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

When Idle is Not Necessarily Bad

A chief executive officer (CEO) of a large corporation was touring a manufacturing facility.  As with all CEO’s touring a factory, he had an entourage of executives accompanying him as he walked and shook hands with workers on the production line.

As he strolled through the facility’s main line where the most important manufacturing processes took place, he noticed a uniformed operator sitting idly on a chair with his hardhat over his eyes. 

The CEO asked the plant manager accompanying him what the operator’s job was.

The plant manager answered: “That man, sir, is our annealing oven operator.  He watches the oven’s gauges and adjusts the temperatures when needed.”

“I’m sorry for you having to see this man just sitting there doing nothing,” the plant manager said apologetically.  “I’ll go tell him that he should be working.”     

“No, you don’t need to do that,” the CEO replied.  “The operator is doing precisely what we want him to do. Just by the fact that man is sitting there doing nothing, it means that the annealing line is operating smoothly.”

The CEO then approached the operator who quickly got up when he saw him coming.  The CEO shook the worker’s hand and said, “You’re doing a good job, keep up the good work.” 

What do we do when we see a subordinate worker doing nothing at his work-station or desk? 

Some bosses scold their employees for just sitting around.  Some bosses would chide supervisors for not assigning more tasks to employees.  A worker who’s not working is not productive, a boss may say.

On one hand that may be true especially if the idle worker in question had deadlines to meet.  But in most of my experiences, it would be the opposite.  The idle worker would actually be the most productive.   

Like the operator the CEO noticed, idle workers may have no problems to fix.  The operator had already set his equipment and did all the adjustments needed.  He had done his job making sure the annealing line wouldn’t fail and there would be no issues in the quality of items being processed.  He would of course check the gauges now and then to make sure everything is all right. 

We sometimes think that idle workers should be doing something more.  If we see an office worker taking longer coffee breaks than usual, we’d somehow try to think of giving more work to that person to make him more productive.  If we see other workers sweating away while another is just sitting around, we sometimes get the first impression that the idle worker doesn’t have enough work. 

Some bosses believe workers are just too lazy to find other better things to do or problems to solve.  We sometimes conclude that workers in general lack initiative or a sense of ownership. 

So, we try to push workers to be creative problem-solvers.  We command them or offer them incentives to take the initiative to find improvements for the workplace.  Creative ideas are starting points for higher productivity, after all. 

But we have to beware that there are pitfalls to forcing workers to find and solve problems.  Workers might end up finding and solving problems for the sake of it; they’d just identify stuff that seem like problems but aren’t.  Trivial issues that don’t offer any benefits would just be reported.  We would end up back to square one:  just finding work so an idle worker won’t be idle.    

In my experience, many idle workers are veteran workers who have by experience learned how to do their jobs so well they end up with extra time on their hands.  Because these veteran workers have accumulated much wisdom about their jobs, it has often become a good idea to assign them as mentors to younger, less experienced workers.  Veteran workers can be the best mentors. 

And more often than not, we don’t have to ask.  Veteran workers who have stayed long at their jobs usually volunteer to train their peers.  We managers just have to reinforce this by recognition and praise, by showing genuine appreciation. 

Veteran workers also have many ideas for improvement.  Rather than forcing upon them assignments to find and solve problems, it usually is a good idea to just ask them first, informally.  Questions like, “what do you think this factory needs to get better?” or “what’s your opinion about laying out the office differently?”  usually generate some interesting eye-opener responses from veteran workers.

True, some veteran workers wouldn’t offer much at the start.  And most of the time, that’s because there was some bad history involved.  A manager before you didn’t appreciate the veteran worker for a previous suggestion or a manager simply ignored an idea a veteran worker offered. 

This is where investing in listening comes in.  When one can make a veteran worker open up, one may be pleasantly surprised by the treasure trove of ideas and knowledge that come out. 

At that point, the veteran worker is no longer idle. 

About Overtimers Anonymous

The Path Towards Becoming a Supply Chain Expert Begins with Basic Competency

Sometimes identifying a problem is not in observing what’s going on; sometimes it’s noticing what’s not there.

In my blog, “Where are the Supply Chain Experts?”, written last March 2020, I wrote there were no supply chain experts seen working side by side with business and government leaders in solving supply issues at the height of the CoVID-19 pandemic. 

As media reported issues regarding shortages of medical supplies and consumer goods, we heard no real solutions to the problems.  And as government executives encountered obstacles deploying vaccines, there was no supply chain professional managing proper and efficient distribution. 

