The Many Questions Supply Chain Managers Are Asked to Answer

The following are questions customers typically ask supply chain managers:

  • “Why is it taking you so long to deliver my order?”
  • “When will you deliver?”
  • “How many of the items we ordered will you deliver today?”
  • “How much of an item do you have available?”
  • “Your items didn’t meet our specs; when will you replace them with the right ones?”

Executives also ask supply chain managers the following:

  • “How much did we ship today?”
  • “How much did we ship so far this month?”
  • “How many orders did we receive from Sales today?”
  • “How many pending orders do we have?”
  • “Why do we have so many pending orders?”
  • “When will you deliver the pending orders?”
  • “When will the items be produced?”
  • “How many of the items will we make?”
  • “Why does it take so long to produce?”
  • “When are the materials for production arriving?”
  • “How much will we pay for materials this month?” 
  • “Why are we getting customer complaints?” 
  • “How are you responding to the customer complaints?”
  • “Our costs are too high; how can we reduce costs?”
  • “What’s your plan to comply with government rules on sustainability?”
  • “How safe is our product?”
  • “What’s your plan to stop pilferage of our products?”
  • “Why are we wasting materials?”
  • “How can we reduce inventories?”

Vendors and 3rd party service providers also ask questions:

  • “How much of this material are you buying?”
  • “When are you ordering?”
  • “When do you need the materials that you’re ordering?”
  • “What are the specifications of the materials that you want to buy?”
  • “When will you pay me?”
  • “How much will you pay me today?”
  • “What is your company’s response to my bid?”
  • “How many trucks do you need tomorrow?”
  • “How long do my trucks have to wait before they get loaded at your warehouse?”
  • “Your bid is too low; can you pay me more?”

Supply chain managers encounter questions like these all the time.  Most who ask want answers immediately and supply chain managers feel the pressure to respond. 

The questions, however, lead to more questions.  And it leads to more searching for answers.  Supply chain managers sometimes spend the whole day (if not days) trying to answer questions than actually managing their operations.  

Supply chain managers work in a broad scope.  The questions they are asked would likely touch not only where there are assigned but also functions adjacent to theirs.  Logistics managers who are asked the status of shipments may find out there are issues with production shortfalls and materials shortages.

And because supply chains aren’t only limited to an enterprise’s internal functions of procurement, manufacturing, and logistics but also include the interactions with other enterprises upstream (vendors), downstream (customers) and branches (e.g. service providers, parts suppliers), the questions that supply chain managers are asked would also lead to issues outside the borders of the enterprises they work for. 

Supply chain managers, therefore, are in that unique and unenviable position of dealing with questions that go beyond their job descriptions. 

Supply chain managers should welcome questions, however, not dread them.  Not only they should anticipate them, they should seek them out. 

Questions like the ones above offer windows to opportunities as they indicate what executives, customers, vendors, and other stakeholders find important.

Questions are not problems.  But they together are the first step in figuring out what and which important problems need to be addressed and solved. 

Questions unravel the problems we need to solve.  Seeking them out and defining the problems behind them are proactive methods for supply chain managers to not only answer pressing questions from stakeholders but also open avenues of opportunities which lead to lasting benefits. 

About Overtimers Anonymous

How Sales & Supply Chain People Can Work Together

Customer inquiries and quotations have long been seen as traditional jobs of sales professionals.  Field sales representatives visit customers and strive to get orders from them.  When customers inquire, sales professionals are expected to answer with accurate information. 

Trouble starts when sales professionals have no adequate answers to give.  Sales professionals may know prices, terms, and promotions.  But they may not know how much inventory is available to promise and when deliveries can be scheduled.  They also may not know how to cater to special requests and instructions regarding product specifications and deliveries. 

Sure, their superiors would have given field sales reps guidelines and information.  Sales reps may also have fixed allocations of how much they can promise to deliver.  But once they are in conversation with a customer, these guidelines and allocations may not be enough for a sales rep in discussion with a customer.

Sales reps have a lot of responsibilities.  They have territories to cover and targets to meet.  They promote products and negotiate contracts with customers.  They seek and open new accounts and they are expected to submit sales reports.  They also have to deal with complaints or worse, customers wanting to cancel orders or return products for refunds.

Sales representatives therefore expect their enterprise supply chains to deliver orders as promised.  The last thing they need is late, incomplete deliveries or pending orders that never get fulfilled. 

There’s a lot that’s been said about forecasting and managing demand, and a lot more about delivering orders.  But not a whole lot about what happens in-between: when customers inquire about products, what are available, and request for quotations (RFQ). 

In the many business meetings I’ve sat in, executives often ask what demand will be or how many orders are pending.  They don’t ask much about what customers are saying or asking.  Either they wait for their marketing people to mention anything or they just make conclusions on their own

In the retail business, store owners usually inquire from their suppliers about the availability of specific items, ask how much the prices would be, if the item can be delivered by what date, etc.  In short, the store owners inquire and expect the suppliers’ sales people to answer.

Whereas demand forecasts offer projected sales of items in cumulative numbers for an upcoming time period, inquiries from customers tell enterprises what they are looking for.  These inquiries can be and are valuable nuggets of information that can generate additional sales for an enterprise. 

But from what I’ve seen and heard, this information never really reaches the enterprise’s executives.  Either the information is forgotten or ignored.  What reaches executives are reports that have filtered the feedback from customers.

