2014 3:51 pm Category: Supply Chain Optimization, by: Karen Bird
The economy has been slow to recover after the Great Recession of 2008, however, many economists believe that 2014 and 2015 will be strong years for the US and Global economies. How accurate will your forecasting model be in projecting the supply needed from your business? Since forecasting models typically use two to three years of history (actual sales) to predict the future and we are coming out of a down economy and heading towards positive growth, the standard forecasting models will not predict the future very well. This is where human intelligence and companies with a formal Sales and Operations Planning (S&OP) process have an advantage.
A formal S&OP process gives companies a monthly opportunity for their Sales and Operations teams to come together and review the data, latest intelligence from the field and make the best decisions possible for the company. In addition, a formal S&OP process gives the business a forum each month to challenge the current execution plan and either reconfirm or adjust the plan to meet the strategic goals of the company. A monthly review of key forecasting metrics can provide the Sales team with valuable feedback regarding the forecast.
Read the Profit Point S&OP Research Report
A study by the Aberdeen Group shows that greater than 60% of Best-In-Class companies view a formal S&OP process as a strategic priority for their organization and that Best-In-Class companies hold an 18 point advantage in forecast accuracy. According to an AMR Research study from 2008, companies that are best at demand forecasting average:
- 15% less inventory
- 17% higher perfect order fulfillment
- 35% shorter cash-to-cash cycle times
- 1/10 the stock-outs of their peers
How does a formal S&OP process help to deliver these benefits? It is a combination of getting the right people together to make the right decisions at the right time. A few years ago, Thomas Wallace, author of Sales and Operations Planning: How-To Handbook initiated a project to study the experiences of companies using Executive S&OP very well. The companies in the Best Practices Project cited similar hard benefits listed above but they also said “the soft benefits are equal in importance, or perhaps greater, than the hard benefits”. The soft benefits most often cited were:
- Enhanced Teamwork
- Embedded Communications
- Better Decisions
- Better Financial Plans
- More Focused Accountability
- Greater Control
- A Window Into The Future
A well run S&OP process will put a spotlight on problem areas or gaps in your business 18 – 24 months in the future. This allows the team to collectively see a potential problem or upside opportunity and produce scenarios to help the company to react to them in a timely and efficient manner.
Great strides have been made in transportation infrastructure in the last 150 years; such feats as the construction of the Suez and Panama Canals, and the development of long-distance railroad and highway networks, have reduced cost and fostered trade for the world as a whole. And more changes are coming on line today, or are in the pipeline, including significant additional throughput capacity in Panama in 2015, and the gradual development of added rail capacity connecting Asia and Europe. (For more information on the latter, see the article The New Silk Road by my colleague John Hughes.
Another area where additional transport capacity would greatly benefit trade, and potentially bring a significant improvement in living standards, is central Africa. This area has immense natural resources, such as the copper and cobalt found in the Democratic Republic of the Congo and Zambia, and the coffee grown in Uganda, that require both land and sea transport to reach major manufacturing and consumer areas. A number of projects are under construction or consideration to bring change to the supply chains in that part of the world.
An article in The Economist earlier this year looked at barge and rail transport projects underway in Egypt, Guinea, Ghana and Angola, and profiled plans for future infrastructure improvements by firms such as Citadel Capital of Cairo.
The strategic thinkers at consultancy Stratfor have focused a number of their recent research articles on the different options available to better connect the rich ore in the landlocked central area of Africa to world markets. The South African port of Durban has the best developed cargo handling facilities among the ports in the southern part of the continent, and currently attracts large volumes of minerals, but this requires a long road trip from Katanga in the Congo through Zambia and Botswana to South Africa. Durban is substantially further from the sources than ports such as Dar es Salaam in Tanzania, or Walvis Bay in Namibia, but the road route to Durban is relatively safe and stable, whereas paths to other ports suffer from unreliable or otherwise inadequate infrastructure, or the requirement to switch between rail and truck en route from mine to coast. But that is perhaps just a short term issue – given the potential rewards, several plans to improve these routes are in various stages of planning or development.
