Ellery's Essays

Relationships are What Makes Our Supply Chains

Supply chains are models of the relationships within and between enterprises which govern the flow of merchandise and services from their sources to end-users.

We build our supply chains based on these relationships. The systems and structures of our organisations and with the enterprises we do business with stem from strategies and policies resulting from our relationships.

Our policies on inventory and customer service, for example, reflect the levels of relationships we have with individual suppliers and with our customers. We keep more buffer stock if we don’t fully trust the delivery reliabilities of vendors. We produce and deliver in small batches to ensure we deliver in accordance with agreed customer order schedules & quantities.

Relationships are what supply chains are made of.

For the longest time, even before we coined the words “supply chain management,” we have managed these relationships. How we set up our relationships varies from one organisation to the next. Some of our enterprises base relationships on hierarchies and departments; we focus on functions and make sure they each perform to their exclusive targets. Some of us work in teams that include members from different disciplines. We collaborated with some vendors and customers to smoothen the stream of demand and supply of merchandise.

We have shuffled our organisational charts to accommodate our relationships. We invested in sophisticated information systems to enhance data communication and integrate transactions. We built factories and distribution centres closer to vendors and customers respectively. We engaged with couriers and 3^rd party logistics providers to transport our goods faster. We have grouped and re-grouped the reporting lines of our operations and we wrote & re-wrote job assignments to cater to changes in our relationships.

We had, therefore, re-engineered our supply chains based on our relationships.

We essentially want our supply chains to be productive, in which we reap the maximum benefits at least cost aligned towards our objectives. We, therefore, are constantly negotiating with the different connections of our supply chains, whether they are the operations next door to us or with faraway suppliers & customers.

Much of our negotiations focus on price and performance. We try to fix the costs, conditions, & margins of future purchases & sales. We haggle to determine payment terms, accountabilities for risk, quotas, acceptable quality levels, and scopes of work.

The formal agreements we make become the bases of our relationships and how we plan to set up our supply chain operations. We build new systems & structures or adapt existing ones to the developing relationships.

Supply chains, thus, are constantly changing as our relationships within and beyond our enterprises evolve or alter.

How we establish and manage our relationships determine how successful our supply chains become.

About Ellery’s Essays

Setting Up a System in the Face of Uncertainty

A large property management company set up a uniform accounting system for all the buildings it manages. The accounting system utilized a customized software program in which each building’s bookkeeper is required to use. The software allowed the bookkeepers to enter invoices and vouchers and update the building’s books of accounts in real-time.

The customized software, however, did not allow for exceptions or revisions. The system was rigid in terms of how transactions were entered. Bookkeepers needed approval from the property company’s corporate accounting department if they wanted any change in the system.

A competing property firm, on the other hand, delegated the set-up of an individual building’s accounting system to the respective bookkeeper. The bookkeeper was given flexibility to tailor-fit transactions and reports to the specific accounting needs of the building. The different systems among buildings, however, made it challenging for the property firm’s accountants to audit each bookkeeper’s records given the absence of uniformity.

For both property firms, their goals were similar but the approaches were different. Both wanted bookkeeping systems that would facilitate transparency in transactions and reports. Both had real-time updates in their accounting records. But as one firm wanted uniformity, the other stressed customization.

Which system was better? There was no apparent answer. Each company applied a different strategy. Each system came with advantages and disadvantages. Some buildings may have been satisfied with one system, while others may have not.

One judges a system by its productivity and results. A system is considered good if it delivers results as specified at the time needed and at the lowest cost. In other words, it should be reliable and it should be optimal.

The enemy of any system is uncertainty. Uncertainty comes in many forms. One form of uncertainty is customer demand. This is manifested, for example, in high sales one day and low sales the next.

Another form of uncertainty is laws and regulations. Governments, for example, may increase taxes and release new rules in how taxes are paid, which would require tax-paying businesses to modify their businesses to comply.

And then there is uncertainty in competition. An established consumer goods company that has been successful for years may suddenly confront an entrepreneur who markets products more effectively via a web-based ordering system. The established consumer goods company’s supply chain system proves no match to the entrepreneur’s efficient e-commerce technology.

Some companies work to have systems that are agile and nimble, while others settle for systems that are rigid but resilient.

An agile and nimble system is fast and quick to adapt. A rigid system emphasizes strict protocols in how things are done. Either kind of system may work successfully or simply fail in the face of uncertainty.

