Dissecting Demand and Its Four (4) Stages

What do we think of when we discuss demand?

We tap it, capture it, deliver it, and get people to pay for it, but do we really know what it is? 

We equal demand with how long a line is at a restaurant, or by the sheer number of customers at a shop.  We say a product is in high demand when it is chronically unavailable at a store or by the higher price it fetches versus rival items. 

We categorise demand by how many items we sell or ship.  The higher the sales; the higher the demand. 

We see demand as a need.  We need food, water, companionship, and health care.  When we need to be satisfied, we demand it. 

We base demand on surveys and try to rationalise it with mathematical and economic algorithms.  We put trust in market research studies that determine what people seek. 

We talk a lot about demand, but we define it differently.  And because we define it differently, we manage our businesses differently. 

Some of us who are enterprise owners wait for demand to happen.  Supermarkets, for example, wait for shoppers to buy items off the shelves.  Retailers count on customers walking into their stores to buy items on display. Hospitals and clinics wait for their patients who seek medical assistance. 

Some of us chase demand.  Peddlers go door-to-door to sell their wares to would-be buyers.  Some send spam email or text messages to push their products, hoping a fraction will get interested and buy. 

Some of us attract demand.  Soft-drink producers pitch different variants of drinks (e.g., sweetened, no sugar, non-calorie, caffeinated) in the hopes people will find favour with their products and choose them when they shop.  Fashion companies periodically offer new clothes styles & designs to woo people to buy and wear.

Some of us create demand.  We invent items we hope people will want or need.  We didn’t think of needing personal computers before the 1960’s, before Olivetti manufactured the first desktop computer.  We really got interested when IBM in 1980 introduced its desktop computer with the Windows DOS operating system.  More than forty years later, we can’t imagine living without computers and the technologies that came with it (laptops, tablets, smartphones, the Internet). 

What is demand, anyway? 

The dictionary defines demand as:

  1. An urgent requirement;
  2. The desire and means to purchase goods;
  3. The amount of goods purchased at a specific price;
  4. The state of being wanted for purchase or use.

As a verb, demand is wanting or needing something.  As a noun, demand is the amount or quantity of what we want or need. 

For those of us who are businesspeople, demand represents what and how much people want, need, and pay for.  Demand is what our businesses depend on for revenue, income, and growth. 

We seek demand from the market, that community of people who are the potential buyers of our products & services.  We persuade people of the market to pick & buy our items.  We call it marketing and it includes the activities of inventing, advertising, promoting, peddling, and displaying our items, in which we aim to realise demand. 

Demand begins with interest or urgent need, proceeds to choice, and moves to the act of obtaining.  It starts with “we like this” or “we need this,” to “we want this,” to “we will buy this.”  Demand does not end, however, with the customer’s desire to buy an item; it ends with the sale, the customer’s purchase, payment, and gaining possession & ability to consume or use of the item: “we are ordering this item,” “we are obtaining the item,” “we are using the item,” and “we are paying for the item.”

Marketing is about getting people to choose an item.   Sales is about getting people to buy, pay, possess, and use the item.  We call this process of marketing to sales: demand creation.  We generate demand from the market we target and translate it into sales. 

We get confused with defining and measuring demand when we are not clear which stage of the process we are talking about.  What a customer prefers (we like this) is not the same as how much a customer will buy (we are ordering this).  And what a customer may want to buy is not a sale, at least until it is paid for.  If a customer returns an item, the sale is for naught.

Each stage of demand has its own set of drivers.  A driver for demand by interest (we like this), for instance, would be a product’s features (e.g. a high-resolution camera in a smartphone).  Drivers for choice would include the offered price and an item’s superior advantage over rivals.  Drivers to obtain an item would include the customer’s urgency to acquire or satisfy a requirement.  And drivers to close the sale would be the finally agreed price, delivery promise, and agreed-to terms & conditions. 

Knowing demand at every stage is beneficial to how we manage our businesses. 

Case in Point:  Ferrari

Ferrari knows that many people like their sport cars.  Just about every young car enthusiast would just love to have a Ferrari sports car.  Demand based on preference (I love this) therefore would be very high.  But because most young drivers can’t afford Ferrari sports cars, demand in terms of choice (I want this) would be much lower.  Sales therefore would be a small fraction of how many interested people there are to own a Ferrari. 

Ferrari wouldn’t lower prices or raise production capacity to boost sales; it would rather limit availability and keep prices high.  Ferrari knows that as long as there is a large preference for its cars, it would be able to sell cars to a certain few who would choose, wait, and pay for them at a very high price (and at a very high profit margin for Ferrari).   

Case in Point: the Kornik Vendor

A vendor on a busy Manila street sells kornik, a Filipino snack food made from deep fried corn puffs.  The vendor hands out free samples and counts on passers-by to like and buy his cooked kornik, which he sells in small bags.  For so many years, even through the coronavirus pandemic of 2020 to 2022, people, both regular customers and new, have bought dozens of kornik bags from the vendor. 

The kornik vendor competes with many rivals near and far from him.  Steady demand for his kornik is due to its taste which his customers very much prefer (I like this) and the price which can go as low as PhP 20 (40 US cents) for a small bag (I will buy this).  The vendor cooks his kornik via his own recipe and counts on people preferences to continually buy his product. 

Case in Point:  The Electric Company

Before we can use the electricity in our homes, we likely need to apply to an electric utility company to get connected to the power grid.  In some countries, we can choose which electric company to source our electricity from.  We can prefer, for instance, a company that is tapping renewal energy (e.g. solar, wind) or one that uses cleaner fuel (e.g. natural gas vs. coal). 

The process of demand for electricity, thus, can begin with preference for what energy company or source (we like this), to choosing the company (we want this), to the processing of our application for an electric connection (we are ordering this much electric load capacity).  The actual sale happens when we use the electricity (i.e., turning on lights & appliances). 

The electric company would estimate demand from what energy sources customers prefer and how much load they would be applying for.   The company will invest in facilities and negotiate supply contracts based on that estimated demand.

Case in Point:  The Prescription Drug Business

When we have an ailment, we go to our doctor who often prescribes us medicine to buy from the drug store.  As the doctor’s prescription dictates the details of what drug to buy, we usually just go straight to ordering the item we need.  We hardly think about preference or choice; we just fill the prescription and hope for medical relief or cure. 

Drug companies peddle their brands and products to doctors and not patients.  The first stage of demand creation when it comes to prescription pharmaceuticals is getting doctors to like the drugs the companies are marketing.  Doctors then prescribe their preferred medicines to their patients.  Succeeding demand stages follow with their patients’ purchases at the drug store. 