I’ve observed there are five (3) stages to demand creation and fulfilment:

  1. Inquiry
  2. Quotation
  3. Order
  4. Delivery
  5. After-Sales Service

Sales usually works exclusively on the first three.  The supply chain typically works on the last two. 

But the divisions of labour and accountability are more of formalities than realities in many cases. 

When customers inquire (1st stage), they ask not only about price, promotions, and product features, they also ask:

  1. How many items do you have available?
  2. How fast can you deliver?

And when the sales person gives a quotation (2nd stage), the customer will ask again:

  1. How long will it take you to deliver?
  2. When will the items be delivered after I place my order?

And when the customer decides to order (3rd stage), he or she will ask the sales person once again:

  1. When will the ordered items arrive?
  2. How many will arrive? 

It’s the same questions repeated at least three (3) times in those three (3) selling stages. 

Sales people naturally wouldn’t be able to answer those two (2) questions without foreknowledge of what the supply chain will do when the orders are received.  I’ve therefore observed that it’s common practice for sales people to call someone at the supply chain to get answers to those two (2) questions. 

That someone can be anyone.  It could be the one receiving the orders, the one who allocates items for delivery, the production planner, and any supply chain manager, or even all of these people all at once. 

In many cases, the supply chain people the sales people call don’t have the answers either.  And even if they did, they can’t or won’t guarantee the time and quantities of what would be delivered. 

Sales people would press whomever they’re talking to for some answers which they then can provide to their customers.  And in many times, the answers aren’t reliable or in the first place, aren’t authoritative. 

The easy way out of this quandary is to formalise the participation of supply chain operations in the first stages of selling:  inquiry, quotation, and order.  This can be done via:

  1. Assigning people from the supply chain who’d know the answers to liaison with the sales people;
  2. Establishing a system to already reserve items that customers want quoted and allocate them when the order arrives. 

It sounds hard and it will take quite some work to do #2 above.  But given that there probably is an informal system of allocation working already between sales and supply chain, the enterprise would do well to just get it set up and running. 

Note that in stages four and five, delivery and after-sales service, both supply chain and sales should still work together.  Even as the supply chain would have a higher accountability in serving orders and providing some after-sales services (e.g., warranty services), sales should be in communication with customers about the status of deliveries, getting feedback, and collecting payments. 

When sales and supply chain people work together in the five (5) stages of selling, they gain more confidence in responding to customer inquiries and requests.  They learn what customers need as much as they find ways to improve serving orders and fulfilling demand. 

About Overtimers Anonymous

The Death Industry’s Supply Chain

Dying is a complicated business.  No one really plans for it in advance.  For those who are charged with the affairs of the ones who pass away, there is always so much to do and limited time to do so.

Funeral service providers have become more than just parlours where proprietors prepare the deceased for burial.  They have evolved into invaluable assistants in helping bereaved families retrieve the remains of loved ones from the hospitals, prepare legal documents, and make available facilities for relatives and friends to get together. 

Many funeral providers also offer cremation services, which instead of burial, the deceased’s remains are burned and the ashes placed into urns or vessels.  Families would then inter the urns in niches at a columbarium, the final resting place for cremated remains often located at the grounds of religious churches. 

Cremation has become a popular option due mainly to economic reasons if not for the expediency it provides.  Many families do still opt for the traditional interment of late loved ones at cemeteries and funeral providers do help in the paperwork and burial assistance.

Cemeteries and columbaries are typically separate entities that funeral providers and the bereaved of the deceased deal with.  On top of needs such as urns and coffins, funeral providers also procure materials (e.g. chemicals) for the preparation of the remains either for cremation or burial.  They also supply paraphernalia, such as flowers, guest books, cards, and placeholders.  In some Asian countries, these paraphernalia include banners, streamers, incense, ceremonial clothing, and paper money.

The business of sending off the dead is a complicated one that requires a supportive supply chain. 

Demand first of all is not certain.  The dying do not arrive in steady predictable numbers one day to the next.  Funeral service workers may be idle one week with few arrivals only to find themselves working overtime the next due to a surge. 

A friend of mine who works in the funeral business says that arrivals are few in number usually before Christmas but many towards the end of a calendar year.  “It’s as if those close to death are scheduling when they will go,” she said. 

Funeral providers by experience keep stock of coffins and urns in anticipation of those surges but they sometimes still run out.  Coffin makers would always be busy even if their market share has dwindled due to the growing preference for cremation and urns.  Churches and private groups have invested increasingly in constructing columbaries to make available more niches.  And funeral supply shops always make sure they have enough paraphernalia for the traditional rituals families would hold for their departed loved ones. 

During the coronavirus pandemic of 2020 to 2021, funeral providers were challenged.  Health protocols forced the temporary closure of chapels but caused a spike in demand for cremation. 

Funeral providers who already had cremation facilities didn’t feel fortunate; they had limited capacity on how many can be served in any one day.  Service crews were also not allowed to report to work every day to avoid risk of infection. 

The queues for cremation grew as a result and so did the demand for coffins to temporarily safe-keep remains while they waited their turn.  This surprised the coffin makers who believed their businesses were becoming a sunset industry.  They found themselves busy when they thought they would no longer be needed. 

