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

Hoarding and How to Discourage It

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

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

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

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

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

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

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

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

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

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

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

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

Customers may be always right.  Hoarders never are. 

The Nimble Supply Chain: Is It Even Possible?

Managers like things to turn out elegant.  A well-laid out factory that produces flawlessly.  A warehouse with more than enough storage space and material-handling equipment.  A complete fleet of trucks that delivers all the orders without delay.  A smoothly running purchasing system in which supplies and materials are bought at the best price and arrive on time. 

Nice to dream about but hardly the reality.  All it takes is one disruption to mess everything up. 

The COVID-19 pandemic of 2020 is the popular example.  Many enterprises have closed thanks to sudden drops in demand and supply.  What many executives thought would be a good year turned out the opposite. 

But as much as the pandemic was the biggest whammy to business in recent memory, it is not the last and it certainly wasn’t the first.  Disruptions happen all the time in different degrees and forms.  There will always be uncertainties and resulting variabilities in supply and demand.  Consumers will overstock or switch to other brands.  Business customers will be fickle about buying new equipment.  Vendors will speculate and change prices, terms, and the availabilities of items.  Third-party providers will abruptly ask to renegotiate contracts.

Many consultants cite the need for supply chain flexibility and resilience in order to re-grow and survive.   But that’s not the answer. 

What we need are nimble supply chains.  Nimble means having the prowess to adapt and respond quickly to changing circumstances without having to invest or spend too much in resources.  It’s more than being synonymous to agile.  It involves the ability and tendency to adapt rapidly to changing circumstances.  Enterprises not only need to run fast but run fast and dodge unpredictable obstacles while aiming toward moving targets.     

Hence, the challenge for supply chains:  with all its differing functions and all the uncertainties, how does one become nimble from start to finish?  Can it even be done? 

The answer is yes but it would need changes in mindsets. 

First, nimble is not a buzzword.  Consultants and so-called experts have promoted buzzwords like agile, just-in-time (JIT), Six Sigma, ERP, Lean, and responsive.  Many projects have ended up dead-on-arrival while consultants and so-called experts made money out of them.  When we say we want to be nimble, it doesn’t mean uttering it in every meeting.  (“we need to be nimble!”, why aren’t we nimble?”). We need to define it and make a strategy out of it. 

Second, nimble does not mean a total change in how we operate.  It’s more of finding and focusing what to improve and where.  How fast can we switch to a different item?  How do we shorten the set-up times between products? How do we adapt our order-to-delivery systems?  How do we quickly source new materials?    

Large consumer goods firms such as Unilever and P&G have bragged about their introduction of hand sanitizers and face masks in the wake of the COVID-19 pandemic but it took them several weeks to develop the items.  Toyota has made it a routine to retool their assembly lines and make available a new vehicle model in a matter of hours, if not minutes. 

Third, it is relevant to all functions in the supply chain.  Nimble isn’t limited to manufacturing (where a lot of people think it does).  And even if an enterprise thinks it can be nimble just on the production line, it is doubtful its supply chain will be if its logistics and purchasing functions aren’t geared up for it. 

A large wholesaler excelled in the procurement and inventory management of merchandise but had room for improvement when it came to deliveries.  The wholesaler hired a freight trucking company to deliver products to customers.  The wholesaler insisted that the trucking company supply large 6-wheeler trucks to maximise loads and minimise freight costs.  Trucks, however, often had to wait for hours till they were fully loaded and the wholesaler usually loaded the trucks with up to 10-15 customer orders each.  Either way, deliveries were frequently delayed or trucks weren’t able to deliver all of the orders in a single day.  Customers complained.  The wholesaler finally relented to the trucker’s call to use smaller four (4) wheel vans which delivered to customers faster, sometimes within the same day orders were received.  It turned out freight costs didn’t significantly increase as four (4) wheel vans could do several trips in a day.  

Fourth, nimble applies in every industry.  Whether it be consumer goods, industrial, or energy, going nimble can help enterprises of every sort. 

For many years, a large cement company sold to a captured market.  It had steady revenues and all it had to worry about was cost.  Its factory was designed to mass produce cement bags by the hundreds in a day.  One day, however, the government allowed foreign cement producers to enter the market.  Suddenly, the cement company found itself at a pricing disadvantage.  The cement company eventually closed down its factory.  Imported cement was cheap and had better quality.   The cement factory never bothered to improve its products or its operations.  It thought it never had to. 

