Authored By: Christon Valdivieso
Edited By: Afton Knight
I was warned when we had our first child that life would change. While I did not doubt my friends and family, I suppose I did not fully appreciate them until last week. Last week, while reading another article about e-commerce (e-comm), I found myself singing ‘Old McDonald’ in my head. Sure ‘Old McDonald’ teaches children about animals and their corresponding sounds, but the facts about e-comm seem to be ‘here’, ‘there’, and ‘everywhere’. What is worse, far too many people in the workforce accept what they hear as fact. As managers, making the leap to leaders involves building the critical thinking muscle.
In today’s supply chain the major hurdle is a profitable e-comm wing. To create an e-comm solution businesses need to know what is really going on and how the supply chain can adjust? The problem, as indicated above, is that “research” is inconsistent and often misleading. For instance, The Philadelphia Business Journal recently reported on a study that found only 26% of businesses are using their websites for e-comm. From a consumer trend point of view a WWD article indicated “96 percent of Americans are shopping online…allocating 36% of their shopping budgets to e-commerce”. Taking these studies as fact, most companies would call a meeting to discuss how they are going to close the gap in their e-comm presence and capitalize on a booming field.
Unfortunately, these facts are misleading. First, e-comm is more than a “Pay Here” button on the website. E-comm is the digitalization of all the various steps of business including online catalogues, EDI communications, forecast and demand transmitting, and POS data sharing as well as online purchasing. The online purchasing and corresponding delivery service, e-sales, is a small part of the total e-commerce ecosystem. Additionally, the data on e-sales habits mentioned above was sponsored by an e-comm platform provider and directly conflicts a timetrade article that states 85% of consumers prefer to shop at brick-and-mortar stores. When it comes to e-comm data, businesses are exposed to a myriad competing information. Namely, while most conversations and articles headline e-comm, they really mean e-sales.
Supply chain leaders can create strategies despite inconsistent information through critical thinking and data-driven information. Critical thinking is imperative in creating a robust strategy that mitigates risk and is profitable. Throwing together an e-sales strategy to be “competitive” without thinking through the repercussions on logistics and distribution channels has proven disastrous for companies. While investments into logistics solutions have ballooned recently, less than 20% of major retailers are profitably executing Omni-channel supply chains. Thinking critically requires an ability to sift through the chaos to find the truth—relative to your business.
Nike, for instance, saw a 50% increase in online sales in 2016 and the consumer packaged goods (CPG) industry saw a 42% increase in 2015. Using actual data allows Nike and CPG companies to look at their supply chain with an honest and critical microscope. One Northern California wholesaler was recently purchased by a team that faced this issue. The former owners were eager to sell product through their online catalogue and online retail marketplaces. What the new owners found, was that 40% of the products offered online sold for a loss. What do these three scenarios have in common? Each example required companies to look at what is actually happening to their business. Instead of creating solutions based on information pulled from outside sources, they looked inward. For many companies this could involve hiring, contracting, or reassigning a data analyst to create data collection protocols and sift through large sums of data. Regardless of how relevant data—which can then be supported by outside articles and research—is collected, it is critical to creating a sustainable strategy.
Assuming your company has delineated the difference between e-sales and e-commerce, I supply this thought: Does your strategy resemble a nursery rhyme by following headlines or does it consist of a data-driven, well-supported plan of attack?
I had to take a minute and tell everyone why I am excited about the second half of the year for APICS Phoenix. If you've looked at the schedule for the past year you will no doubt notice that our events were lacking. This fiscal year—starting in July—we already have five dynamic events booked. Keep an eye out for more details and remember to block off your calendars for the third Thursday of every month.
OnTrac's Mike Harris will be our speaker in August. I met Mike on a site tour a few months back. Not only does he have an approachable personality, he is very knowledgeable. Most of us are dealing with a transition from intuition based decisions to data driven decision making. Mike was open about what that meant for his team and gave my group a great view of the OnTrac world. Later in the year we have two partner events with other organizations in health care and quality management. These will provide a great opportunity to network and hear business solutions from a different perspective. Be sure to keep an eye on the calendar for what's coming up and when to register.