As these changes become visible on the horizon, and gradually take place, companies would be well-advised to evaluate their options, and plan for these changes – strategic supply chain planning allows management to keep their firms at the forefront of the business world.
One of the pleasures of working at Profit Point is having the occasion to reflect on and write a blog about a subject that is of interest to me. Taking time to reflect on what is important, especially now around Thanksgiving and the holiday season has rewards of its own, but especially with regards to the business we are in, helping people make their supply chains better, brings rewards unique to our profession. I am pleased and thankful to be a part of it.
At the grand scale, improving supply chains improves the very heart of most businesses. It reduces waste, reduces cost, increases efficiency and profit, and reduces the detrimental impact of commerce on our world, including reducing our carbon footprint and land fill waste as well as promoting the most efficient use of our natural resources and raw materials. Profit Point routinely has an enormous impact on the business of our customers, and I personally am pleased and thankful to be a part of it.
On a more human level, the people at our customers who interact with Profit Point personnel on our projects, come away with a profound sense that they can make a difference in their company; the impact of our network studies or scheduling work or other projects demonstrates the ability of a better business process to be rolled out and actually change the business for the better. Once involved in a successful project, many of these people move up in their organizations to lead other successful business change projects. Nothing succeeds like success! I am pleased and thankful to be a part of it.
Reflecting on our part in the business world as small actors on a large stage, it is rewarding to be able to know that we have made some difference.
Wishing you the same peace of mind this holiday season, Jim Piermarini, CEO Profit Point Inc.
November 25th, 2013 9:12 am Category: Supply Chain Optimization, by: Editor
We found a great article by Adrian Gonzalez entitled 5 Reasons Why Excel is Champ of Supply Chain Apps. Over the past 15 years, we’ve seen so many companies relying on Excel to make early stabs at supply chain optimization. And, since we recognize that you supply chain “disruptors” will do just about anything to change the status quo to move the needle on continuous improvement, we applaud you.
In fact, Excel – coupled with it’s relatively powerful optimization engine, Solver, from our partner Frontline – is a great starting place for identifying supply chain optimization opportunities. It’s extremely accessible, virtually free and easy to collaborate, since everyone has it. So long as your not looking for near-real time planning and decision support, the optimization features are quite useful.
Of course,when you’re ready to take it the next level, there are some very good reasons to move beyond Excel. First and foremost, connecting your supply chain optimization software to your ERP data warehouse allows you to get a much more granular level of detail. And, a direct connection means that you’re not wasting hours – or sometimes days – extracting and shaping the data into a consumable form. It’s just there and ready to go!
Below is Adrian’s top 5 list as well as some of the limitations that she identified. There’s also a link to the complete article, which is well worth reading.
“I believe there are five main reasons why Excel remains the reigning champ of supply chain applications:
- It’s is easy to learn and use.
- You can quickly and easily configure it to your specific needs and preferences.
- It’s highly portable: you can use it almost everywhere, and share it easily with others.
- It’s ubiquitous: Almost everybody has it and knows how to use it.
- It’s inexpensive.
Of course, Excel has some significant drawbacks that limit its usefulness and value as a supply chain application, such as…
- You’re working with static data
- A macro is not the same as an optimization engine
- It’s not integrated with execution tools
- You often end up with multiple versions of the truth”
October 23rd, 2013 9:00 am Category: White Papers, by: Editor
Today, smart manufacturers view the supply chain as a critical element for gaining competitive advantage. Leading companies have long since gloablized their manufacturing and distribution operations. They rely heavily on enterprise resource planning (ERP) platforms to track and record virtually every transaction that occurs in the supply chain – from raw materials sourcing to point-of-sale sell-through.Without doubt, the efficiencies that have accrued through ERP are significant. When one accounts for reduced inventory, carrying costs, labor costs, improvements to sales and customer service, and efficiencies in financial management, the tangible cost savings to enterprises have been estimated to range between 10 and 25% or more. 1 2 Global and multinational concerns have reorgnized themselves – through ERP standardization – to create a competitive advantage over regional manufacturers.
