Inventory, Beer and Tests

Last week I spent a morning playing The Beer Game with a group of senior Supply Chain and Continuous Improvement leaders.  Before we started the game our host, an SVP of Supply Chain, related that he once played this same game with the CEO of an organization and the CEO became very frustrated at playing a 'game they couldn't win'.

Supply Chain and Continuous Improvement practicioners know it's not about 'Winning' but rather about the march of continuous improvement towards True North.

Well, our group of experienced leaders did not do so well.  Although we weren't supposed to collaborate it was difficult not to overhear what orders the distributor sitting next to you was going to place.  In spite of the factory trying to maintain some semblance of level production, inventories downstream (bull)whipped in all directions, stockouts occurred, and a certain amount of chaos ensued.  Your basic supply chain challenges.  The supply chain participants were surprised to learn at the end of the game that the customer simply ordered one amount for the first several periods and then doubled their demand for the following periods. 

Fortunately we were moving producing and distributing red 'chits' and not real inventories subject to expiration or trying to service customers that could turn to our competition.  Although this game seems simplistic it is a great way to drive home the value of Supply Chain collaboration. 

A few weeks earlier I attended a plant tour of Revolution Brewing Company sponsored by the APICS Chicago Chapter.  (Yes, I know it's a difficult job touring breweries but someone has to do it).  Chris Bird, the Director of Operations at Revolution told us that it's not unusual for them to have trucks waiting while cases of beer come off their packaging line and go straight onto a pallet and into the truck.  It's not their packaging line that is the constraint - they only run it 3 days a week; it's the size of their fermentation tanks that are the system constraint.  All of the beer they brew is routed through this set of tanks and they are rather traditional in the aging periods used for their beers (or rather they don't 'rush' it out the door).  They didn't seem particularly compelled to expand capacity (and it's interesting to note that since this tour another local craft brewery, Half Acre, announced an expansion of the capacity).  

Late this week I sat for the APICS CSCP exam again (I already have my CSCP certification but APICS instructors are encouraged to retake these exams).  In a recent SCM World report the CSCP and CPIM certifications were  recognized by business leaders as the leading Supply Chain certifications in the world (beating the next competitor by a substantial margin) and after taking the exam it is clear why. Supply chain challenges run the gamut - one Supply Chain may be challenged with inventory chaos while another may be facing demand that can't be met.  The understanding of the concepts tested on the CSCP exam give a Supply Chain practicioner a wide variety of tools to face these challenges.  

The Collab

It seems that whenever my teenager turns on the radio the song isn't one from a single artist, rather it's usually a pairing like Katy Perry and Snoop Dogg (pictured above) or Rihanna and Eminem.  I don't recall this level of collaboration among musicians when I was a teen - it seemed like the musicians I heard on the radio were working away in their studios by themselves and the extent of collaboration would be to invite a less established act to open for them on tour (which didn't seem very collaborative based on my limited sample of popular concerts).

My week was bookended by two drastically different takes on collaboration.  Early in the week I finished reading a book by Paul Midler,  'Poorly Made in China', the story of a supplier-customer relationship that started well enough but then goes awry in just about every way possible.  Rather than collaboration he describes furtive attempts on the part of suppliers to cut costs in all areas regardless of the impact on the customer's expectations for the final product.  This insightful account is sometimes funny but when you think that the 'quality fade' he describes isn't limited to supply chains delivering haircare products but may extend to food and pharma supply chains, it makes one pause (I blogged earlier this year about the New York City crane collapse that was caused by an inferior crane component made by a China-based manufacturer).

I spent time later in the week at the Conference Board SRM Conference and had the privilege of hearing thought leaders in the area of Supplier Relationship Management share their ideas.  Jonathan Hughes and Jessica Wadd of Vantage Partners did a great job of presenting their knowledge and experience in this area as well as facilitating breakout discussion groups.  I also served on a panel with John Caltagirone and Kirk Weidner, moderated by Rick Blasgen of CSCMP, presenting the supplier point of view.  We all agreed that a collaborative approach with strategic suppliers will benefit the supply chain's competitiveness.  Although collaboration was the word of the day no one said it was easy - most attendees shared challenges in their organizations related to Change Management, control of IP, lack of Executive Sponsorship, and poorly implemented enterprise systems (who doesn't have these issues?) but all have made serious commitments to furthering relationships with their suppliers to drive innovation.

I'm glad that collaboration is occurring in both music and industry - the world surely is a richer place because of it.  Let me know your thoughts on how collaboration is impacting your organization or industry in the comments below.  Thanks!

Caught in a Silo?