For example, Toyota banked on agile and nimble systems to become a globally successful automobile manufacturer. From marketing to delivery, Toyota developed a system that produced cars in sync with customer demand. Toyota’s Production System has become a model for business enterprise around the world.

On the other hand, the Roman Catholic Church has probably the most rigid religious governing system in the world. The Church has steadfastly practiced Catholic dogma via a system of catechism virtually unchanged for 2,000 years. Despite opposition and challenges to her rules, the Church remains an admired global institution with a billion followers.

What kind of system to set up, especially in an uncertain environment, undoubtedly would require comprehensive study. But any such study, no matter how comprehensive, will almost always lead to decisions that will involve risk.

The design of a system starts with defining what one’s goals are and what are the means to attain those goals. This may be what is known as strategy which becomes the basis of how resources will be managed.

Structure comes after strategy, not before. Some companies make the mistake of setting up structures and then strategically planning their systems to conform to the structures. It should be the other way around because systems are planned to directly take on uncertainty. Structures are just the supports.

One should design a system for the beneficiary. Determining who (or what) the beneficiary is and what the benefits are can be more tricky than it seems.

For instance, business firms would design systems to benefit their customers. But who exactly are the customers? Is it just the ultimate end-users or should it not also include middlemen, brokers, and stakeholders? Beneficiaries may not necessarily be people but other businesses, as in what business-to-business firms (B2B) target.

And what benefits should the business firm pursue? Is it customer satisfaction in the form of positive feedback? Or should it be an overall positive customer experience that manifests in higher market share?

From another viewpoint, other organizations may believe that benefits should come in the form of what’s for the good of the recipient. Hospitals and clinics, for example, may stress strict and expensive medical procedures that focus on curing patients despite apprehensions about confinement, painful therapy, and potential side-effects.

Determining the beneficiaries and the benefits lays the foundation of the system’s design. It becomes the basis for building a productive system. What is meant by productive is that the system should deliver benefits at optimal efficiency and effectiveness.

For most businesses, a productive system is one that delivers benefits at a competitive advantage. Non-profit institutions, on the other hand, would probably favour a productive system that delivers benefits successfully to a targeted group or community.

Building a productive system is similar to building a house. There has to be plans. There has to be a sequence of steps that starts logically with the setting of the foundation. There has to be specifications and clear details on the scope. There has to be a timeline for each step of the construction. And when it is done, one has to inspect and test the system if it is working properly.

A good system starts with a clear end in mind: who benefits, what are the benefits, and how productive should it be. A good system that has clear answers for what it will deliver would have a strong grounding to take on the challenges spurred by uncertainties.

After all, when it comes right down to it, everything is uncertain.

Except maybe for death and taxes.

About Ellery’s Essays

The Challenge of Working Together in Sales & Operations Planning (S&OP)

Many of our enterprises do Sales & Operations Planning (S&OP).

And each of us does it differently.

Because we each have our own way of doing S&OP, the results vary from one organisation to the next.

It’s no surprise, then, that there would be criticism over S&OP. The absence of uniformity drives us to compare how one enterprise plans versus another. This is compounded when there’s no working integrated platform (i.e., Enterprise Resource Planning [ERP]). Planners would set up their own systems, most of which are spreadsheet-based (i.e., Microsoft’s Excel). When planners change, the individual planning programs likely change too.

But is this a problem? What’s wrong with planners having their own way of submitting production and material requirements to respective operations?

When planners have their own systems down pat, it’s hard for them to switch, especially if they’ve grown comfortable with what they’re working with and they feel they are delivering to their superiors’ expectations.

Sales & Operations Planning (S&OP) is one step in the planning process of enterprises, but it is an important, if not the most important, one. It is in S&OP where managers from Sales, Marketing, Finance, and Operations share information and align on what to do next, that is, figure out how much in customer orders to gather, what & how much items to produce, how much of inventories to stash, and how much should be shipped. It is here where targets are set, any issues or concerns resolved, and selling & operating plans are agreed upon unanimously.

S&OP involves people from different places in the organisations working together and this is where the problem usually lies. Getting people to work together has been an age-old problem in all organisations; S&OP is no exception.

Thus, it comes to no surprise when S&OP fails because:

The chief executive (CEO) of the enterprise delegates S&OP to a lower-level subordinate.