Funeral providers lengthened operating times to accommodate the continuous arrivals.  They did so carefully.  Cremation furnaces needed to cool off and rest for at least a few hours a day.  And one cannot speed up the burning.  The process had standards to follow to ensure completion and thoroughness. 

What funeral providers gained in cremation revenue, they lost in the drop in the demand for venues and paraphernalia.   But for my friends in the funeral business, that didn’t matter.  As the pandemic raged on, they found no time to reflect. 

The dead just kept coming.  They had to keep on working. 

About Overtimers Anonymous

Problems are Doorways to Opportunities

Since the start of 2021, semiconductor chips, which are used in cars, trucks, computers, and smart-phones, have been in short supply.  Supply has been so short that automotive companies have shut down assembly lines and consumer electronics corporations have delayed roll-outs of new products. 

Bloomberg reported in its September 22, 2021 Supply Lines newsletter that the gap between “ordering a semiconductor chip and delivery is still growing.” 

But four years before in 2017 (see chart above), it was already taking at least 10 weeks to deliver a semiconductor chip from time of order.  So, while businesses in 2021 anxiously wait up to 20 weeks for their chips to arrive, why were industries tolerating long order-to-delivery times of up to 10 weeks in the first place?

The dictionary defines a problem as an “unsatisfactory situation.”  It is a “state of difficulty that needs to be resolved.” 

Many of us equate problems with crises and disruptions, that is, we see a problem only when it hurts us such that it becomes urgent to address it. 

Hence, we tend to avoid them or try to resolve them as quickly as possible.  The fewer problems we have, the better, we usually say. 

The dictionary, however, also says it is a “a question proposed for solution or discussion.” 

Problems can be doorways to opportunities, in which if we think of them that way, we should seek them out and solve them for the ideas that would benefit us. 

Enterprises and even governments are scrambling hard in 2021 to fix the semiconductor chip shortage that has crippled factories and caused supply shortfalls of many products, from cell-phones to computers.  Most saw the problem when order-to-delivery lead times extended from 10 to 20 weeks.

If enterprises in 2017, however, proposed the “question” of shortening the supply lead time of 10 weeks, and found a solution, would industries be undergoing a crisis in 2021?  Wasn’t there a way to bring the number of weeks of lead time down to 4 weeks or even less? 

It was obvious that since 2017, company executives had accepted the 10-week order-to-delivery cycle and adjusted their inventories and production schedules to cover for the waiting time.  Executives managed the 10-week lead time into their financial forecasts.  The 10-week lead time was not considered a problem. 

If one enterprise in 2017 had seen the 10-week lead time as a problem rather than as an acceptable fate, and in the process of “discussion” found a “solution,” one wonders how much of a competitive advantage that enterprise would have in 2021. 

It’s never really worthwhile to ask “what-if” questions especially after the fact of a crisis.  But in the process of problem solving, as a question becomes clearer, it would have been likely that a solution would have addressed future adverse situations. 

As companies see their businesses compromised by the semiconductor shortage of 2021, it becomes more sensible to seek out the problems and pose the questions for “discussion” and “solution.”

For the pain many had been experiencing in 2021, it would have been worth it if they had only sought and solve problems then. 

It’s never really good to dwell in the past unless we learn something from it. 

About Overtimers Anonymous

Non-Moving Inventories: The Supply Chain’s Elephant in the Room

The phrase, “elephant in the room,” is said to have originated from a fable by Ivan Krylov that tells about “a man who goes to a museum and notices all sorts of tiny things, but fails to notice an elephant.”  It has become a favourite expression for an obvious problem or issue that for some reason gets muddled, forgotten, or avoided. 

Just about every supply chain has an elephant in its room and in many cases, it’s called non-moving inventory. 

Non-moving inventories are items that have ended up idle in storage or on the factory floor for extended periods of time.  Non-moving inventories can be raw materials, packaging materials, spare parts, work-in-process, or finished goods.  They are merchandise that were acquired or produced at a cost but have become unattractive in value.

Non-moving inventories end up as they are for a variety of reasons: 

  1. the enterprise produced more than what could actually be sold;
  2. items are defective, rejections, damaged, or were returned from customers;
  3. items are old, obsolete, expired, or discontinued;

Whatever the reason, enterprise executives would see them as one thing:  a nuisance that takes up valuable space and ties up working capital.   

But they are more than a nuisance.    Non-moving inventories are cash investments that went to naught, as they had lost their selling value.  They are blots to marketers who see them not only as visible failures of their promotional strategies but also as barriers to introducing new products. Some enterprises hold their marketing and sales executives accountable for non-moving inventories and would insist they lead in running them out before any new product is introduced. 

Non-moving inventories are potential threats.  When non-moving inventories grow in size or quantity, they not only become the elephants in the stock-room or storage facility, they also become risks.  An extreme example is when non-moving ammonium nitrate fertiliser exploded in a Beirut, Lebanon warehouse in 2020:  https://www.theguardian.com/world/2020/aug/04/huge-explosion-beirut-lebanon-shatters-windows-rocks-buildings 

The good news is many non-moving inventories don’t end up exploding.  The bad news is that even if they don’t explode, they are a potential threat to the enterprise’s balance sheet and to its future growth. 

Despite their nuisance and threat, many enterprises take for granted non-moving inventories and instead try to get them away from their sight. 

