Starting with the Symptoms

We encounter frequent symptoms with our supply chains.  One reason is our supply chains are large in scope.  Supply chains start from the source (e.g. mining of raw materials, harvest of agricultural crops), pass through a multitude of activities that supposedly add value (e.g., procurement, storage, manufacturing, handling, dispatch, transport), and end with our target markets of many users and consumers. 

The symptoms we encounter with supply chains happen enough times to keep us busy and preoccupied.  These include: 

  • Delayed deliveries of materials from vendors
  • Customers complaining about product quality
  • Customers rejecting products delivered
  • Unscheduled shutdowns of production lines
  • Delivery trucks not showing up as scheduled
  • People not showing up for work
  • Pilferages
  • Losses
  • Equipment breakdowns
  • Items out of stock
  • Service provider asking for higher freight rates
  • Sales & marketing asking why their new products aren’t delivered yet
  • Finance managers insisting we lower inventories today

We spend a lot of time addressing symptoms.  We do a lot of quick fixes. We stock up (or draw down) inventories, we hire (or fire) staff, and we buy from multiple vendors rather than relying on just one. 

We attempt to permanently prevent symptoms via investments in automation & sophisticated information software (e.g., robots, artificial intelligence), via additional capacities (e.g., more warehouses, more manufacturing lines, more trucks), and via negotiations for more favourable terms & conditions in contracts with vendors & service providers.  We outsource operations to offshore locations, or we build facilities to near-shore our supply chains closer to home. 

We sometimes just bear with the symptoms and hope they will go away.  That’s what many enterprises did when international ocean freight prices skyrocketed in 2021.  Prices eventually plummeted from late 2022 to early 2023.  Many business firms just rode with the wave.  Some increased prices of their products while others simply cut back on orders of items from abroad. 

Global container freight rate index from January 2019 to March 2023 (in U.S. dollars)

We sometimes are satisfied just working day-to-day mitigating symptoms.  We’d rather not spend any more capital for our supply chains.  Many of our bosses just don’t like the idea of spending any more time or resources for supply chains versus allocating money for marketing or research & development. 

Many executives, who are our superiors, spend a lot of time developing strategies.  To many executives, we should start with a strategy before we think of improvements to our supply chain operations.  A strategy, after all, helps us plan what resources we need and how we will use those resources to reach our desired destinations, i.e., our goals. 

We can’t, however, think about strategy and the goals we want to accomplish when we are bugged by symptoms.  We can’t improve our operations if the symptoms are like burning platforms.  We find ourselves putting out fires instead of contemplating longer-term changes. 

We, therefore, improve our supply chains by starting with symptoms.  As long as we feel them, we likely are suffering in terms of higher costs, lost productivity, and wasted cashflow.

Symptoms are effects of problems.  We start with symptoms to identify causes and define the problems.  To identify causes, we diagnose.

A diagnosis is not an audit.  Audits aim to assess conformity to mandated rules, standards, & policies.  Diagnoses determine the root causes of unwanted symptoms via the examinations of operations. 

A typical diagnosis of a supply chain consists of four (4) steps:

  1. Mapping
  2. Data Research
  3. Analysis
  4. Identification

Mapping

Mapping helps us see and appreciate the operations of supply chains.  Maps show us the activities, and present how functions work and relate to each other. 

Mapmakers usually favour flow charts.  Flow charts are either simple, i.e., basic shapes (e.g. circles, triangles, squares, arrows) or complicated, i. e., intricate in detail (e.g., value-stream maps, engineering schematics, critical path method [CPM] charts). 

Maps can also come in the form of diagrams such as the fishbone or Ishikawa diagram and the Force-Field Analysis diagram. 

The point of whatever mapping method we use is to visualise the supply chain so we can find out where we are feeling the symptoms and where to start our research.

Data Research

We research to catalogue bits of information and their sources.  Data Research isn’t just data mining, which is about gathering as much as information as possible about a subject or individual.  Data research is about reading and comprehending information from the data gathered.  It includes interviewing people and comparing different versions of whatever stories they tell. 

The finished product of data research is an organised report about the operations in which it explains where the symptoms are emanating from and where they are having an effect.  Data Research provides the foundation for analysis. 

Analysis

Analysis is the study of the research from which we draw conclusions. 

We analyse via different means, such as:

  • Scientific
  • Statistical
  • Financial
  • Subjective
  • Comparative

So-called experts would tell us to analyse scientifically, in which they imply we should be objective, and not subjective.  In a scientific analysis, we often use reductionism, in which we break down what we’re studying into its parts or components.  The objective of such an analysis is to find out what specific part or component could be the root cause of an issue. 

In a statistical analysis, we grind data to find mathematical correlations via parameters such as averages, standard deviations, probabilities, and trends.  We look for where these statistical numbers lead to or originate from.  And then draw conclusions from these numbers.

In a financial analysis, we assess the impact of the research on the wealth of our enterprises.  We compute factors such as rates of return, depreciation, cashflow, and income derived from our supply chain operations.  We then determine if the symptoms are worth addressing. 

A subjective analysis is the opposite of a scientific analysis, in which we base our conclusions on our points of view and intuitions.  We gather comments or suggestions from peers or teams based on the information we gathered.  Or we make up our minds ourselves based on “gut-feel,” in which rely on our hunches or what we would call calculated guesses based on experience or even, emotion. 

A comparative analysis checks our research between similar operations or between data from what we gathered in the present to what we recorded in the past.  We use scientific, statistical, financial, or subjective methods as we compare varying scenarios. 

Whatever analysis we do, we come out with our findings and conclusions.  We identify the root causes of our symptoms. 

Identification

In the final step of diagnosis, Identification, we articulate our conclusions and pinpoint the root causes of symptoms. 

Root causes may be outright obvious, as in, for example, we see the cause right away from a fishbone diagram. 