Also, APICS Phoenix is actively on Twitter (@APICSPhoenix)! APICS Phoenix is driven to be, "the leading marketplace provider of knowledge and education for operations and supply chain management" and @APICSPhoenix is an extension of that goal. Highlighting industry trends, news, and thought, make sure you are following @APICSPhoenx to stay up-to-date with the supply chain industry.
As a proponent of challenging what we “know” to be true, last year I wrote about continuing education. Inevitably, I recently found myself at a loss for words when a professor challenged me. I mentioned the importance of forecasting and how forecasting error often leads to poor inventory management. The professor interrupted and began to tear down the notion of forecasting. I could not believe it. How could a professor not support forecasting? Considering the role of the supply chain, isn’t the forecast instrumental? The point our professor was challenging us to consider is while most companies use forecasting to align cross functional strategies, when it comes to inventory management, forecasting is part of a bigger issue.
In Part 1 I talked about strategy and alignment; but, let’s not be naïve and pretend business is neat and simple. Tesla, for instance, had a strategic vision to generate cash flow in 2016; however, when orders for the Model 3 surged they pivoted to a time-to-market strategy. How can we as supply chain managers align inventory practices with business strategies that keep changing? We start by looking at the problems that distract us.
Looking online, most articles about inventory management problems talk about the Big Five Distractions (Big Five):
The problem with the Big Five is that they place zero ownership on the inventory manager; and, that is the main problem with forecasting. Telling your boss, you cannot do your job because other people were wrong will not help you keep your job. The fact is, forecasting is almost always wrong. And If forecasting is always wrong, why do we blame others when inventory—aligned with the forecast—is off?
This is what my professor was implying. Issues with forecasting and bad systems or data will always exist. Leaders have to take these issues into account and create solutions. As competition increases and profits get squeezed supply chain strategy is the next frontier for growing profitability. Thus, when it comes to inventory management, leaders have to be agile and creative.
The inventory manager cannot hide behind systems, forecast, or people. In my experience there are two main causes of inventory issues: communication and poor decision making. I focus primarily on the latter—decision making.
Poor decision making is generally a product of a lack of focus leading to costly or short sighted initiatives. With numerous supply chains and shifting business strategies loosing focus is easy, but it is not permanent. Take Target, after years of being a “fast follower” and coming in a distant third, Target recently decided to focus their efforts on an improved supply chain. This entailed re-coding its e-commerce platform to improve visibility and capacity. They also cracked down on vendors to increase supply chain reliability. Similarly, Ralph Lauren recently took steps to improve its profitability through reduced store foot prints and shipments.
My good friend Taimur Matin has agreed to speak with us for our June Professional Development Meeting (PDM). He grew up in Pakistan and worked in Dubai for a number of years and has an international perspective that I think we all should be exposed to. The June PDM will be small so sign up early. Check out a brief bio on Taimur below:
Taimur Matin has spent the last 5 years working with APL in Dubai, UAE on international trade. Specializing in containerization and ocean freight, Taimur, has unique knowledge dealing with customs, INCOTERMS, commodities, and international relations. Taimur took a break for international shipping to complete his Master of Science in Global Logistics/Supply Chain from Arizona State University.
Taimur will give his presentation on international trade and commodities including process for international trade, how companies can ensure profitability and reduce risk, and how the commodities market effects both the macro and local economy. Join us for a great discussion on June 16th as we take a deeper look into what it takes to successfully manage an international supply chain.
During my professional career, I have had the opportunity to work with various different inventory management systems and strategies and it is likely you have or will too. The primary focus of an inventory manager seems simple on paper: control raw materials, work-in-progress (WIP), and finished goods. The complexity arises from understanding how and when to balance lean (pull) strategies against slack (push) strategies.
Everyone in their various positions that you deal with will undoubtedly have the “correct” answer for you, but as Deming[i] tells us, “knowledge depends on theory” and “information is not knowledge.” Thus, it is important to understand how (and why) one should arrive at a certain inventory management solution.