A case in point: a large corporation that makes steel beams and heavy metal parts hired a chief information officer (CIO) to streamline the inventory system.  To appreciate the company’s products and materials, the new CIO toured the corporation’s main factory and warehouse which was just outside the city.  He noticed a huge pile of rusting steel products at a far side of the facility and asked what they were.  The plant manager who was his tour guide said the items were scrap. 

The CIO asked how come there’s so much of the “scrap?”

The plant manager said, “I don’t know. They’ve been sitting there for years ever since I was hired.”

When the CIO reported the “scrap” to the Chief Executive Officer, the latter was outraged. 

“They [his chief finance officer & chief manufacturing officer] told me that they got rid of that stuff many years ago!”, the CEO exclaimed. 

The CEO summoned the CFO and Chief Manufacturing Officer (CMfgO) and ordered a thorough audit. 

The CFO and CMfgO were furious at the new CIO for making them look bad for exposing the hidden inventories.  Within a few weeks, they drove the CIO to resign after they constantly hurled negative comments about him and refused to cooperate with him in improving the inventory system. 

As for the non-moving inventories, they continued to sit in that far corner of the company’s factory, where executives once again forgot about them.

For the steel company, the non-moving inventories would come back to haunt the executives.  This is especially true as the non-moving items would multiply in size and take up more space.  It would become a problem when the enterprise entered hard times and had difficulty paying debts.  Auditors would no doubt point to the non-moving inventories as where the company’s cash is tied up. 

How then does one get rid of non-moving inventories?  The answers are straightforward but can be controversial: 

  • Sell Them Even at a Loss

Sell non-moving inventories at the best but most attractive price possible.  If one can only sell them at scrap value, so be it. 

Some finance executives, however, caution against such drastic selling.  It’s one thing to convert non-moving inventories to cash; it’s another to sell them very cheaply.  Losses in balance sheets attract negative attention especially if an enterprise is publicly listed.  But if one wants to once and for all remove the elephant in the room, this is usually the number one solution, whatever the hit it will bring to an enterprise’s financial reputation. 

  • Throw Them Away

This is worse than selling at scrap value but sometimes it’s the next best option if the enterprise needs valuable space and the alternative is to pay dearly for more space. 

Throwing stuff away can also be a hassle given all the compliance protocols it might entail (e.g. environmental impact). But if the items are toxic or dangerous to carry for extended periods of time, the enterprise might not have much of a choice.

  • Salvage Whatever Can Be Recycled or Reused

Some enterprises would invest in salvaging what can be reusable or re-saleable from non-moving inventories.  It’s never an attractive option as it will often require significant expense in time, materials, and equipment.  But it can be a compromise in that salvaging non-moving stock may not result in a sudden hit to an enterprise’s accounting books.  It would also be an opportunity for enterprises to dispose items gradually while getting something back in return. 

  • Process the Work-In-Process (WIP)

Many manufacturing enterprises have work-in-process inventories (WIP).  They’re the stuff that lie between production operations, usually waiting their turn for the next step in a manufacturing process. 

Some manufacturers, however, keep their WIP waiting too long, sometimes too long that the WIP loses value from deterioration and expiration.  This happens when manufacturers don’t follow first-in first-out (FIFO), customers cancel orders while items are in production, or managers allow other orders to “jump the line” or move other WIP ahead of others. 

I’ve seen WIP stored in one place for more than three (3) years, hidden away in a dark corner of a factory, their values long written off by auditors who thought they were losses. 

Even if written off, WIP takes up space and represent poor management resulting in waste.  And even as operations managers may succeed in hiding and getting rid of them, poor manufacturing practices will undoubtedly result in more WIP time to time. 

The answer to avoiding non-moving WIP is to process them right away.  If they are no longer needed, then either the manufacturing manager should process them anyway, scrap them, or salvage some value from them.  Manufacturing managers should also have a policy to always process all the WIP within a maximum number of days, if not hours. 

The best way to get rid of non-moving inventories is to avoid having them in the first place.  Unfortunately, many enterprises are stuck with them, in one form or another.  Eventually, non-moving inventories become easy to spot as an elephant in a room would be.  They’d be that pile of junk, that stack of unidentified boxes, that pallet of dusty cartons, those drums behind the building, or that huge tank that managers have no idea what it contains. 

Any non-moving inventory will stick out like a sore thumb.  We may try to ignore them but they’ll grow into something larger and harder to afford if we let them. 

Let’s not let them.  Enterprises should get rid of them as fast as possible.  Teamwork with financial auditors and accountants would help because when one has to remove an elephant, one needs all the help one can get.    

About Overtimers Anonymous

The Importance of Making Available What We Promise

I ordered a box of latex gloves from a 3rd party seller on a popular e-commerce website.  The seller confirmed my order by email and after 24 hours, the order status on the website was that the box of gloves was being prepared for shipment.  One week later, the order status said it was at a “logistics facility.”  Two weeks later, the order status was the item was out of stock, the seller will be unable to ship, and my order was cancelled. 

I ordered a box of the very same brand of latex gloves from another seller and I received it within three (3) days.  I was annoyed I wasted two weeks waiting for the first one that never came.    

Shouldn’t sellers check first if they have stocks physically available on hand before they confirm a customer’s order?  Is it not common sense not to sell something one doesn’t have on hand?

Sounds like yes but in the real world, no.  Many enterprises sell items even if they don’t have them on stock.  They count on their operations teams to either produce or procure the items and have them available as promised by the time customer wants them. 