The executive vice-president (EVP) of a manufacturing firm initiated a weekly S&OP meeting. The senior managers of finance, sales, and supply chain operations including support staff were compelled to prepare and present their plans in these meetings. The president & CEO, however, chose not to attend, instead leaving the agenda and chairing of the S&OP meeting to the EVP.

Whenever the EVP conducted an S&OP meeting, the CEO at the same time would be calling field sales and logistics to prioritise deliveries. Whatever plans were agreed in the S&OP meeting would be superseded by the CEO, rendering the S&OP useless and a waste of time. After a few weeks, the S&OP meetings stopped.

When CEO’s delegate S&OP away to other people, it at once indicates the executive’s disinterest in the enterprise’s departments working together to align towards a common sales & operations plan. As much as it may continue among middle managers, S&OP loses its importance.

S&OP meetings become battlegrounds of division instead of venues for consensus.

Different heads and staff representing at least finance, sales & marketing, and operations should participate in the S&OP process. The objective of participation is to work together toward common plans to sell and deliver merchandise & services for the attainment of strategic goals.

In several S&OP meetings at a consumer goods multinational corporation, sales managers would accuse logistics staff of not delivering their orders. Logistics managers would pointedly shoot back at poor sales forecasting as the reason for unserved orders. The chief finance officer would scold sales for uncollected receivables from customers and chastise supply chain managers for overstocked items. Meetings would end with bitter ill feelings between department personnel. Instead of alliances, the organisation became rife with rivalries. After a few months, people would find excuses not to attend S&OP meetings or even prepare for them, as they rather not be in the same room with people they’ve come to dislike.

S&OP becomes a one-sided process of instruction than one of shared discussion of data, issues, & recommended solutions.

In that same consumer goods multinational corporation as mentioned above, a new expat who was just assigned CEO declares at the start of a S&OP meeting that he wants shipments to reach 1,000,000 cases that current month. No questions asked. At that moment, the S&OP meeting ended.

When the S&OP becomes not a meeting but a one-sided affair where the CEO is the only person who has the floor, then it is good as dead.

The consumer goods corporation reached its 1,000,000 cases that month. Six (6) months later, customers were returning 10% of those cases, citing various reasons from expiration, inability to sell, or plainly just being unable to pay.

S&OP is important for our enterprises in the planning of how much we will sell and deliver. But it requires we of different backgrounds & disciplines work together to make & execute those plans.

Yes, we as planners must have the right tools (e.g. software). Yes, planners must have some leeway or autonomy in how they will plan. Integrated systems such as ERP are nice but if the system isn’t simple to use, planners will just revert to what they would be most comfortable with.

But what planners use is the tip of the iceberg in getting S&OP to work. The bigger task is to break down the walls between departments and getting them to work together to plan together.

About Ellery’s Essays

The Three (3) Supply Chain Cycles

Supply chains span from sources to users, passing from one enterprise to the next. And we cannot manage supply chains on our own. We need to work together with vendors, customers, and service providers in procuring, producing, and delivering the goods & services.

We, perhaps, see supply chains and our individual place in them like this:

But even though we may see ourselves as small, insignificant cogs in the bigger supply chain realm*, we do add value to it. We must, because if we don’t, then we’ll either be left out or pushed out.

*(Some reputable gurus liken supply chains to ecosystems; but I don’t agree. Supply chains are composed of relationships which facilitate the flow of goods & services. Supply chains are more like societies than biological habitats).

Our operations add value not only to our products & services but also, directly & indirectly, to the merchandise & services that flow through and beyond our businesses’ borders. We make a difference for the whole from the parts we play.

To those of us who work as supply chain professionals in various enterprises, we probably picture our operations more like this:

Figure 2: The Supply Chain as Many of Us See It

We may see ourselves as either vendor, manufacturer, transporter, distributor, or customer.

Or in the enterprise itself, we may see ourselves as managers or supervisors for purchasing, inbound logistics, storage & handling, inventory, production, customer services, and shipping.

We, who have long experiences in operations, know that supply chains are more than just the above Figure 2. It’s not only buy-make-transport-deliver, but also plan-source-order-operate.

