DRP, Deployment and the Role of the Supply Chain Engineer

Distribution Resource Planning (DRP) was my first assignment as supply chain planner for a large consumer goods firm.              

It was the late 1980’s and Manufacturing Resource Planning (MRP 2) was at the height of popularity in the corporate world.  The company I was working for was embarking on integrating MRP 2 in an information technology upgrade of its operations and DRP was one module offered. 

DRP is a planning tool in which one schedules the deployment of items, usually finished products, to distribution centres or depots at different geographical locations.  It manifests itself in matrices such as the following for a depot and a central storage facility:

The matrices serve as templates in which the planner can see how much a depot needs at a point in time in the future.  In the following example, it’s week three (3) in the future:

To anticipate the out-of-stock on Week 3, the planner simply schedules the shipment of product to the depot.  Assuming a lot size of 800 and a two-week transit time, the planner schedules a shipment from the central facility at Week 1:

It’s simple enough for one item and for one depot.  The work adds up when it includes several depots:

For multiple items and multiple depots, the work adds up even more:

As much as the planning is simple per item per depot, the work becomes more cumbersome and complicated with multiple depots and multiple items.  Hence, DRP works best with the help of MRP 2 software that would automatically compute the schedules for all items for all depots. 

It’s no wonder then that organizations look forward to artificial intelligence (AI) in planning the deployment of products.  It’s just a lot of simple work that a machine can do instead. 

If only it was that easy. 

DRP deployments don’t take into account uncertainty and sudden disruptions.  It assumes things will go as planned when in reality, they do not.  Such as when a planned arrival is delayed: 

Customer orders as a result are not served.  And the disruption may even cause customers to speculate: 

In such scenarios, automated planning is no longer useful.  Human intervention is needed as the central facility would either rush stocks to the depot or the sales force served by the depot negotiate with customers to smoothen demand. 

When it comes to uncertainties, planners tend to build up inventories to avoid situations like in the aforementioned example.  It defeats what DRP is trying to do which is to keep inventories manageable and at the same time serve customers only when they would be needing their items. 

Information technology (IT) software does not provide a fool-proof automated solution for planning inventories and deployment.  Yet, many managers make the mistake expecting that computer programs will do so.  DRP is no exception.

Deployment is a critical step in the supply chain, especially for enterprises that have markets in far-off places.  It isn’t something that can easily be automated.  It requires a framework founded on an overall strategy. 

An overall strategy answers how the enterprise shall distribute its products: 

  • Do we set up depots or distribution centers at different geographical regions?
  • Do we deliver directly to markets from a single central distribution facility?
  • Do we build manufacturing and distribution facilities at different locations?
  • Do we just rely on a 3rd party logistics (3PL) provider to do all the sales and distribution of products? 

The distribution strategy will need to align with how the enterprise wants to sell and deliver its products. 

  • Will selling be via retail channels?
  • Do we negotiate contracts with distributors, wholesalers, and/or licensed dealers to sell at different markets?
  • Does the enterprise utilize e-commerce for customers to order and couriers to deliver? 

The framework for deployment consists of both policy and structure derived from a distribution strategy.   

Policy would cover such areas as:

  • Inventory: how much to keep, when to replenish, how items are handled (e.g. first-in first-out);
  • Service:  how items are dispatched (e.g. minimum quantities, lot sizes, less-than-truckload [LTL] limits);
  • Quality:  how merchandise is inspected, how damages are prevented;
  • Risk: how products are secured and accounted for. 

Structure would involve the assets and people directly involved with deployment.  These would consist of:

  • Facilities such as depots, warehouses, storage equipment (e.g. racks, tanks, vessels), & materials handling (e.g. forklifts, conveyors);
  • Transportation assets from trucks, vans, to shipping containers and air-freight;
  • Organizational structure and management set-up.    

The effectiveness of a deployment framework depends on how well the enterprise develops its policies and structures.  This is where supply chain engineers (SCE’s) can help. 

SCE’s can assist executives in studying various scenarios for an enterprise’s deployment framework.  These range from assessing the capacities and financial effects of product flows via different network options to determining optimal inventory levels taking into account the risks of stock-outs and overstocks. 

SCE’s can also fine-tune options on how an enterprise can deploy its products efficiently and effectively.  For example, SCE’s can help executives decide whether cross-docks would be a better option to rapidly move products from centralized locations to customers. 

DRP is a good tool for supply chain planners.  But like all good tools, it is most effective when it fits in with a framework founded on a well-developed distribution strategy. 

Supply chain engineers have the expertise to help enterprises optimally spread their inventories to the markets they want to sell to, with the tools and software they are familiar with and can muster. 

About Overtimers Anonymous

The Feasibility Study Ends with a Plan, Not A Solution

The feasibility study consists of the following steps:

  • Defining the Problem
  • Brainstorming Possible Solutions
  • Developing Criteria for the Solution
  • Evaluation and Selection of the Solution
  • Assessing the Solution’s Practicality and Benefits
  • Making a Plan

It starts with defining the problem.  It ends with a plan.

A lot of people make the mistake of ending a feasibility study with a solution. 

After they have the answer, many of them neglect to ask “what’s next?” 