Sometimes, however, they are not so obvious even after analyses.  This can happen if our analysis’ conclusions imply several causes. 

For example, salespeople at a snack foods corporation complained about late & incomplete deliveries of pending orders.  The salespeople cited empty shelves at supermarkets & convenience stores as an effect.  Data research, however, showed that the logistics department was delivering orders efficiently, like 95% completely and on-time.  Analysis concluded that:

  1. Salespeople were submitting orders late, like up to one (1) week after customers called in their orders;
  2. Items salespeople said were out of stock were often in-stock and available at the central warehouse, up to 90% of the time. 

It turns out there is really one root cause:  the ordering system was not in sync between the sales department and the orders processing department.  The system’s functions of receiving, validating, and allocating inventories for deliveries were working separately than together. 

Identification as a diagnostic step is a form of post-analysis of root causes.  It puts together the conclusions and pinpoints articulately what’s the cause of the symptoms. 

We often start from the symptoms when we want to improve our supply chains.  As engineers, we diagnose our operations by focusing on where we are feeling those symptoms. 

Diagnosing involves mapping, research, analysis, and identification.  We map our operations to see how functions work & relate with each other and look where the symptoms are having an impact.  From mapping, we research not only by mining data but also by reading, comprehending, and organising them.  We analyse via the methods we think are best applicable to our diagnosis and we conclude by identifying the root causes of symptoms. 

A diagnosis is not a tool.  It’s a method or procedure built into our problem-solving approach especially for our improvement of supply chains. 

And it is the first thing we supply chain professionals do before we define and solve problems. 

About Ellery’s Essays

Managing Uncertainty

baby sea turtle off to ocean

We’re like baby sea turtles when we begin our careers.  We don’t know what awaits us as we venture out into the world.  We learn to deal with a lot of uncertainty. 

A property manager proposed a project to build a warehouse that would require an expenditure of PhP 2,500,000.00 (USD$ 50,000).  Three (3) out of five (5) directors of the corporation’s board approved the project.  Two (2) questioned the economics, in which both felt it would be better to just leave the money in the bank and earn interest. 

In the debate that ensued, the three (3) directors in favour believed the proposed warehouse’s return on investment will outpace the bank interest rate over time, especially after the warehouse investment pays out after an estimated eight (8) years. 

One of the minority directors said the PhP 2.5 million would be better invested via financial instruments.  The money would earn from growing interest and by dividends, especially if invested in securities, like stocks.    

In justifying business projects, we compare alternatives by determining how much money we earn from the investments.  We look at the paybacks from the investments in terms of the additional income earned and we evaluate the rates of return versus what it would be if we just did nothing or leave money in the bank.   

The trouble with computing paybacks and rates of returns is that we assume certainty in the numbers.  We assume that the estimated returns of investment will be what we realise.

In developed countries such as the United States and European nations, many people plan their daily routines with a high level of certainty.  Because city traffic is predictable, they would confidently know what time they’ll be at work and what time they’ll be at home every day. People make long-term plans for their families and businesses as they enjoy stable political & economic climates. 

For people in not-so-developed countries such as the Philippines (where I live), we deal with a lot of uncertainty. We don’t know what tomorrow will be like, despite what routines we aim to follow.  Traffic is as unpredictable as the weather; we don’t know what time we’ll reach our destinations and we don’t know if it will rain today.  We plan more for the short-term than the long-term because frequent changes in laws & regulations make for uncertain political & economic climates.  Prices fluctuate without warning, taxes rise and fall in short notice, and even contracts are not ironclad as they are subject to fickle legal rulings. 

We anticipate uncertainty by building in back-ups and contingencies into our systems and structures.  Better flood control, for example, would reduce the probability of inundated roads and traffic gridlocks.  We also stash more cash for the so-called rainy days, as hedges against disruptions, whether natural or man-made. 

In the warehouse project mentioned above, the corporation operates in the Philippines.  Three (3) of the corporation’s four (4) directors who voted for the warehouse live in the Philippines.  Two (2) who weren’t warm to the warehouse project reside in America. 

We remedy uncertainty by gaining greater influence over our businesses.  The directors who favoured the warehouse believed investing in a facility in the Philippines gives the corporation greater control over its assets.  The minority two (2) directors could not immediately understand this as financial investments in the USA offer stability and earnings growth.  They didn’t see that financial investments in the Philippines are more uncertain in financial returns than in developed countries. 

We perceive greater risk with uncertainty simply because we are unsure of what will transpire today to tomorrow.  But we can turn uncertainty to an advantage by investing in systems & structures that give us more influence over the results.  Having a warehouse where we can decide the price of the lease sounds better than leaving it up to bankers, whom we really don’t know, to determine how much interest we’ll earn from our investments. 

The key word is influence, and it’s why I believe it’s a strategic priority that ranks up there with wealth accumulation, competitive advantage, and esteem. 

Uncertainty varies from one place to the next, more so between developed and not-so-developed countries. We manage uncertainty by investing in assets that we have greater influence over.  And as we gain from the returns from these assets, we also don’t stop seeking opportunities to invest where we can have the same or more influence in what benefits we can gain. 

About Ellery’s Essays

The Convincing Need to Test Ourselves

We go to the doctor when we feel sick.  We hardly go see the doctor when we are healthy.  If we’re feeling all right, we think we’re okay; we don’t see the immediate need to get ourselves checked. 

Health experts have repeatedly advised us to get ourselves examined at least once a year.  We’re supposed to have our blood chemistry assessed for such things as glucose and cholesterol.  We’re also supposed to undergo a colonoscopy when we reach the age of 40.

But we don’t.  We feel good so why the need?

We check our cars more than we check ourselves.  We look under the hoods of our automobiles to see if they have enough coolants in their radiators and enough fluids for the power steering & automatic transmission.  We see if our cars’ tires are properly inflated, and we dip the dipstick to know if we have sufficient oil in our engines. 

