Why Redundant Systems are Out-of-the-Question Necessary

I live in Mandaluyong City, Manila, Philippines and on June 2, 2021, there were three (3) announcements:

  1. The Luzon electrical grid was on “red alert,” meaning power failures of up to two (2) hours were imminent due to shortfalls in supply from power plants;
  2. The water utility company, Manila Water, warned that there would be no water supply later in the evening, as the company was planning to fix a water main which could take up to ten (10) hours;
  3. The government’s weather bureau forecasted that a tropical storm was bearing down on Manila, which could bring heavy rains and strong winds.

None of the above happened. 

There was no power interruption.  Water slowed to only a trickle for up to at most a half hour in the middle of the night.  And the storm brought light rain but no strong winds. 

Though it was good news that none of the above happened, the three (3) announcements were disturbing for the following reasons:

  1. They all came as surprises.  The government was assuring ample electrical supply from April to June 2021.  Manila Water had just fixed the water main a few weeks before so we residents didn’t expect there’d be another job that would entail one more whole night of no water.  The weather bureau was predicting the tropical storm wouldn’t reach Luzon but we suddenly saw the new forecast on social media before the storm would hit;
  2. There was no sense of urgencyPoliticians bickered about the power shortages.  Agencies weren’t advising people about the risks in regard to the storm.  And no one was asking communities to prepare for the scheduled water interruption.
  3. These announcements wouldn’t have been necessary if the systems behind each of them were reliable in the first place

All of us rely on electricity and water for our basic needs.  It’s therefore a given that supply should be reliable, as in 100% reliable.  We don’t and shouldn’t accept anything marginally lower. 

If someone tells us we should be happy with 99% reliability in electricity and water, we would ask that person if he’d be happy having no water or power one day out of every 100 days.  We wouldn’t and no one else would. 

Hence, we expect the people who supply us the power and water to be utterly and perfectly dependable.  It’s what we pay for via the bills the utility companies send us and expect us to pay by deadlines with the threat of disconnection if we don’t. 

Electricity and water, like products, easily follow the supply chain model.  Power plants procure raw materials (e.g., coal, oil, gas, wind, solar, geothermal steam) and convert them to electricity which they deliver via transmission lines and distribution grids.  Water companies likewise procure raw water from reservoirs, treat it, and distribute it via their plumbing networks to household and commercial consumers. 

The procurement, transformation, and logistics that comprise every supply chain are present as well in electricity and water utilities.

What makes the power and water supply chains unique is that the products of both are instantly available.  We get power at the flick of a switch and water at the turn of a valve. 

We consumers expect three (3) things from utility companies that supply electricity and water: 

  1. Reliability all the time.  When we consumers need it, the supply should be there. 
  2. Reliability to all.  Supply should be available all the time to all in a utility company’s coverage area.  It is not acceptable if one community has water and power while another has none. 
  3. Reliability in quality.  Utility companies must supply electricity and water at the quality needed.  If our appliances need 220 Volts, it should be 220 Volts, not 250 or 190.  Water should be clean, not dirty. 

Some executives and politicians mistake capacity for reliability.  Some believe if there are more power plants, the more reliable power supply will be.  Likewise, for water, some believe the greater the reservoir capacities, the more reliable water supply would be. 

Capacity is about the capability of assets, such as machines that can produce more and such as storage facilities that can keep more.  But having the ability to make or store more doesn’t make a system more reliable. 

Manila relies on one large reservoir to supply the bulk of its water.  Some people urge that another should be built so that there would be more water available for a growing population.  It’s an issue of capacity, these people say. 

Manila, however, relies on treatment plants to clean and filter the water.  It also relies on a network of pipes to bring the water to consumers. 

What would happen if Manila had lots more water than needed via two (2) reservoirs but had only one treatment plant and one main pipe supplying several of its cities?  The system may have more than enough capacity but wouldn’t exactly be reliable especially if the treatment plant shuts down or a pipe springs a leak.