While this ERP standardization has created an advantage for larger concerns, leading supply chain managers are discovering new ways to improve beyond ERP’s limitations. In essence, these supply chain ‘disruptors’ are seeking new ways to separate themselves from the pack. The functional areas and tools used by these disruptors varies widely – from long-term global supply chain network design to near-term sales and operations planing (S&OP) and order fulfillment; and from realtively simple solver-based spreadsheets to powerful optimization software deeply integrated in to the ERP data warehouse.
At Profit Point, we believe that continued pursuit of supply chain improvement is great. We believe that it is good for business, for consumers and for the efficient use (and reuse) of resources around the globe. In this survey, we set out to explore the methods, tools and processes that supply chain professionals utilize to improve upon their historical gains and to gain competitive advantage in the future. You can request a copy of the report here.
We welcome your feedback. Please feel free to contact us or leave a comment below.
When we help our clients improve their supply chains the first step in the process is usually to identify what problem they need to solve, or what questions they are trying to answer. Examples of such questions might be
- What will be the impact of several possible capital investments in our distribution system?
- A major customer is considering changes in their manufacturing – how should we respond?
- How can we improve the assignment of available production / inventory to customer orders?
After pinning down the objectives, the focus will then shift to the design of a planning model, or a software system, that will help them to address the identified needs. We find that a key design tenet for the model, or the scope of the supply chain to be covered, is to include enough detail to be able to answer the questions at hand, but no more.
A typical supply chain will stretch from procurement of raw materials to manufacturing to distribution to customers (and possibly beyond, on either or both ends.) Part of capturing the supply chain behavior will be to define the transformation of materials along the chain. This can be done by defining a bill of materials, or BOM, which defines the quantities of input ingredients that are required at a point in the supply chain to make an output material of interest. For instance, if you are a baker then your BOM is your recipe – e.g. the amounts of flour, buttermilk, leavening and various other ingredients required to make the batch of biscuits.
Deciding on the detail of the materials going into the BOM, and getting the right quantities for the BOM, is a key step in properly modeling the supply chain. If you are working at an operational supply chain level, the BOM will need to be detailed enough to actually make the product, but many times in a planning situation, it is reasonable to omit some of the detail, and only capture the main flows of product through the system. You will need to make these decisions based on your project objective.
For instance, if you are modeling a beverage company’s supply chain, water may be a key ingredient in the production process. If the question you are trying to answer for the beverage company is whether traditional warehouses vs. crossdocks is a better distribution solution for a part of the territory, then you may decide that the sources and cost of water for the production facilities will not have a big impact on the answer, so you can omit the water consumption from the analysis. On the other hand, if the objective of the analysis is to evaluate the impact of alternative future production locations on the company’s overall environmental impact and commitment to sustainable practices, then water for production (and waste water, and other intermediate or byproduct materials) would likely need to be included in the production BOMs.
Making good choices in defining your BOM is one of the important steps in getting a supply chain model to help you answer your questions effectively. Our extensive supply chain experience allows us to bring a large knowledge base to the assignment when we are helping our clients design in enough detail, but no more.
This month’s IndustryWeek features an article by Alan Kosansky and Ted Schaefer entitled Margin-based Supply Chain Optimization.
“To effectively implement margin-based supply chain optimization, it is important to have three key components in place: data, optimization technology and alignment with strategic business objectives.
Margin-based supply chain optimization is a new business process based on two key business priorities: 1) the desire to deliver more high profit products to customers, and 2) the ability to stop serving customers and products with low profit yield. This supply chain decision support process quantitatively shows companies which customers to serve and what products to produce in order to maximize profit and margin. For companies with complex supply chain operations, this is often easier said than done. Recent advances in the availability of data and optimization modeling, however, enable a growing number of companies to implement more efficient and effective supply chain systems.