They rely on the stakeholders to figure that last step out.  That’s a big mistake because most of the time, the stakeholders have no clue as to how to do so. 

The process of finding a solution begins with brainstorming.  This is already controversial as some would argue that one should first set criteria for whatever idea or answer is presented.

What inventory and procurement policy should we establish? 

Brainstormed ideas:

  • Buy only when customer orders?
  • Eliminate all items except ten (10) fast-selling products?
  • Keep no stock of top 20 most expensive items to make?
  • Have a single exclusive vendor for each material item and make vendor accountable for inventory?
  • Have at least three (3) suppliers per material item purchased and keep at least one (1) month’s equivalent worth of sales per item? 
  • Put all inventory on a huge container vessel that would constantly be at sea and move from one port to the next to load and unload merchandise?

Brainstorming comes first because it is a no-holds barred free-thinking exercise that allows minds to capture all the thoughts possible to address the problem.  Nothing is filtered or evaluated.  Every thought is acceptable and listed.

Criteria comes afterward but they should relate to values, principles, and strategic objectives. 

Examples of Criteria:

  1. Solution has to be easy to implement;
  2. There should be minimal risk in running out-of-stock;
  3. There should be minimal investment in training and education:
  4. Material costs should not increase;
  5. Working capital should decrease.    

Brainstormed ideas are then filtered based on the criteria.  Those that obviously wouldn’t fit are thrown out outright.  The ideas that qualify would remain.

The remaining ideas then pass through an evaluation process. 

The evaluation process is mostly an intuitive one.  Whereas defining a problem depends a great deal on data gathering, analyses, and presentation of evidence, evaluating candidates in search for the best idea or answer to a problem is mostly done via perception and insight. 

We weigh candidates against the criteria we developed earlier.  The weighing is an attempt at rational calculation but most of how we do it is based on opinion.  We predict benefits on what we think will happen, not really with any rationale. 

A feasibility study is a contrast between the rational definition of a problem and the intuitive search for a solution.  That’s why as soon as a solution is selected, we need to refine it and move forward to developing it into a plan on how to make it into a reality. 

Refining the selected solution or idea is simply clarification of what we think needs to be done.  Whereas a problem is best described in the form of a question, a solution should come out in the form of an action plan.

As an action plan, a solution or selected idea should follow a SMAC format.  It should be Specific, Measurable, Attainable, but Challenging. 

We will develop an ABC Inventory & Purchasing Policy. 

A feasibility study ends with a plan, not a recommended solution. Solutions are intuitive but a plan brings it into reality. 

With a plan, an organisation will know what to do next. 

About Overtimers Anonymous

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. 

About Overtimers Anonymous

Balancing Unstoppable Production and Benefiting from It

I used to work in a flat glass factory. 

The flat glass factory I worked at used float technology.  It starts with a furnace that melts raw materials such as silica (sand), soda ash, dolomite, and limestone.  Molten glass flows from the furnace to a tin bath, a chamber of molten tin, in which the liquid glass from the furnace floats on the molten tin to produce an almost flawless sheet of flat glass. 

Float glass factories run continuously.  Shutting down is out of the question because it risks damaging the furnace and tin bath which would result in lengthy cleaning and expensive rebuilding. 

Re-starting a float glass facility is likewise very expensive.  Restoring the flow of float glass requires tedious re-calibration operations and the difficult pulling of the liquid glass from furnace to tin bath.  

I know because I participated in one such operational re-start.  It was hot, time-consuming, and it cost the company I worked for a lot of money. 

The economics of keeping a float glass hot and running outweighs any temporary shutdown regardless of whatever the demand for glass is.  Unless it’s a permanent shutdown, flat glass companies will keep their float glass plants running no matter what. 

Float glass plants typically produce a minimum of 450 tons of sheet glass a day.  Glass companies, however, believe there is enough demand to absorb the daily unstoppable production.  Never mind that glass demand fluctuates with the highs and lows of the construction and automotive industries.

Unstoppable production is a reality in several industries.  Steel manufacturers have blast furnaces that cannot be shut down.  Petroleum corporations cannot outright stop the output of oil wells.  Farmers cannot reschedule harvests. 

We are taught that the purpose of supply chain management is to fulfil demand.  How does one then balance the management of unstoppable production with the swings of customer demand? 

Unstoppable manufacturing dictates the need for efficiency.  Ongoing production operations means ongoing supply of materials, supplies, and labour.  There has to be enough storage space, materials handling, and transport to handle the continuous manufacture of products.  At the same time, enterprise executives need to ensure that there is demand for what is continually produced.  Sales and marketing managers would strive to find buyers or markets to sell whatever is made.

Continuous production, however, should not be the centre of attention.  Selling products to keep manufacturing operations efficiently running should not be the sole purpose of supply chain professionals.

Customers and what they want should always be the focus.  There should be a balance between supply and demand in which the supply chain operations aim to meet customer expectations at the same time reap the benefits of such for the enterprise’s stakeholders.   