We upgrade our kitchens and bathrooms.  We remodel our houses, and we maintain our gardens.  We bring our pets to the veterinarian to get them vaccinated so they’d be safe against pathogens.    

But we procrastinate when it comes to scheduling our once-a-year physical or dental appointment. 

Our doctors can only diagnose and prescribe treatment when they have available up-to-date data about our bodies. If we’re going to prevent future illnesses, doctors need to get information about our health.  We shouldn’t wait to be sick to find out how we can stay fit. 

Other than the money and time we’d have to spend, we dread the discomfort of annual physical exams and laboratory tests.  Blood chemistry tests often require overnight fasting from food & beverages.  Magnetic Resonance Imaging (MRI) and positron emission tomography & computed tomography (PET-CT) scans usually require preparations such as a limited diet and fluid intake hours beforehand.  We also need to restrict eating and take laxatives before a colonoscopy.  So-called executive physical examinations usually require an overnight stay at the hospital. 

Health examinations are not only inconvenient but also uncomfortable. We, therefore, try to put them off as much as possible.  There’s not as much pain in checking our cars & pets and in renovating our houses as much as there are in physical exams. 

We try to tell ourselves that it’s worth it to regularly have our bodies checked.  We know if we don’t get tested or examined, we risk serious ailments from diseases that would be harder to cure than it is to prevent.  We need to tell ourselves that whatever discomfort & inconvenience we’d get from an exam would be far easier to endure than whatever expensive and painful medical treatment we’d suffer through from a sickness we could have avoided. 

It’s not just about the tangible resources we’ll be spending but also the intangible investment of time, convenience, and comfort.  Investments aren’t just about money or resources spent but how we prioritise our time and relationships. 

How true is the adage:  an ounce of prevention is worth a pound of cure.

About Ellery’s Essays

Managing Performance

We as supply chain managers typically oversee the following:

  • Demand
  • Inventories
  • Performance

It’s all part of our job to be perfect in serving customers and productive in meeting the standards of our superiors.

We manage demand to synchronise supply.

We manage inventories to make available products & services and make sure we don’t have too much (or too few) items on hand.

The third thing we do is we manage performance.  Managing performance is about making sure the supply chain operations we manage are doing what they’re supposed to do in the fulfilment of demand.   

Whereas managing demand is about matching our supply chains’ capabilities to the demands of our customers and whereas managing inventories is about establishing and maintaining stock levels of merchandise, managing performance is about how we converge people and resources to do the activities that add value to the flow of items through the supply chain. 

Managing performance necessitates the basic skills of:

  1. Planning
  2. Organising
  3. Directing
  4. Controlling

For us who work in the supply chains, we use each skill for specific functions.  The following are some examples:

Scheduling Operations

We schedule to synchronise supply to demand.  And it can and is a daily daunting challenge for supply chain operations managers.  We schedule what and how much to buy, what and how much to make, what and how much to deliver to every customer every day.  We balance tailoring deliveries to serve customers to their standards and optimising deliveries to minimise cost and maximise revenue.

The challenge of scheduling in supply chains is the planning and syncing of multiple but uniquely different operational steps while at the same time negotiating with third parties like vendors and freight providers which we depend on for reliable services. 

The best tool for scheduling is usually the simplest:

Ref: Behold The PSI: A Basic Tool for Supply Chain Planning

Organising Crew & Resources

Preparation is a very important word in supply chain management performance.  The more prepared one is, the more likely a supply chain will perform well. 

Preparation requires a great deal of organisation.  Not only is it about having a structure, policy, or plan, it’s also about engaging, marshalling, and deploying the talented crew of people and the required resources together. 

Examples of tasks in organising include:

  1. Assigning crew members such as who to operate equipment & when;
  2. Staging of materials, components, equipment (e.g. pre-mixed chemicals, pallets, parts, machines) for easy obtaining and utility by an operation;
  3. Booking of transportation assets;
  4. Negotiating supply contracts with vendors;
  5. Working with 3rd party brokers in processing of imported goods.

Many of us delegate the organising of our people and resources to team leaders or trusted deputies.  As much as this may be fine in many cases, it doesn’t spare us the responsibility to be hands-on and watchful of the work itself.  In short, it’s our job to organise; passing it on to other people to do doesn’t make us less accountable. 

Ref:  What Organising Really Means

Setting the Pace

Supply chain performance is determined by its pace, which is not only how fast our items flow but also how we do it in step with all operations together. 

We make sure schedules are followed but we also don’t hesitate to respond and adjust as needed. 

Examples:

  1. We increase production if materials arrive early or if our people are finishing their work faster than we planned (and we reward them if we could);
  2. We alter a delivery truck’s route due either to heavy traffic than usual or if customers ask for a last-minute change in their receiving location;
  3. We move up preventive maintenance on a production line because of delays in raw material arrivals that would potentially idle our manufacturing team;
  4. We revise the purchase requisition of packaging materials due to noticed issues detected by our quality control team.

We supply chain managers set the pace of our operations as part of our efforts to fulfil demand perfectly and productively.

Ref: The Nimble Supply Chain:  Is It Even Possible?

Disciplining the Teams

We are the managers and ideally, the leaders of our supply chain organisations.  We are the ones who set the standards for which we motivate our people to follow.  In short, we discipline our teams.

Discipline is a basic management aspiration.  But it’s not just about getting people to follow rules, urging 3rd parties to comply with contracts, or enforcing neatness & cleanliness in the workplace. 

Discipline is also about collaboration balanced with firm enrolment to standards.  We work with our people and our 3rd party service providers to set & agree to rules & procedures but without compromise to principles our enterprises believe and adhere to. 