A company’s portfolio of customers and products typically changes more quickly than the assets used to meet the customer demand. These situations include changes in the macro-economic environment that precipitate significant increases or decreases in customer demand, shifts in a company’s product portfolio, development of new markets, or changes in the cost to produce and/or deliver products or services. In each scenario, margin-based supply chain optimization is a key tool to help companies manage supply to achieve maximum profitability.
To effectively implement margin-based supply chain optimization, it is important to have three key components in place. They are: data, optimization technology and most importantly, alignment with strategic business objectives.”
Supply Chain Survey 2013:
Gaining Competitive Advantage
If you’re reading our blog, you are probably someone who is deeply interested in supply chain improvement. So we’d like to invite you to participate in this brief survey. And in return, we will send you exclusive, early access to the results of the survey along with our analysis .
Your insights and experiences are very important to us. And we are hosting the survey on a trusted, 3rd-party site so your responses will remain completely confidential. The survey is relatively short and should take only 3-4 minutes to complete. Please take a few moments to complete the Supply Chain Competitive Advantage Survey.
Start the Supply Chain Survey:
Gone are the days that supply chain was merely an expense. These days, savvy decision makers are gaining advantages over the competition by leveraging the data and tools available to them. In this survey, we will be exploring the methods, tools and processes that supply chain professionals utilize to gain competitive advantage via their supply chain.
June 11th, 2013 4:08 pm Category: Supply Chain Improvement, by: Editor
Building a competitive advantage across the supply chain starts with an individual that is unwilling to accept the status quo. Traditionally, these team members might be considered supply chain innovators. We like to refer to this persona as a supply chain “Disruptor”.
Disruptors aren’t nearly as menacing as they sound. They don’t disrupt to people they work with, but rather disrupt a stale, outdated way of thinking and acting. They are the outliers in corporate America. They are not content to maintain the status quo. Making nominal improvements to keep up with industry standards just isn’t that interesting to the disruptor. No, the disruptor sees a very different vision of the future and acts accordingly. The disruptor is not trying to stay with the pack. Their plan is to leave the pack in the dust! Better still, they’re not concerned with the pack, but instead obsess about their customer.
In this series of posts, we’ll discuss what it takes to become a supply chain disruptor, or innovator if you prefer. But let’s start with some basic traits. Here’s a list of dos and don’ts that seem to be common, although not exclusive, to disruptors:
- Recognize that the supply chain can be a competitive advantage
- Rely on smart people to power the supply chain
- Obsess about the processes that define the supply chain
- Rely on technology to improve speed and decision-making
- Have a “modular” way of thinking. I.e., see the whole picture as one unified system, but willing to break up the pieces to improve performance
- Acknowledge that the process and the enabling technology are only as good as the people who will implement and live with them
- Rely on data-driven metrics
- Blindly favor cost-reductions over improving customer service
- Accept limitations that others do
- Become complacent with past performance
- Assume that monolithic, standards-driven technology is good enough for every aspect of the supply chain
- Believe vanity metrics
In sum, this list embodies two key concepts that we at Profit Point hold to be supply chain truisms:
- People, Process, Technology – the essential ingredients of any successful supply chain, presented in order of importance.
- Manage by Metrics – As Peter Drucker suggested, “management by objectives” leads to improvement. Gather and analyze the right data to generate the best decisions.
In future posts, we’ll dive in deeper and provide case study examples to better explain some of the traits that define the disruptor. If you have any ideas or suggestions that you’d like to explore, feel free to leave a comment below.
Here’s an audio interview with Dr. Alan Kosansky on the “Future of Supply Chain Management”.
Interviewer: What’s the future of supply chain management? Many companies have implemented ERP software solutions, but if you’re relying on well-traveled, standardized software to manage your supply chain, you could actually be eroding your competitive edge. Joining us now to explain why is Dr. Alan Kosansky, co-founder and President of Profit Point. Alan, welcome!