There may have been much talk about supply chain issues but there was little in the way of supply chain solutions coming from supply chain experts.

Not that there aren’t any supply chain experts.  There have been numerous podcasts, blogs, and testimonies on the subject but most if not all the supply chain professionals were really just broadcasting opinions.  There wasn’t much in the way of seeing them together with leaders or the leaders even mentioning any of them at all.* 

Simply put, despite the attention, nobody is putting weight in people with supply chain expertise.  Hardly any supply chain professional is in the limelight, even as the global CoVID-19 has brought on the most traumatic economic disruption in history.

There are several reasons which I believe why we don’t see supply chain experts taking the lead in solving major supply chain problems: 

Reason #1: Supply chain people are operations people and operations people are not expected to go out and interact with the outside world.   

The paradigm of operations people is to focus on what’s going within the workplace, that is, they focus inward.  Except to buy or deliver or hire a contractor, operations people don’t really interact with the outside world.

That essentially had been my upbringing in most of my supply chain jobs.  I concentrated on my department, my workplace, the processes within that were assigned to me.  Emphasis was always on what was going on within operations, not without.

Any interactions with the outside world were initiated mostly be people who were not in operations.  Operations people did not initiate such things and I don’t think many do so up to today.

In other words, operations people, especially supply chain professionals, are proactive in what happens within the four (4) walls of factories, warehouses, and offices.  We were not asked to improve the connections enterprises had with vendors, customers, and 3rd party providers.  Executives emphasised performance measures, not relationships.

Reason #2: There aren’t many supply chain experts in the first place. 

Many entrepreneurs are not supply chain professionals and many executives aren’t either.

That’s one reason maybe why we don’t see many chief supply chain officers.  There aren’t that many experienced supply chain managers in the first place. 

It’s not that the leaders don’t recognise the importance of supply chain management even to the extent of having it as an equal in the echelons of top management.  It’s just that there are very few managers with supply chain experience. 

When I say experience, I don’t just mean experience in logistics or manufacturing.  I mean experience as in synchronising operational functions and interacting with customers, vendors, and 3rd parties in procuring, transforming, and moving merchandise from sources to customers.  How many people do we know have this kind of expertise?  Chances are not a lot. 

Reason #3:  Supply Chain education is relatively new and not widespread. 

Many people aren’t schooled in supply chain management.  We can’t blame them for that; supply chain education is relatively new, as in it’s a course that only has been around for only 30 years or so, unlike finance and marketing which have been around for more than a century (longer perhaps).  And supply chain management as a concept and application is still evolving.

Coupled with that are the ones who teach supply chain management.  There aren’t that many supply chain teachers, at least one would call qualified to teach, one who has experience in various supply chain activities.  

Many supply chain courses teach specific subjects that tie in general operations management topics such as inventory management, production planning, transportation management, and operations research.  The trouble is many of these courses don’t tie in the topics together to teach how the supply chain functions as a whole.  They don’t offer the connectivity that illustrates how supply chain operations work together from end to end.

At the same time, supply chain education isn’t really uniform from place to place.  Some schools link supply chains more to logistics while others stress transportation and purchasing.  Some don’t even teach manufacturing’s connection to the supply chain, treating it separately even as it shouldn’t be.  There’s really no formally standard course for supply chains as one would see for law, engineering, or business administration. 

The people graduating from any supply chain management course from the 1990’s to the 2020’s aren’t therefore fully educated in supply chains.  They’re just graduates taught with a hodgepodge of individual courses related to the subject, which in itself isn’t the same from one school to the next, from one teacher to another. 

These make the diplomas and certificates some supply chain schools issue open to doubt.  A certificate or diploma in supply chain management thus testifies to a school’s brand of teaching, not necessarily one that is generally applicable in any industry. 

When it comes to bringing supply chain management to the forefront and developing it as a prominent field that addresses present-day issues via the three (3) aforementioned reasons, what should be done? 

I believe education should be the starting point and the very first step should be to establish basic competency among candidates for the field. 

I define basic competency in supply chain management as where one is familiar with operations, can at least see how to tie them in altogether towards overall optimal performance, and where one has the ability to plan, organise, direct, and control supply chains both in the day-to-day and strategic perspective. 

Basic competency would be the foundation.  Experiences afterward would be the building blocks that would develop the manager’s proficiency. 

