The Three Capacity Types

How much can we make?

How much can we buy?

How much can we deliver?

These are typical questions executives ask their managers all the time.  Executives often want straightforward answers; they’d rather be spared the complicated assumptions behind any of them. 

Calculating capacities can be a headache.  It’s never really as straightforward as a machine’s rate of production or how many items a person makes in a day.  Operators sometimes slow machines down or speed them up.  A shorter person may not make as much as a taller person.  Raw materials from one vendor may lead to higher output than that from another supplier. 

How executives view an enterprise’s supply chain capacity is also often different from that of employees.  Executives usually prefer what’s the most that can be produced and delivered.  Employees typically equate capacity with how much they have delivered in reality. 

Answering the questions of capacity therefore requires knowing what assumptions to base on and what data and formulae to use. 

I usually propose three types of capacities for enterprises:

  1. Maximum Capacity
  2. Operating Capacity
  3. Demonstrated Capacity

Maximum capacity is how much an operation can make or deliver assuming it runs at its highest designed rate all the time, that is, 24 hours a day, seven days a week, 365 days a year (366 if it’s a leap year).  No breaks, no shutdowns. 

maximum capacity = design rate x 24 hours/day x 365 days/year

Note that it involves the highest designed rate, that is, what the operation is engineered to do.  The design rate isn’t what it can actually do but what it’s supposed to be capable of. 

Operating Capacity is how much an operation can make or deliver assuming it runs at its highest designed rate based on a schedule.  Operating capacity computations are based on planned timetables but regardless of downtimes.

operating capacity = design rate x scheduled operating time

Note that operating capacity uses the highest design rate and 100% of the scheduled time.  Operating capacity does not take into account planned or un-planned downtimes, such as break-times or time lost during an operation for whatever reason.  For example, in a production process that has a design rate of 100 pcs per minute and is scheduled to run eight hours a day but with allowed breaks totalling 1-1/2 hours, the operating capacity would be:

operating capacity = 100 pcs/minute x 8 hours/day x 60 minutes/hour = 48,000 pcs/ day

Operating capacity does not factor in the break-time.  It does not consider any slow-down from the design rate. 

Demonstrated Capacity is based on the actual output of an operation.  It is determined by multiplying the actual operating time with the actual operating rate

demonstrated capacity = actual operating time x actual operating rate

The actual operating rate is the regular rate of output or what an operator or supervisor establishes as the equipment’s or workplace’s attainable output of items.  The actual operating time is the total amount of time the operation was running after deducting planned and un-planned downtimes.  For a production process that has a design rate of 100 pcs per minute, but an actual output of 5,000 pcs per hour that has a schedule of one eight-hour shift a day with 1-1/2 hour breaks, the demonstrated capacity would be: 

demonstrated capacity = (8 – 1.5 hours) x 5,000 pcs/hr = 32,500 /day

Demonstrated capacity does not take into account the design rate or the total eight (8) hour scheduled shift.  It only considers the actual operating time and actual rate of output.  It does not, however, deduct any unacceptable output (e.g. scrap, rejects). 

The Three Types of Capacity

Executives, especially financial managers, prefer maximum capacity when it comes to assessing how well an enterprise is utilising its assets.  If an enterprise’s supply chain schedules an operation at one (1) shift a day, it would be utilising at most one-third of an operations assets’ capability, which reduces the potential return on investment for the assets.  For an enterprise’s owners, that would be tantamount as wasted opportunity. 

Supply chain managers favour operating capacities in measuring efficiencies.  Operating capacities would be the baselines to determine how reliable operations are. 

Many operators and supervisors like demonstrated capacities for performance measurement.  Some would see operating and maximum capacities as unreachable parameters.  They’d instead measure their output against what they can attain, which would be demonstrated capacities.    

When it comes to determining what the capacity of an operation is, one has to be aware of who’s asking and what is being looked for.  Is it how much an operation is capable of? (Maximum Capacity).  Is it how much can be achieved at full efficiency over a planned time frame?  (Operating Capacity).  Or is it how much can one realistically count on to attain? (Demonstrated Capacity).