This is what exactly was the issue for that announcement of no water on June 2, 2021.  A main water pipe needed repair and it was the only one that supplied to a large swath of the city.  One pipe determined the reliable supply of water to hundreds of thousands of people. 

Similarly, it would be nice to have more power plants to have more generating capacity. But if there’s only a single transmission line from each power plant and single substations to process that power before reaching respective consumers, then the power supply may not be as reliable.

Luzon had a shortfall of power supply on June 2, 2021 not because there weren’t enough power plants.  It was because Luzon’s power plants weren’t being managed reliably.  A power plant for instance didn’t have a backup for its boiler facilities that ran its turbine.  Other power plants were down simultaneously for preventive maintenance, which reflected poor scheduling. 

Redundancy is key to dependable reliability in utility companies.  Redundancy is the operation of multiple identical assets for the same process.  Instead of one asset, there’d be two or more even if just one is enough to do on its own.  That means either there’d be at least one idle asset backing up other assets in an operation or several assets running at the same time but at lower capacities as they share serving the total demand. 

For electricity supply, that would mean multiple facilities, not only in the form of multiple power plants but also in multiple transmission grids and substations running parallel to each other. 

For water, that would mean not only multiple reservoirs but also multiple treatment plants and plumbing networks either running parallel or taking turns to be on standby. 

If a transmission line has a fault, the power company can switch to another grid to deliver the electricity.  If a pipe bursts, the water company can switch to an alternate pipeline. 

Some executives, however, see redundancy as a bad thing.  Since it requires extra investment and added operating costs, they would rather not have redundant systems and instead insist that their management teams simply make sure that the systems are always running all the time and perfectly.

Unfortunately, no system is perfect.  Eventually, there will be failure.  It is just not humanly possible to prevent a power line from snapping due to wear and tear or a water treatment plant from shutting down due to an unexpected clog in its filter systems.                                                                                  

Redundancy therefore not only becomes justifiable but also necessary especially when the consumers the utility companies serve, which is practically everyone, demand 100% reliable electricity and water.

Redundancy applies to other supply chains in other industries as well where customers are very sensitive to failure in the delivery of goods and services. 

Enterprises that sell finished products rely on multiple vendors for the same raw materials to avoid run-outs.  They also set contracts with multiple transport providers to ensure there’d be available trucks to deliver the goods. 

Again, some executives mistake capacity for reliability.  They ration procurements from vendors based on percentage of their manufacturing capacities and they ask only so much trucks per transport provider to total only what’s needed to ship in a day.  When a vendor fails to deliver or a trucker doesn’t show up, the enterprise ends up not making what’s needed or delivering to schedule. 

Redundancy means having assets that provide multiples of needed capacity, not just the capacity itself.  It means having multiple sources, multiple facilities, and multiple systems such that when one fails, another picks up the slack. 

And as much as it applies to electricity and water, it is very much applicable to other industries that have very demanding customers.

And it also applies to weather forecasting too.  Weather forecasters rely on multiple monitoring stations and multiple providers for satellite and analytical data.  The data and analyses are redundant but it allows weather forecasters to compare information and come up with more accurate and reliable forecasts.  Which makes it puzzling as to why the forecast was so much wrong before June 2, 2021. 

For critical services like electricity and water, we demand perfect reliability.  Redundancy in systems help assure that reliability.  We expect nothing less from those who provide what we feel we deserve. 

About Overtimers Anonymous

Just About Every Enterprise is a Supply Chain Enterprise

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

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

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

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

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

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

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

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

In manufacturing industries, factories convert raw materials into products. 

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

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

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

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

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

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

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

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

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

About Overtimers Anonymous

Supply Chains Must Have These Five (5) Traits

What’s all the fuss about supply chains?

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

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

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

One stuck ship had created so much fuss.

