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

Supply Chains Must Have These Five (5) Traits

What’s all the fuss about supply chains?

An Evergreen container ship, the Ever Given, got stuck at the Suez Canal in late March 2021.  The solution was simple:  dig out the sand it’s grounded on and tow the ship to a nearby lake.  Unfortunately, because it’s a big heavy ship and the Suez Canal is a narrow shipping lane between Asia and Europe, a traffic jam of vessels ensued at both ends of the canal. 

The media jumped on the Ever Given’s predicament and soon enough, it became a global talk-of-the-town.  Supply chains became a hot topic as media analysts speculated on shortages of merchandise as container cargo ship arrivals were delayed due to the logjam. 

The Ever Given’s saga at the Suez Canal riveted the world.  It created so much buzz that weeks after the ship finally was freed, people were still talking about it and more so about supply chains. 

One stuck ship had created so much fuss.

Supply chains have been the focus of media attention since countries started locking down their cities and territories at the onset of the COVID-19 pandemic in early 2020. 

At first, media reported shortages in food, personal protective equipment (PPE), and supplies.  Then there were the reports about transportation bottlenecks in air and sea freight due to restrictions at borders and ports. 

More than a year later, by March 2021, the news shifted toward cargo congestions at North American ports, spiking consumer demand, shortfalls in semiconductor chips leading to automotive factory shutdowns, and the lack of available shipping containers as international trade picked up

And as vaccines became available, just about every so-called expert raised the spectre of not enough injections for everyone due to weaknesses in global supply chains.

But is all the fuss pointing to real problems in supply chains?  Or are they just exaggerations exacerbated by media and analysts seeking attention?

The COVID-19 pandemic disrupted just about every enterprise on Earth.

  • Many saw the emptied grocery shelves and many more waited in long lines to buy medicines and toiletries. 
  • Farmers threw away vegetables and poultry business owners cut production as inventories grew and demand fell.  There was plenty of food available in 2020 and then there were the shortages, particularly meat, in 2021; 
  • It wasn’t easy for some of us to find spare parts for fixing our cars, trucks, or motorcycles.  This was especially true as some car dealers and shops closed due to lockdown restrictions. 

We realised how fragile product supply chains can be in the era of the pandemic.  And as a result, we have seen the supply chain landscape changing before our very eyes.

So, yes, there are real problems in supply chains and no, the media weren’t exaggerating about those problems. 

The Ever Given wasn’t a wake-up call but the media attention is.  Supply chains need to be managed in a different light after all the disruptions enterprises have experienced. 

Where do we start? 

I recommend identifying what traits a supply chain should have:

  • They need to be proactive especially when it comes to demand.  Demand is a primary driver of supply chain flow and if it was already hard to predict what customers will buy, it was even more so during the pandemic and likely stay that way in the post-pandemic eras.  Supply chain professionals need to be at least one step ahead in anticipating, capturing, and cultivating demand in the planning and execution of customer fulfilment services. 
  • Many executives believe supply chains need to build in resilience.  Resilience is the ability to recover from difficulties—to spring back into shape after a shock.  I don’t fully agree.  Resilience implies that enterprises roll with the punches of disruptions, taking in hits and then healing afterward.  In my opinion, enterprise supply chains should learn to parry; they should build in resistance to whatever a bad disruption may bring.   Supply chains therefore should be versatile.  Enterprises shouldn’t just be ready to adapt or resist disruption; they should also be ready to initiate disruption.  And what does an enterprise need to manifest that?  Versatility
  • Supply chains must be productive.  Productive not as in efficient but as in performing effectively towards meeting and exceeding enterprise goals and strategies.  Supply chains are not generic.  Though they may share common standards such as service, cost, and quality, the extent of how each individual supply chain performs depends on the mission of the enterprise each works with. 
  • Supply chains need to be organised.  This is not just about having a structure that puts functions like purchasing, manufacturing, and logistics under one roof.  It’s also about having unified systems that connect and encourage vendors, enterprises, and customers to collaborate to a common cause.  
  • And last but not least, supply chains must be sustainable.  No, not the environment-friendly kind of sustainable but the type in which an enterprise can count on its supply chain for a perpetually reliable supply of resources, such as products, materials, components, energy, human resources, and/or working capital. 

Note that I didn’t mention digital as a needed trait.  As of now, I don’t see it is a needed trait despite what many may say.  Yes, it’s a whole new world and a whole new normal with e-commerce more dominant than ever and with technologies trending towards artificial intelligence, blockchains, and cryptocurrencies.  But as much as they will be hard to ignore in the near future, supply chains don’t need to be digital as a trait.  Supply chains would need to go digital as a means—a means towards being proactive with demand, versatile, productive, organised, and sustainable

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

What Organising Really Means

There are four (4) basic functions to management:  planning, organising, directing, and controlling. 