(thanks to Ragulin Vitaliy for the image)

Unless you're very lucky and happen to be with an organization that has both a Chief Supply Chain Officer and an intense focus on Supply Chain Management as a discipline across the entire value chain, you very likely have silos at your organization (in fact, even if you are blessed to be at such an organization you may still have silos).  These silos impact Supply Chain Managers in many ways - the challenge of gathering data existing within multiple functional areas, the inability to gain the sponsorship from executives necessary for Supply Chain improvements that cross multiple business units, and the authority to enact changes necessary for Supply Chain improvements, to name just a few.    

At the Aberdeen Supply Chain Management Summit this past week attendees heard several compelling stories of Supply Chain Managers had tremendous positive impacts on their organizations:

Brad Mueller, Vice President of Supply Chain at Briggs Healthcare, spoke about the transformation he led at Briggs where he turned a Supply Chain in disarray into a high performing one.  That he did it with limited resources and investment is even more remarkable.  

Masao Nishi, Vice President of Supply Chain Management at SYSCO, presented on the Inbound Transportation initiative at SYSCO, a multi-year effort that received strong executive support and yielded a substantial return.  His leadership was so intuitive that he didn't even present a business case for the Inbound program - they just gave him the authority he needed to make the change (which is paying off nicely for SYSCO).  

Jill Marcotte, CSCO of Dealer Tire, presented  a compelling story of Supply Chain Transformation and explained why Supply Chain should have a seat in the C-suite (when I asked her about the power of having a seat at the table she responded that it's important for Supply Chain to have that level of authority but it's just as important for Supply Chain to be part of the strategy discussion so they can prepare for and influence the future of the organization).  And thanks for educating the audience about the complexity of the Tire Supply Chain - I'll never look at tires the same way again!

Typically, a supply chain is performing at it's best not when each silo is optimized but when the total sum of all the silos is optimized - that's why it's so important to break down these silos,  At least one silo will need to be suboptimized for the entire supply chain to be optimal.  

It is unlikely you will unilaterally be able to make meaningful changes to the leadership structure of your organization but there are still ways to make progress, and it's imperative that our organizations make continual progress in improving their supply chain.  

How have you achieved success at breaking down the silos at your organization?  Has it led to significant benefits?  Please post in the comments below to continue the conversation.  

Risky Business

(Thanks to Paul Matsushima Photography)

A Cyclocross race this past season gave me a great opportunity to think about risk management.  Cyclocross racing is an interesting discipline because it involves components of traditional bike racing (going fast on flat straightaways) with the technical aspects of mountain biking (running up very steep hills, hopping over logs and riding through sand pits).  One can prepare technically for each of these obstacles but race conditions and the weather (sun, rain, snow) can affect a racer's ability to tackle them to a great degree.  The picture above shows one of the risks when, during the heat of a race, you extend yourself a little too far - hopping over a log at race speed just a little bit too low can cause you to hit your back tire and topple heels over head.

Of course this is just like business - we can prepare (perhaps extensively) but business is full of risks, many of which are not foreseeable.

At the Loyola University Supply Chain Management Breakfast Panel this past week (titled "The Cooling in China"), hosted by Professor Maciek Nowak, there was much talk about globalization but the real subtext was all about Risk Management - how will the uncertainty in supply, cost, lead time, and quality impact our organizations in the coming months and year.  Several of the keynote speakers conveyed stories about late deliveries and poor quality associated with extended supply chains.  Even though they are all employed by mature organizations that have a great deal of experience with sourcing material and products in Asia they all had painful lessons from the recent past that had a negative impact on customers.

An article in today's NY times about a poor quality part made in China illustrates some of the risks of globalization if your organization doesn't effectively manage it correctly.  The crane company appears to be clearly negligent here but this points out that everything is not always what it seems and that supply chain managers that fail to carefully vet their suppliers put their organization (and themselves) at great risk.

Back to that Cyclocross race - although I appear perilously perched on my front wheel I did safely land and stayed in the race.  Some of the time a calculated risk pays off.

I'm teaching the "Globalization" section of APICS/CSCP at DePaul University in a few weeks and would love to be able to share with the class your personal experiences with extended supply chains.  If you have a story to share please post in the comments section below.

Big data!

(Thanks to The Planet for the picture of the working side of their data center)

Supply Chain Managers are awash in more data than ever before.  Each system implementation or process change is likely to create more granular information than previously thought possible.  This explosion of data comes as we may still be managing through legacy system issues remaining from acquisitions, 'not quite perfect' system implementations, poor master data management, or several other data challenges (do you have hardware that wasn't scaled to handle the amount of data you're now creating?  You're not alone)  - welcome to the Age of Big Data.