To put it figuratively, our supply chains look more like this:

Figure 3: The Three (3) Supply Chain Cycles

We execute three (3) cycles, formally or informally, in our supply chains:

We plan (Planning Cycle)

We forecast demand, do Sales & Operations Planning (S&OP), and as a result formulate master production and material requirements plans.

We serve orders (Order Cycle)

We gather customer orders, process them, i.e., screen them, allocate & pick items for them, and forward corresponding orders to manufacturing & purchasing to make up for any deficiencies.

We operate (Operations Cycle)

We receive inbound items, store & handle them, use them for production, store & handle finished products, and ship them physically to customers. Customers who are middlemen like distributors & dealers sell our products to the final end-users.

We sometimes stress one cycle over the others. For instance, we invest thousands of dollars in Enterprise Resource Planning (ERP) software, thinking that integrating our planning cycle shall result in streamlined orders processing and optimised physical operations.

Or we emphasise the order system. For example, we may find ourselves switching from manual order taking to e-commerce. We, then, adapt our planning and physical operations to the online order-to-delivery environment. We reduce delivery lot sizes and engage couriers instead of truckers. We buy & deliver finished products directly from vendors to customers. We reduce inventories but expand our item list as we move to an e-commerce portfolio.

Success in one cycle naturally hinges on the success of the other two (2) cycles. A good ERP plan would only be known by how well we perform in serving orders and executing operations. E-commerce applications work when operations and planning synchronise with our processing of customer orders. We serve orders well if we planned inventories and anticipated demand and if our operations run reliably & responsively, with minimal or zero defects.

Synchronisation and integration are, therefore, challenges in the marrying of the three (3) cycles of planning, serving orders, and on-the-ground operations. It starts with us recognising and formalising our systems and structures to the cycles. These could be huge chores for some of us who are overwhelmed by the comprehensive activities of procurement, production, and logistics.

How do we set up our systems & structures to the three (3) cycles? What would be the ideal organisational structure? What systems should we have or how do we upgrade our existing systems?

Note that these questions aren’t far off from the ones we hear many executives ask.

How do we forecast demand and plan inventories to serve orders better?
How can we make our manufacturing more efficient and reliable without sacrificing customer service?
How do we reduce costs, assure 100% quality assurance of our products, and serve orders quickly & completely at the same time?

Awareness of the three (3) cycles gives us a clearer view of our supply chain activities and therefore, some headway in answering these difficult questions of executives.

How, then & again, do we set up our systems & structures for the three (3) cycles?

First, we map our entire supply chain and make visible our enterprises’ internal structures & systems. You would need not only a single flow chart but probably also several diagrams which would describe in vivid detail organisational structures, physical operations, & document & data flows. The idea is to see & appreciate visibly, i.e., completely & clearly, what our operations look like to the nth magnification. The devil, after all, is in the details.

When we can see what our supply chains look like and do, we can then begin identifying opportunities. We can see from the maps and diagrams we created where there are bottlenecks and complexities to simplify. We probably would be able to mark would-be low-hanging fruits which could yield quick benefits.

Note that I don’t mention visioning or strategic planning. I surmise that would already be happening in your organisations and that most of us would have in-place operational goals and plans.

What I promote via the three (3) cycles is the identification of problems to solve. And by experience, there is no shortage of problems when it comes to supply chains. We will be able to see them via the supply chain maps we make.

Our jobs as supply chain professionals involve three (3) cycles: planning, serving orders, and the physical execution in operations. We make these cycles visible via charts & diagrams which are results of our mapping & describing the activities of our supply chains. The more detailed the maps, the better.

We then solve the problems we identify from the maps we made.

When it comes to supply chains, our jobs aren’t just about managing them, but solving the problems that come with them.

About Ellery’s Essays

Deliberate Scarcity

Whenever I go see my doctor at her clinic at the hospital, I always would find myself waiting in line with other patients. The clinics adjacent to my doctor’s would also have patients waiting, in which sometimes the queues would overflow into the corridor. Even if I had called ahead and set an appointment, I would still end up in line. There are just so many patients for every doctor in the hospital.

I would also need to wait in line when I would want a radiological exam (e.g., X-ray, MRI) or a blood chemistry test at the hospital’s respective laboratories. I also would be required to line up when I pay at the hospital’s cashier’s station.

The hospital had spent a lot of money for state-of-the-art medical equipment, cutting-edge information technology systems, and the hiring & training of talented people to assure the best quality care for patients. Why, then, with all the available technology & talent invested, do we have to wait so long at doctors’ clinics and laboratories?