We can picture what planning, directing, and controlling are.  They’re kind of straightforward and self-explanatory.  Organising, however, is not. 

When we “organise,” what’s the first thing that comes to mind?  We perhaps think of putting our stuff in order, like filing away papers and cleaning out the clutter.  Maybe we see organising as rearranging the tables of our subordinates, laying out the machinery, and scheduling who’ll work from home versus who’ll be at the office.  It can be that we think it is about making an organisational chart that shows the positions of people. 

Organising as a management function, however, is more than just all of the above. 

The dictionary defines organise as “cause to be structured or ordered or operating according to some principle or idea,” and “arrange by systematic planning and united effort.”  The key words are structure, order, and arrange and it is done for a principle or idea via systematic planning and united effort.

Organising is therefore not just making things neat.  It’s about making things ready for a specific purpose.  The “things” in this case are people, assets, resources, and products

Organising People

Managers organise people to do their jobs efficiently and effectively.  Organising is about employing and deploying the people crucial to making the enterprise’s goals into realities.  These include those we directly hire, i.e. employees, and those we engage with such as contractors and vendors. 

The tasks in organising people include team building, organisational development, training, defining job descriptions or scopes of work, and assignment of duties and responsibilities. 

Organising Assets

To get things done, managers need to have their assets in place and ready to be used.  These include having enough funds to pay for them and prepping them for operation. 

There have been many times I’ve seen managers order equipment and then realising they didn’t set aside enough money to pay the seller, causing delays in installation and start-ups.  

Organising assets includes tasks such as allocating cash in conjunction with budgets, setting up work stations, making and doing a checklist for preventive maintenance, calibrating gauges, running diagnostics, preparing storage space, and housekeeping.

Organising Resources

Resources are the materials, supplies, energy, water, and spare parts that we need to get things done.

Managers tend to underestimate the organisation of resources. 

Organising resources include preparing purchase orders, putting items in their proper place, checking that item codes are updated in the information system, informing security and receiving clerks what vendors are delivering the next day, clarifying policies such as first-in first-out retrieval, cycle counting of items to reconcile with inventory records, and regular quality inspections of critical components & parts. 

Organising Products

Similar to organising resources, we should make sure products are in their proper places, their codes complete in our computers, and delivery documents are arranged visibly for dispatch. Organising products also includes classifying each product’s inventory policy, marshalling finished goods for staging, categorising them by segment, group, family, and stock-keeping unit, and fixing the process descriptions and parameters of each. 

Organising products is no less important than organising people, assets, and resources.  In many cases, it should be the first to be done before the rest.

Organisation is not the same as organising.  The former is about structure; the latter is function.  Organising is work we may call mundane but necessary because the devil is in the details.  We can plan, direct, and control but if we don’t organise, that is, focus on things, make sure they’re in order, arranged, and ready for the strategies we will execute, then we’ll for sure run into trouble. 

Leaders rally people to a cause.  Managers organise people, assets, resources, and products to make real the goals of the cause.   

About Overtimers Anonymous

Lessons Learned from E-Commerce

December 28, 2020.  We ordered the food but couldn’t find the riders to deliver them. 

Our family of cousins, uncles, and aunts couldn’t be together for New Year’s Eve.  Reunions and parties were not allowed in lieu of ongoing restrictions brought on by the CoVID-19 pandemic.  Instead, we ordered food from a food shop and was counting on available motorcycle riders to deliver them hot and fresh to our relatives on December 31, New Year’s Eve.

But starting December 23, we noticed available riders were getting fewer and fewer.  By the 30th of December, there were practically no riders available.  I ended up driving to the food shop to get the food packs and deliver them to my cousins’ residences on New Year’s Eve. 

We used to sit at a restaurant, order via a menu, wait as the restaurant’s kitchen prepared our meals, and enjoyed our food as waiters brought them to the table. 

No more.

Because of the pandemic, we had to opt via the e-commerce way, which was sit at home, order via mobile phone or tablet, wait for the food shop (a former caterer) to confirm that our meals were prepared, and then book a 3rd party rider service (motorcycle delivery courier) to bring our ordered food to our home. 

The success of e-commerce relied on a seamless process of order taking, preparation, and delivery.  Most of the time, there were no problems.  As long as the internet stayed fast and continuous, the food shops had the capacities, and there was an abundance of available delivery riders, we made our orders and had gotten them when we wanted them.