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

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

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

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

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

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

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

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

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

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

Where do we start? 

I recommend identifying what traits a supply chain should have:

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

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

About Overtimers Anonymous

The Importance of Making Available What We Promise

I ordered a box of latex gloves from a 3rd party seller on a popular e-commerce website.  The seller confirmed my order by email and after 24 hours, the order status on the website was that the box of gloves was being prepared for shipment.  One week later, the order status said it was at a “logistics facility.”  Two weeks later, the order status was the item was out of stock, the seller will be unable to ship, and my order was cancelled. 

I ordered a box of the very same brand of latex gloves from another seller and I received it within three (3) days.  I was annoyed I wasted two weeks waiting for the first one that never came.    

Shouldn’t sellers check first if they have stocks physically available on hand before they confirm a customer’s order?  Is it not common sense not to sell something one doesn’t have on hand?

Sounds like yes but in the real world, no.  Many enterprises sell items even if they don’t have them on stock.  They count on their operations teams to either produce or procure the items and have them available as promised by the time customer wants them. 

Available-to-promise (ATP) is an inherent element in supply chain management.  It is how much of an item an enterprise will have on inventory for customers to buy, adding in what supply is arriving and deducting what’s already reserved for other customers.

ATP = On Hand + Arriving Supply – Reserved for Pending Orders

Enterprise owners count on the ATP to communicate to customers as to how much and when items would be on stock for selling.  

For items that are make-to-stock, enterprises typically make sure they always have enough items on hand at any time for customers to buy.  Supply chain managers would set safety stocks to buffer for unexpected demand.

If, however, enterprises are selling expensive stuff like precious metals, are in the business of shipping thousands of items like automotive parts, or are marketing products with short shelf lives, managers would not keep too much on hand to avoid tying up capital in inventory.  Managers wouldn’t keep any safety stock and would rely on scheduled arrivals when committing ATP to customers. 

Customers expect enterprises to deliver their items on-time and complete as promised.  How well an enterprise keeps its promises is a criterion for success.     ATP is therefore important. It’s one thing both the customer and enterprise care about.  Delivering as promised ranks right up there with quality, cost, and service. 

Supply chain executives should strive for the following when it comes to planning ATP:

Never Zero, At Least Not Often

No one likes to be told an item is out of stock.  Mothers don’t like it when their favourite brand of diapers for their babies are not on the drugstore’s shelf.  They would buy another brand if they come back in a week and there’s still no stock. 

Short Lead Times

Customers will cancel their orders if a shop says the items they want won’t be ready for several days.  We humans have thresholds when it comes to patience.  We won’t wait too long.  Enterprises who can quickly churn products for customers gain competitive advantage. 

It Doesn’t Change at the Last Minute

Nothing is worse than breaking a promise.  Few things are as frustrating as when a shop tells us that there will be a delay in the item that was supposed to be delivered today.  It feels even more frustrating if we had already paid for the item.  Frustrated customers won’t be comforted with apologies or refunds.   Customer satisfaction comes when deliveries happen, not when they don’t. 

One Person in Charge

There should only be one person in charge of ATP.  Not the planner.  Not the logistics officer.  Nor the plant manager.  Not anyone else but the supply chain executive, the one who oversees all the operations for the fulfilment of customer orders. 

That means the delivery of items to the customers’ doorsteps, the making of the items, the marshalling of resources to make and deliver the items, and the shipping of the items.  In short, the enterprise’s supply chain. 

Enterprises, therefore, should have a chief supply chain officer who’d be in charge of making available what is promised.  

Having two or more persons handle supply chain operations or delegating the accountability of ATP to middle managers are common mistakes that lead to items that won’t be there as committed.  Having more than one person in charge of the fulfilment of customer demand just makes no sense. 

It’s like a kitchen with two chefs:  one is in charge of buying the ingredients, the other oversees the cooking.   Both men would be fighting each other in no time.  As the saying goes, “too many chefs spoil the soup.”