The answer is simply capacity. Hospitals don’t obtain enough facilities or hire or engage an adequate number of physicians, nurses, or staff to accommodate the daily influx of patients needing treatment or care. The equipment and the staff may provide the best quality care, but they aren’t necessarily as efficient as we would want them to be.

Why don’t hospitals invest in enough capacity to attain that efficiency?

We in our businesses spend a lot of money developing and marketing our products & services. We, however, sometimes intentionally do not spend for more than enough capacities to deliver those products & services. It’s not because we don’t want to serve our customers but it’s because we want to get the best return in our investments. When we fully utilise the capacities of our facilities, we are visibly assured that we are getting the most out of the money we put in for them. We invest in more when we are assured we will reap the desired benefits (i.e., money).

Hence, we deliberately create scarcity in the management of our enterprises. We balance the inconvenience we may cause to customers who’d have to wait for the availability of our products & services with the risk mitigation we do in not immediately investing in additional capacities. We’d rather demand overtake supply before we decide to boost our capabilities.

Like the hospital, we try to cope with the clamour of customers’ demanding more than we can make available. We build in the best quality we possibly could to our products & services such that we hope customers would find them worth the wait. Patients would be willing to wait in line at the hospital because they trust the talents of doctors & medical staff as well as the value of the hospital’s facilities & equipment in diagnosing their conditions. Opting for hospitals with cheaper facilities or not very skilled medical professionals is out of the question.

The decision to deliberately create scarcity is common among executives in most, if not all, industries. But the reasons behind such decisions are not only due to hesitancy to invest in additional capacities.

Some enterprises deliberately create scarcity to simply drive prices higher to realise higher profit margins. Commodity traders, for instance, would purposely delay purchases of agricultural staples (e.g., sugar, rice, flour) to goad buyers to offer higher bids.

Enterprises that market luxury products such as sports cars and expensive wristwatches deliberately create scarcity because their executives believe their products are a class above the rest. Ferrari’s lead time, for example, from order to delivery can last as long as two (2) years because Ferrari’s manufacturing operations involve a great deal of manual craftsmanship in the building of each of its cars. Ferrari’s parent company could convert to a mass-production model which would shorten the delivery time but it chooses not to, because the sports car executives prefer to preserve the tradition of their company’s painstaking but highly reputable production process. Ferrari’s customers, anyway, would be willing to wait for their much-desired automobiles.

We just don’t want to spend more than we think we should. We spend on just enough capacity which surely would just meet what we estimate demand would be. Whenever demand goes beyond what we forecasted, then maybe we’ll invest in more capacity. In the meantime, our customers would just have to wait for the products to become available as we hope they will.

Deliberately creating scarcity, thus, has its trade-offs. We risk turning away paying customers who may never return. Enterprises in very competitive environments would likely not take that chance. Consumer goods companies, for example, would not hesitate to increase capacities to ensure continuous occupancy of supermarket shelves, which are hotly contested by rivals.

Netflix, for a time, was a leader in online subscription-only streaming of movie & television series content. Netflix deliberately doesn’t make available all its content to all regions around the world. It limits content not only in compliance to studio licensing agreements but also to focus subscribers to view what are offered. Too much content would not generate the money’s worth from the company’s investment.

When rivals like Disney, Paramount, Amazon, Apple, and Peacock made available content from their abundant libraries or from made-for-streaming films & shows, Netflix countered with original content of their own, on top of acquiring more movies & TV shows from studios around the world. Netflix would deliberately limit content if it could but would not hesitate to match rivals to stay competitive.

Big banks would not spend for additional tellers or open more branches to alleviate long queues of clients wanting to deposit or withdraw funds. They’d rather let clients wait, feeling little risk that the clients would switch to other banks (who just the same would also have long queues). But if a rival bank expands its business hours and pirates away clients because they offer more conveniences, the big banks would tend to follow suit and match.

Vendors or contractors of industrial equipment (e.g., electrical machinery, motors, pumps) keep very little stock of their items & spare parts because they want to avoid tying up too much of their cash in inventory. The vendors or contractors, however, risk the ire of customers, especially those who are in immediate need for parts for emergency repairs. Customers won’t wait very long if their vendors or contractors don’t respond right away; the vendors or contractors, therefore, balance speed of procurement & service to counterbalance the intentional non-stocking of inventories.