Flat glass companies market a variety of products.  They sell custom-cut window glass for buildings.  They produce coated glass window panes that insulate homes from the heat of the sun and thick glass sheets for furniture tables.  They sell glass for car and truck windshields.  They also sell glass that are used for solar panels and photoelectric cells.  The variety of products sums up to a high demand which justifies the continuous production of flat glass. 

Agricultural enterprises also allocate harvests in a variety of ways.  Fruit companies sell outright to wholesalers and supermarkets and at the same time export to other countries.  They also sell to fruit processing enterprises which manufacture canned and preserved items. 

Supply chain engineers (SCE’s) can help unstoppable producing enterprises by focusing attention on distribution and inventories.  They can help managers determine how much of what product to make, how and where to spread the items, and how much raw and packaging materials to buy and store. 

Oil companies, for instance, invest in storage tanks and lease super-tanker vessels to temporarily store production when demand is low.  The companies would dispatch the super-tankers to position their stock near to buyers who would be ready to purchase them when demand recovers. 

SCE’s can also help find out what kind of product to make and keep.  For example, SCE’s can determine how much work-in-process inventories to make instead of finished items.  Steel and metals manufacturers produce heavy rolled-up coils and ingots which they later convert to items such as bars, parts, sheets, plates, and pipes.  With the help of SCE’s, manufacturers can set inventory policies for work-in-process products and devise customised make-only-when-needed systems for finished items. 

Manufacturing is not a quick on-and-off kind of operation.  There is a cost when production facilities halt and re-start.  As much as possible, production lines should operate continuously, for efficiency’s sake. 

Efficient production, however, is not the end-goal of supply chain professionals.  Fulfilling customer demand is.  An unstoppable production process exists because of the confidence an enterprise has in selling all of what it would make.  Balancing the flow of product from vendors to manufacturing to logistics to customers should always focus on delivering to customer expectations and in terms of what enterprise stakeholders seek in terms of their organisation’s strategic mission and goals. 

An enterprise can make plenty, deliver plenty, and profit from plenty, with the help of supply chain engineering expertise. 

About Overtimers Anonymous

Four (4) Supply Chain Scenarios and What to Do When They Change

We don’t know when it’s going to rain.  So, we build dams.  Dams are reservoirs, inventories of fresh water.  Having a reservoir assures an adequate supply of water to meet the continuous demand of communities. 

Magat Dam, Luzon Island, Philippines http://bagong.pagasa.dost.gov.ph/flood

A large printer company does not how many books its customers will buy tomorrow.  Paper prices and supply are also not predictable.  The company therefore stocks up on paper and negotiates contracts with potential customers.  Company executives have to take care to not have too much paper on storage or not too have too many customer orders coming at one time.  It’s a balancing act of supply and demand but that’s just the way it is in the printing business. 

Supply chain managers face a myriad of challenges in their operations.  But one can categorise some of these challenges when it comes to inbound materials and outbound finished goods.  The following are four (4) such categories or scenarios:

  1. Unsure Supply, Sure Demand

Demand is known but supply is not.  As in the example of the dam as water reservoir, demand (i.e. water consumption) is certain but supply (rainfall) is not.  Supply chain professionals would put much time and resources in predicting supply or finding alternative means to maximise it (e.g. cloud seeding, drilling wells).  They would also be investing in enough capacities for inventories (in this case, the reservoir) to assure demand is always met. 

2. Sure Supply, Unsure Demand

Supply is assured but demand is unknown.  People who have new products talk about this scenario a lot.  But this also applies to products with not-so-long life-cycles such as attire and accessories from the fashion industry.  In such cases, supply chain managers tend to stock up on finished products to ensure availability.  But because finished products are the most expensive type of inventory, supply chain managers spend a great deal of time and money in policies and systems to make sure they only have enough—not too much and definitely not too few. 

3. Sure Supply, Sure Demand

Supply and demand are certain and predictable.  This can sound like an enterprise’s idea of a business dream come true but there would still be work to do for the supply chain manager.  In such a scenario, the focus would be on reliability, that is, making sure that the enterprise’s processes are operating efficiently and delivering to the satisfaction of customers.  This can be easier said than done especially for enterprises that have complicated manufacturing operations (e.g. chemical refineries). 

4. Unsure Supply, Unsure Demand

The nightmare opposite of number 3?  It’s a reality for many enterprises who market products such as consumer goods, machinery & parts, and household appliances.   Enterprise sales managers would constantly be guessing demand (what they would call forecasting), while supply chain executives would be unendingly negotiating long-term contracts with vendors, at the same time managing inventories of materials and merchandise. There would be pressure not only to minimise working capital but also to ensure availability of items to customers.   One key take-away strategy for this scenario is collaboration—working with vendors and customers.  

These four (4) scenarios may sound over-simplified given the reality of issues that surround supply chains (how expensive materials are, where they originate, the shelf lives of materials and products, number of products the enterprise sells, etc.).    

But they provide a starting point for Supply Chain Engineers (SCE’s) to devise systems that synchronise the flow of merchandise through supply chains to generate productivity and competitive advantage. 

SCE’s can help managers calculate capacities and set inventory policies for unsure supply and/or unsure demand scenarios.  SCE’s can also work out manufacturing reliability improvements, labour work-place settings, and equipment maintenance methodologies that would cover sure-supply / sure-demand scenarios. 