Keep It Simple

The more complicated an enterprise’s operations, the harder it is to keep promises. 

Thousands of items, multiple steps, shared production lines, and conflicting policies & targets are examples in which management becomes muddled as items weave through supply chain operations to get to customers. 

The advice is to keep it simple and use common sense.  Schedule milestones operation by operation to know how much can be committed at the end of the supply chain.  Deliver with smaller trucks or send single items through couriers.  Keep few stocks but set automatic re-order points for items that don’t move as much (e.g. spare parts).  Don’t keep stock of items that are make-to-order (e.g. tailored clothes). 

Nothing Wrong with Being Conservative

There’s nothing wrong with applying an allowance to an ATP.  If the schedule says an item will be ready in four (4) weeks, commit to five (5) when the customer asks.  Adding an extra week would allow for unforeseen events such as if a supplier falls short in delivering needed materials. 

No farmer can surely know how many fruits he will pick today. A fisherman wouldn’t know exactly how many fish he will catch tomorrow.  But experience will allow either to provide safe estimates.  The same is true for ATP.  We never really know exactly how much items will be available but we’d be more confident with conservative numbers, just as long as it doesn’t lead to over-padding or over-commitment. 

Enterprises and customers put a lot of weight in what is available to promise.  Customers rely on enterprises keeping their word.  Enterprises depend on their operations to have items ready when needed.

Enterprises should avoid promising nothing to make available and when they do, shouldn’t make last-minute changes.  There should be only person in charge and he or she should be the one who oversees the operations in making ATPs realities.  Planning ATPs should be as simple as possible and can be made with some conservatism.  We should not over-commit or pad too much. 

We make promises we can keep.  People value us for how we act based on our words.  It becomes not only a mark for success but also a way forward to mutually beneficial relationships.  

About Overtimers Anonymous

Four (4) Guidelines for Available Transportation

Many small business enterprises don’t put too much thought into deliveries.  For those who are into e-commerce and sell one or very few items via the Internet, the enterprise’s flow of work is typically receiving orders, preparing the items, and booking & delivering via a 3rd party service (e.g., Grab, Lalamove).

Many enterprises have seen their businesses grow thanks to e-commerce.  Some have seen their markets surge in terms of number of customers and deliveries.    

E-commerce has been a godsend to enterprises reeling from the coronavirus pandemic of 2020.  Some have not only survived but also made good money. 

As some enterprises grew, they expanded their product lines and gained more customers.  Some have seen demand for their products come with greater variability as they cater to customers with varying needs. 

Nevertheless, most e-commerce enterprises have done well despite the growing demand.  They have had no issue delivering versus demand (customer orders), thanks largely to sufficient capacity and availability of transport providers.     

But as businesses expand even more, they can begin to encounter issues. 

Transport availability and operating capacities show their limits when business multiplies.  Enterprises realise e-commerce becomes more of a supply chain issue, than just an adoption of an app. 

Some enterprises end up turning away customers when they lack the capability to deliver. 

Turning away customers means turning away opportunities.  When times are tough, enterprises can ill afford to turn away customers. 

Which is why it’s wise to study and pinpoint where one can invest in capacity and allow the business to grow. 

There are means to determine how to increase operating capacities.  It’s another story when it comes to transportation availability.  How does one procure more transportation?  Should the enterprise buy more trucks or source more 3rd party providers? 

The following are some suggested guidelines:

A. Own Vehicles for Demand Surges

Most enterprises experience demand surges.  Food shops sell more during the Yuletide season and not much afterward.  Gift & flower shops sell a lot before and on Valentine’s Day.  Convenience stores sell plenty of beverages and snack foods during long holiday weekends when most people stay home. 

An enterprise can assess its transportation needs for demand surges.  It might be a good idea for an enterprise to have its own transportation to pick up the slack when 3rd party providers may not be available, such as during holidays when many drivers and riders go on leave or are fully booked.