Both the education in basic competency and the experience one gains should not be inward looking but focused on the relationships and connections between parties and links within and outside the enterprise. 

It would be a wholly new approach to some entering into the study of supply chains.  But I believe it would be worth it.  Many of the challenges we see in supply chains are precisely occurring in relationships and connections between functions and parties inside and outside enterprises. 

Where can we find the teachers or just even the mentors?  Because there are not many of them, many aspiring students would be left on their own to look for and put together the bits and pieces experiences would bring. 

But even as they may be few, there are those who can at least help new managers attain that basic competency.   I’d like to think I can be one of those teachers given the knowledge and insights I gained from close to 40 years’ experience in the field. 

*[President Joseph Biden of the United States led a “summit on semiconductor and supply chain resilience” in April 2021 in which the President discussed  with chief executive officers (CEOs) how to tackle supply issues particularly in semiconductor chips.  No prominent supply chain expert was seen stepping up to address the issue].     

About Overtimers Anonymous

Three Questions Every New Manager Should Ask

Every new manager should always ask three (3) questions about an operation he or she will be in charge of:

  1. What does the book say should be happening?
  2. What do the people say should be happening?
  3. What is really happening? 

Chances are each answer would be totally different from the others. 

What does the book say?

The “book” in this case is the manual, memo, policy, or rule.  What does the book say how an operation should be run? 

What do the people say?

The “people” are the workers running the operation, your boss, and your peers whom you work with.  They’re the men and women on the ground who know their jobs as well as those co-managers who think they know more than you. 

You could also pose the same question to support staff like the inspectors & maintenance technicians, or to foremen and supervisors who oversee the workers.  But I’d put more weight to what the people who are on the front-line say since they’re the ones who are right there doing the job itself.   

What is really happening?

This is what is actually happening which comes from witnessing the operation itself. 

Most of the time the answers to each question differ greatly.  What the book says would differ from what the people you work with say and either would differ from what is happening in real life.

When a new manager notes the different answers, it provides a starting point on how best to manage the people and operations she will be in charge of.  It will lead to more questions like:

  • Why isn’t the operation doing what it’s supposed to as per the manual?
  • Why are people saying differently from what is actually happening?

The idea isn’t to catch people and find fault.  It’s to know what real problems underlie the jobs people are doing and the systems that run them. 

The three (3) questions provide an opening into understanding what those challenges and difficulties are. 

Case in Point:  Production at a Refrigerated Margarine Packing Line

As a new manager of a refrigerated margarine packing line of a multinational consumer goods corporation, it was my job to make sure production would always be maximised.  There was high demand for the corporation’s refrigerated margarine brand at the time and I had to make sure production was in full swing.

I noticed, however, that production per eight-hour shift never was more than 700 packed cases a day. 

I went to check the work styles of the margarine’s operators.  I had the three (3) questions in mind:

What did the book, the company’s manufacturing manual, say? 

The manual said employees must be on the production line at the very start of their shift and can only leave their work-place during breaks and only at the end of their shift.  During their work-time, they must be working and packing to meet output as dictated by the production schedule.

In other words, employees should be working throughout their shift except during breaks. 

But if they are working throughout their shift, then based on time & motion studies, they should easily exceed 700 cases a day.  So why weren’t they?

What did the operators say?

When I asked the operators how come they weren’t exceeding the 700 cases a shift, they said that is the maximum they can humanly do.  Each case is heavy and packing them isn’t as easy as what the manual says. 

When they pack a refrigerated margarine case, they said they have one person scooping up the margarine bars and putting them into a corrugated container.  A second packer tapes the case and stacks it with others on a pallet.  A third person who is also the operator of the production equipment moves the pallet to cold storage adjacent to the packing line and then provides a new pallet for the packets to stack new cases. 

What was really happening?

When I went to discreetly observe the packing operation (I would observe from a spot where they wouldn’t see me), I noticed that there’d only be one operator on the packing line.  The other two wouldn’t be there.  In fact, whenever I observed the operation, there will always be only person doing everything:  packing, stacking, and moving the pallets. 

On the swing shift (afternoon to evening) and graveyard shift (evening to early morning), there would be no production operation for the last two to three hours of each shift.  As in no one present on the production line. 

When I confronted the crews about this, their first answer was that the other operators were on break when I was observing only one person on the line.  When I countered that it wasn’t the designated company break time, they then said they took turns on breaks so that they could run the machine straight without having to turn it off and on again. 