When I first started as an inventory manager, I had no idea what I was doing. Demand was seasonal, variable, and emotionally driven. Furthermore, my inventory sustained a quick rate of obsolescence. To make matters worse I had limited data to support strategic decisions and POS data was unreliable and rarely mirrored data from the floor. Needless to say the inventory management process was time consuming and arduous. I adapted a Just-In-Time (JIT) strategy for my category A inventory items and maintained low safety stock to reduce holding and obsolescence costs. Substitutes were easily sold during periods of stock outs, making stock out costs low. Demand for category B and C goods were mainly dependent, thus correct A item planning captured the majority of issues.
When I moved to the next company, the pattern was different and I had a steep learning curve. Demand was less seasonal yet significantly more variable. Stock out costs were very high and I had a rude awakening when I attempted to implement my lean strategies of JIT and low safety stock levels. I had to increase my safety stock levels, use my sales data to determine peak periods to ensure coverage and high customer service levels (CSL), and train my team to ensure product availability. Thankfully, we had a fully integrated system that collected accurate sales data in real time and increased inventory visibility.
Even though I adapted my strategies, I still did not understand the theory behind my decisions. My actions were reactionary at best. So what do you do when you decide it is time to be proactive?
The simple answer is to seek alignment. The supply chain and its practices must be aligned with the business strategy. A Quality Digest[ii] article recently pointed out that a common mistake is maintaining a narrow focus on performance (more on this in Part 3), but I would take it further to say there is too narrow a focus on the supply chain. Remember:
“optimization of the parts does not optimize the whole.” -Deming
Take a look at your company and the market space it operates in. Where is its success derived? Consider these elements and how they relate to your company.
· Does your company focus on being responsive or having inventory available?
· What are your company’s CSL KPIs?
· What is your voice of the customer (VOC) research telling you is important from your customer’s prospective?
There are various other questions, but these will capture a large portion of your inventory design needs.
Responsive or Available?
Like it or not Amazon is changing the game for everyone, but not always in the same way. For many retail and B2C companies, availability is the name of the game. If your supply chain cannot have product in the right place at the right time, you lose a customer. Do it twice and you’ve lost that customer, and some of their friends, for life. For some companies, mainly B2B, the emphasis is on delivering product on schedule after receiving an order. Understanding which one of these you are is your first step. Yes, this one is simple but common knowledge is not always common. Additionally, many companies are actually responsive but use safety stock to sell themselves as available. How your company behaves and how they see themselves will often lead to frustration as you plan your lean/slack strategies.
If this section’s heading does not make sense to you, it is important to do some research because the concept is integral to monitoring your supply chain’s alignment strategy. Customer Service Levels (CSLs) and how they are measured (KPIs) will drive structure. CSL refers to how often customers receive complete, accurate, and on time order deliveries. This is the part that causes rush orders, upset salespeople, and “unpleasant” emails. While most companies have some way of interpreting their CSL, they will not always have a clear measurement of it. If there is a mismatch in your responsive/available value proposition, you will be faced with an unclear and misunderstood CSL. Your CSL (measured in percent orders) will be a balance between the cost of not getting your customers’ orders correct and the cost to do so every time. While it can be cost prohibitive to seek a 100% CSL, in instances like successfully landing a plane, it is impossible not to.
The voice of the customer—their needs, wants, and feedback—is so critical it is a wonder how it is missed. I have seen sales people so focused on what they need to close a deal that they miss what the customer is actually saying. Even more often, I have seen salespeople make promises the operations team cannot deliver (or did not know they needed to deliver). Therefore, it is integral that processes and relationships are in place to ensure that the VOC is communicated with the inventory manager. Having a supply chain that is integrates and aligns departments throughout the company will begin to break down barriers and open up communication between necessary parties. Part 3 will have more on the customer relationship management (CRM) processes that will facilitate VOC communication.
Understanding the VOC, CSL, and nature of your company are the keys to understanding the theory behind your lean/slack inventory decisions. If you have not yet taken a minute to look at these, I supply this thought: Is your inventory management strategy reactive or proactive?