As 21st century business becomes more dynamic, SCE’s can help enterprises anticipate changing scenarios.  SCE’s, for instance, can study the feasibilities of outsourcing production versus building in-house capacity given any of the different supply and demand scenarios.  SCE’s can also plan contingencies for logistics such as determining how many trucks an enterprise should buy for itself versus how many should be outsourced to 3rd party providers.  SCE’s can also offer ideas for flexible production systems such as cellular manufacturing and fast-changeover assembly lines. 

Enterprises face different scenarios depending on their business environment.  Supply and demand of what they buy and sell may be certain or they may not.  Whereas enterprise managers resort to inventories and capacities to make up for any uncertainty, supply chain engineers offer help not only in optimising for whatever scenario but also in anticipating to whatever changes that may come.

Supply chains can be complicated; supply chain engineers make it less so. 

About Overtimers Anonymous

What Is the Right Supply Chain Model for New Products?

A lot has to get done when it comes to launching a new product.  Aside from marketing and selling, enterprise executives need to know how much to make, how much to stock, and how they’ll spread that stock. 

If the new product is replacing an older one, the enterprise would need to figure out what to do with the older product’s inventories and its raw and packaging materials.  If the new product will involve purchase of new specialized manufacturing equipment, what will happen to the machines used for the older one? 

New products also would have new characteristics.  They may have more limited shelf lives.  They may use materials that require special handling. 

Many enterprise executives often plan very well the manufacturing and distribution of new products.  Many, however, don’t have immediate plans how to respond to the actual demand as soon as the new product is launched.  Higher than expected demand would wipe out inventories quickly and strain production and transportation capabilities.  Lower than expected demand would result in inventories occupying precious floor space and idle machines and workers costing the enterprise money. 

Every product has a life cycle.  A new product may start slow or move fast but would eventually reach a plateau and decline.  Some enterprises try to prolong the lives of their products especially if the products have profitable margins.  Enterprise executives, on the other hand, won’t hesitate replacing maturing products in exchange for potentially more beneficial ones. 


Joffrey Colignon & Joannes Vermorel, Product Life-Cyle (Supply Chain), April 2012, https://www.lokad.com/product-life-cycle-(inventory-planning)

Supply chain managers and engineers play a key role in the management of product life cycles.  And it starts not when a product is launched but before.  Many enterprise executives have the habit of telling supply chain managers to plan only when the product is just about to be introduced.  And when the demand becomes reality, more often than not it comes out much different than expected; the supply chain manager ends up scrambling for more materials, more storage space, more production capacity, or the opposite. 

Supply chain managers and engineers can contribute a great deal in the conception of a new product.  The supply chain engineer (SCE) in particular can compute estimated needed capacities for production, transportation and storage.  SCE’s can devise deployment plans and simulate various demand scenarios.  They can also work out the quality assurance protocols not only for manufacturing but also for procurement and logistics. 

In other words, SCE’s can develop a supply chain model for a new product.  It wouldn’t just be a production plan or a distribution plan.  It would be a comprehensive supply chain road-map that would synchronise the procurement of materials, production of goods, and inbound & outbound logistics.  Such a road-map would even cover after-sales services such as warranty responses and retrieval of damaged or rejected items. 

An enterprise would stand to benefit a great deal from a supply chain model for a new product.  It would offer the enterprise’s finance team a better forecast of cost and working capital and give enterprise executives a clear crystal ball of how a product would do once it is in the market. 

Making a supply chain model for a new product is not easy but it wouldn’t require re-invention. 

Hernán David Perez, supply chain professional and teacher, developed a “Supply Chain Roadmap” that would answer the question: “which supply chain strategy best fits my business?” (Hernán David Perez, “Supply Chain strategies: Which One Hits the Mark?”, CSSCMP’s Supply Chain Quarterly, https://www.supplychainquarterly.com/articles/720-supply-chain-strategies-which-one-hits-the-mark, 2013 March 06).

Mr. Perez outlined six (6) generic supply chain models enterprises can adopt depending on their industries and strategies.  The six (6) models consist of continuous-flow, efficient, fast, custom-configured, agile, and flexible.   Each has a different focus, from low-cost (efficient) to agile (responsive to uncertain demand).  An enterprise may adopt more than one model, i.e., it may use different models catering to different products or to specific areas of operations. 

The role of the SCE would be to find and propose the right model that would best fit an enterprise’s new product.  Mr. Perez’s six (6) models can be a reference for the SCE to tailor a model for the new product. 

Developing a supply chain model for a new product is similar to managing a project, such as construction of a building.  It starts with the design or what one wants the model to look like and function.  Next would be the detailed plans of the supporting structures such as materials requirements, transportation, storage & handling methods, work crews, procedures & standards, quality assurance methods, and equipment. 

Design and detailed plans are the end objectives, what we want the supply chain model to look like and how it will operate when the new product is launched.  To achieve the end objectives, the supply chain professionals would need to draft the road map, the series of activities to build the structures that make up the supply chain model.  It’s again similar to what project managers do:  a critical path schedule that includes a timeline and the timing of investments in resources.