  1. We praise our people for jobs well done;
  2. We negotiate win-win contracts with our 3rd parties;
  3. We listen, empathise, adapt but at the same time, stress our side in getting what we want;
  4. We communicate with our 3rd parties and our people when we disagree or take a stand to enforce rules. 

Punishment in the disciplining of supply chain operations is always a last resort, something we want to try to avoid.  It’s not because of any dominant management philosophy but that supply chains consist of interdependent steps which determine the flow of products & services.  We take care to maintain the relationships; punishment indicates things aren’t going well with them. 

Ref: Management is Not Leading, and It Isn’t Staffing Either

We apply each of the basic skills of planning, organising, directing & controlling on its own and altogether how we manage people and our operations.   

We always begin with goals, rooted in the overall strategy of whatever enterprise we work for. 

From those goals we determine our performance standards which we will measure ourselves against.  Performance standards are the bases of performance measures.  We and the people we manage must know in a timely fashion how well we are doing.

Performance measurement spurs action planning.  What plans we make in response to the measures we assess must be SMART, i.e., Specific, Measurable, Actionable, Realistic, and Time-Bound.  The action plan itself is expected to address challenging goals and thus should be methodical, reflecting a visible path to ultimate accomplishment.  Because action plans in supply chains often need multi-functional coordination, we collaborate with partners to get things done. 

As supply chain managers, we not only manage demand and inventories but also manage performance of our operations.  We apply our basic skills of planning, organising, directing, & controlling but we tailor them for the variety of unique activities which define our supply chains. 

Supply chain management is challenging work because we not only oversee the operations we are assigned to but we also maintain relationships with the people & 3rd party partners we are linked to.  It requires collaboration and cooperation on top of basic management.   

About Ellery’s Essays

Managing Inventory

One common priority we have as supply chain managers is managing inventories.  We make items available when needed but at the same time make sure we don’t have too much that ties up our enterprises’ money.    Sometimes, inventory management takes so much of our time that it dominates our job more than anything else. 

Inventory is anything that we use and keep stock of.  These include:

  • Finished products;
  • Raw & packaging materials;
  • Spare parts;
  • Office supplies;
  • Chemicals;
  • Laboratory supplies;
  • Commodities;
  • Components that accompany services or marketing initiatives (e.g. cable television switches & wires, vending machines, beverage dispensers, off-site displays);
  • Livestock & feeds;
  • Agricultural crops;
  • Water
  • Land

Anything we buy, store, and use are practically inventories, even though some financial professionals would not classify all as such (e.g., accountants would consider office supplies as expenses rather than as inventory deserving to be treated as assets). 

We spend a lot of time managing inventories because they take up space, entail storage & handling expenses, and they become a major pain when we end up scrapping or disposing them.   

Over the decades, academics and so-called experts have developed numerous models and systems to manage inventories.  None have truly worked in that not one has universally been able to cover all items.  A model that would work for one group of items wouldn’t be applicable for another.  An inventory model tailored for warehoused items wouldn’t work well for a business that stores chemical liquids in tanks.  A model for managing stocks of electronic components wouldn’t be as useful for fruits & vegetables.   

We often apply the simplest inventory management model available.  It’s often the one that tells us when to replenish when the inventory reaches a predetermined reorder point.  When an item’s inventory level depletes to the reorder point, we order for replenishment.  Such a model makes it easy for us to manage hundreds of items while saving us the time in monitoring all of them. 

Such simple re-order inventory management systems haven’t been that successful, however, in helping us attain our goals in serving customers perfectly & productively.  The realities of unanticipated demand patterns, product lifecycles, and unreliable supply from sources hinder the effectiveness of re-order point systems.  We either run out of stock because the demand out-paced the lead-time of supply or we end up with too much because a product became obsolete in the wake of new items in the market. 

Because most of us can’t rely on simple re-order systems, some of us invested in so-called state-of-the-art hardware and software in our attempts to automate inventory management.  We expected that an automated system can handle most of the inventory management work only to realise later that it can’t.  Computers can do only so much with the data we give them.  And via our experiences as supply chain managers, we ended up spending more time fixing the information system than managing the inventories. 

Inventory management, as the latter word states, requires management—planning, organisation, direction, & control.  It needs our oversight and a doctrine of proactivity given whatever strategic objectives our employers, or owners of enterprises, have laid down.    

Each item in inventory has its own characteristics and value.  One is either cheap or expensive, has a short or long shelf life, is fast- or slow-moving, is perishable or non-perishable, and varies in how it is sourced, manufactured, packaged, stored, handled, and shipped.  Each item is an individual; it is unique and ideally requires its own specific means of management. 

Dealing with a few items is one thing; dealing with thousands, however, is another.  We are burdened by the sheer task of making available items when they’re needed and making sure we don’t have too much. 

Clarity is the bedrock to successful inventory management.  How much do we have right now and how much will we have tomorrow?  What’s the turnover like for each item?  How long will an enterprise sell an item before phasing it out?  What are all the characteristics of each item?  How much do we keep in stock as per working capital targets?  What are the materials or components that make up each item? 

The clearer the information we have about the items we have and the respective policies we set for them, the easier it is to manage inventories.  Managing inventories is about managing items in terms of what & how much to buy, how much to keep, how we store them, how we handle them, and how we dispatch them.

It also includes managing how we relate the items in our inventories.  What materials and components come together to form value-added items?  What items are parts that make up items that are the whole?  What items are accessories or supplies in the maintenance or formation of others? 

When we have complete knowledge of the items we possess and what standards or goals we have for them, it becomes relatively elementary to set the policies & procedures that govern how we manage inventories.  It becomes easier to figure out the best way to manage each individual item based on what they are and the value each contributes.  

It becomes easier to establish the inventory management model that would work. 

The following are previous essays on inventories, if you want to read more about how to better manage inventories. 