Available-to-promise (ATP) is an inherent element in supply chain management.  It is how much of an item an enterprise will have on inventory for customers to buy, adding in what supply is arriving and deducting what’s already reserved for other customers.

ATP = On Hand + Arriving Supply – Reserved for Pending Orders

Enterprise owners count on the ATP to communicate to customers as to how much and when items would be on stock for selling.  

For items that are make-to-stock, enterprises typically make sure they always have enough items on hand at any time for customers to buy.  Supply chain managers would set safety stocks to buffer for unexpected demand.

If, however, enterprises are selling expensive stuff like precious metals, are in the business of shipping thousands of items like automotive parts, or are marketing products with short shelf lives, managers would not keep too much on hand to avoid tying up capital in inventory.  Managers wouldn’t keep any safety stock and would rely on scheduled arrivals when committing ATP to customers. 

Customers expect enterprises to deliver their items on-time and complete as promised.  How well an enterprise keeps its promises is a criterion for success.     ATP is therefore important. It’s one thing both the customer and enterprise care about.  Delivering as promised ranks right up there with quality, cost, and service. 

Supply chain executives should strive for the following when it comes to planning ATP:

Never Zero, At Least Not Often

No one likes to be told an item is out of stock.  Mothers don’t like it when their favourite brand of diapers for their babies are not on the drugstore’s shelf.  They would buy another brand if they come back in a week and there’s still no stock. 

Short Lead Times

Customers will cancel their orders if a shop says the items they want won’t be ready for several days.  We humans have thresholds when it comes to patience.  We won’t wait too long.  Enterprises who can quickly churn products for customers gain competitive advantage. 

It Doesn’t Change at the Last Minute

Nothing is worse than breaking a promise.  Few things are as frustrating as when a shop tells us that there will be a delay in the item that was supposed to be delivered today.  It feels even more frustrating if we had already paid for the item.  Frustrated customers won’t be comforted with apologies or refunds.   Customer satisfaction comes when deliveries happen, not when they don’t. 

One Person in Charge

There should only be one person in charge of ATP.  Not the planner.  Not the logistics officer.  Nor the plant manager.  Not anyone else but the supply chain executive, the one who oversees all the operations for the fulfilment of customer orders. 

That means the delivery of items to the customers’ doorsteps, the making of the items, the marshalling of resources to make and deliver the items, and the shipping of the items.  In short, the enterprise’s supply chain. 

Enterprises, therefore, should have a chief supply chain officer who’d be in charge of making available what is promised.  

Having two or more persons handle supply chain operations or delegating the accountability of ATP to middle managers are common mistakes that lead to items that won’t be there as committed.  Having more than one person in charge of the fulfilment of customer demand just makes no sense. 

It’s like a kitchen with two chefs:  one is in charge of buying the ingredients, the other oversees the cooking.   Both men would be fighting each other in no time.  As the saying goes, “too many chefs spoil the soup.”

Keep It Simple

The more complicated an enterprise’s operations, the harder it is to keep promises. 

Thousands of items, multiple steps, shared production lines, and conflicting policies & targets are examples in which management becomes muddled as items weave through supply chain operations to get to customers. 

The advice is to keep it simple and use common sense.  Schedule milestones operation by operation to know how much can be committed at the end of the supply chain.  Deliver with smaller trucks or send single items through couriers.  Keep few stocks but set automatic re-order points for items that don’t move as much (e.g. spare parts).  Don’t keep stock of items that are make-to-order (e.g. tailored clothes). 

Nothing Wrong with Being Conservative

There’s nothing wrong with applying an allowance to an ATP.  If the schedule says an item will be ready in four (4) weeks, commit to five (5) when the customer asks.  Adding an extra week would allow for unforeseen events such as if a supplier falls short in delivering needed materials. 

No farmer can surely know how many fruits he will pick today. A fisherman wouldn’t know exactly how many fish he will catch tomorrow.  But experience will allow either to provide safe estimates.  The same is true for ATP.  We never really know exactly how much items will be available but we’d be more confident with conservative numbers, just as long as it doesn’t lead to over-padding or over-commitment. 

Enterprises and customers put a lot of weight in what is available to promise.  Customers rely on enterprises keeping their word.  Enterprises depend on their operations to have items ready when needed.

Enterprises should avoid promising nothing to make available and when they do, shouldn’t make last-minute changes.  There should be only person in charge and he or she should be the one who oversees the operations in making ATPs realities.  Planning ATPs should be as simple as possible and can be made with some conservatism.  We should not over-commit or pad too much. 

We make promises we can keep.  People value us for how we act based on our words.  It becomes not only a mark for success but also a way forward to mutually beneficial relationships.  

About Overtimers Anonymous

Behold The PSI: A Basic Tool for Supply Chain Planning

The PSI or Production-Sales-Inventory is a basic spreadsheet template for supply chain planners. 

It looks like this:

The PSI has three sections:  production, sales, and inventories. 

Production represents the in-flow of an item or what’s going into inventory.  A basic example is finished goods input coming from a manufacturing operation’s output.  We can also call it supply. 

Sales is the out-flow of an item or what’s going out from inventory.  An example is a shipment to a customer.  We can also call it demand. 

Inventory is the stock of an item on-hand in storage, such as how much of an item is in a warehouse. 