If you have not heard about the gig economy, welcome to the 21st century. I have heard it used interchangeable with the “Uber Economy” but I will not give Uber all the credit. In fact, according to a NY Times article[i]the gig economy has been building for some time. The shift to less traditional employment (including freelance, contract labor, and temping) saw a spike during the 2009 downturn. Today it is not uncommon to find an Uber driver that has a house or room on Airbnb. As Amazon continuous its quest for world domination (or at least a sustainable logistics program), we will no doubt see more resumes with ‘Amazon Delivery Consultant’. In the past, HR managers have frowned about multiple jobs on resumes, but as the Gig Economy continues, multiple jobs during short periods of time will be the norm.
If you haven’t heard of Talent Supply Chain Management (TSCM)[ii]…welcome to 2016. TSCM focuses on treating talent pipelines like the supply of product. Just as companies have yearly strategic planning meeting involving suppliers, they should have strategic meetings involving talent. Consider how ludicrous it would be for a company to plan its marketing or distribution goals after a need presented itself. Yet this is what most companies do with talent.
This is where the two concepts intersect. What most companies are headed towards is a mixture of traditional full time employment and flex labor. These flex labor roles represent up to 30% of projected labor which means there is a huge potential for those who want to be their own boss. Similarly, there is a huge potential for people looking to gain exposure and experience in various facets of a company. The key will be creating value through quality versus quantity “gigs”.
Have a need for on call fulfillment/customer service/delivery drivers? Why not make the on call lead a temporary or flex position too? Generally, front line hourly associate roles are dissected to create various FTE (Full Time Equivalent) needs. Unfortunately, this creates a knowledge and talent utilization gap. Many associates are not afforded the opportunity to move up due to long term full timers that are already in line for a select few leadership roles. Most companies combat this by aggressively growing the company’s footprint. Making the leadership roles flexible (i.e. part-time, contract, or rotational) allows companies to add the societal benefit of employing and training more locals while allowing them to interview and select proven top performers.
Whether your role in the supply chain handles distribution, logistics, procurement, or any number of roles along the value chain this gig workforce cannot be ignored. At the same time, it has to be managed correctly. A major element of the gig economy is the sharing of ideas and information. Adopting a turn-and-burn mentality will tarnish your company’s reputation. Aligning your gig workforce with values that are shared between your company and workers will further uphold the brand.
With that in mind I supply this thought: What is your value proposition, more importantly, how can you leverage the Gig Economy to meet your professional goals?
[i] Scheiber, Noam; “Growth in the ‘Gig Economy’ Fuels Work Force Anxieties”; The New York Times; online; http://www.nytimes.com/2015/07/13/business/rising-economic-insecurity-tied-to-decades-long-trend-in-employment-practices.html?_r=2
[ii] Carroll, Teresa; Kelly Outsourcing & Consulting Group; online; http://www.kellyocg.com/uploadedFiles/7-KellyOCG/2-Knowledge/Talent_Supply_Chain/Talent_Supply_Chain_Management_Readiness.pdf
The APICS Dictionary defines supply chain resilience as “the ability of a supply chain to anticipate…avoid or mitigate, and/or recover from disruptions to supply chain functionality”. Supply chain disruptions are more than just the daily annoyances from a late truck or an interrupted production schedule. According to new research, supply chain disruptions cost companies millions of dollars every year[i]. A single disruption can cost anywhere from US$100,000 to US$1 million[ii] and most of them are preventable! The two major tools for creating resilience are redundancy and flexibility. I should note here that I prefer the concept of agility (mental nimbleness) to flexibility (mental yoga) as agility implies the ability to see and maneuver into different ways to achieve success. Flexibility, on the other hand, implies an ability to fit success into a changing picture. Think of it like this: a flexible supply chain manager might keep their staff late to finish a project whereas an agile supply chain manager cuts non-essential associates incurring less OT to finish the task. While a flexible leader argues the glass is half full, the agile leader puts the same amount of water into a smaller glass and fills it up. For this discussion let’s focus on redundancy (i.e. repetition or having multiple of the same thing).