Because we define demand differently, we manage our businesses differently.  Demand varies depending on what stage it’s in, from interest or requirement (we like this, we need this), to choice (we want this), to intent to obtain (we want to buy this), to the sale (we are ordering, availing, and paying for this). 

Each demand stage has its drivers which influence how we market and sell our items to potential customers. 

The stages of demand and how we translate them to sales make up the process of demand creation.  It lays down the path to the next step:  demand fulfilment

About Ellery’s Essays

Compliance is Not Service

Every year, banks notify us that we need to update our background information for the accounts we opened and deposit our money in.  They say it’s a rule of the Bangko Sentral ng Pilipinas or BSP, the governing monetary authority of the Philippines, where I live & work.  All depositors must comply to enjoy the bank’s customer services.    

That’s not true, of course.  The BSP does not require banks to compel their clients to update the latter’s records every year.  It is the banks who make such rules which probably originated from their overly cautious legal departments which are then approved by their boards of directors. 

Banks tell us that the updating of records will improve their services.  This is also not true.  It’s the other way around.  If we don’t update our records, the bank threatens to make it hard for us to enjoy their services. 

The updating of records is a burdensome & time-consuming task.  There are always so many requirements to work out.  Documents must be signed & submitted.  For corporations, notarised certificates & resolutions are needed.  It can take up to a month to get all the stuff together.  But the banks don’t care.  They insist their clients comply, or else. 

Banks compel clients to update records because they fear liability if scammers steal from their depositors’ accounts.  The updating of records strengthens security measures such as the depositors’ authority for withdrawals and the verification of signatures.  Banks would rather put clients through the inconvenience of updating records than to risk security breaches in financial transactions.  Scammers and fraudsters are the reasons why institutions such as banks, push for compliance. 

Compliance is not service.  As much as banks & institutions try to spin compliance as a way of getting good service, it’s not. Whatever benefits there are in complying with whoever’s rules, we as clients don’t get them; the banks & institutions only do. 

Compliance is beneficial to the banks, or in general, to the enterprises or institutions mandating it.  Service, on the other hand, is for the benefit of clients or customers, aligned with the fulfilment of our needs & wants. 

When enterprises or institutions, such as banks, require compliance, they impose burdens on us as clients on top of whatever we already are paying for in prices or fees.  We can say that the work we put to comply is a hidden charge tacked on to whatever we’re paying for. 

Many enterprises & institutions give a lot of lip service when they say they prioritise service above all else.  Nothing could be further from the truth.  They don’t.  They treat customers like us as nothing more than numbers for statistical measures.  Banks see us as account numbers.  Airlines see us ticket numbers or as boarding passes.  Governments see us as taxpayers with identification codes (e.g. tax IDs, social security numbers).  We are just shopping carts of items at grocery check-out lines. 

Entrepreneurs have capitalised on poor customer service as they break into markets traditionally held by big business firms.  They do so via innovative strategies that get around the barriers the big businesses put up to keep rivals out. 

Small upstart banks, for example, have grown big for putting customer service first over compliance.  One bank, for example, reduced the number of requirements for compliance while another offered the service to assist clients in preparing and picking up the needed documents.  Another bank waived fees for online transfers and added tellers to shorten the waiting times of depositors.  These banks grew as clients appreciated the extra mile they invested in for service; some have beaten rivals who refuse to prioritise service over compliance. 

But it’s not just banks where entrepreneurs innovate. 

The Zoom app for virtual conferences gave us the opportunity and option to not having to go through the inconveniences of air travel to meet with counterparts at different locations. 

Ride-sharing services such as Uber, Lyft, and Grab broke the monopolies of taxicab companies & traditional couriers in major cities thanks to the conveniences they provide via their mobile apps and their quick service. 

The start-up e-commerce fashion company, Shein, became a worthy challenger to Zara and Uniqlo via its low-price offerings of various items coupled with fast delivery services. 

When businesses like banks become big, they tend to sacrifice service for compliance to rules that benefit them more than us, their clients.  As much as they may try to rationalise, compliance is not service.  We as innovative entrepreneurs recognise this and capitalise on this.  We as customers won’t hesitate to switch the moment we could when someone else offers less of a burden for the services we insist on. 

About Ellery’s Essays

The Supply Chain Orchestra

In August of 1990, Iraq invaded Kuwait.  The United States of America led a coalition of nations to counter the invasion via a military campaign that started with Operation Desert Shield and then with Operation Desert Storm

In November 1990, General Fred Franks, Jr., commander of the US Army VII Corps, deployed the Corps’ five (5) army divisions and support groups to Saudi Arabia, to prepare for an offensive into Iraq and Kuwait. 

It was a deployment that was far from perfect.  

The VII Corps encountered a slew of issues as it deployed to forward bases in Saudi Arabia.  There were delays in transportation of supplies and troops from Europe.  Soldiers, supplies, weapons, and equipment got stuck in traffic snarls at ports.  Troops received the wrong camouflage uniforms.  Tanks, trucks, and spare parts were mixed up during shipment such that logistics officers had to sort them out upon arrival.[i]

The deployment of the US VII Corps can be likened to moving a small urban city to a different country thousands of miles away.  The Corps had to move almost a 150,000 men & women, 1,487 tanks, 1,384 infantry fighting vehicles, 568 artillery pieces, 132 multiple rocket launchers (MLRS), 8 missile launchers, and 242 attack helicopters. Logistics commanders had to synchronise and transport aircraft such that the divisions that left from their point of origin would swiftly deploy as soon as they arrived at their destination. 

General Franks and his logistics commanders got the job done despite the snags and their soldiers were ready to attack by February 1991.  Within a few weeks, the VII Corps all but annihilated the Iraqi opposition. 

One of the lessons learned from the deployment of the VII Corps in the Gulf War was that for it to be successful, there had to be synchronisation and collaboration.  No matter how much planning was put in, if stakeholders don’t sync and collaborate, any operation would fall apart. 

We invest a lot into the operations of our businesses.  We buy state-of-the-art enterprise resource planning (ERP) systems.  We hire talented people.  We build warehouses and factories.  We invest in what we believe are the most efficient and cost-effective equipment. 

With all the talk about artificial intelligence, automation, and e-commerce, we are contemplating further investments into more technology to make sure our supply chains will continue to run well and contribute to our businesses. 

Supply chains, however, don’t run well just because they have the latest technologies.  They run well when functions like procurement, manufacturing, and logistics synchronise harmoniously and actively collaborate between themselves and with their links, that is, vendors, customers, 3rd party service providers, and the other departments of the enterprise (e.g., finance, human resources, R&D).    