The PSI makes visible production, shipments, and inventories over a range of time periods or what we can call time-buckets.  It’s an outlook for planning.  It’s up to the planner if he or she wants to use weeks, months, or even days for the time buckets.  It’s also up to the planner how many time buckets to plan for.  It doesn’t have to be just three as in the figure below.  It can be any number.  Some enterprises use six (6) buckets for a 6-month outlook; others go up to 12.  It is the planner and his superiors that decide what periods to cover (e.g., weeks, months) and how many. 

The PSI’s horizontal rows list the items or products.  Each row shows the production, shipments, and inventory outlook for each item via the quantities in the respective columns or time buckets. 

An item can be a product, material, or a supply or spare part. It is recommended to select an enterprise’s most important items to the PSI.  By very important, that would mean those that executives often keep an eye on. 

Working the PSI starts with a beginning inventory at the zero (ø) column of the inventory section. 

The planner’s basic aim is to track the inventories from one time-bucket to the next.  In the figure below, the planner notes that inventories at the end of week 1 becomes fewer as a result of sales in the same week. 

When the planner, however, inputs the production and sales of week 2, the inventories end with zero (ø) on week 2. 

To put what I just said in a formula:

and to put it to represent every time bucket:

where x is the time-bucket number.

The aim of the supply chain planner is to ensure there will always be available inventory for sales.  Hence, supply chain planners typically prefer there’d be extra stock at every time bucket.  

Supply chain planners typically set inventory targets for every time-bucket in line with their superiors’ policies and strategies.  Sales for each time-bucket usually are based on forecasts and customer orders. From the inventory targets, the planner computes the production or sales needed and still have enough left to meet inventory targets.

Planners focus on either how much to sell or how much to produce to meet inventory targets. 

If it’s production, planners would adapt the ending-inventory formula and make it look like this:

For a desired ending inventory of five (5) units of items A and B, the planner would set production numbers that would match sales but leave at least five units at every ensuing time-bucket. 

When the enterprise wants to plan how much of an item to sell given inventory targets and ongoing production, the supply chain planners would adopt the following formula: 

Which in the PSI would look like this:

…which looks just like the PSI for production.  😀

The PSI in the above diagrams show the same numbers but illustrates a different approach.  The planner either figures out how much to produce or calculates how much to sell for the ultimate purpose of having enough inventories at every time-bucket. 

An enterprise can tailor a PSI for its particular business. 

For an enterprise that buys finished goods and directly sells to customers, for instance, a planner can adapt a PSI from a production-sales-inventory template to one that is purchases-deliveries-inventory:

An enterprise that imports items and converts them to finished goods, a PSI may look like the one below. 

I found this especially useful in a metals manufacturer that was importing metal coils that then were then cut up and converted into steel sheets, plates, tubes and pipes.  As steel coils were the key components of the manufacturer with its weight in metric tons as the standard of measure, the PSI enabled the manufacturer’s managers to plan the quantities and timing of importing and converting expensive metals without having too much on floor for too long. 

When enterprises use a common measure from key materials to finished product, the supply chain planner could expand the PSI to a 4-column spreadsheet consisting of purchases-production-sales-inventories:

A 4-column PSI would be particularly effective for enterprises with few but predominantly high-volume products such as those in commodities.  And it opens up participation of practically the four (4) core disciplines of the supply chain:  purchasing, production, logistics, and planning. 

The PSI doesn’t require sophisticated software or hardware.  One can use an ordinary spreadsheet program (e.g. Excel) or even do it by hand with or without a calculator (or abacus). 

The PSI gives visibility to an enterprise’s supply and demand picture from present to future for key items, whether finished goods, materials, or parts. 

The PSI’s limit is that the more items an enterprise has, the more tedious it becomes to plan and track.  ERP systems coupled with up-and-coming artificial intelligence (AI) software can make up for that.  Many enterprises, however, rely on planners to plan the items they carry.   

Even with its simplicity and features, it’s hard to find an enterprise that actually uses a PSI.  Many planners tend to devise their own templates, using spreadsheets mainly, despite the availability of integrated planning tools provided by expensive software. 

Most of the planning spreadsheets I’ve seen are hard to understand or are very specialised.  When I present the PSI template to planners, however, I’ve gotten very positive feedback with executives welcoming its application. 

A PSI is a basic manifestation of what a supply chain planner does, which is to plan production or estimate the demand needed with a minimum amount of stock at every time period.  It is a basic tool for supply chain planners.  It’s simple to set up and provides a comprehensive canvas of what an enterprise’s supply and demand would look like in the present and future.  It has its limitations in the complexity of an enterprise’s items and operations. But at the very least, it provides a foundation for planners to manage inventories and optimise supply chain productivity. 

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Six Elements to Find in a Digital Roadmap

A large producer of canned fruit items installed a brand-new radio-frequency identification (RFID) system at its manufacturing facility.  The RFID system aimed to streamline the producer’s inventory management system. 

The canned fruit producer’s workers stuck RFID tags on every case of canned fruit and on the pallets where the cases were stacked.  As forklift operators picked up the pallets and brought them to the warehouse, RFID scanners tagged each pallet and automatically added the cases into the finished goods inventory.  When a warehouse worker picked a case of canned fruit to be staged for shipment, an RFID scanner at the door tagged it and immediately deducted it from inventory. 