Redundancy is a great way to protect your operation from disruptions. The most common types of redundancy are safety stock and utilizing multiple suppliers. Given that the U.S. Census Bureau[iii] reports a yearly growth of retail inventories of 5.5% (1.6% overall) for November 15, I would propose that most supply chain managers understand the need for safety stock. They will, no doubt, come under fire from their “lean” minded senior leadership, but will supply chains be reactive and cut safety stock or find an appropriate balance? Also, what about multiple suppliers?
Most businesses achieve scale by leveraging larger business needs for lower costs. Thus, a reduction in suppliers is useful; however, there is a risk of increased disruption susceptibility (I would like to note that risk management is a key factor in all this as well, but I will save that discussion for another day). Recently, Toyota revealed[iv] a shutdown of its Japan operations for a week due to a supplier-related issue. Strikes at the port of LA/Long Beach and New York[v] have impacted almost every US business. Many companies decided to utilize the New York port after the LA strike, but New York’s recent strike illustrates the need to innovate multiple supply chain solutions. Is air freight a potential secondary option? Can a 3PL help open your supply chain? Is there a free app for improved inventory management? Can the top two bids be utilized to reduce procurement risks? Most of these question shouldn’t be new, but the answers might be.
And so, I supply this thought: How resilient is your supply chain and has it been tested?
[i] Hanna, Sheree; “Research reveals supply chain disruption cost UK manufacturers 58 million”; Supply Chain Digital; Online; http://www.supplychaindigital.com/procurement/32/Research-Reveals-Supply-Chain-Disruption-Cost-UK-Manufacturers-58-million
[ii] Christ, Andrea; “Costly Supply Chain Disruptions”; insurancenewsnet.com; online; http://insurancenewsnet.com/oarticle/COSTLY-SUPPLY-CHAIN-DISRUPTIONS-a-516674
[iii] US Census Bureau: http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf
[iv]Horie, Masatugu; “Toyota Supplier Behind Production Shutdown Pulls Forecasts”; Bloomberg; online; http://www.bloomberg.com/news/articles/2016-02-03/toyota-supplier-behind-production-shutdown-pulls-profit-forecast
[v] Online; “NRF: Strikes at East, Gulf Coast Ports Not the Way to go”; World Maritime News; https://worldmaritimenews.com/archives/182169/nrf-strikes-at-east-gulf-coast-ports-not-the-way-to-go/
The Phoenix APICS chapter completed a custom Principles workshop at Interface Products in Scottsdale, Arizona. These workshops included operations and materials planning, MRP and inventory management. These workshops were 8 sessions (3 hours in duration) which included education, training and practical applications. The following is a testimonial to the effectiveness of these workshops.
This is feedback from Scott Dunne our host at Interface Products.
The Principles Workshops at Interface provided a great deal of relevant background and detail on MRP terms and how the computer "thinks". Our people saw meaning in the types of production concepts and how they may relate to Interface's operations. People who have worked here for years finally understood the mechanics behind the MRP messages they work on every day.
Indeed, having the class on-site provided a sense of team and many insights were shared on how things work and WHY...
There are many places to get news, but I find that Twitter is a great way to get the stories I'm most interested in. And unlike subscribing to a specific website or daily email, Twitter news stories show up as they are posted and each post could be from a different source in rapid succession. Much like using the search function for job search, you can also use specific searches to get news about specific topics of interest. When you find accounts that seem to have a lot of valuable posts, you can then follow them.
Seeing What Others Don't
Twitter isn't just about blasting today's news over and over again; it's also very personal. People tweet about what they're up to, and if those people happen to be doing interesting things, then you get to be a part of that journey. I like to follow the astronauts at the International Space Station; some of them post pictures of the supply rockets as the approach, with a part of Earth in the background, or the sun setting over an exotic part of the world and the light catches it just so, or selfies of them inside the return vehicle as they prepare for their descent back to Earth. You just don't see that stuff on the front page of Yahoo! or your favorite news journal, and every day, sometimes every hour, is something new!
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