Fifth, nimble isn’t limited to enterprises that sell tangible products; it works for service-oriented organisations too.  Hospitals in Taiwan have long realised that fast turnaround of patients is crucial in keeping costs down and reducing wait times for sick people seeking treatment.  Taiwan hospitals were well-prepared for the COVID-19 pandemic.  They had an inventory management system that assured enough medicines, supplies and personal protective equipment (PPEs).  They also set up a structure in which assigned medical teams, consisting of doctors, nurses, and staff, would be dedicated exclusively to the contagion.  These teams would work separately from other medical practitioners dealing with patients with other ailments.  The strategy worked and Taiwan was nimble enough to dodge the virus bullet. 

Sixth, and finally, it needs an engineering approach.  Leaders set directions, managers plan and implement, but engineers do the nitty-gritty design and development of structures and systems essential to the improvement of operations. 

Enterprises don’t construct factories on their own.  Enterprises hire engineers to do that.  In the same way, they should engage supply chain engineers to build systems and structures that would enable an enterprise to become nimble. 

Enterprises don’t have to start from scratch.  And it would not need super large investments.   Engineers can identify workplaces along the supply chains that would significantly contribute towards becoming nimble. 

It can consist of re-designing production lines to quickly change over to different items, such as what Toyota did.  Or it can involve having smaller trucks to deliver rapidly to customers, as what the wholesaler did.  It can also just entail identifying areas to reduce costs and improve quality which the cement company failed to do. 

Supply chains operate in a normally disruptive world.  Enterprises need to be nimble; flexibility and resilience aren’t enough.  Buzzwords are useless.  For an enterprise to be nimble, it needs to define its strategy, focus on where to improve, and involve all functions.  Enterprises have to believe that nimble applies to all industries, even service-oriented ones. 

The best approach to nimble is via supply chain engineering.  Supply chain engineers have the best qualifications to build the nimble enterprise. 

About Overtimers Anonymous

Why Enterprises Need A Chief Supply Chain Officer

“Behind every great leader there was an even greater logistician.” -M. Cox

On a trip to Saudi Arabia in 1990 at the start of preparations preceding Desert Storm, the American-led military operation to take back Kuwait from invading Iraqi forces, United States Air Force General Chuck Horner was granted only one companion to accompany him.  Some thought General Horner would bring his executive officer (XO). 

General Horner chose to bring his logistician: 

If you’re going to a war, and you can only take one person, who would you take? ”

The answer was obvious—his logistician.  There are three kinds of staff people who are never heroes, but without whom a commander is dead in wartime:  his intelligence, communications, and logistics chiefs.  He can limp along in peacetime with less than capable people in those slots, but he’s dead if there’s any weakness there when the shooting starts. There is great truth in that old adage that amateur warriors study tactics, and that professionals study logistics.”  -Tom Clancy with Gen. Chuck Horner (Ret.), Every Man A Tiger (New York: G. P. Putnam’s Sons, 1999), p. 173

American military leaders have embraced supply chain logistics as a key component to victory in any conflict.  Desert Storm was no exception and was an eye opener for future war plans.  Logistics, notably the management of military supply chains, is still part and parcel of any country’s military doctrine in the present day. 

Every American field commander has a logistics leader on his/her staff to run the day-to-day and long-term needs of their operations.  Business leaders of private organizations, particularly those who market products and merchandise, would do well to do the same via a chief supply chain officer (CSCO).

Most of us know the supply chain is typically a pretty big and complicated operation made up of several sub-departments.  It’s important there’s someone who should be in charge of it.  Not many; not a few; just one person to rule it all.  

The supply chain covers the flow of goods, services, and information through various operations and industries.  In a typical organization that markets products, the supply chain’s scope covers purchasing to manufacturing to shipping.  Included in that scope are support groups such as planning, engineering, maintenance, and quality control. 

The supply chain encompasses a variety of activities such as but not limited to materials sourcing, inventory management, quality inspection & testing, production scheduling, demand management, storage & materials handling, orders management, transportation, maintenance, and after-sales services.  Cost management from budgeting to operating expense (OPEX) and capital expenditures (CAPEX) is often within the bounds of supply chain management.  Projects especially investments in facilities involve supply chain managers.  And when it comes to discussion on topics such as product life-cycles, working capital, customer services, and organizational development, the supply chain manager would be a major participant.

Given the wide scope and the number of activities a supply chain executive’s job would entail, it comes to no surprise that some executives don’t entertain the idea of having one person managing all of an organization’s supply chain operations.  Aside from seeing it as too big for one person to handle, it would be downright difficult to find a person who would qualify with the experience and skill-set. The CSCO would have vast authority over practically most, if not all, of an organization’s core operations.  This is perceived as power that business leaders fear could be abused.