The December 2020 holidays, however, reminded us that e-commerce did have its limits. And the first place it manifested itself was in the riders.  We had no clue that riders will be rare a week before New Year’s Eve. 

We always assume there’s enough capacity throughout the e-commerce process. 

But we can never tell how many riders there’d be today or tomorrow.

Availability of riders is not only due to factors such as absenteeism and driver population but also very much in lockstep with the number of pending deliveries.

Since it was the holiday season, riders weren’t only tired and taking leave but pending deliveries were at their peak. 

As food shops were managing through the high demand and the Internet remained steady and speedy for customers who ordered, the bottleneck in the e-commerce supply chain was in the available riders to deliver the orders. 

There were several companies in the rider business, at least three (3) major ones in our city, Manila, to count on. 

If one couldn’t take the orders, we would resort to another. 

This worked most of the time but the holiday season of 2020 crimped the capacities of just about everyone.  

In the end, I (and probably a significant number of families) just had to pick up our orders ourselves.

I don’t know if this is going to be the new normal of the food e-commerce business in which I’d have to pick up my own orders when there are no riders available.  But there are lessons coming out that I’m learning.

Lesson #1:  E-commerce is Different.

E-commerce does not follow the same process as what we are familiar with order fulfilments.  For food shops, it’s click, prepare, and deliver.  It’s no more the sit-in-restaurant, order by menu, cook by kitchen, and meals placed on a table.  We pay online not in person.  It’s a total change from the traditional face-to-face transaction.

Lesson #2:  The Customer Experience Has Become Mutual

The e-commerce experience is a sea change from in-person interaction.  With e-commerce, it’s about ordering products by ourselves and getting our order in the right quality and quantity by ourselves.   The onus of ordering and the method for delivery has passed more to the customer from that of the enterprise.  The experience has become more dependent on a mutually beneficial collaboration between customer and enterprise. 

Lesson #3:  Customers Can Be Choosier but Can’t Get All of What They Want

Customers can be choosier as e-commerce opens the door to a multitude of enterprises into the market.  There are more food varieties, for instance, to choose from as restaurants, caterers, and want-to-be-chefs advertise themselves side-by-side on the worldwide web.   At the same time, customers can’t dictate how orders would be fulfilled or delivered as it’s what-you-see-is-what-you-get when it comes to transacting online. 

Lesson #4:  Management Has to Learn to Change

It’s not just enterprise executives have to change how they manage their operations but also that they have to learn to manage in an actively-changing environment.  No longer can enterprises expect a daily steady crowd of customers or expect to have the same capabilities in production and delivery.  E-commerce allows more competition and innovation as it expands the marketplace and connects more enterprises and customers.  Both enterprise owners and customers would need to be ready to adapt and change quickly as new products and services are introduced frequently

Lesson #5:  E-Commerce is Not IT; It’s Supply Chain Management

Last but not least, if we don’t already know, e-commerce is a supply chain thing.  It’s not an information technology (IT) thing.  A lot of entrepreneurs are spending a great deal of time on development and programming of applications but not much on engineering and managing operations.  E-commerce is one-side IT (clicking on an app and paying online) and one-side physical work (product preparation & delivery logistics).  It is therefore elementary that entrepreneurs learn how to optimally serve their products as much as to have  user-friendly efficient web applications. 

These are just some of the lessons.  There probably will be more as e-commerce gets off the ground. 

Meanwhile, I’ll just make sure my car is ready to pick up my family dinners in case no riders are available again. 

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

Logistics Solutions Can Be Simple

A medium sized retailer of health food items imports products from abroad.  The retailer prides itself with a very well organised warehouse and a crew of workers that swiftly repack the imported products and send them to the retailer’s stores all over the country. 

The retailer’s sales department, however, has constantly complained about lack of enough fast-moving products to stock store shelves.  They frequently request for more items which the retailer’s purchasing department promptly orders.  Yet, the sales people still complain.  Why are store shelves empty despite the inbound volume of imports?

A consulting team the retailer engaged found that the retailer’s warehouse was indeed quickly repacking and delivering needed fast-moving imported items to stores.  Once they arrive at the stores, the fast-moving products were sold within days. 

But the warehouse inventories showed almost no stock available of the fast-moving items at the beginning of every work week.  How can this be since imports via container vans were arriving every week?  The stocks have been arriving but the warehouse says they are not on inventory.  Where were the items? 