Implementing a supply chain model involves a lot of uncertainty.  Demand, for starters, would be based on forecast and would no doubt come out much different than expected.  The model should take into account various scenarios.  To put it another way, the supply chain model should be ready to adapt.  It should be quick to react to fluctuating demand such as preparing a customer order & shipping system that quickly notifies supply chain planners to position inventories immediately where they’re needed. 

Costs, quality, and other issues would also likely crop up when a new product goes on line.  Some people would blame it on the “learning curve,” that period of getting accustomed to a new set of activities.  The longer the learning curve, however, the greater the expense and enterprises don’t want to spend too much time and capital for it.  The supply chain model, hence, should also be prepared for changing situations on the ground.  For example, the model should include training of machine operators and warehouse material handlers in regard to a new product’s characteristics and storage requirements.  The model may also include facility designs that allow swift change-overs between product variants (e.g. sizes, colours).

The ideal supply chain model is one that does not only cover for the introduction of a product but it’s future life cycle stages as well.  The supply chain model should incorporate monitoring systems that watch out for trends not only in demand but also in external factors such as commodity prices, freight rates, exchange rates, labour wages, taxes, and trade tariffs.  It should also watch out for disruptions and opportunities which it should be ready to respectively mitigate or take advantage of. 

It isn’t easy to launch a new product.  It’s not simply just having stock ready when it’s time to sell the product.  There are many things to consider if one wants to attain long-term success. 

Every product has its life-cycle.  One has to understand it and make a supply chain model for it in order to ensure its marketing success. 

The best kind of supply chain model is one that is ready to meet the challenges of inevitable change. 

About Overtimers Anonymous

What is the Right Way to Serve Customers?

A manufacturer of metal parts hires a management consultant to help stimulate sales.  The consultant at once suggests the manufacturer prioritise production of its top twenty (20) best-selling items. 

The manufacturer thus makes one month’s worth of stock of each of the twenty (20) top-selling items.  Three (3) months later, the stock is hardly selling.  Meanwhile, customers complain that they haven’t received their shipments of items that are not on the top twenty (20) best-seller list.  Pending orders is equivalent to one (1) month’s average sales and the manufacturer simply has no stock to serve the orders. 

What happened? 

The management consultant had analysed the manufacturer’s sales history and listed the manufacturer’s top selling items based on their average sales value over the previous year.  The top twenty (20) items constituted 80% of the manufacturer’s sales that year.  It therefore seemed logical to have on stock those twenty (20) items.  It was easy to see that the top twenty (20) items have a high demand history. 

The manufacturer hired a supply chain engineer (SCE) to do something about the pending orders and out-of-stock problems.  The SCE analysed the manufacturer’s operations and observed that the manufacturer produced 1,800 individual items or stock-keeping units (SKU’s) in that same period of twelve (12) months.  Most of the customer orders the manufacturer received, however, were delivered late and many others were cancelled due to out-of-stock. 

The SCE noticed that the management consultant based his recommendation to produce the top twenty (20) selling items on the following analysis:

The SCE broke down the daily histories of the top selling 20 items and saw that each item had an erratic demand behaviour, in which for one (1) item, it looked like this:

Not one of the top twenty (20) items was selling at close to the overall average quantity at any day or even any week throughout the twelve (12) months surveyed.  Each item would experience very high demand in one or few orders but hardly would any item be selling close to average every day or every week.  The variance between average demand and each day’s demand over a year was very large. 

The manufacturer sold more than 1,800 unique items over a one (1) year period and most of each item’s sales were limited to one or two orders sometime during that same period.  Some items did have frequent daily sales but they were in small quantities.  The management consultant’s list of top twenty (20) did sell up to 80% of annual revenue but the manufacturer was losing potential sales from unserved orders of other items.   

The management consultant thought that producing and having stock of the top twenty (20) best-selling items would bring higher sales as based on historical numbers.  The consultant, however, didn’t see that customers didn’t need the said items every day.  A few customers with big projects bought large quantities of the top twenty (20) items in one or few orders. Other smaller scale customers ordered much fewer pieces of metal products at any one time and for certain items, more frequently.  The consultant didn’t realize that the manufacturer’s items were not needed every day, or even every year. Customers only bought for projects or for maintenance needs; items were only needed periodically.

Further studies by the SCE showed that some customers ordered each of the top twenty (20) items only once.  It would be a different customer ordering for a large quantity.  There was no uniform demand pattern.   Customers buying plenty of an item were probably buying for one-time projects.  Customers buying smaller quantities were buying for fewer requirements. 

And because they were for projects, customers would have unique specifications for the items they needed.  A customer’s order of an item was often different from that of another.  Some customers would want better finish on an item; other customers would deem the item’s finish as is as all right.  Even if basic specifications were consistent, it was commonplace for the manufacturer to do additional work on an item as per a customer’s request. 

The manufacturer therefore was really customising items more than making the same items over and over.  Sales orders very often had instructions for how products would be finished, cut, and packed.  Some customers required very tight specs, others did not.  Some customers wanted their items cut to certain sizes.  Some customers wanted more stringent packaging; some were satisfied without any packaging at all. 