Harmonious synchronisation and active collaboration are two must-have characteristics of a successful supply chain.  Getting to demonstrate them requires not only capable structures and systems, but also a great deal of preparation.

Supply chains are like musical orchestras.  For an orchestra to successfully perform at a concert, it must not only play good music but also prepare well. 

An orchestra preparing for a concert is very challenging, more so at times than the performance itself.  There are the auditions to select the musicians, the tuning and maintenance of instruments, the rehearsals, the checking of acoustics & sound systems, the lighting & ambience of the venue, the marketing & selling of tickets, the ushering of the audience, the catering of food & beverages, the accounting & finances, and even the negotiations & legal reviews of contracts & agreements. 

How well an orchestra prepares itself determines how well it will perform.  All the preparations that go into a concert must lead to successful results in six (6) categories:

  1. The successful execution of the music (delivery);
  2. A performance the audience delights in (quality);
  3. Expenses that didn’t exceed the budget (cost);
  4. Comfort and convenience enjoyed by the audience (service);
  5. Safety and security throughout the preparations & performance (risk);
  6. Compliance to regulations & good relations with local communities (environment-social-governance [ESG]);

Supply chain management covers these same categories and calls them competitive priorities, in which we perform vis-à-vis the successful execution of the enterprise’s operations strategy.  Delivery, quality, cost, service, risk, and ESG are our modern-day priorities in our highly competitive and challenging world. 

Supply chains are like orchestras.  They need to be prepared to operate harmoniously and to do that requires management via synchronisation and collaboration.   It requires the engineering of systems and structures to become capable to sync and collaborate effectively. 

We, however, often fall into the trap of managing each category separately.  We set up, for example, separate departments for delivery, cost, quality, risk, and services.  And we sometimes pass on the responsibilities of ESG to someone else not in the supply chain.  When we delegate any of the six (6) categories, we end up arguing for one category’s importance over another.  We end up fighting each other rather than working together for all.  Synchronisation and collaboration go out the window. 

It is therefore important to have structures and systems that would bring about synchronisation and collaboration.  Building these structures and systems do require some engineering and when they are set up, would still require much in the way of preparation, such as hiring the right people, purchasing the best equipment, and planning the correct policies. 

The individuals of an orchestra work together.  They collaborate and they synchronise.   What matters is the orchestra gets their desired results manifested in an audience happy with the performance. 

Gen. Franks led like a conductor of an orchestra. He and his staff were successful because they stayed on top of the situation in real-time and persisted to synchronise and collaborated with all parties involved.  Everybody played their part, and they got what they wanted and more so. 

So must we when we manage our supply chains.  No state-of-the-art artificially-intelligent automated-robotic system can substitute for the engineering of capable structures & systems that lead to synchronicity and collaboration in the pursuit of meeting our priorities. 

We are the conductors of our supply chains as well as we are the builders of them. 

About Ellery’s Essays

[i] Tom Clancy with Gen. Fred Franks, Jr. (Ret.), Into the Storm, A Study in Command (New York: Berkley Books, 1997), Chapter 8.

Developing the Right Demand Fulfilment Strategy

A large fast-food chain hired executives from a fast-moving consumer goods (FMCG) multinational.   The owners of the fast-food chain wanted the best and the brightest and they thought that the former executives from the multinational FMCG would best meet their expectations. 

They were almost right.

The former executives spent a lot of time revamping the fast-food chain’s marketing strategy.  They introduced changes in the menu, renovated branches, as well as added new ones.  They also initiated an aggressive advertising campaign to combat the competition.

The executives’ marketing strategy resulted in higher sales growth and gains in market share, to the extent it became the number one fast-food chain in the country. 

The chain’s branch operations were deemed efficient. Employees served customers within a few minutes.  To further improve operational efficiencies, executives invested in a new information system to integrate branch operations with the commissary and the finance department.  They thought that a new information system would streamline communications between the branches and the commissary, which would result in reduced waste and lower costs. 

Within weeks of implementing the new information system, the chain was in crisis.  The commissary complained the information system was slow and complicated to use, which resulted in delays in deliveries to branches.  Branches ran out of food and ingredients, and they were unable to serve customers looking for their favourite items.    People complained in social media about the fast-food chain’s poor service. 

The executives temporarily closed the fast-food chain’s branches for a week.  Officially, they blamed shortages in supplies from vendors.  The real reason was they used the time to fix the information system.  When the fast-food chain resumed operations, services were a little better.  But some items occasionally went out of stock.  Competition, meanwhile, picked up market share and the fast-food chain had to market aggressively to regain what they lost.      

We have two (2) tasks as managers of our enterprises:

1) create demand;

2) fulfil it.

We can’t do one without the other.  We cannot survive just by creating demand without fulfilling it.  And we cannot fulfil demand that is not there in the first place. 

Demand creation is about convincing a targeted market to choose an enterprise’s products and services.  The aim is to not only sell to obtain revenue but also to persuade people to prefer its products and services. 

Demand fulfilment occurs when the enterprise satisfies the demand created.  It is not only about delivering products & services to customers completely and on-time.  But also, it is about end-users availing of the enterprise’s products and services, utilising them, benefiting from them, and compensating the enterprise for purchasing them.  Fulfilment happens when the segment of the trade the enterprise serves expresses satisfaction and an ongoing preference for its products and services. 

Demand creation to fulfilment is a cycle which taps the drivers to enable continuity.  Marketing managers work to create demand.  Operations managers work to fulfil it. 

Most of us may have a comprehensive demand creation strategy but chances are we don’t have one for demand fulfilment.        

The newly hired executives of the fast-food chain transplanted marketing strategies from their experiences with their previous FMCG employer.  The new executives felt what worked at an FMCG company will also work for the fast-food chain. They implemented a successful marketing campaign that created demand.  Unfortunately, their also-transplanted fulfilment strategy fell flat, resulting in a reversal of demand, not to mention costly losses.    

The FMCG executives the fast-food chain hired thought that a simple transplant of strategy from their former employer would work.   But fast-food isn’t FMCG.  While they may have succeeded in demand creation, they didn’t in fulfilment.  The cost-centred fulfilment strategy they copied from their former FMCG employer didn’t work for the fast-food chain. 

Our enterprises are as different from each other as every industry is from one another.  While it is true that many of our enterprises have captive markets and sell identical products, such as commodities (e.g. wheat, rice, metals) or offer the same services (e.g. medical clinics, funeral homes, automotive maintenance), our customers will opt for those who can fulfil closest to their preferences, expectations, and at best value for their money. 

Hence, our success counts on the strategies we adopt for demand creation and demand fulfilment. 