Enterprise executives, managers, and engineers may have their own versions on capacities.  It should be based on what one is after.  An executive seeking the best return on investment would have a different perspective from an operator who wants to know how much can really be done. 

Capacities apply to every operation.  Variables such as design rates can be tricky to determine, especially if the design rate is to be determined from labourers or logistics.  Supply chain engineers can help provide the data. 

That’s what they’re there for. 

About Overtimers Anonymous

Balancing Unstoppable Production and Benefiting from It

I used to work in a flat glass factory. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

About Overtimers Anonymous

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

How Control Charts Can Help Get Things Done Correctly and Consistently

How can enterprises better control their supply chains?  How does one know if the supply chain is under control in the first place?

A soy sauce manufacturer bragged about its wonderful customer service numbers.  The manufacturer showed charts that it was delivering 98% of orders on-time and complete.  There was no problem with quality as there was barely any rejections from customers.  

Customers, however, were telling a different story.  The manufacturer’s largest buyer, a supermarket chain, complained that orders were arriving at merely 65% of the time.  Fill-rates or order completeness was averaging 50%, i.e., the corporation was delivering only half of the supermarket’s orders.

It was even worse with product quality.  Soy sauce sachets were leaking at the supermarket’s shelves.  The supermarket chain was pulling out damaged sachets every day.

This is a true-to-life story and one that is repeated countless times not only at supermarkets but across industries.  An enterprise boasts outstanding sales numbers, excellent customer service, and second-to-none product quality.  Customers in the meantime grumble about poor service and unsatisfactory quality and frequent out-of-stock.  Who’s right and who’s wrong? Clearly there’s conflict and something should be done. 

Supply chains are product and service streams in which materials flow, transform, and advance in value from their origins (sources) to their final stage as finished goods.   A supply chain’s aim is to deliver products and services correctly and consistently.  Correctly means delivering the right products and services that match customer demand and expectations.  Consistently means delivering products and services correctly all the time

To do things correctly and consistently, there has to be control.  Control is the influencing and regulating of activities, the critical ones especially, to attain discipline in desired results. 

Many firms, particular those that do manufacturing, utilise statistical methods to keep operations under control.  One prominent method is the control chart. 

Control charts makes visible the actual behaviour of operations versus what we would normally expect of them.  The theory behind control charts is that results of most operations would follow a standard normal pattern, what statisticians call a normal distribution.  Products as they are made would have characteristics that tend toward an average result.  The variations between individual products would also follow an expected range, which statisticians measure as the standard deviation. 

The Normal Distribution

If items exhibit results that stray far from the average, that is, beyond the normal distribution curve, then chances are the operations making available the items have become erratic, or in other words, they are going out of control. 

In the case of the supermarket chain and the issue of leaking soy sauce sachets, control charts can track the number of leaky sachets: 

x̅ chart
R Chart

The control charts above are examples of what the leaky sachets can be like at the supermarket’s shelves every day of the week for sixteen (16) weeks.  The control charts track the weekly average percentage of damaged sachets as well as the range or widest difference between daily samples. 

The x̅ (average percentage) control chart shows close to an average 7.4% in leaking sachets while the R (range) chart shows an average variation of 0.4% between daily samples from each week. 

Right away, management of both the supermarket chain and the manufacturing enterprise can see that at least 7 out of every 100 sachets are leaking on the shelves every week.  For the soy sauce manufacturer’s executives, who pride themselves on their company’s reputation for zero defects, this is unacceptable. 

But the point of the control charts wasn’t just to indicate how many sachets are leaking.  The control charts showed that the percentage of leaking sachets was averaging 7.4% to 7.8%.  The range (R) chart illustrates this variation, as differences between items varied at an average of 0.4%.  This meant daily damaged sachets kept to a steady range between 7% to 8% of total.  

There was an instance where one week’s average dropped to 7.2% and fell outside the control chart’s limits.  Even as a drop in damaged sachets was a welcome sight, it was more of an exception.  It wasn’t normal and the damaged average was not in normal control. 