But even in very large organizations, such as the military branches of the United States armed forces, it makes sense to have one person running an organization’s entire supply chain.

The supply chain works best with a focused purpose and strategy.  Whereas departments such as Finance, Sales, Marketing, Research & Development (R&D), and Human Resources have their specific supporting missions, so does the supply chain. 

The supply chain’s role is to fulfil demand at the best value and best returns in investment for the organization’s stakeholders.  In whatever way this purpose may be framed, the supply chain’s operations have a single end: fulfil demand.  And one person should be on top of it, in leading it, and making sure it gets done. 

Having one leader also gives recognition to the uniqueness of functions and the importance of contributions from each of those functions.  With a united department under one executive, what each function does rises in importance in the overall organization.  The function of a warehouse, for instance, would receive more recognition in how long items are stored and the costs that handle those items as a CSCO examines the total delivered cost of a product. 

Just as functions would receive more recognition, so too would performance measures.  A CSCO would rationalize all the key performance areas in all respective operations towards demand fulfilment consistent with corporate objectives.  Quality measures, for example, would be focused towards the final outcome of a finished product.  The Purchasing function would focus on materials quality in relation to Manufacturing’s consistency to produce within specifications.  The Planning department would take into account inventory lead times in how they may affect product shelf lives.  Logistics would consult Purchasing and Manufacturing on supply and production lot sizes to avoid overstocking and to mitigate risk of damages. 

Having one supply chain leader means one decision-maker, one person to rally all of the supply chain functions in its day-to-day performance and long-term strategies.  In unity come strength, and having a variety of unique functions working together requires a single leader who not only can make timely decisions but also provide guidance in consideration for all concerned. 

The arguments against a single supply chain executive are more about finding the right person for the job than about the politics of one person having a lot of power.  There really is no argument against the logic of having a single leader for the supply chain. 

Fear prevents change in any organization.  Fear in having one person running the supply chain is understandable considering the qualifications needed and the power that comes with it.  But it should not be a deterrent but a means to understand and solve the issues that are causing such fear.  Fear should be a motivation for change, not an obstacle. 

High-ranking United States military field commanders have logistics experts as members of their staffs.  Just one individual who runs the whole supply chain of any military operation.  Private organizations should likewise have chief supply chain officers to singularly manage the supply chains that procure materials, manufacture products, and deliver them to customers.  The unity of supply chain functions under one CSCO allows for more focus in strategy and performance.  The fear that a CSCO would be unqualified or would have too much power does not argue against the need for a single leader.  On the other hand, it should motivate business leaders to address the issues such that the benefits of having one supply chain leadership can be gained. 

Originally released in LinkedIn: https://www.linkedin.com/pulse/why-organizations-need-chief-supply-chain-officer-ellery-samuel-lim

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

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.    

About Overtimers Anonymous

A Letter to All Industrial Engineers: Time to Rise Up

Dear Industrial Engineer:

          I come to you as a fellow Industrial Engineer (IE) with a message.

          It’s time for us to rise up.

          For years, or should I say decades, Industrial Engineering (IE) has been an un-recognized engineering discipline. 

          Many engineers—e.g. civil, mechanical, chemical, electrical—look at us as fakes. 

          Industrial Engineers (IEs) aren’t recognized as technically proficient builders or problem solvers at par with other engineering disciplines.  Even if many of us have professional licenses issued from places like the United States and Europe, we are not respected in many parts of the world.

          Most enterprises and organisations see us as more of management professionals than engineers.  They perceive the specialized courses we take, such as time & motion studies, operations research (OR), facilities planning and inventory systems modelling, as management subjects than technical specializations.  This is despite the fact that we are educated in advanced mathematics and sciences such as calculus, chemistry, and physics, and in engineering courses such as statics & dynamics, materials science, and electrical systems. 

          We are competent in reading and drafting engineering drawings and many of us know how to operate equipment like lathes, drills, presses, and milling machines.  We specialize in advanced statistical models such as linear/non-linear programming, queuing theory, and transportation algorithms. 

          Despite our engineering prowess, very few understand what IEs do.  We ourselves don’t have a clear picture of what Industrial Engineering is.  We’re always finding ourselves struggling to explain what IE is to our peers, co-workers, friends, and fellow family members. 

          The problem is with the title itself.  What does the “Industrial” in Industrial Engineer mean anyway? 