How to Avoid the Aggravation of Unavailable Items

What is the Right Supply Chain Model for New Products

Hoarding and How to Discourage It

The Importance of Making Available What We Promise

Non-Moving Inventories: The Supply Chain’s Elephant in the Room

The Pros & Cons of Steady Stream Supply Chains

About Ellery’s Essays

Managing Demand

Supply chains had been under a lot of pressure.  Since year 2020, supply chain managers had to deal with shortages in merchandise and rising costs for reasons traced to the coronavirus pandemic, natural disasters, deteriorating trade relations between countries, and military conflicts.    

The need for supply chain engineering was mentioned repeatedly as a new mindset to innovate our operations.  We can’t manage our way out of supply chain problems. 

Or can we?

We should not underestimate ourselves as supply chain managers in terms of the things we can do to fulfil demand perfectly and productively. 

One way is to manage the demand itself. 

We defined demand as what our customers order, buy, and pay for.   But we sometimes speculate what and how much they will buy rather than base their purchases on what they will use. 

Speculative demand is what our customers buy for the purpose of hedging.  A household buys more groceries than usual to stock up for a long holiday weekend.  An automotive dealer buys more spare parts because she heard there’s an imminent price increase.  A consumer electronics retailer doubles the number of gadgets she’ll import to ensure she’ll fill up a shipping container and save on freight.  A drug store cancels its order for a new drug because of rumours in social media that it’s not safe to use. 

Whereas we can estimate true demand via how much end-users need and consume, speculative demand is hard to predict as it’s based on differing decisions of individual customers.   Customers speculate to get the best deal, but it unfortunately drives us supply chain managers crazy.    

We manage demand via the following means.   

  1. We supply based on true demand;
  2. We negotiate with our customers to order based on available supply;
  3. We limit the number or types of customers we supply to.

Supplying True Demand

We can forecast demand and make only what customers really need and use, which is how we define true demand.  Especially for products like consumer goods, vitamins, and newspapers, we can find out how much consumers buy and use.  Because usages of such items are often steady, we can manufacture and deliver steadily too.  We avoid swings in inventories that cause stress to our supply chain systems.

It’s not easy, however, to figure out true demand for all products.  Items like spare parts, toys, furniture, and hardware items don’t necessarily have steady and predictable demand usage.  When we can’t pin down true demand or if true demand is unsteady, we have a hard time optimising our operations. 

Order Only What’s Available

Another option we can use is to feedback customers what and how many items are available such that they’d buy only what we can capably deliver.  Wholesalers and e-commerce companies notify customers what items they have on stock and customers decide then what and how much to buy.  This avoids customers ordering blindly which results in pending orders that end up served late or not at all. 

An ordering-what’s-available system, however, masks true demand.  We wouldn’t find out what and how much customers really want over time.  In the absence of knowing true demand, we could be missing out on opportunities in demand creation. 

Limiting Our Customers

Our customers are our geese who lay our golden eggs.  We treasure the invaluable revenue we get from them.  But who’s to say we should serve all of them? 

Serving any customer, whatever their type or size, can end up overwhelming our supply chains.  A food manufacturer found that the hard way when managers found themselves serving customers such as large supermarkets, institutions (e.g. hotels, schools), and small mom-and-pop stores (e.g., sari-sari stores).  The disparities in volumes and packaging caused costly inefficiencies in production & logistics.  By delegating distributors or dealers to handle buyers of smaller quantities, the food manufacturer would realise enormous savings and benefit from steadier demand. 

Losing touch with consumers is the risk, however, in limiting who we serve especially when we sell in favour of middlemen like distributors & dealers.  As much as we may have close-in agreements with middlemen in serving volumes reflective of true end-user demand, we wouldn’t be able to avoid the speculation these same middlemen would have when they order our merchandise.  We end up back in square one. 

We as supply chain managers feel the pressure to fulfil demand.  But as much as supply chain engineering offers innovative approaches to improving our systems & structures, we have means at our disposal to manage the problems besetting our operations.

Managing demand by delivering based on what end-users truly need & use, feeding back to our customers to order based on availability, and limiting the customer population gives us benefits in terms of fewer swings in inventories and higher operational efficiencies. 

But demand management has its risks that can come back to haunt us.  We sometimes forget what the demand truly is, and we lose touch in knowing what our customers really need and want.  We end up potentially losing opportunities for growth. 

Demand management helps us manage our supply chains but only to a point.  It helps but we still should not discount that the best way to improve our operations is via supply chain engineering. 

About Ellery’s Essays

We Should Be Grateful to People We Don’t See

We say ‘thank you’ when people send us a gift, open a door for us, or treated us to lunch.  We thank people we see.  But how about people we don’t see?

When we eat at a restaurant, we thank the waiter.  But do we thank the chef, his assistants, the dishwashers, and the administrative staff who worked together to ensure we experienced a delightful meal? 

When we were vaccinated against the coronavirus, we probably thanked the health care worker who administered it.  But how much appreciation have we shown to the staff and scientists who developed the vaccine and deployed it globally in the fastest ever for a medicine that saved millions of lives? 

When we receive the item we ordered from the e-commerce website, we may have thanked and even tipped the courier who brought it.  But how much do we recognise the logistics crew who transported the item from its country of origin?  Do we even know who produced the item? 

As customers, we see the last mile of service but hardly see the previous ones.  It’s the people in the last mile we thank when we are satisfied with an item we bought but it’s also who we complain to when service is bad. 

When the service is good and we like the delivery, we tend to thank the last-mile people responsible but when we are not happy, we blame not only the ones at the last-mile but also the supply chain that led to it.  We hit as many people as we could with the dissatisfaction we feel. 

We shouldn’t forget to appreciate everyone who contributed when things do go well.  It doesn’t seem fair when we complain about all of them when things are bad and then not be grateful to them when results are good. 