The point of the RFID system was to update inventories accurately and in real time.  It would improve inventory record accuracy and information timeliness compared to the traditional system in which workers entered data manually via pen and paper and accountants computed the inventories which took time to do.

The accountants of the canned fruit producer, however, distrusted the RFID system and insisted the workers continue doing the manual system.  Hence, even as the RFID system tagged incoming and outgoing pallets and cases, the workers continued to fill out forms to record what they produced and what cases they brought in and out of the warehouse.  The RFID system ended up not delivering any tangible benefits and gradually, it became useless. 

The canned fruit producer’s executives liked RFID technology for its features but didn’t take into account the complexity of building it into its business.  The executives thought that installation of an RFID system was easy.  They didn’t realise that putting in RFID was more than just buying tags and installing transmitters, receivers, and additional computer hardware.  It required adoption of a system that involved acceptance not just by production and logistics but also by accounting and other functions as well. 

RFID is a digital technology, one of many hyped by The Fourth Industrial Revolution, also known as Industry 4.0.  Unlike a new computer system or a new machine, digital technology taps data for visibility and productivity improvement.  It’s what McKinsey cites as “creating value in the processes that execute a vision of customer experiences.”

Building in digital technology like an RFID system applies principles from project management but at a much wider scale.  It’s not as simple as constructing a new warehouse or installing a new machine.  It requires fitting in with functions that will be affected. 

It’s like a human organ transplant.  One cannot just outright replace a heart, liver, or kidney with another.  A transplant entails a multitude of diagnostic tests, procedures, and regimens pre- and post-transplant to ensure success. 

The canned fruit producer brought in an RFID system that was liked by supply chain managers but was rejected by accountants.  Like a failed organ transplant, the enterprise’s “body”, its organisation, did not accept the RFID system.    

Bringing in digital technology requires what one would call a Digital Roadmap, a plan that considers the unique characteristics of new technologies. 

A Digital Roadmap emphasises the following elements:

  • Terms of Reference (TOR)

TOR is a narrative of what an enterprise’s organisation envisions a new technology will contribute.  It isn’t a scope of work or detailed specifications.  Rather, it’s a set of features, functions, and criteria that the organisation wants.  A TOR is the foundation for decision-making when it comes to choosing from technological options. 

  • Dedicated Team of Qualified Individuals

There should be a team of dedicated individuals to plan, decide, and carry out any new technology.  The team should not only have skilled members but also members who are recognised as authorities in their fields.  Note that members need not be employees of the enterprise; they can be contractors, consultants, or just plain advisors.  It’s important that each member has the devotion and expertise to participate. 

  • Consensus

Consensus is a necessity for the organisation to be enrolled into the introduction of new digital technology.  Consensus will likely be tough to attain because digital technologies are new and will entail significant changes in the workplace.  Debates and disagreements are inevitable.  Executives will be expected to lead and enrol everyone to adopt and accept new roles and responsibilities.   The Digital Roadmap cannot progress without consensus and commitment. 

  • Useful Content

The Digital Roadmap should define the needed content from any new digital technology.  Content is the information gleaned from data and software that would be useful to apply for productivity improvement.  With an RFID system, for instance, the data gathered from scanned tags provide the content for real-time inventory visibility which leads to the opportunity to turn over inventories faster. 

  • A Cash-Flow Schedule

New digital technologies often need much investment in capital.  Other than time and human resources, the enterprise will be spending money to pay for software, hardware, and the expenses that come with implementation, including education for everyone in the organisation.  The Digital Roadmap should therefore include a schedule of cash outlays that tells how much and when budgets will be needed and spent.

  • Competitive Timeline

A Digital Roadmap shouldn’t have too long a timeline lest newer technologies render obsolete the digital technology the roadmap was aiming to achieve.  Digital technologies don’t have long life cycles.  What seems state-of-the-art today may be obsolete tomorrow.  Artificial intelligence (AI), for example, has grown in popularity versus RFID systems.  A Digital Roadmap should therefore be swift in rolling out a new digital technology that will ensure its applicability and competitive edge. 

Digital technologies marry data and operations for productivity improvement and have become popular thanks to Industry 4.0.  Yet, enterprises hesitate to delve into digital technologies and when they do, often encounter difficulties. 

A Digital Roadmap resolves this by providing a pathway that stresses a TOR, formation of a dedicated team, encourages consensus, clarifying useful content, a cash-flow schedule, and a competitive timeline. 

New technologies are always exciting but just like anything new, it requires acceptance by all. 

Hoarding and How to Discourage It

When people buy a little more than what they usually need, we call it speculation.  When they buy much, much more, we call it hoarding.

What happens when people hoard?  Do the enterprises that supply the goods gain in sales and profits?  Do hoarders make money?

Hoarding happens when people perceive they might not be able to buy the items they essentially will need in the very near future.   They end up buying a lot, to the extent consumers empty grocery shelves or businessmen use up all of their storage and look for more. 

Hoarding is not the same as building up buffer stocks or safety stocks.  Buffer and safety stocks take into account estimated variations in demand and supply.  These would be based on statistical formulae, as in like standard deviations if one recalls his or her education in statistics. 

Hoarding doesn’t have any statistical basis.  It is pure over-speculation borne by exaggerated perceptions of a current reality.  It often is a reaction to an adverse situation. 