          People know what a civil, chemical, mechanical, or electrical engineer is just by the titles.  But with Industrial Engineer, we have to explain it and most, if not we, still wouldn’t get it. 

          True, many of us IEs, thanks to our training and experience, have successful careers.  Many of us have become top-notch executives and well-off entrepreneurs. 

          It would be nice, however, if we could just have a little more recognition and apply what we know as IEs.  And this is exactly what this letter is all about. 

          We are in the midst of the worst crisis to hit the globe since World War II.  The COVID-19 disease has ravaged communities and brought economies to a standstill.  Enterprises and individuals have lost earnings and incomes as people get sick or are forced to stay home.  Many products are in short supply as manufacturing and logistics facilities have become undermanned or short of materials.  Border closings have delayed or stopped deliveries altogether. 

COVID-19 is the latest and the worst in a series of adversities that has befallen supply chains.  It isn’t the first and it will not be the last.

          Year after year, adversities ranging from natural disasters, cyber-data malware, and trade tariffs have made life difficult for supply chains.  From the September 11, 2001 terror attacks to the climate change crisis, adversities have been buffeting businesses and societies.  They come small but frequently (as in daily traffic jams) or big and infrequently (such as typhoons).   They can come in the form of interruptions (e.g. power failure) or as a man-made business trend (e.g. a new mobile app that makes obsolete traditional package deliveries). 

          As supply chains have become global and more sophisticated, they have become more and more sensitive to adversities.  The challenge to supply chain productivity, and to enterprise survival, is very real. 

          We as IEs are in the best position to deal with adversities.  We have the expertise, the talent, and the tools. 

          For example, amid the crisis of COVID-19, we as IEs can help hospitals reduce wait times for patients via our knowledge of Operations Research (OR).  We can set up forecasting and inventory models to assist hospitals to avoid out-of-stock incidences for medical equipment and supplies.  We can help in improving schedules and reducing wastage in medicines and supplies. 

          When it comes to supply chains, we have the capabilities to analyse and improve the flow processes of materials and merchandise.  We are the experts in optimizing methods and in boosting the productivity of supply chain operations. 

          Before anything else, however, we need to upgrade our identity.  We should stop calling ourselves Industrial Engineers.  It’s too vague. 

          We should instead start calling ourselves Supply Chain Engineers.  Just as with other engineering titles, we need to be recognized quickly for what we do by what we call ourselves.   

          Because supply chains are at the core of global business, it’s time we see ourselves as Supply Chain Engineers.  We can build them, we can improve on them, and we can make them risk-averse and world class. 

          We have evolved and we should continue to do so.  Industrial Engineer as a title belongs to a time when manufacturing was prominent.  Today in the 21st century, supply chains are prominent.  Whether it be in products or services, there will be supply chains.  And we have the means, the skills, and the talent that earns us the title as Supply Chain Engineers. 

          The COVID-19 pandemic has demonstrated the vulnerability of supply chains.  It also has demonstrated the potential value of our vocation as Supply Chain Engineers. 

          We have the ability to change the world for the better.   We are Supply Chain Engineers.   We can make supply chains resistant to present and future adversities and deliver world-class productivity to the enterprise. 

          We have the power and we have the responsibility to demonstrate that power.

          Let’s show them what we got.    

About Overtimers Anonymous

The World Needs Supply Chain Engineers

Not leaders.  Not managers.  Not business executives.  We have plenty of leaders, both real and wannabes.  Managers and executives too; we have enough. 

We need supply chain engineers. 

The global supply chain is a present-day 21st-century reality.  We get much of our goods from all over the world.  We buy shoes from Europe to sell in America.  We ship rice to Australia and import minerals in return.  We travel to trade and we negotiate with our tablets and mobile phones. 

E-commerce has expanded the reach of supply chains.  We order and pay via the Internet.  More and more enterprises deliver door-to-door, business-to-business, person-to-person.  Transportation’s new normal is multi-modal: airplane-to-van, van-to-vessel, vessel-to-truck, truck-to-motorcycle.  Ordinary people ferry food and merchandise to homes as much as courier companies deliver packages to businesses. 

There is so much room for improvement that supply chain management has become a high-profile career choice.  But this is not a promotional message for supply chain management; this is a call for action.  Supply chains are facing challenging adversities and supply chain management, as is, is no longer capable to deal with them. 

Supply chain engineering is the “application of scientific and mathematical principles” for the design and synchronization of highly complex supply chain operations.  It is a field the world needs to synchronize supply chain operations and networks.    