It turned out that when container vans of imports arrived, it would take as long as ten (10) days to completely unload, put away, and enter items into the warehouse inventory records.  Every container van would have a mix of as many as a hundred products totalling to as much as a thousand cases or packages.  Some items like paper products were bulky, some like food supplements were tiny.  The warehouse’s personnel would unload products from the container van into pallets, but it would take several days to sort the items, inspect them, and scan them into inventory.

Hence, even as the imported items had arrived, they were still “in-transit” on the retailer’s inventory system.  The warehouse didn’t repack and deliver products until they were entered into the system. 

To complicate things further, sales people would ask the warehouse to put priority in receiving items that were running low on stock at stores.  That resulted in warehouse staff in receiving some items from inbound container vans and putting others in a holding area, in which these latter items would sometimes sit there for as long as one (1) month before anyone sorts and scans them.  This resulted in a vicious cycle where products were alternating in out-of-stock as warehouse staff switched priorities in receiving one item to another. 

The solution to the problem was simple.  Management just had to re-enforce the retailer’s policy of unloading every container van completely before receiving another one.  Management also had to shorten the time to receive inbound imports.  More than a week was too long.  It turned out that the employees assigned to receive inbound container vans sometimes were pulled to do other jobs in the warehouse.  Management only had to put a stop to that and have the assigned employees work full-time in receiving the vans. 

The consulting team also suggested the management review the retailer’s purchasing and inventory policies.  It wasn’t that the purchasing department was buying enough; it was that they weren’t buying frequently enough. 

The purchasing management preferred to buy items in bulk to take advantage of pricing discounts.  They would order only once a month or even less so.  As inventories ran down, the next scheduled arrival of vans would sometimes be weeks away.  Planners and purchasers ended up rushing the dispatch of container vans which sometimes delayed the delivery of other items and again brought on a vicious merry-go-round of items running out of stock. 

Purchasing just needed to balance buying in bulk and scheduling shipments to arrive more frequently, such as weekly versus monthly.  Purchasers could negotiate contracts with vendors to commit to buy in bulk at competitive prices but ask that deliveries arrive in smaller quantities more frequently. 

Logistics is about ensuring a smooth supply of materials and products from one point of the supply chain to the next.  It’s about planning, buying, and transporting enough.  Not too much to cause pile-ups of stock that tie up space and cash.  And not too few that risk run-outs that interrupt production and compromise services.

Logistics is broad.  It covers what comes in, what comes out, where it goes, and where it leads to.  One may say it covers all the things that sales, marketing, and manufacturing do not. 

Logistics is not the supply chain.  It’s a big part of it but not the whole of it.  Logistics is the life-blood that courses through the supply chain but it isn’t the supply chain.  It works with counterparts such as planning, procurement, and production to make sure merchandise moves through suppliers and manufacturers to meet the demands of customers. 

Improving logistics is about improving the flow between points in the supply chain.  That means minimising bottlenecks and focusing resources to move things where they are slowest.  It means making sure stuff are put away and at least cost and risk of damage, at the same time making sure they don’t over-stay in one place.  Scrap and out-of-stock are what logistics practitioners avoid as much as they could.  For when there is scrap or out-of-stock, it’s a failing mark for logistics. 

As the case of the health food retailer illustrated, logistics solutions usually come back to basics.   Inbound receipts were moving too slow and caused stocks to run out at stores.  What was needed was re-enforcing policy and focusing on finishing every job of unloading the container van and putting away the items.  With items flowing with fewer delays, the warehouse would be able to repack and deliver to stores the items they sorely needed week to week. 

Logistics can look complicated but the solutions can often be simple. 

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. 

Reducing Losses, Whatever the Type, Whatever the Scale

Material losses happen in every industry.  From the time a raw material is mined, extracted, or harvested, to the point where it finally is transformed and delivered as a finished product, there will be some loss along the way.  Not all merchandise that comes into an operation comes out 100% intact in the finished product. 

There are two (2) ways of looking at losses:

  • Loss in Quantity:  materials or items are destroyed, discarded or removed.  Examples include:
    1. machine scraps from milling, drilling, & cutting;
    2. discarded material left from painting & coatings;
    3. evaporation;
    4. spills;
    5. gas leaks;
    6. items that are thrown away such as soiled paper;
    7. over-usage of materials;
    8. pilferages.
  • Loss in Value:  otherwise known as degraded, these are materials that have deteriorated or have lost their primary utility.  Examples include:
    1. residues from chemical reactions such as refining;
    2. expired product;
    3. under-cooked or over-cooked ingredients;
    4. contaminated material;
    5. damaged goods during transport or from handling.