B. Have Back-Up Drivers

Nothing is more frustrating than to have a delivery ready to go but no one to drive the vehicle to transport it. 

Enterprises usually train several people to operate equipment such that if the operator is absent, another can take over. 

The same should apply for delivery vehicles.  Even if a shop relies almost 100% on 3rd party riders to deliver, it not only may be a good idea to have one’s own vehicle on standby but also to have more than one employee who knows how to drive it.  It’s not worth the risk of having no transport available to deliver all because there was no one to drive the vehicle that’s already there. 

C. Get to Know the Riders

They’re not your employees but it may be nice to get to know the riders who pick up your products and deliver them to your customers. 

Some riders come back again and again to deliver for an enterprise.  One reason is because some of them live nearby so they’re readily available every day.  It’s therefore nice to establish a professional rapport and even share contact information. Having a rider that you’d know and who’d you know will surely be there for your business every day adds a plus to ensured availability.

D. Take Advantage of 3rd Party Promotions & Programs

Some 3rd party services offer programs wherein client enterprises can not only avail discounts but also provide greater priority for package pick-ups and deliveries.  The enterprise can estimate the packages it will ship daily and see how a 3rd party’s offered program fits in terms of price and available transport. 

Pandemic or no pandemic, enterprises are growing through e-commerce.  They are seeing exponential growth and so far, many are coping well and making profits. 

Growth at a point, however, reveals the limits of enterprises.  When it comes to e-commerce, it usually shows not only in operations but especially in transportation. 

It may be good for enterprises, therefore, to invest in one’s own transport especially for demand surges, have enough back-up drivers, and establish relationships with 3rd party providers, like with the riders and/or availing programs & promotions 3rd party services may offer.

Better to be ready to deliver than to be unable to. 

About Overtimers Anonymous

How Important Productivity is to the Value Chain

The fast-food restaurant drive-thru I go to every Sunday morning hasn’t been serving the liquid creamers that accompany the coffee I order with my meals.     

At first, they said the creamers were out of stock.  A week later, they said they can only serve one (1) creamer instead of the two (2) that should come with every coffee order.  Finally, they substituted the coffee creamer with a non-dairy powder cream in a sachet. 

The fast-food company saved money in all three (3) instances.  They saved when they served coffee without any creamer or with just one instead of the usual two.   They also saved when they started serving the powdered creamer in sachets as the liquid creamer is more expensive.   

The fast-food company can claim savings but did it deliver value? 

In his seminal book, Competitive Advantage,[1] Michael Porter introduced the value chain, a representation of a firm’s “collection of activities that are performed to design, produce, market, deliver, and support [the firm’s] product.”

Value is the “amount buyers are willing to pay for what a firm provides them.”  The typical strategy of the firm is to create value that “exceeds the cost of doing so.”  According to Porter, value is the key to competitive positioning.

The fast-food company normally served two (2) 10-ml cups of imported liquid creamer with every coffee order.  It was something I look forwarded to and expected whenever I went to the fast-food company’s drive-thru.  When the fast-food drive-thru stopped serving the creamer, I was not happy.  I felt I was no longer getting my money’s worth from my coffee order.

Bundling two (2) 10-ml creamers and two (2) packets of sugar was standard for every coffee order, according to the drive-thru attendant.  Unfortunately, the fast-food drive-thru no longer had the stock and substituted the creamer with a cheaper sachet of locally produced non-dairy powder. 

The fast-food company apparently thought substituting the imported creamer with a cheaper local product would be no big deal.  The management of the fast-food company probably didn’t believe its customers would buy less of its coffee, even with the downgrade. 

The cost of all the activities in the value chain must be less than the price of the product.  The difference between the price and the cost is the margin.    Enterprise executives tend to cut costs or differentiate their products to maximise margins. 