About Ellery’s Essays

We’re Expected to be Perfect & Productive in Demand Fulfilment

Supply chains encompass most, if not all, of what we use in our daily lives. 

And for those of us who work in them, the supply chain professionals, we only have one basic task:

Fulfil Demand

And when we do that task:

They expect nothing less. 

We can’t afford to be less than perfect and we can’t afford to be unproductive. 

Because when those few customers, who we didn’t serve perfectly well, complain, we will be asked to explain.  Never mind if we served up to 95 out of 100 customers perfectly well, we’d be marked for why we didn’t deliver to the five (5) who didn’t get what they wanted as specified. 

And when we are not productive, when we didn’t perform the goals well enough within criteria set by our superiors, we’d be accountable.  We’d be asked to not only explain but also how we plan to do better.  Never mind if we already are doing the best we can. 

Will five (5) out of 100 customers of a fast-food establishment accept late deliveries of their orders?   Of course not. 

Will the mothers who bought the five (5) defective diapers out of 100 on the supermarket shelf be satisfied?  No.

Will the passengers of the five (5) cancelled flights out 100 scheduled of an airline be glad that they won’t be flying to their destinations?  Unlikely.   

We must be perfect in serving all our customers.  And all the time.  We may boast we served most customers, but when at least one customer is not served as expected, we suffer the brunt of the complaint.  We are expected to be perfect.   

Our superiors will also insist that our supply chains must be productive.  As much as we may perfectly serve customers, they will remind us we need to be productive as well. 

Productivity is a broad term in which executives and entrepreneurs have widely differing interpretations. 

Many have equated productivity to efficiency.  It’s not. 

Productivity is essentially meeting enterprise goals within predetermined criteria.  It’s about achieving objectives that exceed strategic expectations and meet our superiors’ standards. 

Unlike the single perfect order measure for demand fulfilment perfection, productivity covers a wide range of areas such as costs, sales, collections, production, deliveries, yields, defects, and output per person-hours.  

For us to be productive, we need to perform well in a variety of parameters that enterprise owners pre-determine, based on their individual expectations.  Owners and stakeholders would have their own meanings for productivity and we supply chain professionals would be expected to meet whatever standards they set.  We’d be asked to commit to meeting those individual expectations productively via targets related to those parameters.  We’d be asked to be productive in meeting all targets.

Demand fulfilment is a partner of demand creation.  Both comprise the basic tasks of what enterprises do.  Whether profit or non-profit, whatever the industry or organisation, the enterprises we work in create and fulfil demand.

Creating demand entails generating it and tapping it from the markets the enterprises sell their products & services to.  Fulfilling demand is about satisfying it via making available those products & services for the markets to obtain and use. 

Supply chains are the prominent models for demand fulfilment.  Their coverage from the sourcing of materials to their transformation to finished products & services, and the subsequent delivery thereof, make them the excellent means for customers to get what they want when they want it. 

During the years of the coronavirus pandemic from 2020 to 2022, supply chains have been in the limelight as shortages occurred and prices spiked for commodities and products around the world. 

Industrial titans responded by promising to do better by getting their supply chain acts together.  They changed vendors, moved manufacturing operations, built & cut back inventories, and aggressively hired more staff.  They abandoned lean and just-in-time practices and shifted to just-in-case inventory management.  As costs crept up towards the latter part of 2022, the same industrial titans have reduced staff and are thinking twice regarding capital expenditure investments in new facilities.

Executives and entrepreneurs have also joined the bandwagon of buying & installing high-end information technology hardware, software, & artificial intelligence as well as automation such as robotics & remotely operated equipment (e.g. drones, self-driving material handling vehicles). 

At the same time, industrial corporations have put money in environmental, social, & corporate governance (ESG), given prevailing hot-button issues regarding climate change and organisational diversity. 

The common thing lacking, however, is the absence of a clear-cut playbook.  Many firms have no stand-out road map or any agreed-to methodology to holistically manage supply chains to bring about perfect & productive results.  

Certainly, there has been much discussion about supply chain management, including how it’s very much become the forefront of management priorities, and how talent for such has become very much valued. 

Academes and consultants have not offered, however, much of any real concrete solutions that would upgrade supply chain performance.  Much has either been piecemeal (e.g. inventory management changes, new planning software, process mapping, organisational training) or plainly proposals for spending for new tools, programs, or gadgets (e.g. new computers, software, automation). 

We, therefore, have seen no real improvement in supply chains despite the attention and investment.  Inventory swings, operating expenses, freight traffic & rates, and organisational head-counts have continued to be at the mercy of whatever the market demand is and whatever the decisions of upper management.  Supply chains have and will likely remain reactionary to the initiatives of demand creators and to the intuitive decision-making of superiors. 

We who are supply chain professionals shall continue to be expected to be perfect in delivering to every customer who orders and to be productive in meeting all the enterprise’s demand fulfilment goals.  Never mind if performance measures say we’re doing great versus target, we must be perfect and productive every time we deliver an order or make available an item to any customer. 

Can we do something?  Yes.  But it requires a change in mindset, starting with the idea that solving supply chain problems isn’t via management, but via engineering. 

Supply chains have structures and systems, just as enterprises and organisations do.  Managers, however, don’t build structures & systems; engineers do. 

We need to realise that we can’t manage our way to perfect & productive demand fulfilment because we can do only so much with existing structures & systems.  To improve supply chains, to continuously improve them to ultimately become perfect & productive, we need to build new structures & systems, if not innovate them.  And to do that, we need engineers, not managers. 

Engineering, supply chain engineering, is where the path leads to get to perfection & productivity in demand fulfilment.  Nothing else.

About Ellery’s Essays

What Should We Do When There’s Clamour?