At the eyefortransport 14th Annual Logistics CIO & Supply Chain Technology Forum this afternoon I heard six Supply Chain thought leaders participate in a panel discussion on "Visibility, Technology and Methodology for achieving End to End Visibility".  Jeff Jones, VP of IS at UPS conveyed that UPS has petabytes of data (I think it was petabytes, it might have been exabytes or zettabytes, I know it was a very large number).  Try to imagine the amount of data UPS creates every day - every container they move, every order they pick, every parcel they sort, ship and deliver.  There are datapoints collected from their own systems, their transportation partners (subcontracted ocean, air, rail and truck freight), GPS tracking information on their rolling assets, structured data and unstructured data (images of bills of lading in addition to electronic file transmissions), they must literally be drowning in data.

Well, maybe not drowning in it.  Jeff also said that UPS is investing just under a billion dollars (billion with a B) in IT this year and much of it is focused on supply chain visibility - using all of that data to drive supply chain improvements.

Are you thinking that UPS is in a different league?  Your organization doesn't have a billion (with a B) dollars to invest in IT this year?  Well, neither does mine but that can't stop us from making progress.  I draw your attention to the City of Chicago's data portal which has a wealth of datasets easily accessible for ad hoc reporting via browser as well as API.  The City of Chicago isn't bursting with cash to spend on frivolous IT projects and it's just about the last place I'd expect to see implementation of systems that drive data visibility but they've done it.

What are your organization's plans for harnessing big data?  What types of data challenges do you commonly run into as a Supply Chain Manager?

Is more better?

I spent a morning this past weekend with a fellow Supply Chain Manager who recently arrived at his organization here in Chicago.  He and I commiserated about the vast amounts of capital tied up in inventory (and although my organization's inventory is largely non-perishable, his inventory was not and the clock was ticking on some of it).

It reminds me of a visit this past Fall to a vendor that has a significant business line building ASRS's (automated storage and retrieval systems - essentially very large, very costly warehouses) and the software that supports them.  Some of these warehouses are certainly necessary (a recent install of theirs was for storing library books at a major research library - if you don't believe that is a 'good' type of inventory you may want to read Nicholson Baker's Double Fold, a compelling book about the deacquisitioning effort that our libraries have undertaken).

As I wandered through this vendor's offices, conference rooms and rest rooms and was awed but the beauty of their architectural and engineering drawings of their installations (yes, the artwork in the restrooms consists of very nicely framed engineering drawings) I was also thinking about the dollars invested in the storage of inventory.  Many of these installations were built for storing tens of thousands of pallets and represent a significant investment to store inventory, which itself likely represented a significant investment on the balance sheet.  In other words, those drawings represented certainly tens and likely hundreds of millions of dollars of inventory investment.

The APICS Body of Knowledge tells us that the only reason to hold inventory is when doing so is less costly than not holding the inventory.  I question whether the business cases used to justify the construction of those many ASRS's hold water today.  Can the toolset of the Supply Chain Manager - Lean, JIT, Agile Manufacturing, substituting information for inventory - eliminate some of the inventory in these warehouses or even eliminate the need for the warehouse entirely?  Very likely.

My friend's inventory challenge was interesting in that as the product aged it could no longer be used for it's original, intended use and had to be downgraded for less value-added uses.  Although my organization's inventory is not perishable (at least not on the type of timeline that my friend faces) we still have opportunities to reduce the accumulation of inventory and always will - the Supply Chain Manager is on an never ending quest to balance minimal inventory investment and customer service.

Cutting your Inventory and Postponement

My local Costco added retail gasoline sales recently and I noticed that they carry only 87- and 93- octane (regular and premium), as opposed to most service stations that carry 3 grades of gas (or petrol for my friends on the other side of the pond).  I usually purchase premium for my own car (and regular whenever I have a rental) - I've never seen any statistics on it but it would be interesting to see what percentage of sales each of the typical 3 grades represent.

In addition to reducing the inventory items Costco needs to monitor and replenish they have reduced by 50% the number of underground tanks they install and maintain.  I'm not very familiar with gasoline retailing but there must be several other areas of payback that I'm missing.  I wonder why other gas retailers haven't followed suit.

I  noticed another major company undertaking a new inventory strategy recently.  Coca Cola is rolling out new soft drink dispensers that have 106 flavors, which you would think would cause their inventory to surge.  That's likely not the case as they are using a strategy of Postponement where the final mixing of recipe/parts is done as late as possible (in this case, literally when the consumer selects "lime diet coke" at the dispenser).  They can use generic parts for several final products - in this case that same lime flavoring is used for Coke, Coke One, Sprite etc.   I've heard that the machines even send electronic alerts when they need service or flavor refills.  If that's the case it still needs some fine tuning as several of the flavors are not available at my local lunch place more often than not .

Have you seen any interesting examples of inventory strategies recently?  Please let me know in the comments below.