When I asked how come there was no operation for the last two to three hours of a shift, they said they were making up for the break-times they didn’t use up from going straight during the shift.

Finally, when the employees realised they weren’t making sense, they finally said:

Some years ago we were paid on incentive.  We were given a quota of 700 cases a shift.  If we exceed quota, then we will be paid extra.  But the company decided two (2) years before you the manager came to scrap the system and raised every worker’s salaries to make up for the lost incentive.  We at the refrigerated margarine line, however, felt no longer motivated to produce more than 700 cases per shift.  And rather work throughout a shift, each of us operators took turns packing the items on the line.  Each of us would really be working only two (2) hours a shift.  After six (6) hours, when we reached the “quota” of 700 cases, we would all go upstairs to our locker room and rest until quitting time. 

For the succeeding months afterwards, I worked with the refrigerated margarine crew in this regard.  I didn’t outright succeed in getting more production per shift but I did change how production schedules were done and did organise the crews into teams that worked on reducing downtimes.  Productivity actually improved despite the ongoing practice of producing only a fixed quantity per shift. 

Asking those three (3) questions:

  1. What does the book say?
  2. What do the people say?
  3. What is really happening? 

helps managers see what’s happening from three (3) different angles. 

Neither answer may necessarily be the right one.  The idea is to reconcile them all and identify the problems that underlie each one of them. 

About Overtimers Anonymous

Just About Every Enterprise is a Supply Chain Enterprise

I and ten million people in Manila have the same problem every day.  Mobile phone reception—it’s lousy. 

It would take several tries to call someone on my mobile phone and when I do, chances are the conversation would stop in the middle. 

Poor cellular reception is a norm in the Philippines.  It’s just so hard to get a decent signal to have a continuous conversation or get a text out. 

I’m sure telecom companies are doing all they could to improve their services.  I see it with their unrelenting investment in the set-up and maintenance of cell-phone towers as they continue to expand coverage and upgrade reception. 

If we think about it, the operations of telecom companies have similarities to those enterprises who manufacture and deliver finished products.  The good quality mobile phone reception we yearn for is not much unlike the supermarket products in how both are made available to consumers.  In short, both have supply chains. 

The supply chain is a model for enterprises that buy raw materials and produce & deliver merchandise for their customers.  Supply chain management has become a standard when it comes to managing the inventories and logistics of items, from chemicals to consumer goods.

Supply chains, however, aren’t limited to just physically tangible products.  They’re very much applicable to intangible items, such as electricity, health care, and business process outsourcing (BPO) services. 

Supply chains follow the flow of products from their start as raw materials to their conversion to merchandise and subsequent delivery to users.  Service and utility enterprises also follow a path of conversion and delivery not altogether different from product supply chains. 

In manufacturing industries, factories convert raw materials into products. 

In non-manufacturing industries, enterprises convert specific problems and issues into finished services.   Hospitals treat sick patients.  Call centres handle problems and questions.  Telecom companies provide mobile phone receptions resulting in uninterrupted conversations and successful sent messages.  Power utility companies make available electricity from energy sources. 

But It’s not just relating manufacturing and services.  It’s also the logistics behind both.  Whereas manufacturers rely on procurement of materials and logistics for transport and delivery, service enterprises depend on infrastructure and systems to ensure the flow of their operations.

A hospital needs not only ambulances but also the system of managing the dispatch of the ambulances for the assurance of fast turnaround for the benefit to patients needing immediate transport. 

One mistake I observe with service companies is that they limit supply chain management to stuff like spare parts and supplies. 

A large energy corporation for instance has a supply chain executive whose job is to buy equipment and components.  The energy corporation had no structure or strategy when it comes to power conversion and delivery.  The energy corporation, hence, had big issues in unreliable power delivery due to poor planning in energy generation and power plant capacities. 

The success of a supply chain model starts with its scope.  Does the supply chain manager of the enterprise handle the total flow from start (procurement/purchasing), to its conversion (production/service operation), and the logistics operations (transport/delivery/orders processing)?  If it misses on any of the aforementioned, chances are the enterprise’s business has a lot of room for improvement.

We consumers want good quality from the things we buy.  Not only the merchandise from the store but also from services such as mobile phone reception, electricity at the flick of a switch, and the best health care. 