The manufacturer’s order fulfilment system did not take into account these frequent instructions.  The information system had on file more than 10,000 items and it was found that many of the items were similar to each other.  In other words, every time a customer order was received, it asked for an item that was made before but with slightly different specifications.  The accounting and IT groups were constantly entering “new” items into the information system. 

The SCE therefore suggested that the manufacturer re-develop its customer service strategy.  The SCE suggested the manufacturer refocus the order fulfilment system from one that sells based on a fixed inventory of items to one that is based on customisation.  Instead of having a system like a grocery store, the system should be like a machine shop—i.e., only make an item when there’s an order.  The SCE also recommended that the manufacturer only keep stock of needed raw materials, not finished items. 

A large metal manufacturer a few kilometres away was actually doing that kind of thing.  His inventories of finished goods were limited to stocks that are about to be shipped.  He only kept at most a month’s worth of raw materials (he thought that already was too much) and he had no backlog of pending orders.  Every item that was made had its own unique identity unless it was a repeat order to the same customer. 

The SCE proposed a system in which the manufacturer’s sales representative would prepare quotations for customer inquiries.  When a customer is interested in an item, the sales representative would quote not only price and quantity but also confirm specifications and schedule of deliveries.  The sales representative would coordinate with a joint sales and supply chain support team that would translate customer inquiries into a quoted proposal for the customer.  The quoted proposal becomes a sales order upon negotiation and agreement between customer and sales rep. 

The supply chain team would keep stock of raw materials which happen to only number to less than twenty-five (25) items or stock-keeping units (SKU’s).  The stocking strategy would be independent of actual demand but would take into account large spikes as in when a customer conveys interest for a very large order.  Again, the sales and supply chain support team would ask the sales representative to negotiate delivery schedules to take into account the manufacturer’s capabilities to buy raw materials and produce the needed item. 

How demand is fulfilled varies from industry to industry, enterprise to enterprise.  One should study demand based on customer behaviour, not on overall totals or averages. 

One should also tailor the supply and fulfilment of demand to the needs of customers.  At the same time, one should always be aware of the system’s capabilities.  Customers may be always right but the enterprise is not one with unlimited power.  There has to be communication and collaboration via negotiation and mutually beneficial agreements that would address price, terms, and supply. 

There has to be a right way to serve an order.  Not for management, not for consultants.  But for customers. 

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We Need Better Monitoring Systems

Most executives like performance measures.  Otherwise known as metrics, key performance indicators (KPI’s), analytics, or scorecards, enterprises embrace performance measures as a means to assess how their businesses are doing.

The point of a performance measure is to check how an individual or team is doing against a target that is set by superiors.  (No matter what people may say, it’s always the superior who sets the targets).  Targets are set in line with strategic goals.  Individuals and teams strive to perform such that resulting measures would meet targets to attain the goals. 

But after more than twenty (20) long years since they’ve become popular, performance measures are no longer good enough, especially for supply chains. 

Supply chains are product and service streams.  Materials, merchandise, and information (printed and digital) flow through networks within and between enterprises.  From one operational step to the next, products and services transcend in value as they make their way to their final destinations: the end users.

Supply chains are sensitive to disruption.  When a disruption hits one process, every part of the supply chain feels it.  A delay in the loading of a truck, for instance, may entail a change in production schedules at a manufacturing facility it is supposed to deliver to, which in turn may cause a shortage of a product the facility is supposed to make. 

Performance measures are popular as many people could relate to them.  They are simple and easy to appreciate.  They show how a person’s work is doing versus a target that fits to that person’s tasks.  The performance target would be linked to higher levels of performance measures that would finally connect to a strategic goal. 

Unfortunately, performance measures do not work very well when there are disruptions.  Whereas they are designed such that different levels of an organisation can be made accountable for them, performance measures are not flexible to changing circumstances.  

For example, a production line supervisor is accountable for how many overtime hours his crew works in a week.  His target is that each crew member does not work more than 4 out of 40 hours of overtime per week.  He controls the overtime by rotating his crew members’ leaves such that not many of them have days off at the same time.  But if the supervisor receives a surprise rush order such that he has to make double his weekly volume, he would be forced to ask his crew to go on overtime to meet that order.  His boss, however, would ask him later to explain why he exceeded his weekly overtime target. 

Disruptions are nothing new for supply chains.  They can be big or small.  They are the results of both adversities and opportunities  And they can come periodically or frequently.  They are never identical in cause and they sometimes come in the most mundane manner, like a surprise doubling of a production order such as in the example mentioned above

Performance measures work when supply chains run routinely, much like in a game of sports.  Sports games operate under fixed sets of rules and conditions.  Players score and meet goals to win. But if it rains, the game stops.  In similar fashion, supply chain professionals perform to achieve objectives set by schedules under favourable and predictable working conditions.  But if someone changes the schedule or everyone has to go home because of a disruption like a virus-causing government-mandated lock-down, the performance measures become useless. 

Disruptions are normal.  They aren’t exceptions.  Disruptions occur often as a result of frequent adversities and opportunities that ripple through the fast-paced interconnected world we live in.