It’s easy to transplant a system we’ve been accustomed to a new employer, never mind if the system is coming from a starkly different business.  If it worked where we came from, why shouldn’t it work where we go to?  And because we were the successful experts there, why can’t we also be experts for any new employer? 

Demand creation requires a strategy tailor-fitted to the enterprise’s products and services.  The demand creation strategy must consider a product’s nature, features, and the segment of the market it targets.  Services should be catered to the clients they are specifically for.  The demand creation strategy is therefore unique to the enterprise as it should be.  Successful marketers know this, and we see this in the differences in advertisements and methodologies they execute. 

The same logic applies to fulfilment. It must also be tailored to our products and services. And not just how orders are received, processed, and delivered but also how the supply chains of our products and services are set up and run. 

And transplanting or copying from other industries or enterprises isn’t the best way to manage operations to fulfil demand.

We, unfortunately, don’t develop a demand fulfilment strategy as much as we make one for demand creation.  We believe that fulfilment comes naturally.  Just deliver the goods when there’s an order.  It’s harder to create demand so more resources and planning should be put into it.  Fulfilment is easy and straightforward.  We think that automation and computerisation already are enough as operations strategies.  The case of the fast-food chain shows that this kind of thinking results in messy outcomes. 

The factors that lead to failure in fulfilment include we as leaders not formulating a strategy at all.  We would just tell middle managers to serve orders.  We would sign contracts with 3rd party logistics providers to manage inventories and deliver the goods.  We would leave it up to information technology (IT) vendors to install new computerised systems to automate operations.    In effect, we delegate the operations strategy to subordinates or 3rd parties.  We would focus on creating demand as the one and only important task of the enterprise. 

When it comes to managing the enterprise, we need to have two (2) clear answers to two (2) questions:

  1. What’s the strategy to create demand for our product and services?
  2. How will we fulfil it?

Many of us have succeeded in answering the first question.

And many of us have fallen flat in answering the second.

To develop a demand fulfilment strategy, we just need to start with the demand creation strategy.  And from there, tailor the strategy to the language of its operations.

In FMCG, a demand creation strategy can be marketing low-cost fast-moving consumer goods that meet daily household needs.  The demand fulfilment strategy would be mass producing and deploying finished products that would available everywhere in targeted locales. 

For fast-food, the demand creation strategy can be setting up a network of branches that would serve communities in a wide geographic area that would offer a variety of food and beverages in-store or via delivery.  Demand fulfilment would be via always having in stock ingredients and condiments coupled with efficient serving systems and an organisational structure supported by an always ready and responsive delivery transportation fleet. 

And not just for fast-food and FMCG.  We can tailor strategies of creation to fulfilment to other enterprises as well.  We just have to tie in the cycle of demand creation and fulfilment. 

Demand fulfilment applies to, at minimum, the enterprise’s supply chain, those operations we have influence over.  Ideally, we and our vendors and our mid-tier trade customers (e. g. distributor, dealers) should be enrolled in a collaborative demand fulfilment strategy

The supply chain offers the most splendid platform for a coherent demand fulfilment strategy.  It not only links operations from raw materials procurement, manufacturing, and logistics toward a common purpose but also unites them to execute a fulfilment strategy.  There are no varying goals among functions; everyone has the same idea, same objectives.  

We adapt the enterprise’s operations to the demand fulfilment strategy we develop.  Not the other way around.

For every industry, every enterprise, it’s always the same two tasks.  Create demand; fulfil it. 

We are familiar with creating demand and focus a lot on it.  We, however, neglect the fulfilment of demand by either transplanting it from other enterprises or delegating it to subordinates or third (3rd) parties.  As a result, the demand cycle fails, and we suffer.

Supply chains offer the best platform to develop a demand fulfilment strategy.  It’s applicable to whatever the enterprise, whatever the industry. 

But as much as we may have realised the importance of supply chains, we first need to accept that fulfilling demand is just as important as creating it. 

About Ellery’s Essays

What to Do with Unserved Orders

A global fast-moving consumer goods (FMCG) corporation had set up a contact centre in Singapore to centralise sales orders management in the Asia-Pacific region.  Customers and field sales of the Southeast Asian market of the FMCG company would inquire or send their orders via email, SMS, or via internet calls to the Singapore office.  The Singapore office would screen the inquiries and orders versus available inventories at different distribution centres around the region.  The contact centre staff would edit orders by deleting unavailable items or cancelling any that didn’t meet the corporation’s terms or conditions.

The FMCG corporation was able to fill 99% of orders on-time and completely after the centralisation of order entries at the Singapore office.  There practically were no unserved orders at the end of every working day.  The FMCG logistics team delivered practically all the orders that the Singapore office entered within 24 hours.   The FMCG’s Asia-Pacific executives lauded their order fulfilment performance and boasted to the corporation’s global headquarters.

The FMCG corporation’s Singapore order-entry office claimed success in addressing pending unserved sales orders.  In the past, salespeople would submit order after order for items even if some products were not available or even if the account executives were unsure customers would meet sales terms & conditions.  For several years, executives would always see a pile of pending customer orders that remained unserved or waiting for approval for as long as a month.  Marketing executives and salespeople complained about the unserved orders and impatient customers would cancel or penalise the FMCG corporation for the poor servicing of their orders.  The Singapore order-entry office emerged as the saviour that eliminated the unserved order pariah. 

But as the FMCG corporation’s executives patted themselves on the back for the purging of unserved pending orders, many of the company’s customers weren’t any happier.  Customers weren’t getting all the items they wanted as Singapore edited out unavailable items from their orders.  Customers also didn’t like they had to pay for deliveries that didn’t include all the items they asked for.  Some customers as a result shifted to competing brands and the FMCG executives realised too late it was losing market share in some of their best-selling products. 

Pending unserved orders are customer orders that are either waiting to be serviced and delivered and if not, become destined for cancellation.  They could be incompletely delivered orders, or orders just waiting for go-signals for dispatch.  They could be orders waiting for specific instructions to be carried out or they could be orders that enterprises had put on hold because customers didn’t meet pre-agreed terms such as remitting a down-payment. 

Unserved orders are often what are brought to our attention as supply chain managers.  If our subordinates don’t bring it up, our executive superiors will.  When our customers don’t get their orders, they will inevitably complain, and some would penalise our businesses via deductions in payments or by rejecting late deliveries.  Pending unserved orders are obviously hindrances to our strategic performance since business success counts on customer satisfaction.

We tend to push outbound logistics managers (i.e., shipping supervisors, distribution centre managers, or those in charge of processing customer orders) to address unserved orders, even though it isn’t outbound logistics who really have full control over fulfilling unserved orders.  When it comes to demand fulfilment, responsibility lies with whoever oversees the supply chain, typically the chief supply chain officer (CSCO).  Unfortunately, in the real world, we don’t have CSCOs and the reason for such is that we don’t have structures and systems that support supply chain management.