Now, Alan—ERP Software has definitely become commonplace as a solution in supply chain management—it’s certainly convenient, but is the software on its own enough?
Kosansky: ERP software plays a critical role in the enterprise. From its inception it has provided the backbone for accounting and financial functions. As it has extended into supply chain functions, it allows us to quantitatively manage the supply chain. All these systems have enabled significant efficiencies for companies over the past 20 years. And they have become commoditized. Leading companies are both leveraging what these ERP have to offer AND ALSO defining complementary supply chain processes that offer competitive advantage. For those supply chain processes for which being as good as the marketplace is enough, out of the box ERP and APS solutions are great. However, for those supply chain processes where your company believes they can create and maintain competitive advantage, using the solutions that the marketplace is using is not enough.
Interviewer: At Profit Point you believe that the future of supply chain management is in optimization based decision making – what is optimization based decision making?
Kosansky: Supply Chain profitability is based on the price you sell your goods minus the total delivered cost of making and getting those products to your customers. While this may seem like simple arithmetic, it is actually very difficult for companies to accurately predict profitability and then make supply chain planning decisions that maximize their profitability. Firstly, Computing the total delivered cost is difficult. Secondly, even those companies that are have a centralized way to view all this data typically have difficulty making the tradeoffs implicit in their supply chain costs: Inventory or customer service? Manufacturing, warehousing or transportation costs? Optimization based decision making allows supply chain planners to both see all the relevant data and make the tradeoffs that lead to maximum profitability.
Interviewer: … and how can optimization based decision making help ‘unlock’ a company’s competitive edge?
Kosansky: Companies that identify supply chain processes where they have developed some sort of competitive advantage need to embody those processes in enabling technology that support this better decision-making. Most often, this includes some form of optimization decision technology that quickly evaluates alternative scenarios and identifies those decisions that lead to maximum profitability. By combining the big data that is available today, with leading edge decision making technologies, leading companies are beating their competitors in every aspect of their operations, including the supply chain.
Interviewer: Well Alan this is great news – thanks for coming on and telling us about it! That was Dr. Alan Kosansky, President of Profit Point. For more information go to ProfitPT.com… that’s ProfitPT.com.
Lesson 2: You may not know the best and / or ultimate design for a tool until you try it out for some time in the real world.
In my last blog post, I talked about the waterproof boots I received as a gift and how I never knew what I was missing out on until I received and started using those boots. In this blog post, I’d like to continue my story.
My waterproof boots were working just great for me. Our dog, Blue, loved walking out in the wet fields behind our house and I didn’t mind that my boots were getting muddy since I could easily wash them off. Several months after using my boots, I made an unfortunate discovery. My right foot was getting wet! Turns out my boots had developed a crack in the tread. While my boots had several features I really liked and duct tape worked as a temporary repair, I decided I had to replace my boots.
I thought about getting a new pair of the same brand / model but was concerned that there was a design flaw and that these boots were not sturdy enough to walk with on a regular basis. I decided to switch to a boot with a much better and stronger designed tread as well as one with the other features I really liked.
If I had gone to the store before owning and using the first pair of boots, I don’t think I could have articulated exactly what features I needed / wanted in a boot. It was only after having an extended real world experience with the boots that I was able to much more clearly and confidently articulate what I wanted in a boot.
This is a common theme with our supply chain change projects. Often these projects are a discovery process for us and our clients because neither of us definitively know a priori all the functionality that will ultimately end up in the finished tool. That is why our typical approach is to begin with a pilot project that includes the minimum scope required to implement the basic functionality. This allows for this process of discovery to unfold and while starting to deliver on the stream of anticipated benefits sooner rather than later. This allows for the future releases of the tool to have a very tight scope on only those items that we are both confident can be delivered and will achieve the anticipated benefits.
Are you ready to get started on this journey?
Lesson 1: You may not know what you are missing out on until you get something new.