The supply chain model is just as much applicable for intangible services as much as it is for tangible items.  Most if not all enterprises have supply chains for what they offer and deliver.  We just need to recognise that managing the operations with supply chains in mind can go a long way to bringing excellence and win-win results. 

If only the telecom companies can think like this, then maybe we’d get better service with our cell-phones. 

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

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. 

About Overtimers Anonymous

Why Shifting from the Month-End Surge to Delivery by Demand is Common Sense

“We just have to live with it,” the General Manager replied. 

The GM was responding to my comment that month-end surges in sales orders were causing inefficiencies in the company’s logistics operations. 

I was presenting an operations assessment report to a company that distributed name-brand computer printers and accessories.  One of the key observations from my report was that the majority of sales orders (more than 50% of monthly sales) came at the end of every month.  Staff from sales, accounting, to logistics rushed deliveries to fulfil the orders and meet revenue targets.  Sales personnel counted on the deliveries to achieve if not beat their quotas and benefit from incentives. Not attaining the targets and quotas was simply not acceptable.  

The company is an exclusive distributor for a large name-brand supplier of printers.  The supplier dictated the monthly sales targets.  The supplier expected the company to meet those targets from month to month, no questions asked.  Hence, the company’s General Manager said that month-end surges were something they could do nothing about.  It was something they had to live with. 

Many executives do not want to shift from the practice of month-end selling and delivery.  “It’s not for discussion,” a consumer goods wholesale executive once told me when I said the monthly surge in deliveries was causing her firm’s transportation expenses to rise.  The executive did not want to change a practice which has become so ingrained in the company’s culture.

Executives don’t dispute that month-end surges bring about inefficiencies and high costs throughout the supply chain.  Surges cause stock run-outs as inventories deplete quicker than suppliers or manufacturing lines can replenish.  The surges also drive up inventories of customers which result in increased product returns especially for products with limited shelf lives.    

Logistics expenses increase as month-end surges strain storage and transport capacities.  Some firms rent additional storage to stockpile products in anticipation of sales surges.  Transport providers tend to sub-contract additional trucks to ensure there are enough vehicles to meet the demand.  Both the additional storage and transport capacities result in higher delivered costs for products.    

Month-end surges are sometimes coupled with periodic sales promotions and price changes which fuel more spikes in orders and delivery volumes.  Surges thus cause a “bullwhip” effect in which the up-and-down delivery volumes and resulting peaks and valleys in inventories amplify speculations throughout the supply chain. 

Executives are reluctant to move away from month-end surges because they fear lower sales will result.  They are afraid shifting from month-end sales would cause a decrease in revenue which they can ill afford in organizations that especially measure performance by monthly targets.

Moving from month-end sales to just deliveries driven by demand is common-sense logical.  It’s just not accepted given the anxiety it would cause among executives. In a demand-driven supply chain, one delivers only what and when it is needed.  The fear is the demand and the subsequent sales might not be up to par with immediate targets.

A downturn in sales would indeed be expected as customers would exhaust overstocked inventories from any previous surge.  In succeeding months, demand would pick up and sales would average closer to what would have been with month-end surges.  But executives would have to have faith that that will happen and executives don’t like to count on faith. 

Stakeholders in many companies measure executives via short-term targets.  Stakeholders want to see continuous growth in their company’s finances especially if they expect dividends and bonuses every year.  Creditors, such as banks who provide loans, also want to see continuous short-term gains to assure themselves that they will be paid the interest and principal of what they lent. 

The month-end surge is a manifestation of short-term thinking.  Shifting from the month-end surge requires changing one’s mindset from short-term to long-term management.    

When delivering only what is needed and when it is needed, all functions of the organization have to work closely together.  Sales needs to forecast future demand from the grass-roots level or from the end-user, whether that be the customer or the customer’s customers.  Marketing would support sales where it sees demand is lacking or where there is potential.  The supply chain from logistics, manufacturing, and procurement would have to build in a capable system and structure to anticipate the demand.  Sales, Marketing, and the Supply Chain, most of all, would need to communicate and come out with a consensus of action every time they review actual and forecasted demand. 

Attaining higher sales is not a product of individual sales persons or a result of incentives for just one group.  It is the product of teamwork.  Any challenge in fulfilling demand and achieving targets can be met if the organization works as a team. 

And isn’t that what organizations are supposed to be doing in the first place?