The supply chain is the core of many enterprises’ s operations.  Operations is one of four (4) basic pillars of business, which stands alongside with Marketing, Finance, and People. In an enterprise that markets products & services, the operations manager is charged with the activities that fulfil market demand and many, if not all, of these activities are inter-connected in the supply chain. 

Unserved orders are symptoms of flaws in supply chains.  They are not the problems but their effects.    They are the tips of structural and systemic icebergs that inhibit the productive flow of merchandise and services from the sources to end-users.   

We, however, believe supply chain problems like unserved orders can be managed via directives and policies.  We would, for example, increase production and build up inventories to ensure most, if not all, items would be available anytime.  We may, just like the FMCG corporation, establish policies where orders would be based on available items and strict customer service terms & conditions. 

But experience has shown that these management mandates don’t solve the problem.  We may eliminate the pending unserved orders, but we don’t actually resolve the underlying issues such as stock-outs and incomplete deliveries. 

There are two (2) very basic tasks in running a business: 

  1. Create Demand;
  2. Fulfil It.

Pending unserved orders are symptoms of not being able to successfully do number #2.  As much as we may manage pending unserved orders, we may not be tackling the bigger problem that it represents, which is the failure to fulfil market demand. 

Getting rid of pending unserved orders is, thus, a starting point to improving our basic task of demand fulfilment.  It begins with working on the system of how we detect and respond to demand, translating that demand into valid orders, and finally in planning and executing the activities to serve those orders.   It gets away from piecemeal solutions to one that attempts to address the big picture of a supply chain’s operations. 

Knowing the supply chain’s role in fulfilling demand, not just eliminating pending unserved orders, is a basic first step.  The second step is accepting that mere management isn’t the best way to set up structures and systems to support a productive demand fulfilment strategy.  What are needed are skills grounded in problem-solving and engineering. 

It may sound intimidating and expensive.  But it doesn’t have to be.  We invest in talented people in our organisations.  When we utilise the talent we have in demand fulfilment as much as we do for demand creation, we are on our way to making progress. 

About Ellery’s Essays

Tackling Our Fears Through Trust

I attended a condominium owners’ meeting in late August 2022. It was the first meeting of the condominium’s owners in more than two (2) decades.  For so long, I and my fellow condominium unit owners have had no issues to contend with.  We (most of us anyway) paid our dues and everyone lived in peaceful harmony. 

A meeting of the owners was held after so many years because one unit owner refused to pay her dues and she was raising a ruckus.  She accused the present association as illegitimate and she via a lawyer demanded action on her complaints.    

During that owners’ meeting, the complaining unit owner griped that the association lacked legal ground.  She produced copies of documents to back her case but refused to share them.  And she refused to pay her dues until her demands were met, which included re-organising the association (with herself preferably as president or chairwoman).  To most of the owners, the griping unit owner was an annoying person. She often complained but did not pay what she owed for the upkeep of the condominium. 

The chairman of the owners’ meeting promised the complaining owner that the condominium association board would act on her demands.  More than a month later, however, nothing had happened.  The condominium’s board had yet to release the summary of the meeting.  Most of the owners meanwhile continued with their routines and just about forgot what had transpired during that meeting.  It would probably take another crisis for the condominium owners to convene another meeting. 

We human beings have a propensity to prioritise tasks when we perceive them as urgent and pressing.  When we think we need to do it, we will.  If we think we don’t need to do anything, we won’t. 

The late Carl Sagan in a 1990 speech lamented that the United States had budgeted and spent a total of 10 trillion US dollars during the Cold War which lasted almost five decades.     

He wonders how political leaders could allocate so much money for military budgets when the United States and the Soviet Union dealt with each other peacefully during the Cold War and it seemed unlikely they would get into armed conflict that would lead to mutual destruction.  And even if there may have been times where both sides were disagreeing with each other, was it necessary to spend ten trillion dollars for weapons which had the cumulative capability to wipe out human life on Earth many times over?  

Carl Sagan was perplexed that leaders would not hesitate to spend so much for the possibility of war but would balk at spending to fight global warming* which many scientists agreed was quite likely the way things were going.   

We human beings will pay a lot of money for security.  Security is a basic need, one among Abraham Maslow’s Hierarchy of Needs.  It manifests as the need for having more than enough to protect ourselves from danger and to keep safe our comfort zones. 

We base how much security we need on how dangerous we perceive our surroundings.  During the Cold War, politicians from both sides preached the threats of the other.  They used mass media showing images of weapons of their opponents to justify the need to develop superior ones.  Politicians persuaded taxpayers that their nation’s armed forces needed to be stronger than their opponents.  They justified military budgets based on the need for security. 

Climate change, however, was another story.  When Al Gore presented the award-winning documentary, The Inconvenient Truth, in 2006, it visualised the threat of man-made climate change. Mr. Gore’s brought climate change to the forefront of public attention, to the extent that nations came together to draft manifestos of commitment for environmental protection.   

But unlike the threat posed by the Cold War, climate change didn’t bring about massive investment.  Instead, it brought debate as climate change doubters fought climate change protagonists on the grounds that it was not really a threat.  The science behind climate change was flawed and needed to be reviewed.  There was no justification for investment and immediate change in economic policies. 

Persuading people to acknowledge a threat requires them to perceive the probability of harm.  One way to do this is via fear.  The Cold War scared people in Russia and the United States about each other’s capacity to destroy their respective countries, not to mention their ways of life, whether it be communist or capitalist.  Climate change, however, was seen more as a potential disruption more than a threat.  People didn’t find climate change as fearful as that of the Cold War. 

When we are scared, we either act or look for people to act against what is causing us to be scared.  Citizens scared about another superpower’s weapons therefore would look to their governments and armed forces to protect them.  People who would be scared about climate change would look to the scientists for solutions. 

But before anything is acted upon, there must first be the fear, or at least a level of insecurity enough to prompt us or somebody else to do something about it. 

In that condominium owners’ meeting, the people in attendance were glancing at each other and hoping someone would volunteer to do something about the complaints raised by the annoying unit owner.  A few did step up albeit reluctantly even as the owners as a majority agreed there was a need to do something.  They were willing to put some trust into any individuals who they wish could be counted on. 

Fear and insecurity typically underlie what we determine as urgent and requiring action.  We may act on our own but usually we’d seek someone we trust that would have the knowledge and competence to take care of what’s causing us to be scared. 

We express our faith in the talents of the people we trust.  We therefore seek those who we feel would have the talents relevant to resolving what is making us insecure or fearful. 