It’s not only because supply chains have so much room for improvement.  It’s also because adversities have become too significant to ignore.  The adversities, which some may classify as supply chain risks, are real. 

Adversities in recent years have caused plenty of pain to supply chains.  They’ve disrupted transport, caused shortages of critical raw materials, and brought widespread inefficiencies.  As much as they’ve been manageable, the adversities are not getting any fewer.  In fact, they’re getting more disruptive and threatening.  To an extent, they can shut down supply chains and cause not only economic failure but also society chaos.  The most prominent example of this is the COVID19 virus pandemic. 

Just as we need doctors to deal with disease, we need engineers to deal with supply chain disruption.  Management as a profession and talent is no longer enough because management is only about planning, organising, directing, and controlling.  We need engineering, that is, we need to have people with skills to design and install systems, networks, and methods to synchronize and integrate the various supply chain operations and make them adversity-resistant. 

We need problem solvers that can define problems before they happen.  Anticipating adversity and mitigating it, if not overcoming it, are the key tasks of the supply chain engineer. 

Where can we find supply chain engineers? 

They’re closer than you think

Where are the Supply Chain Experts?

Supply chain managers are noticeably invisible amid the COVID-19 crisis.

There have been no supply chain executives standing beside national leaders as they made speeches and announcements.

There have been rarely any interviews with supply chain experts about how to deal with shortages of food and difficulties in transportation.  If there were, much of whatever was said had been largely ignored.  

A lot of people have viewed the coronavirus disease, COVID-19, as a medical problem requiring a medical solution, i.e., hospitalization, quarantine, finding a cure.  As much as it is a medical issue, it is more of a problem that needs a social solution. Such a solution needs four (4) things:

  1. convincing everyone to re-align their lifestyles to that of good hygiene, sanitation, avoidance of unnecessary travel & physical contact, and healthy living;
  2. rapid segregation and isolation of suspected infected individuals;
  3. boosting capacities of facilities and mobilization of medical personnel;
  4. synchronising supply chains to stockpile and deliver inventories of essential items such as medical equipment, parts, supplies, food, water, fuel, and other essential goods.

Many countries did the first two, (a) & (b), many are scrambling with difficulty to do (c), and as for (d), it has been a nightmare of shortages and desperation. 

Supply chains are overwhelmed amid the COVID-19 pandemic.  Business firms and organisations are fending for themselves.  There is no united front, no coalitions formed.  There is no high-profile leadership to rally the logistics and manufacturing industries.  Countries aren’t cooperating with each other; how could one therefore expect enterprises to do the same? 

Despite the strides in bringing supply chain talent to corporate board rooms, many executives both in business and government have not engaged the supply chain professionals in the fight versus COVID-19.  Instead, the supply chain experts are relegated to the side-lines, sweating away somewhere untying bottlenecks and moving merchandise as fast as they can to where they are needed the most.   

Many enterprises only see supply chains as networks working within the boundaries of their respective businesses and not as continuous lines of flow of materials and merchandise that cross from one enterprise to another as they accumulate in value from one point to the next: from mines & farms, to factories & warehouses, to stores & e-commerce cross-docks, and finally to users & consumers. 

As much as executives may justify confining supply chain management within imaginary boundaries as a means to foster their respective enterprises’ competitive advantages, there is great potential in designing supply chain systems and networks that synchronise the streams of products, information, and capital from the sources to customer’s shelves. 

This is made more apparent with supply chains becoming more vulnerable to adversities such as COVID-19. 

Adversities are those that disrupt the routines and flows of operations, particularly supply chains.  Adversities come in different forms, degrees, shapes, and sizes.  They are never the same from one to the next (similar, maybe, like with typhoons but different in that typhoons never follow the exact same path with the exact same intensity of wind & rain).

Because supply chains have stretched themselves to the four corners of the world, they have become more susceptible to varying adversities.  Global supply chains are spread thin; their links ever more sensitive to disruption and change.

As supply chains have become global, supply chain management, however, has remained local.  As mentioned, enterprise owners are reluctant to collaborate and link with vendors and customers for fear of compromising their competitive positions.  Hence, there’s no overall organized effort to synchronize because there’s no strategy or structure for such in the first place. 

The COVID-19 pandemic has shown that supply chains can’t function productively without synchronisation.  And it has also shown that societies suffer when supply chains become adversely unproductive. 

How do we synchronise supply chains to make them if not keep them productive? 

The answer is not in management.  It’s in engineering