Enterprise managers use measures such as variances and yields to monitor losses. 

Variance is the difference between what is actually used versus what is supposed to be used.  It’s what some managers would call actual usage versus standard usage. 

Yield is the percentage ratio of output versus input in an operation or process.  Output is the quantity of quality-accepted product.  Input is amount of all of the material put into the process.   Operations managers always strive for the ideal of 100% but in most cases, they’d settle for 95% or greater. 

Variance and yield provide managers the yardsticks to how well their operations utilise the materials and product that pass through them.  The lower the variance or the higher the yield, the more efficient the operation is said to be. 

Manufacturing managers apply variance and yield in their operations but both can be useful to measure losses throughout the supply chain, at least from when an enterprise receives its materials to when the final finished product arrives at the customer’s doorstep. 

Manufacturing managers work to reduce variances and increase yields through improvements in production operating parameters.  Purchasing managers help improve yield and reduce variant losses via collaborations with vendors to improve materials’ conformities to desired specifications. 

Logistics managers work with their quality control counterparts together with vendors, logistics providers, and freight contractors in setting standards and methods that would improve merchandise shelf lives and at the same time mitigate risks in materials handling & transport. 

From another viewpoint, losses are either anticipated or un-anticipated.

In manufacturing, losses are generally anticipated, that is, they are expected to occur given the nature of an operation.  Losses usually happen during the transformation of materials into finished product.

Unanticipated losses are those that occur infrequently, unpredictably, and at scales much wider than that of anticipated losses.  Unanticipated losses tend to happen more often in logistics operations, as in materials handling and transportation, where there is an absence of direct monitoring. 

Amid the coronavirus pandemic of 2020, Philippine farmers threw away vegetables because they suddenly couldn’t find buyers for their produce.  Buyers didn’t show up at the trading post where they typically transact with farmers as people could not leave their homes due to mandated quarantine lockdowns.  Meanwhile, locked down Filipino households were complaining that they couldn’t buy food. 

Unanticipated losses can be catastrophic especially when it comes to the global supply chain trade. 

In early September 2020, a ship carrying 6,000 cattle and 43 crew sank amid bad weather as it approached the coast of Japan.  Only two crew members of the ship, the Gulf Livestock, were rescued. 

A crew member believed to be from Gulf Livestock 1 is rescued by Japan’s coastguard. Photograph: Japan coastguard/Reuters https://www.theguardian.com/world/2020/sep/03/typhoon-maysak-ship-with-43-crew-and-nearly-6000-cattle-missing-off-japan

An investigative article by the Guardian published on January 2020 speculated  significant losses of live animal livestock on sea transport.  The article’s writers observed that a number of ships have less than adequate facilities in transporting live animals but there was little in the way of data on the scale and frequency of losses.  Unanticipated losses can not only be disastrous but also could be happening more often than one thinks.

Whereas managers might find variance and yield applicable in reducing anticipated losses, they are quite less effective when it comes to unanticipated losses.  Enterprises fall back on insurance to offset unanticipated losses but they don’t solve the problem.  Losses would still hurt especially if lives are lost other than the loss in resources. 

This is where supply chain engineering can be helpful. 

Supply chain engineers can assess the storage facilities, material handling equipment, and transportation assets and seek improvements in how merchandise are worked through them. 

Supply chain engineers can be instrumental when enterprises accredit the 3rd party providers who take custody of products for deliveries to customers, especially those that require meticulous handling and long-distance travel.  Supply chain engineers can devise operating standards for the proper storage, handling, and transport of products.   SCE’s can reconcile manufacturing, procurement, and logistics protocols in the management of merchandise that would minimise variance, increase yields, and mitigate the risk of catastrophic losses.

Losses happen throughout the supply chain.  Some get lost in quantity and some lose in value during a process.  Managers use variance and yield measurements to mitigate anticipated losses but unanticipated losses represent a blind spot especially as they occur more often in the logistics realm where there is less visibility. 

Supply chain engineers have the skills and knowledge to combat unanticipated losses by auditing the assets and systems that store and deliver the goods of enterprises.  SCE’s can propose standards that would encompass the entire supply chain and put more productivity in the transformation and handling of merchandise. 

Losses can be heart-breaking especially when they are catastrophic such as when a vessel sinks in the high seas.  Executives might try to cover their losses via insurance or by simply taking a blind eye but it would still be worth the effort to ensure not only most of what is procured, produced, and shipped reach their final destinations in one piece but also that human lives are not wasted for nothing.   

About Overtimers Anonymous