The Cold War ended shortly after Carl Sagan’s speech in 1990.  The coronavirus pandemic, climate change, and supply chain snarls emerged in 2022 as issues that got everyone’s attention.  We live in a complicated world in which we are anxious about disruption and uncertainty.       

Hope lies in the talents of the people we trust to resolve these issues.  We just have to decide what we should really fear most and find the people with the right talents to trust and somehow help us solve our problems.   

About Ellery’s Essays

*Global Warming was the 1990’s moniker for climate change. 

Supply Chain Engineers Have Much to Offer

There were nearly 2.2 million mentions of “supply chain” on Twitter in the fourth quarter of 2021, some five times more than in any quarter in 2019, before the Covid-19 pandemic…’    

Global supply chains were a mess in 2022, so it seems when one reads any business news article or video that year.

Since the coronavirus pandemic began in early 2020, supply chains have been thrust into the limelight.  And not positively. 

Ever since the container ship, Ever Given, ran aground in the Suez Canal in March 2021, just about every business newscast has a story about supply chain issues.  In turn, just about every academic and political spokesman cites the supply chain as one reason, if not the major reason, for economic woes such as inflation and lacklustre growth. 

And as of December 2022, it looked like the mess and the blame weren’t going away anytime soon. 

As of the third (3rd) quarter of 2022, North American retailers like Target and Walmart reported they had too much inventories.  China was experiencing new waves of the CoVid-19 coronavirus pandemic and enterprises around the world were paying the economic price from disrupted production and supply shortfalls of critical components. 

The war between Ukraine and Russia, an energy crisis in Europe, labour staff shortages in North America, droughts, inflation, and natural disasters were altogether adding to 2022’s challenges for economies.

And unlike previous years, so-called experts from 2021 and into 2022 were pointing to supply chains as to where these disruptions were having a major impact.  All of the above issues had translated into what many coined as a supply chain crisis

There had been a lot of suggestions on how supply chains should be fixed.  These range from near-shoring or locating vendors, manufacturers, and customers closer to each other to regulating international shipping to bring down freight prices.  Some consultants recommended high-technology software and robotics, while others suggested simply having more just-in-case instead of just-in-time inventories. 

But who among us was going to do all the fixing? Who would clean up the supply chain messes? 

The first thought had been the supply chain managers.  But who were the supply chain managers anyway?  Supply chain managers from industry to industry, enterprise to enterprise had different job descriptions. 

Some of us who were purely into purchasing labelled themselves supply chain professionals; while others didn’t and would rather not. 

Practitioners of logistics—a field that consists of many specialisations such as inbound logistics, outbound logistics, transportation, warehouse management, shipping, orders fulfilment, etc.—thought they were the heart and soul of supply chains even though logistics is really just a part and not representative of the whole. 

Most who worked in manufacturing meanwhile never saw themselves as members of the supply chain group even if the factories they worked in were essential links to the chain.  But some of them thought they were the centre of the supply chain universe since they saw themselves as where the highest value emanates. 

And then there were the planners who set the paces of production & distribution but not necessarily had much overall authority over how supply chains should be run.  Some felt they had most influence over supply chains but realistically wouldn’t be able to show it. 

Chief operating officers (COOs) finance executives, and sales & marketing managers didn’t see themselves as supply chain managers but the ones who laid out the strategies and policies their supply chain operations subordinates must follow, never mind that supply chains include vendors and customers outside their realms of responsibilities. 

There is no role model of who we should be and would be as champions to fix supply chain messes.  As much as we may point to supply chain managers to take up the cudgels of resolving whatever crisis there was, it was not clear as to who we can look for to get it done.  We must first define the roles and responsibilities which we ourselves may have no inkling.

There are no silver bullets, no messiah who will save us from the thralls of the supply chain crisis.   We no longer can count on so-called elegant gospel concepts which academics and consultants had preached, especially those with such fancy buzzwords such as Enterprise Resource Planning (ERP), Lean, Six Sigma, and Artificial Intelligence (AI).  All these concepts are nice to hear then but hardly have become useful.  Most ended up as utter failures, wrecks on the wayside.    

We are not too welcoming to advisors saying: “it’s going to take hard work, time, and resources to make things better.”  We in today’s competitive and challenging business world don’t have the patience and eagerness to spend any more time, effort and capital.  We want results.  Now. 

We need engineers, not managers, to fix our supply chains. 

Management is the exercise of stewardship via an assigned function in an enterprise.  It consists of planning, organising, direction, and control—elements in meeting goals, formulating strategies, implementing them, and ensuring their success.  We manage by overseeing people and authorising the allocation of resources.  We rely on experts when it comes to solving problems.  We may have ideas and decide what are the best solutions but we rely on men & women with the expertise & skills to cultivate those ideas and solutions. 

Engineering is the design, invention, construction, and launching of structures and systems.  Whether it be electrical, mechanical, chemical, civil, information technology (IT) or whatever field such as agricultural, petroleum, nuclear, fast-moving consumer goods (FMCG), automotive, military, etc., engineers are builders of organisations, facilities, and operations that meet the aims of whomever they are engaged with. 

Supply chain engineers are builders of structures, systems, or networks that are the foundations of operations in the manufacture and logistics of products and services.  They are the professionals who are in the best position to not only clean up the mess we are mired in but also boost the competitive value of our operations. 

The problem is most of us, if not all of us, know that supply chain engineers exist.  They are virtually unknown.  For the few that claim they are SCE’s, many are actually not, at least either they don’t meet the meaning of what an engineer is or they don’t address the supply chain per se. 

Relationships between operating functions make up supply chains.  Supply chains work when these relationships communicate and synchronise the flows of information and merchandise between functional operations.  Hence, purchasing buys what’s needed, manufacturing receives what it needs when it’s needed, and converts and hands off items the logistics function needs to deliver what customers need at no more and no less of how much is needed.  Planners communicate demand data upstream from logistics to manufacturing to purchasing and translate these data into schedules of materials and products at each supply chain stage.

Demand comes in different forms:  forecasts and orders, and these are laid out in weekly & monthly plans and daily schedules respectively.  Supply chain engineers set up a system and structure for whatever demand scenario that enables us to plan and execute our operations. 

SCE’s design the manufacturing and logistics networks to accommodate whatever strategy of product deployment an enterprise adopts.  At the same time, they set up the delivery process to handle the daily fulfilment of orders, requisitions, and receipts. 

The scope of SCE covers the entirety of supply chains from the sourcing of the rawest materials to the very end of consumption of a finished product.  The supply chain messes of 2021 to 2022 have taught us that every link is subject to improvement.  We cannot fix congestion at shipping ports and not address the influx of inventories at the storage facilities where the merchandise from the ports will go to. 