My wife bought me a pair of waterproof boots and gave them to me 2 Christmases ago. Admittedly, I was not the most gracious gift recipient. I uttered the customary thank you but at that moment I had no idea what I was going to use these boots for.
As it turns out these boots were a great gift! I often take our dog, Blue, out for a walk over lunch time in some fields behind our house. Prior to receiving these boots as a gift, when the fields were wet and muddy, I would end up walking Blue on the street in our neighborhood. Blue much preferred our jaunts in the fields and the waterproof boots enabled me to trudge through the mud without ruining my sneakers which is what was happening before if I ventured into the wet fields with them on.
My problem was that I was so into the groove of walking in the neighborhood when it was wet out that I really couldn’t conceive of another way. I thought that Blue and I would just have to grin and bear it when it was wet out and walk in the neighborhood. Receiving and then using these waterproof boots was kind of eye opening for me. I didn’t know what I was missing out on until I received the boots.
We find that the same thing can be true with our clients. They may just be doing things the way they have always been done and have a hard time believing that there is a better way. The way they have done things has worked so far so why bother to change when you can stay the same! While the old adage “If it ain’t broke, don’t fix it” may be applicable, how about changing so you can operate on a different plane.
Next week I’ll post Lesson 2.
What kind of risks are you prepared for?
As a supply chain manager, you have profound control over the operations of your business. However, it is not without limits, and mother nature can quickly and capriciously halt even the smoothest operation. Or other man-made events can seemingly conspire to prevent goods from crossing borders, or navigating traffic, or being produced and delivered on time. How can you predict where and when your supply chain may fall prey to unforeseen black swan events?
Prediction is very difficult, especially about the future. (Niels Bohr, Danish physicist) But there are likely some future risks that your stockholders are thinking about that you might be expected to have prepare for. The post event second guessing phrase: “You should have known, or at least prepared for” has been heard in many corporate supply chain offices after recent supply chain breaking cataclysmic events: tsunami, hurricane, earthquake, you name it.
- What will happen to your supply chain if oil reaches $300 / barrel? What lanes will no longer be affordable, or even available?
- What will happen if sea level rises, causing ports to close, highways to flood, and rails lines to disappear?
- What will happen if the cost of a ton of CO2 is set to $50?
- What will happen if another conflict arises in the oil countries?
- What will happen if China’s economy shrinks substantially?
- What will happen if China’s economy really takes off?
- What will happen if China’s economy really slows down?
- What will happen if the US faces a serious drought in the mid-west?
What will happen if… you name it, it is lurking out there to have a potentially dramatic effect on your supply chain.
As a supply chain manager, your shareholders expect you to look at the effect on supply, transportation, manufacturing, and demand. The effect may be felt in scarcity, cost, availability, capacity, government controls, taxes, customer preference, and other factors.
Do you have a model of your supply chain that would allow you to run the what-if scenario to see how your supply chain and your business would fare in the face of these black swan events?
Driving toward a robust and fault tolerant supply chain should be the goal of every supply chain manager. And a way to achieve that is to design it with disruption in mind. Understanding the role (and the cost) of dual sourcing critical components, diversified manufacturing and warehousing, risk mitigating transportation contracting, on-shoring/off-shoring some manufacturing, environmental impacts, and customer preferences, just to begin the list, can be an overwhelming task. Yet, there are tools and processes that can help with this, and if you want to be able to face the difficulties of the future with confidence, do not ignore them. The tools are about supply chain planning and modelling. The processes are about risk management, and robust supply chain design. Profit Point helps companies all over the world address these and other issues to make some of the of the best running supply chains anywhere.
The future is coming, are you ready for it?
DC Velocity featured an article entitled A Network Design is Never Done. The article, which included an interview with Profit Point’s Alan Kosansky, touches upon on the trend of large manufacturers to move from designing their supply chain networks once to continuously improving the design to meet customer demand and supplier mix, among other things.
You can read the complete article here.