A typhoon threatens to hit town.  Residents panic and buy based on what they believe they would need when the storm hits and afterwards.  How much they buy is based on fear and perceptions.  Perceptions are based more on emotion than it is speculation.  Hence, people buy as an emotional response and they tend to buy a lot more than they really need. 

Hoarding doesn’t benefit anyone.  Having too much of anything either eventually results in wastage or in having cash tied up for too long in the stuff bought.  Hoarders believe they would profit a great deal from selling the excess stuff that would become scarce but even then, the money earned is just a one-time bonus and the windfall doesn’t necessarily come at once.  Hoarders pay for the additional cost of storing the stuff and the opportunity cost for the cash they expended would be sunk into the goods they probably would be keeping for some time. 

Hoarding regularly also isn’t really a good idea.  On top of the added cost of storage and lost cash liquidity, having a lot of inventory drives up expenses.  Costs for security and upkeep creep in and eat away profits. 

Successful wholesalers especially of consumer goods and food items should not be classed as hoarders.  One wholesaler I know stocks up on canned goods and liquor starting July of every year.  He stocks up enough quantities that would meet likely demand for the year-end holiday season.  He bases his projected sales on the demand histories of the products he stocks.  And he’s often right.  The goods he bought and stocked up end up practically sold out before Christmas. 

Hoarders on the other hand don’t base their purchases on demand forecasts.  More often than not they end up with inventories that last for months and even years.  Hoarders buy based on irrational reasoning.  Wholesalers buy based on rational estimates. 

Hoarders likely won’t listen to advice to not stock too much.  Some enterprises, therefore, control how much inventory they make available to their customers, especially if the products they sell are fast-selling essential commodities.  Suppliers will ration and allocate to discourage hoarding.  Or they’ll ask for cash up front as hoarders, just like everyone else, would have limits in their financial capacities to pay. 

Hoarders can be very persistent in procuring the stuff they want to keep for themselves and satisfy their irrational urges.  Enterprises should distinguish who their customers are from the hoarders that put away products and refuse to share with others who may need them just as much, if not more.    

Customers may be always right.  Hoarders never are. 

A Feasibility Study Starts with Defining the Problem

An employee has an idea and brings it to her boss.  The boss says “good idea!” and forms a team to do a feasibility study.  The team determines the idea feasible for a new product. 

The boss authorises the introduction of the new product.  The product, however, does not sell.  Customers think it’s too expensive.  The boss kills the product.  The employee who suggested the idea is fired.  He gets rich when he sells the product on his own. 

There is a fine line between an idea and a solution.  Both are not the same.  An idea is a thought that develops into a concept.  A solution is an answer to a problem or it’s a process or method to deal with a problem. 

More often than not, we mix up the two and we do a feasibility study without really thinking through whether what we’re studying the feasibility of is an idea or a solution. 

Why is it important to know if we’re studying an idea or a solution?  Because the best approach to doing a feasibility study is knowing the purpose of what we’re studying in the first place. 

If we’re studying the solution, we’d need to make sure what the problem the solution is answering. 

If we’re studying an idea, we’d need to know what we’re developing from the idea.  What is the idea’s purpose?

Feasibility studies typically consist of the following steps:

If somebody is going to say I just laid out a problem-solving approach, I will say yes, I did. 

A problem-solving approach is the core of a feasibility study.  If it isn’t, it would make no sense to do a feasibility study.  How can one judge the feasibility of something if one doesn’t know the purpose of that something or what problem it is solving? 

In starting a feasibility study, it pays to know what the purpose is.  Hence, the first step is problem definition

A problem is not necessarily a disruption, a roadblock, or a painful symptom.  A problem in the context of a feasibility study is what we’re trying to achieve.  It typically comes in the form of a question that starts with “what” or “how.”  And it should be as specific as possible.

What can we do to lower the cost of electricity in our factory?

How can we reduce our pending orders faster? 

Please note that defining the problem is not as straightforward as it looks.  Just asking a question does not mean we have defined the problem. 

Defining the problem requires diagnosis.  Diagnosis requires data and analysis. 

A doctor does not simply define a patient’s problem just by the patient’s symptoms.  The doctor would diagnose, that is, do tests, study the results, establish the cause, and prescribe a procedure to cure. 

Likewise, with problem definition.  We need to gather data, analyse the data, organise the evidence, identify root causes, and conclude what the problem is. 

Inventories are high but we run out of stock every end of the quarter.  We import in large lot sizes.  Our stocks spike when the imports arrive.  Arrivals of imported merchandise come in at the same time.  Demand depletes our stock but some items run out faster than others.  We order when we notice items nearing out-of-stock.  It takes six (6) weeks for merchandise to arrive from the time we order and prepare the import documents. 

What inventory policy should we develop for our imported merchandise? 

We would also need to listen to what stakeholders are saying, especially what their ideas are.  It may sharpen the problem definition further. 

Our purchasing staff suggests we break up the imports into smaller quantities but that would mean foregoing bulk discounts from vendors.  They suggest negotiating with vendors such that we can order in bulk but have the order shipped in staggered smaller quantities. 

What inventory and purchasing policy should we develop for our imported merchandise? 

Defining the problem is a significant step in the feasibility study.  Once we know the problem clearly and specifically, it can be downhill from there in finding the solution or developing an idea. 

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