Supply chain engineering is a pioneering field that remains untapped even as we need to clean up the supply chain messes that continue to fester.  It’s a field that is new and unknown but offers the problem-solving methodology that would complement the management and resolution of supply chain crises. 

We have much to gain from what supply chain engineering offers.    

About Ellery’s Essays

It’s Bad When We Turn Away Customers, Very Bad

Customers are the lifeblood of our businesses. If we don’t have customers, our businesses die; it’s that simple. 

Yet, many of us who are business owners turn away customers for any number of reasons. 

Sometimes, the reasons are due to the limits our businesses have.  Restaurants turn away customers because they have no more tables to spare.  Movie theatres run out of seats for the next scheduled cinema showing.  There are no more items to sell; the shop has run out. 

Turning away customers, for whatever reason, is a tragedy.  Any customer we don’t serve or whose need or want we don’t fulfil is not only a lost opportunity but also potential for the prospect of lost revenue in the future.

Some corporations, however, wouldn’t agree.  Utility companies, like those who supply electricity and water, would never lose their customers especially if the utility company holds a monopoly in the market it serves.  Customers have to live with whatever service the utility company provides unless the customers want to live by candlelight or without running water. 

Some business enterprises who have captured the lion’s share of their markets believe they can sacrifice customers.  Executives of these enterprises won’t hesitate to shed a few customers if they can still meet financial wealth targets or if they are confident their competitors won’t be able to capitalise on any unserved customers. 

And there are many customers who would wait and hope to still buy even after being turned away.  This applies especially for items that are highly sought after.  The new Apple iPhone, the brand-new Ferrari model, and the new Airbus plane come to mind as examples.  But it also could be the limited supply of grade AAA chicken eggs that arrives only once a week at the neighbourhood grocery store or the antiviral drug our doctor prescribed us to take against a coronavirus infection.  We would wait if we need them or want them badly.

This is perhaps why banks don’t really care if their clients wait too long in line for teller transactions or if they insist clients submit so many requirements and sign so many forms.  Clients won’t go away because they need their banks to transact their funds; the red tape that comes with banking is an inconvenience clients just have to live with. 

But this is also why the spirit of entrepreneurship is strong.  Innovative start-up owners find ways to break through the barriers and snag the customers that traditional businesses turn away. 

Can’t buy the needed item at the supermarket?  There’s the grocery e-commerce website to order what we need and have it delivered the next day. 

Can’t book the reservation at the restaurant?  We can order take-out from the restaurant via a food courier.  Or we can book with another restaurant that food critics on our mobile web app say is just as good or even better. 

We can open our accounts with banks who offer more banking hours and better, more user-friendly, online services. 

We also can opt for web voice & messaging services and reduce the use of our mobile phone company’s traditional voice & SMS to save on our subscription bills. 

We can also opt for solar powered roof panels to power our homes and cut oue electric bills by as much as 30%.  The more the utility company raises its rates, the more viable we can opt for upgrades to renewable solar power battery storage that could cut our dependence by up to 70%. 

When we take our customers for granted, we are bound to lose them and the ones that we think are loyal to us. 

If we must make our customers wait, let’s make sure we at least deliver based on the promises we made to them. 

Customers are our lifeblood.  We may not need all of them but turning away even just a few of them is a tragedy.  It may not seem like a high price to pay at first but if we make it the norm rather than the exception, we may lose more, if not all of them, to someone else who would eventually figure out a way to serve them better than we do. 

About Ellery’s Essays

The Pros & Cons of Steady-Stream Supply Chains

The two (2) managers of the large multinational consumer goods corporation coined it steady-stream.  Both managers, one from sales and the other in charge of orders processing, agreed that the constant volume rushes every month-end were not acceptable.   It would be more beneficial to have a smooth flow of supply rather than a spike at the last few days of every month.

Steady-stream is a state where volumes of merchandise flow smoothly through enterprises’ supply chains from vendors to in-house operations to trade outlets, i.e., distributors, dealers & retailers, and then to the consumers who buy and use the products. 

In steady-stream supply chains, merchandise, i.e., materials, work-in-process, and finished products, move in sync with true demand, which is equivalent to actual usages or consumptions of end-users. 

Both managers of the multinational consumer goods firm were frustrated with the current state of demand fulfilment they both oversaw.  Merchandise flow was anything but steady.  It was more like stop-and-go traffic.  Shipments spiked at the end of every month as field sales personnel brought in most customer orders at the very last week in their race to meet volume quotas.  The month-end surge of shipments would swamp the trade with stocks such that distributors, dealers, & retailers wouldn’t have much to order at the start of the succeeding month.  The cycle would repeat itself as consumer demand gradually exhausted trade inventories and field sales pursued their quotas once more at the end of the month. 

Spikes in demand cause the same cycles of stress in supply chain operations.  Purchasing, production, and logistics would work below capacity at the beginning of every month and go flat-out in a rush in the final week.  Supply chain planners would try to second guess sales orders and schedule purchases and production of items they believe would be critical.  Planners never could predict accurately, however, and inventories would end up with some items out of stock and some over-stocked.

In steady-stream thinking, our enterprises would make and buy based on the cumulative volumes of what consumers are truly using.  These cumulative volumes comprise what is called true demand

True demand is equivalent to how much consumers use products based on their needs or wants.  The foundation for true demand is that consumers buy based on what they use.   Consumers, in this basis, use products at just about the same rate of quantity over any given period.  Households wash dishes with the same amount of dishwashing liquid, do the laundry with the same amount of detergent, and bathe with the same amount of soap.   

Even as individual consumers have their own unique preferences and usages of products, they have habits that over time reflect steady consumption.  In that sense, it translates to consumer buying behaviours which cumulatively show up in the purchasing of products at the retail level, i.e., the supermarkets and stores where the consumers buy from.

Steady-stream supply chains match availabilities with true demand.  They produce based on consumption downstream at the retail level and buy correspondingly from upstream vendors.  We keep inventories only as buffers for the unforeseen but at not-too-significant variations from true demand.  Buffers would usually not exceed 10% of true demand. 

Steady-stream leads to steady growth.  We build market share by wider distribution, not via marketing gimmicks that spike artificial demand and lead to beat-the-deadline rushes.  We ensure products are distributed and served responsively, that is, fully and completely available such as at the retail trade and delivered fast such as same-day delivery via e-commerce.  With effective distribution and service, we can grow our markets easily especially when we expand into new territories or market segments.    