In November 2022, this happened:

Ticketmaster error message. Nov. 15, 2022

One month earlier, in Manila, Philippines (and similarly in other places around the world), this also happened: 

Miguel Guzman, Philippine Star
  • Apple’s iPhone 14 debut.  In October 2022, two hundred (200) people waited in line outside the Apple re-seller PowerMac store at Manila, Philippines, to get their hands on the newly released Apple iPhone 14.  Despite a premium sticker price of PhP 61,000 ($USD 1,033) that was way higher than competing smartphones, people from all over the country flocked to Apple re-seller stores hoping to buy the new iPhone model;

And from mid-year 2022 to April 2023, as demand for travel spiked after many countries lifted three (3) years of coronavirus pandemic restrictions: 

https://www.dw.com/en/amsterdams-overcrowded-schiphol-airport-cuts-passenger-numbers/a-63154030
  • A Dutch court overruled a plan by Schipol Airport authorities at Amsterdam, Netherlands to cap the number of flights per day from 2023 to 2024.  The court ruled that airport authorities did not follow the correct procedure and should consult all affected parties.  The Dutch government wants to limit the number of flights through their international airport to minimise noise and environmental pollution although airport authorities have also complained about staff shortages and long passenger queues.  Airlines have opposed the flight cap plan citing their commitments to meet climate change standards.  But the real controversy is demand.  Passenger traffic at Schipol spiked in 2022 and any cap would disrupt airlines’ abilities to serve surging global travel traffic which is expected to increase in 2023. 

When demand for products & services and enterprises are unable to fulfil that demand, clamour occurs.  Customers cry out.  They get angry.  Suppliers scramble to serve whatever they can.  Systems crash.  Everyone comes out frustrated.  Promises are made that it won’t happen again.  Only that it does. 

Clamour is a common occurrence for many products & services:

  • A highly reputable law firm stops accepting new clients because it did not have enough attorneys or staff to accommodate new cases;
  • A pharmaceutical firm comes under public pressure as it runs out of stock of a critical prescription drug that doctors & patients found effective for weight-loss and diabetes;
  • Supermarkets and vendors run out of eggs due to consumers’ fear of possible price increases;
  • Real estate brokers are frustrated searching for warehouses for clients seeking storage for their products;
  • A small-business metal fabrication enterprise works around the clock to finish orders for stainless steel pipes from several construction contractors who want the items immediately. 

Clamour is demand in which customers seek items or place orders which cumulatively exceed the suppliers’ capabilities.  Customers insist on obtaining items even if suppliers tell them they can’t fulfil what they want or need in the time they ask. 

Clamour is a dream come true for marketers and entrepreneurs, but it can and is a nightmare for the demand fulfilment professionals. 

From 2020 to 2022, multinational industries cited supply chains as a key reason for delivery failures.  Just about every industry—automotive, aerospace, agricultural, appliance, construction, consumer goods, telecommunications, and logistics—blamed supply chain problems for shortages or delays in product availabilities.  Economic analysts pointed to issues such as the coronavirus pandemic and the Russian-Ukrainian war as underlying reasons for supply failures.

The same analysts also mentioned surges in demand for products & services that outstripped supply.  Pent-up demand from consumers emerging from coronavirus pandemic restrictions had resulted in clamour for many products & services. Industry leaders responded by promising that they’ll improve their supply-side operations.

Our job as supply chain professionals is to fulfil demand we can capably satisfy.  We evaluate orders before we accept and deliver them.  We study the market and forecast what our customers will buy.  We plan with marketers & salespeople to determine how much to invest in additional capabilities.  We build inventories and we schedule production or operations to ensure availability of items.  We hire additional people to safeguard the quality of our services. 

But when clamour occurs, reality sets in.  We run out of items and materials.  Delays happen.  Systems collapse.  We get stressed and we burn out.  Customers complain and insist we fulfil their demands. 

No matter how much planning we did, clamour overtakes our capabilities to deliver. 

Clamour occurs when we underestimate demand.  We either failed to forecast accurately or we just didn’t want to accept the probability that whatever we’re marketing would sell better than what we expected. 

Whether we are executive or entrepreneurs, we hesitate to complement on capabilities we fear might not be utilised.  We hire only enough staff to save on salaries.  We are reluctant to put in more money for new machines.  We are afraid to stock more inventories which may end up expired or obsolete.  We don’t want to risk not getting the returns from whatever we invested in. 

Instead, we push ourselves beyond our limits to accommodate the clamour.  We work overtime and weekends.  We defer preventive maintenance to maximise uptime of our machines.  We push our vendors to deliver more materials and earlier than we originally requested.  We get stressed.

We often blame our supply chains for their inability to accommodate clamour.  Never mind if the demand exceeded supply.  We could do better.  We should have done better.  We make promises that we will do better.  But that’s a mistake.  Because we can only do so much if we didn’t plan for it in the first place.   

We don’t realise that there are two (2) sides to addressing clamour: 

  1. Having enough supply for it;
  2. Anticipating it. 

Clamour happens as a result of failure in demand forecasting just as much as it is a result of not having enough supply for it. 

Overcoming clamour requires the ability to forecast demand accurately just as much as it requires the versatility to supply. 

Forecasting demand entails predicting what our customers will buy.  Some enterprises forecast via mathematical algorithms using historical data; in other words, they make calculated guesses.  A calculated guess is an oxymoron—two words in conjunction that contradict each other.  We can’t calculate a guess and vice versa.  Forecasting via calculated guessing just leads us back to where we began:  uncertainty. 

We also muddle forecasts with sales targets such that we present numbers which estimate demand that would likely be much lower than what customers will really buy.  Many of us don’t want to over-commit targets even if forecasts in the first place aren’t targets but predictions. 

When we have very wrong forecasts, we end up with very wrong supply plans.  As the adage goes:  garbage in, garbage out.  The plans we make to supply demand we wrongly forecast turn out to be of no value.  And often, it would turn out, we supplied too little for demand we should have known would be higher than what we forecasted. 