There were two (2) weeks in the R chart where variations spiked or narrowed outside the statistically set limits.  This indicates samples on those two (2) weeks may have been gathered and computed differently or that operations in each of those two weeks were being done differently. 

To put it as simply as possible, sachets are leaking daily at more than 7% average.  From the consistency of the damages, one may speculate that the source of the damaged sachets is an operation at the soy sauce manufacturer’s facility. 

It was later found that the manufacturer’s sachet packing machines weren’t sealing the soy sauce sachets 100% effectively.  The sachets’ seals were deteriorating and opening as soon as the products left the soy sauce manufacturer’s premises.  It was recommended the manufacturer refer the problem to their product research department to review packaging specifications and sachet production protocols.  It was also suggested that the manufacturer and supermarket chain come up with common quality and service measures. 

Control charts can be intimidating given the requirements to compute statistical numbers.  But as much as one needs familiarity and initiative to set up control charts, they are not that difficult to make.  The hard part usually is in identifying what specification or performance measure to chart.

But once they are established, control charts can be very useful as they provide instant feedback on how consistent and correct operational results are. 

The whole point of supply chains is to deliver products and services correctly (matching customer expectations) and consistently (all the time).  Being consistent and correct begins with being in control of the supply chain. 

About Overtimers Anonymous

The Basics of Supply Chain Mapping

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

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

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

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

 Other mapmakers go further by organising steps by departments: 

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

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

Typical civil engineering construction plan

         

Typical simple electrical layout

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

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

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

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

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

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

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

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

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

We build after all based on our visions. 

Twelve (12) Things Supply Chain Engineers Do for Enterprises

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

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

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

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

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

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

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

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

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

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

About Overtimers Anonymous

Supply Chains are All About Flow

Supply chains are about flow:  the movement of product from one stage to the next, from a starting point—a source—to an endpoint—a user. 

          We call them product streams, demand flows, pipelines.  But supply chains are hardly these as streams and pipelines imply a single fluid in motion.  What flows in a supply chain is not the one same item but a multitude of merchandise: parts, materials, components, and products. 

          Items also never remain the same as they weave through supply chains.  It is a basic point of supply chains that items change and never stay the same.  And not change for the sake of change but for the purpose of transforming to something that becomes more valuable from that where it came.  Solid ores become metals.  Metals become jewellery, spare parts, and the support beams for high-rise buildings.  Crude oil becomes petroleum which in turn becomes gasoline, motor oil, and plastics. 

          Supply chains converge and diverge.  They rarely follow a straight line.  Many see their items originate from other chains and disperse to others.  For instance, bauxite joins with caustic soda and other materials coming from other supply chains and are transformed together in a manufacturing facility into aluminium.  The aluminium in turn becomes material for other supply chains such as for cans for beverages, foil for kitchen wraps, and wire mesh for window screens.   

          Enterprises comprise most supply chains.  A fruit farm ships to wholesalers who ships to supermarkets and grocery stores.  In-between are transport providers and storage facilities. 

          Capacities limit how much can flow through supply chains.  The limits are also known as constraints and bottlenecks. 

          Policies, procedures, and controls govern the flow of merchandise through supply chains.  These vary from one supply chain stage to the next and to whomsoever has ownership of the territory the merchandise is moving through. 

          It should come to no wonder that flows are not steady or uniform.  Merchandise flows in fits and starts and in different mixes of product composition.  Flows are never identical from one instant to the next.  In a sense, flows may not even be the right word to describe what happens through supply chains as more often than not, merchandise moves in batches, surges, and waves. 

          Boosting productivity in supply chains is therefore a monumental challenge given the complexities and underlying uncertainties. 

          It would be easier to design a plumbing system and electrical schematic than it is to plan a supply chain.  At least with plumbing and electricals, the product stream is far more predictable and homogeneous.  It definitely is not like that with supply chains. 

The nature of supply chain flow by itself justifies the need for engineering prowess.  It is a daunting challenge but one that supply chain engineers are in the best position to undertake. 

About Overtimers Anonymous:

https://overtimersanonymous.home.blog/2020/04/30/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