Steady-stream does not necessarily mean the same volume of product day-in and day-out.  It means steady fulfilment of true demand.  Depending on the industry, true demand may be subject to trends and cycles.  Volumes may fluctuate depending on the time of the year or from economic upturns or downturns.  As long as we are in tune with true demand and we are capable to make available output to fulfil it, we are achieving steady-stream.

Enterprises that adopt steady-stream benefit by just having enough inventories and operating capacities that minimise waste, keep costs low, and experience better cash-flow.  We gain a competitive edge in pricing and can grow market share without having to spend heavily in promotions and incentives. 

But as much as there are arguments in favour, there are also those that would disagree in the merits of steady-stream, if not dismiss them outright. 

Steady-stream does not take into account speculative demand, which is more of a norm than an exception for some enterprises.  As much as end-users like consumers of household products may buy based on what they only need, there are enterprises who buy to hedge based on prevailing perceptions about a product’s future value or availability. 

Many consumer goods supply chains, for example, rely heavily on commodities as raw materials for their products.  Brokers, traders, and vendors buy & sell commodities to make money from price speculations.  Demand is based more on second-guess buying & selling than on actual need. 

When we speculate, procure, make, and deliver to maximise margins, we often end up with inconsistent inventories not in sync with true demand.  This in turn leads to further speculation which ends up governing our policies and strategies. 

There are many factors that cause speculation.  The following are a few examples: 

  • Price Increase Announcements

We buy materials in larger than usual bulk quantities in reaction to vendors warning of price increases.  We fill up storage facilities and lease more space from 3rd parties.  The result is larger-than-demand inventories in which we have no idea how long they’ll keep. 

  • Product Recalls & Endorsements

Consumers will stop buying products and switch to other brands if they get an inkling there’s something wrong with the brand they had regularly been buying.  It gets worse if companies announce a product recall.  Inversely, consumers would flock to products that have strong word-to-mouth appeal such as celebrity endorsements or positive viral social media feedback.  Michelin’s published ratings, for instance, have propelled demand for restaurants and chefs who otherwise would not be too well-known. 

  • Competitive Marketing

Some of us may stick to supplying items based on true demand; our competitors, however, may not.  Competitors may try to wrest market share by offering incentives such as discounts and freebies and cause customers to speculate when they purchase products.  Incentives, especially the time-based ones, fuel speculative demand not only for our enterprises initiating them but also bring the same to our rivals.  A telecom company’s launch of a new smartphone, for example, may threaten competing brands, such that competing firms would counter with launches of their own to defend their market positions. 

  • Disruptions

Unanticipated events or disruptions can cause consumers to change their minds quickly about what and how much to buy. A faraway war, for example, drives price surges in commodity prices which spurs consumers to stock up as they speculate in fear of shortages.  Disruptions stimulate speculation at just about every point in the supply chain from procurement to production to logistics. 

  • Out-of-Stock Incidences

The moment items run out at any trade outlet, there will be speculation.  Trade outlets who have no more items to sell would order much more than usual to pressure suppliers to deliver.  If out-of-stock persists, consumers may switch to cheaper options which may lead to customers in the trade cancelling their orders or even rejecting deliveries when they finally arrive. 

  • Wrong Inventory Models

Many of us apply simplistic inventory management models that don’t sync with true demand.  Some models trigger replenishment when a re-order point is reached.  Some of us order only when items run out.  We just dictate all product inventories should be equivalent to the average sales per month, never mind if sales have been spiking wildly month-to-month far from average levels beforehand.   When inventory models don’t really reflect what are needed, we sooner or later would be speculating about how much to stock. 

Steady-stream is a state where merchandise smoothly flows through a supply chain to meet the true demand of the final end-users.  It is an attractive ideal in managing costs and growing market share. 

But as much as it is a state we would like to attain; it is challenging as to whether it is realistic in the first place. 

Steady-stream’s mortal enemy is speculation. When we turn to speculating demand instead of determining and planning versus true demand, steady-stream becomes a worthless pursuit. 

We must also ask if determining true demand can really be done given the fickleness of consumers and the never-ending speculation that is standard among traders. 

One thing for sure, if our supply chains can sync to what consumers and end-users really need, it would make it simpler for us to manage the complicated operations that underlie them.

About Ellery’s Essays

What Now?

It’s a question I encounter at the end of every seminar: 

What Now?

Where do we go from here?  How do we start?  Where do we start?  What do we do?

Most seminars end with people praising the principles learned but then hardly applying them in real life. 

Why is it so hard to apply the things we learned which we come to believe are ground-breaking?

Take Lean, for example.  The Lean Institute preaches the benefits and practices of bringing Lean Thinking into organisations.  The Lean Institute aggressively conducts or sponsors seminars and workshops around the world.  The institute has endorsed, if not published, books and articles about Lean from authoritative figures from the business world and academe.  Many companies who have implemented Lean testify to the success of Lean. 

Yet, many companies who have attended Lean seminars, read Lean books, and listened to speakers endorsing Lean ended up not fully implementing Lean, and if they tried to, many among them failed

Tim Mclean believes Lean implementation would succeed if there were at least two things present:

Note that the numbering sequence of the two things above starts from #2:  Leadership to #1:  Goal.  Mr. Mclean believes that the success of any Lean implementation most importantly depends on what the goal of the enterprise is.  Executives are after all, logically serious about their goals and would focus on them as their agenda of leadership.  

However, if we define success in Lean as “achieving our goals” then we can set goals that we as individual leaders can achieve. For example, in the 1990’s I managed a plastic moulding factory. We set ourselves the goal of improving uptime (overall equipment efficiency) and reducing scrap. This was a goal which I, as the plant manager, could lead. My senior management just wanted cost reduction. They did not care how it was achieved. We chose to use a Lean approach, developing the skills of our front-line leaders and driving 5S, visual management, TPM, SMED and problem solving to achieve a 50% reduction in scrap and a 25% increase in OEE. We had “Lean success”, but I can assure you that this plant was nowhere near a Shingo prize!

We can apply the same line of thinking with any principle that enterprise leaders would want to apply in their organisations.  To effect change towards a new concept, idea, or system, we must first determine our goal, which is what we want, and cascade this goal to our fellow stakeholders so all of us would own it and commit to it.  Implementation via strategic and action planning follows.   

It’s our goal as enterprise leaders that determines the direction of our organisations and their priorities.  When we go attend a seminar or enrol into a course paid for by our employers, we do so to find out how relevant the principles we learn are to the goals of our organisations. 

We can evaluate what we learned and report what we think to our superiors.  Consultants and engineers do this a lot but, in the end, it’s up to us as leaders and managers to decide whether to adopt a new principle, concept or idea. 

About Ellery’s Essays