What supply chains need are monitoring systems that tell us not only what is going on but also notify us when there is a need to respond.  We need monitoring systems that will tell us about upcoming disruptions and give us time to take action.             

Two things comprise a monitoring system:   visibility and guidance.  Visibility in the form of real-time information and guidance in the form of alerts to events that merit a response. 

An example is a fuel gauge in a car.  The gauge provides visibility on how much fuel is there in a tank.  It also gives guidance via a flashing light that alerts the driver that the fuel tank is almost empty. 

Monitoring systems are not new to supply chains.  Manufacturing managers harness instruments and gauges to monitor production lines and facilitate process control.  A number of enterprises have adopted technologies such as radio-frequency identification (RFID) tags, block-chains, and artificially intelligent command-and-control systems to oversee supply chains even from long distances.   

Many enterprises, however, have had little success in mitigating disruption in their supply chains despite the growth of high-tech monitoring systems.  This is because many monitoring systems aren’t focused towards disruption.  Instead, they are geared towards performance for the sake of measuring results versus strategic goals, which as aforementioned don’t really contribute very much in a frequently disruptive environment. 

We, therefore, need to re-orient supply chains towards monitoring for disruption, not performance.  By watching out for disruption and responding to it, supply chains would be able to muster resources to mitigate it, even perhaps take advantage of it. 

One doesn’t have to start with an intricate, complicated or expensive system.  One can begin with simple reports from various operations along the chain.  For instance, vendors, brokerages firms, and shipping companies can email the status of orders for imported materials. 

Import status report

A status report such as the one above can tell stakeholders about impending issues such as a shipment that’s about to be considered abandoned and subject to penalties.

Supply chain engineers can make improvements step-by-step by tailoring feedback systems to fit different processes.  SMS texts summarising daily customer orders, entered orders in the database, communicated factory orders, MRP II real-time plans are examples.     

      

A supply chain monitoring system can also be like a tsunami warning system: 

Or it can be manifested like a dashboard for supply chain professionals to see:

Whatever the design, the purpose of the monitoring system is to allow stakeholders to watch out for disruption and respond when needed. 

Performance measures have not proven to be helpful in our disruptive-driven world.  We need monitoring systems that provide visibility and guidance especially for supply chains.  They don’t have to be complicated; they just have to be adequate enough to bring attention to disruptions.

Disruptions are a result of both adversity and opportunity.  In either case, it’s always best to be one step ahead whether it be to mitigate or to take advantage of whatever’s out there.  

The Basics of Supply Chain Mapping

A map is a visual representation.  In the context of supply chains, it describes the flow of operations and/or information pertaining to the procurement, transformation, and logistics of products and services. 

To put it another way, it’s a visual aid that shows what a supply chain looks like and how it functions. 

The simplest way to map a supply chain is via the flow chart:

Some supply chain professionals (consultants especially) use different shapes to distinguish the kinds of processes in their maps.  Rectangles, for instance, may represent a transformation process; a triangle is a checkpoint or a quality inspection; a circle is a starting point, endpoint, or a reference to another flow map. Lines can be solid for physical flow or dotted for information flow:

 Other mapmakers go further by organising steps by departments: 

Followers of the Lean concept use Value-Stream Maps (VSMs) to show the lengths of time steps take during a process.  The point is to show which process adds value (such as where there is transformation) and which does not (such as waiting, inspection, movement):

Maps are to Supply Chain Engineers as structural plans are to Civil Engineers and as circuit schematics are to Electrical Engineers.  Whether it be to build, repair, troubleshoot, improve, or optimise, Supply Chain Engineers need maps just as every other engineer needs a diagram.   

Typical civil engineering construction plan

         

Typical simple electrical layout

Unlike engineering drawings which focus a lot on structures and specifications, supply chain maps put more attention on flow.  But this does not mean supply chain mapping doesn’t consider structures.  One can have supply chain maps in the context of facility plans. 

Supply chain maps can become more detailed and thereby look more complicated.  The level of detail in a supply chain map depends on how small a step is to be made visible. 

Engineering drawings are arbitrarily detailed depending on the audiences they address.  Engineers draw their plans and diagrams on differing levels of details.  They usually start with an overall plan and then break down the plan into varying descriptive drawings.  For example, civil engineers would draw an overall structural plan which would be supported by plans showing sectional details and specifications.

In the same way, SCEs would draw an overall map and add more detailed maps showing specific details of processes or steps. 

Executives, managers, staff, and stakeholders should be able to easily understand supply chain maps such that they can make rational decisions. 

Supply chain maps should be treated the same way as engineering drawings when it comes to setting up new product and logistics streams.  Many times, enterprise executives would build facilities first and then hand them over to supply chain professionals to set up and run operations.  And in those many times, the operations would start in spectacular failure or experience immense and expensive difficulties.

This is what happened when a large multinational built a new factory.  Equipment was high-tech and the manufacturing process assured high quality coupled with high-capacity production.  The drawback was the facility was located far south of the city.  Logistics managers were just told to adapt the transportation flow to the new facility.  Deliveries at the start ran into problems as truckers complained to having to drive longer distances for the same contracted freight prices.  This was eventually resolved but only after the company shouldered significant expenses. 