The problem arises when customers like me perceive a lower worth of the product as a result of the enterprise’s cost-cutting.  Perceived lower worth leads customers turning away from the enterprise and opting for alternatives from the competition, resulting in lower demand for the enterprise’s product.    

Many enterprises see-saw between cutting costs and differentiating their products as they struggle to maintain their products’ profit margins.  When they see costs going up, some enterprises buy cheaper materials and services.    When they see demand slowing, they spend more for product development and advertisement of their product’s features.  In either case, the enterprise ends up losing customers or spending more than it should.    

All functions in an enterprise make up its value chain.  Whether it be purchasing, marketing, logistics, sales, manufacturing, finance, accounting, human resources, information technology (IT) services, legal, public relations, research & development, etcetera–every department and individual play a part in delivering value for the enterprise.  Every one in an enterprise contributes.  There is no exemption.  If the value chain is to be competitive, everyone has to work and to work together toward the common cause of maximising the margins of the enterprise’s products. 

Every part of the value chain must be productive.  Productivity drives value. 

Productivity is output over input.  In the value chain, productivity is the output as delivered and accepted by customers versus how much was inputted in doing so. 

That means whatever function we work in, we must deliver output that would benefit the enterprise’s product margins.  Our performance, no matter how seemingly small or irrelevant, contributes to the value chain. 

Some of us equate value chains with supply chains.  This is wrong thinking and it is detrimental to an enterprise’s productivity.  Whereas the supply chain’s basic functions like purchasing, manufacturing, and logistics directly add value to a product, roles such as legal, human resources, marketing, sales, engineering, information technology, and research & development (R&D) are just as equally important. 

Human resources professionals hire talented people to staff the enterprise’s organisation.  In-house legal counsels ensure products are compliant to local laws and regulations and defend the enterprise’s products’ intellectual properties.  Finance executives ensure the capital needs for products.  Marketing cultivates ideas for R&D to develop into reality.   

A condiment such as a coffee creamer may seem trivial.  For value chains, nothing is trivial.  Every detail and process have a bearing on how a product’s value chain will bring worth to customers. 

The fast-food company may dismiss my disappointment if it turns out I’m alone in complaining about a downgraded coffee creamer.  If a vast majority of its customers continue to consume the fast-food company’s coffee, then well and good, the enterprise would have saved money without any dent to its coffee’s perceived value. 

But if my sentiments are shared with many coffee drinkers who decide to turn away and find alternatives, then the enterprise would no doubt be strongly encouraged to improve the productivity of its value chain.  Perhaps it will study how better to source its imported creamer to ensure it will always be bundled with the coffee it sells. 

In the meantime, I decided to get my Sunday morning coffee from the fast-food company’s competitor. 

About Overtimers Anonymous


[1] Michael E. Porter, Competitive Advantage,  (New York, N.Y. : The Free Press, 1985), pp. 36-38

Logistics Solutions Can Be Simple

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Six (6) Principles to Successful Flexibility

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

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

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

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

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

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

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

Successfully implementing flexibility relies on a few principles:

Think Small

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

Balance Integration with Autonomy

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

Innovate to Invest

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

Cultivate Talent, Not Acquire It

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

Use Multiple Measures

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

Everyone is a Member of the Team

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

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

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Ten (10) Examples Towards Building Better Supply Chains

For years, experts have cited the urgent need for supply chains to adapt and get better.  In 2005, Paul Michelman via the Harvard Business Review wrote:

“Threats to your supply chain, and therefore to your company, abound—natural disasters, accidents, and intentional disruptions—their likelihood and consequences heightened by long, global supply chains, ever-shrinking product lifecycles, and volatile and unpredictable markets.”

Fifteen (15) years later, amid a pandemic that has wreaked economic havoc, executives are hearing the need even louder.  Supply chains must become resilient and robust in a new normal of constant disruption.  Supply chains must change

Experts have urged enterprises to map their supply chains, identify risks, review their networks, and innovate via technologies such as robotics and automation.  But what does an enterprise do when it’s got the maps, identified the risks, and has the network review results? How does an enterprise innovate via technologies? 