About Overtimers Anonymous

Originally published in LinkedIn May 06, 2019

Six (6) Principles to Successful Flexibility

Flexible manufacturing was popular in the 1990’s.  Twenty years into the 21st century, we don’t hear much about it anymore.  Instead, we hear a lot more about digital and connectivity.  Amid a raging pandemic, people also talk about resilience.

Whatever the buzzword, what matters in the end is how well enterprises deliver versus customer demand.  It’s nice to have a robot that does twice the job of an ordinary person, but it’s another thing when an enterprise didn’t make available items when the customer needed them, which happens more often than not. 

Flexibility is the capability to change quickly and adapt to fickle demand.  It is the ability to switch from one product to another or the means to swiftly tweak a service to meet a customer’s unique needs.    

Flexibility does not happen by itself.  It’s the result of a strategy or a policy.  An enterprise becomes flexible because it decides to do so.

Flexibility is not agility and it isn’t responsiveness, although all three work well together.   Versatility is the combination of flexibility, agility, and responsiveness and is an ideal an enterprise wouldn’t mind having.  But we’re getting ahead of ourselves. 

Flexible systems are applied popularly in manufacturing.  They come in different forms.  The following are some examples:

  • Cells.  Groups of machines run by one to three operators.  For instance, a machine shop that has several groups in which each consists of a lathe, drill, and milling machine run by a single operator.  Each group does its own product from start to finish. 
  • Parallel Lines. Several identical production lines in which each makes a variant of an item.  For instance, three to four soap lines in which each produces a different colour of soap. 
  • Fast Change-Overs.  A production line in which operators can quickly change from one item to another.  For instance, a steel pipe manufacturer which is equipped with jigs and fixtures that are easily adjustable that allows operators to change from one diameter of pipe to another within minutes;
  • Common Core. A product line that has a common base or module to build varieties of items on to.  For instance, an auto assembly line that uses the same chassis for different models of cars and vans;
  • Modular Manufacturing. Using pre-assembled or pre-fabricated modules and assembling them into varieties of products.  For instance, suppliers to an aircraft manufacturer deliver pre-assembled portions such as the fuselage and wing such that the aircraft manufacturer can not only quickly put together an airplane but also mingle the parts differently to produce a different variant (such as a longer fuselage for one aircraft and a shorter one for another). 

Successfully implementing flexibility relies on a few principles:

Think Small

The larger the manufacturing group, the more complicated and rigid the operation.  The smaller the group, the more flexible it becomes.  Having multiple small groups such as cells allows more leeway to customise items of different specifications, at smaller lot quantities, and in shorter time.    

Balance Integration with Autonomy

Integration means connection toward a common goal of delivering value for the finished product or service. It is not centralisation. An enterprise would do well to give individual managers some freedom and authority to design their operations without sacrificing coordination with others. 

Innovate to Invest

Enterprises sometimes have it the other way around.  They invest to innovate.  They pour resources to consultants and outsiders to design the flexibilities.  The enterprise’s stakeholders are supposed to be the experts, so shouldn’t the innovation come from within and not without?  Wouldn’t it better to first tap home-grown expertise and then invest in the innovations that are brought forth?

Cultivate Talent, Not Acquire It

Likewise, with talent.  Enterprises sometimes try to hire the best talent outright.  But those in the organisation know its workings better than anyone else.  We don’t have to limit an operator to one machine; we can train her with another and reward her for the skills she gained on top of the performance she will contribute.  The enterprise reaps productivity as a result.    

Use Multiple Measures

Flexibility has that quirk that it’s not measurable by one metric.  We can measure capacity and service because they are singular.  Flexibility is multi-dimensional.  It requires several metrics and analytics to see. 

Everyone is a Member of the Team

We hear it again and again.  Top management support.  Commitment by everyone.  At the same time, we form task forces that include only a few and leave out the others.  When it comes to flexibility, that one cell, production line, or module does not perform alone.  It needs coordination and synchronisation as much as it needs the space and design to work freely within itself.  The operators in a group are a team, yes, but the group is part of a larger team that puts the groups together toward one goal.  It may have been difficult then, but modern day technology has allowed everyone to stay in touch and be a member of the overall enterprise team. 

Flexibility may be a bygone buzzword.  But it still is very much applicable for enterprises seeking to stay in business amid the challenges and disruptions of the present-day.  They are ways to be flexible, such as via cells, parallel lines, fast change-overs, common cores, and modular manufacturing.   Following some principles, enterprises can progress in productivity and remain on top of the heap.

About Overtimers Anonymous

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.