Supply Chain Engineering must go hand-in-hand with any planning and implementation of a new or improved process.  It cannot be a discipline that takes care of what was neglected.  It should be an active and equal participant from the start to end of any product and service strategy. 

Mapping is a basic first-step tactic Supply Chain Engineers use to make visible the supply streams they study.  Maps come in form of flow charts, value-stream maps, or operational plans.  They differ depending on how they are applied.  Their purpose is not only for visibility but also for planning.  Maps are useful for building and improving supply chains. 

We build after all based on our visions. 

Twelve (12) Things Supply Chain Engineers Do for Enterprises

Supply Chain Engineers (SCE’s) are much like any other engineer.  Just as engineers design, build, and install structures and systems, SCE’s do the same specifically for supply chains. 

Supply chain engineers shape the networks, processes, and systems that underlie product and service streams.  Their projects are either big and small.  Project scopes can range from setting up a whole new distribution network to the simple improvement of inspecting inbound materials at a receiving dock. 

Most supply chain managers try to solve their operations’ problems by themselves.  If a customer order was undelivered because there was no room on a delivery truck, the manager would find another truck to load and ship the ordered items.  But if the manager observed that pending orders were accumulating and it’s because demand is outstripping trucking capacity, he’d ask truckers to just get more trucks.  He wouldn’t realize that an SCE can determine the best transport asset mix and routing system instead of having more trucks a freight provider will eventually charge to the enterprise.  Without SCE’s, supply chain managers often patch problems with band-aid solutions. 

SCE’s offer an engineering expertise that go beyond the scope of supply chain management.  They synchronise the interconnecting links of supply chains by designing, building, and implementing systems, facilities, devices and processes that would sustain the productive flow of goods, services, and data.  To put it another way, SCE’s bring about supply chains that run reliably at lowest cost and at best quality and service for enterprises and customers. 

SCE’s do a number of tasks that help enterprises with their supply chains.  The following are twelve (12) examples:

  1. Map Supply Chains. SCE’s can lay out the flows of supply chains and make visible the nitty-gritties of an enterprise’s operations, including the processes involving vendors and customers.  Supply chain maps are instrumental in identifying weak points along product and service streams;
  2. Set Up Monitoring Systems. SCE’s can set up systems that would show what’s going on in supply chains as well as alert managers of impending disruptions.  SCE’s can create dashboards that would show key data about supply chain operations, such as status of imports, inventories, pending orders, losses, and scheduled deliveries;
  3. Customise Order-to-Delivery. SCE’s can tailor order fulfilment systems for companies depending on their industries and customer service strategies;
  4. Propose Supply Chain Models for New Products.  SCE’s can design supply chain models for new or relaunched products and services;
  5. Balance Operations to Synchronise Flow. SCE’s can devise systems that synchronise the flow of merchandise from vendors to enterprise to customers.  It is an SCE’s aim to streamline flow to minimize waste in waiting times and work-in-process inventories;
  6. Implement Statistically Based Process Control Systems. SCE’s can implement systems that minimize variability, what some would call statistical control.   At the same time, SCE’s can tweak operational capabilities to churn products and services consistently for quality assurance;
  7. Study Feasibility of Projects. SCE’s can study the feasibility of capital expenditure projects via their expertise in engineering economics and evaluate options to determine which would provide the best rates of returns;
  8. Introduce Ideas to Spread Inventories.   SCE’s can develop inventory planning methods that would spread product stocks along various points of the supply chain which would lead to better customer service and minimal working capital;
  9. Design Operations That Adapt to Supply & Demand Variability. SCE’s can plan and lay out work-place operations that would be flexible to fluctuating merchandise volumes;
  10. Determine Supply Chain Capacities and Baseline Efficiencies.  SCE’s have the technical prowess to compute supply chain operational capacities and efficiencies, whether they be machine, labour, or logistics-related. 
  11. Find the Best Method to Maintain Fixed Assets. SCE’s can evaluate what would be the best maintenance program for the supply chain’s equipment, facilities, and logistical infrastructure.   
  12. Develop Frameworks to Support Collaboration.  SCE’s can help enterprises set up support structures to collaborate better with vendors and customers.  These range from simple communication protocols such as mobile messaging of purchase order status to shared networks and methods for vendor-managed inventories and customer inventory replenishment;

These tasks may sound familiar to industrial engineers.  That’s because they are from industrial engineering.  Supply Chain Engineering is an offshoot of Industrial Engineering in that both share the same purpose:  finding ways to continuously improve productivity.    

Whereas IE’s traditionally work within the confines of an enterprise, SCE’s look at the entirety of supply chains. SCE’s judge their work in the context of supply chains. SCE’s seek beneficial value for all stakeholders along the supply chain from vendors to customers, from in-house departments to 3rd party providers. SCE’s strengthen the interdependencies that exist in supply chains.

Supply Chain Engineers build supply chains.  They do what engineers do but more so for supply chains.  SCE’s have the abilities to do a number of things that would benefit enterprises. 

SCE’s are a new breed of industrial engineers and they have a lot to offer.  It is hoped enterprises will welcome their opportunity to contribute.    

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