We cannot just manage supply chains to make them better.  We need to build them. 

It’s like a house.  When we manage our houses, we do things like fix a leaky roof, replace lightbulbs, and unclog drain pipes.  But we can only do things ourselves up to a certain extent. 

When the job gets too big to handle, we seek experts.  Civil engineers help us replace the roofs and retrofit the foundations.  Electrical engineers help re-wire our electrical circuits. 

The analogy applies for supply chains as well.  We can manage supply chains only so much.  When we need to make significant improvements, when we can no longer just manage them, when we need to rebuild them, we’d seek engineering help.  The most qualified to do so are Industrial Engineers (IEs), or more specifically, Supply Chain Engineers (SCEs). 

How can SCEs help rebuild our supply chains? 

The following are examples:

  • Developing the Digital Supply Chain.   

With the advent of Industry 4.0, enterprises, more than ever, are investing in new technologies that marry data and process productivity.  SCE’s can help enterprises implement state-of-the-art technologies into their supply chains which will provide the means towards real-time operations visibility and automated process improvement. 

  • Setting Up Flexible Manufacturing Systems (FMS)

SCE’s can help integrate flexible manufacturing systems (FMS) into supply chains.  FMS is an alternative to traditional production systems in that it focuses on short-run small-lot-size manufacturing versus long continuous mass production.  SCE’s can build in flexible systems into supply chains via integration with logistics, production planning, and procurement. 

  • Improving Inbound & Outbound Logistics

Supply chain engineers can streamline the flow of goods coming into and out of storage facilities.  They can identify and ubblock bottlenecks, and recommend how manpower and facilities should be laid out such that merchandise can flow continuously and smoothly.  SCE’s can also study the economics of procurement and delivery practices that underlie their impacts on logistics flow. 

  • Simplifying Storage & Handling

Storage and handling are very high on the list of many supply chain managers’ preoccupations.  Enterprise executives don’t like them because they connote cost and they’re seen as not adding value.  But with the SCE’s help, enterprises can turn them into the assets they really are. 

  • Tuning Up Transportation’s Last-Mile Productivity

SCE’s can offer options that would boost the productivity of last-mile freight deliveries and services.  These include recommending changes in transportation structure, improving route planning & scheduling, and balancing loads maximisation with delivery turnarounds.

  • Perfecting Order Fulfilment

SCE’s can come up with order fulfilment systems that seamlessly connect anticipated customer demand with available-to-promise (ATP) inventories.  The goal is perfect orders: deliveries that meet 100% of customers’ service requirements 100% of the time.  

  • Factoring the Worker in the Workplace

Enterprises want efficiency but need to be mindful of the welfare of their workers.  Popularly known as ergonomics, SCE’s apply human factors engineering to improve labour productivity by adopting the workplace to the person, rather than adopting the person to the workplace. 

  • Re-Implementing Total Quality

It’s an old buzzword from a bygone era, but Total Quality still serves as an applicable approach to ensuring supply chains deliver what they’re supposed to.  SCE’s provide the in-depth tools and means to make sure processes work right the first time. 

  • Re-Defining Cost Engineering

To many enterprises, it’s a glorified clerical function that estimates job expenses and checks the billings from vendors and contractors.  But it’s more than that and SCE’s can show how cost engineering can not only tame the expenses but also provide competitive value for supply chains.

  • Pruning the Value Stream

Value-Stream Mapping (VSM) is the basic tool of Lean, and it tells us where the non-value added and value-added activities are.  SCE’s show how to optimise the value stream after we know the results of VSM. 

Enterprise executives have heard the need to reform their supply chains.  But they can do only so much managing them.  Enterprises would need the assistance of Supply Chain Engineers to build in better structures and systems. 