It’s true we can’t predict the future and we can’t expect demand forecasts to be accurate.  But we should also recognise that getting an idea of how much customers will buy sometimes just needs some common sense.

Customers, for one, are our best resource to predict demand.  If we want to know what customers are going to buy (or what they prefer to buy), we should, simply ask them.  It’s a bit illogical to rely on algorithms and so-called calculated guesswork when we can simply ask our customers what they plan to purchase. 

If we worry that there are too many customers to ask (such as in fast-moving consumer goods), we can always ask a few from the different groups we are selling to.  We can sample and extrapolate via basic statistical tools.  Statistical tools allow us to estimate what a population would prefer based on the trends of a sampled few. These tools aren’t rocket science that need artificially intelligent (AI) complex algorithms; they’re formulae based on math we can understand. 

Forecasts are also not sacred cows that we can’t change.  We can revise them as often as we like based on new information that come our way.  It’s sensible to update our demand forecasts when we get new customers and what & how much they plan to buy.  If our customers are opening new store branches or expanding to new territories, we of course would find out how big the expected demand would be.  We’d ask the people who we’d be selling to. 

We plan supply based on what we forecast.  Forecasts are predictions which we use to anticipate, i.e., calculate contingencies, buffers, and allowances.  We set inventory targets from forecasts and we in turn schedule production & operations. 

We can build up large inventories of items (such as for commodities) when we forecast speculative swings in demand in coming months.  We also can invest in high-capacity machines and assets, and hire & train extra staff, to respond quickly with needed operational capacity without having to stock expensive inventories. 

But we don’t do this.  We instead welcome the clamour and do what it takes to fulfil it.  Never mind if we don’t have the immediate capacities, we’ll just work overtime or schedule extra shifts on weekends.  We’ll hire temporary workers and lease needed equipment.  We’ll do whatever is needed to deliver the orders.

We accommodate clamour because we fear a backlash from customers that may harm our reputation and compromise our share of the market.   We also desire the potentially high windfall revenue that comes from it.  It’s what we’d coin the “good problem,” a situation where we’re getting more demand that’s challenging our means to deliver. 

Clamour is the result of poor forecasting which leads to poor supply planning.  We can improve our forecasting and our supply planning but we don’t, because we somehow believe we can tackle the clamour as it comes.  We don’t realise we have our limitations, more so in the supply chains we manage and depend on. 

Just as much as forecasting can never be 100% accurate, we can anticipate demand and head off the clamour by simply becoming familiar with what our customers will likely buy in the near future.  And we can update the information as the preferences change. 

Clamour is a phenomenon that we may think is a good problem.  But just like calculated guesses, a good problem is an oxymoron—a contradiction that really means a problem that isn’t good.  

We can do better before clamour comes.  But only if we plan better via common sense forecasting and building our capabilities.

About Ellery’s Essays

What Our Superiors Expect

Customers expect perfection in service. 

But what do our superiors expect?

For those among us who are supply chain professionals or managers, we answer to our employers, our superiors or bosses, the owners and executives who rule the enterprises we work for. 

And as much as customers expect us to be perfect in serving them, our superiors expect us to be productive. 

Supply chain management is a two-pronged job.  Not only do we aim to perfectly fulfil the promises made to our customers and clients, but we also are expected to productively perform for our employers. 

The complexity of supply chains doesn’t make it any easier for those of us who work in the operations side of the enterprise.  We must be familiar with just about everything that happens because we are expected to.  Our performance counts on it and it’s a challenge that we perform for two audiences:  customers and superiors. 

We aim for perfect fulfilment or perfect orders in the management of our supply chains.  For our superiors, we shoot for productivity. 

Productivity in demand fulfilment is about achieving results which lead to attainment of our enterprises’ strategic objectives.  It’s about meeting goals we as operations managers have set and we have made ourselves accountable for.  These goals usually fall under the four (4) priorities of the enterprises:

  1. Accumulating Wealth
  2. Gaining Competitive Advantage
  3. Getting a Good Reputation
  4. Growth in Influence

We promise our employers to be productive via the goals we set that shall support these priorities and their related strategic objectives. Being productive, therefore, is about making & keeping promises we make to our employers, bosses, or superiors. 

Unlike the flagship metric of perfect orders that gauge how we perform for customers, productivity comes with multiple measures that cover the four (4) priorities of the enterprise. 

The following are some typical key performance areas that determine how productive our supply chains are: 

  • Total Delivered Cost

Total delivered cost is the sum of all expenses and purchasing costs directly & indirectly related to the value of items at point of service to the customers. 

  • Distribution

Distribution is the spread, allocation, and availability of items and services in an enterprise’s target market. 

  • Risk Mitigation

Risk Mitigation is how well supply chain operations not only respond but also prevent incidences stemming from seen and unseen risks.  Risk covers the areas of safety, security, and internal control. 

  • Responsiveness

Responsiveness is how supply chains not only react but also pro-act to change, especially towards adverse disruptions.  Adverse disruptions not only encompass external events such as natural disasters or socio-political turmoil but also seemingly mundane issues such as changes in local laws and the rise of entrepreneurial upstarts competing with our products & services. 

From these key performance areas, we formulate metrics tailored to our operations to monitor and measure how we progress towards supporting our enterprise’s overall objectives.  The sum of all these measures and how they add up for the performance areas we deem important is how we then evaluate our productivity.

Productivity, unlike perfection in customer service, can therefore be complicated to assess especially if we put in too many metrics to measure and work against.  The idea is to focus on those few areas our superiors believe are important and concentrate our efforts there.

Our superiors expect us to be productive in achieving what they see as important.  That’s the reality we as subordinates must accept, just as much as we need to accept that customers demand we keep the promises of service perfection. 

What do our superiors expect? Productivity in meeting goals.  Nothing less. 

About Ellery’s Essays