The ten (10) examples described above illustrate how SCE’s can help enterprises change their supply chains for the better.  And given the ever increasing clamour for change in these challenging times, we could use all the help we can get. 

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Improving the Customer Experience and Gaining Higher Productivity

This Photo by Unknown Author is licensed under CC BY-SA

An automotive service centre in Manila, Philippines advertises that it opens at 8:00am. The doors actually open, however, around 8:15am.  Employees time in before and after 8am but pass through the washroom before heading to their desks.  A waiting client who would have arrived at 8:00am would probably be served earliest at 8:30am. 

The automotive service centre is part of a dealership that sells Japanese cars, vans, and motorcycles.  The dealer represents the final point of a Japanese automotive company’s global supply chain.  The Japanese company is heralded as a market leader but that view is far from the mind of the customer waiting for a half hour for one of its dealers to open the doors of its service centre. 

The Japanese owners of the automotive company wouldn’t likely be aware of the experiences of their Manila dealer’s customers. 

They probably wouldn’t know how customers felt for having to wait for 30 minutes.  And they probably wouldn’t know some customers would have to wait even longer because the supervisor who would decide on specific service requests hasn’t arrived yet. 

Many executives don’t know first-hand what their customers are experiencing with their enterprise’s front-liners.  They would rely on feedback, surveys, and statistics but they would hardly see the actual experiences of customers. 

Improving the customer experience can catapult an enterprise’s competitive advantage.  But it’s not only because customers will flock for the better service but also because when one improves the structure and processes that improve that experience, it uplifts not only customer satisfaction but the enterprise’s productivity. 

The automotive service centre has a competitor down the street.  The competitor advertises that its service centre opens at 8:00am but at 7:30am, the service representatives are already checking in customers and inspecting cars.  At 8:00am sharp, the service representatives are already interviewing the customers for their specific complaints and requests.  Service representatives provide the first group of waiting customers diagnoses and estimates within a few minutes.  The service centre would immediately begin work on cars as soon as the customers sign on their approvals.  Customers who were at the service centre at 7:30am for routine service checks would be checking out as early as 9:30am. 

The automotive competitor serves more cars than the one who keeps customers waiting.  It’s not because the competitor has more poor-quality automobiles that need fixing, but it’s because the competitor sells more cars than its neighbour.  The competitor does not keep its customers waiting and makes sure all the cars that come in the morning are served as soon as possible. 

Customers at either service centre may not be very loyal to the automotive brand they buy but they will remember their experiences.  This would have an impact on what automobile they will decide to buy in the future.

But more than that, the competitor has a higher productivity than the neighbour who opens late.  The higher productivity assures no backlogs in service jobs that would not only drive up expenses but also make it difficult to keep the customer experience consistent.

The competitor didn’t just add staff to engage waiting customers right away.  The competitor also invested in multiple maintenance bays to service more cars simultaneously.  The competitor also laid out the facility to have two types of bays: one for quick routine service and the other for longer, more complicated jobs. 

The routine service bays were closest to the facility’s doors so service attendants can move cars quickly to customers who can leave immediately.  The other bays were located deeper which made them closer to parts storage and special equipment. 

The competitor has seen the challenge for consistent customer experience and productivity grow.  Sales has gone up and down in recent months.  But because the competitor has made sure he has enough staff and bays, customers haven’t been complaining. 

The automotive service centre that kept customers waiting for 30 minutes, however, had obviously not paid attention to how promptly its staff reports in the morning.  And one could see there was no system of assigned bays or facility plan when it comes to maintaining customers’ cars. 

Companies are fickle when it comes to customer experiences.  Every so often they harp on it, but when times get tough, they sometimes forget about it. 

When one connects a consistently good customer experience with higher productivity, one can see the immediate benefits.  The intangible advantages of satisfied customers result in the tangible paybacks of having a productive work-place. 

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