Deliberate scarcity is an instrument which enterprises apply to save on capital and costs. We should make sure we get our priorities straight whenever we do deliberately create scarcity. What do we hope to gain versus what we risk in losing customer goodwill? How serious are we when we commit to customer service? How much risk are we willing to take in deferring capacity investments to save on cashflow versus not serving the demands of all our customers?

Economists argue that resources are limited or scarce and thus, we should manage supply and demand via pricing and capacity. On the other hand, resources may not be as scarce as we may believe. Sometimes we have much more in supply than demand, such that we risk wasting any surplus other than losing money from selling to liquidate at lower prices at negative margins.

We tend to blame supply chains when we are unable to satisfy the clamour of impatient customers seeking to obtain the items we are selling. We say that our operations need productivity improvements, or we were deficient in inventory planning, or we lacked synchronicity with vendors & customers. We don’t realise that part of the problem could be in our decisions to deliberately cause scarcity, for reasons ranging from maximising margins, saving working capital, to marketing our products as premium items.

When it comes to scarcity, it’s probably we who caused it, not economics. We should always know what our priorities are.

Do we really mean to serve all our customers, or do we just want to serve only just enough to accomplish what we aimed for?

About Ellery’s Essays

ESG is an Enemy of Productivity

Our enterprises are under a lot of pressure to comply with Environmental, Social, & Governance (ESG) mandates. Political leaders & activists have demanded that firms pursue sustainability of resources, climate change mitigation, cultural & social diversity, and ethical & legal responsibilities in our workplaces & professional relationships.

So-called pundits (people who call themselves experts or authorities) preach that ESG strategies lead to cost savings and competitive advantage. On the other hand, if we are unwilling to practice ESG in our workplaces, we not only risk government regulators slapping penalties to our enterprises but we also stand to lose trade & community goodwill, which shall translate to lost market share, decline in revenues, and damage to our reputations.

The pundits say we should prioritise ESG particularly in our management of supply chains. Supply chains are where we find many opportunities for ESG, such as in the reduction of fossil fuel emissions, equitable hiring of ethnic minorities, and sourcing of raw materials from socially responsible suppliers. (We should not buy items which lead to rainforest reduction, for example).

One pundit even says there should be a single regulator for supply chains, one who would oversee the processes in the flow of merchandise. Such a regulator would be a “high-level body that will facilitate stronger collaboration between the public and the private sector in setting policies, initiatives, and programs that are required to address constraints and improve supply chain performance.” In short, a government-sponsored authority who would set rules and police the supply chains of businesses.

Many nations have enacted rules & regulations to compel industries to build in ESG practices. Enterprises, big & small, had been paying taxes & fees to support government-led ESG initiatives. There had been more audits & inspections of enterprises’ facilities and there had been more prerequisites before entrepreneurs can secure permits to build, occupy, & operate.

The ESG pundits say these are all okay. They say ESG is a means for a greater good for our planet Earth and for the long-term well-being of our families & communities, not to mention it would be good for our businesses in terms of goodwill. All we need to do is comply. And if we work to comply better than our business rivals do, we shall gain a competitive advantage.

ESG, however, does not contribute to productivity. It does not bring about any improvement to efficiencies, but instead, it drives costs, never mind what the so-called pundits argue. ESG disrupts productivity, if not degrades it. ESG is an enemy of productivity.

ESG is all about compliance to standards governments or communities mandate based on what they perceive as their acceptable standards for the environment and society. The individual priorities of private enterprises are not relevant, nor are they material to what the ESG activists aim to accomplish.

Some environmental groups, for instance, argue enterprises should stop using fossil fuels and tap renewable energies. Via ESG laws, requiring our enterprises to invest in renewal energies like solar & wind power would help mitigate climate change and end coal mining & oil drilling. Our enterprises via ESG would help protect natural resources.

But using renewable energies doesn’t necessarily translate to higher productivity. The sun only shines at night and we cannot control how windy tomorrow will be. Our enterprises would still need traditional sources like fossil fuels, nuclear energy, hydro-electricity, and geothermal power to make up for deficiencies from renewal energies.

But many ESG activists would not accept continuous sourcing of traditional energies. They insist we switch 100% to renewable energies. We must discard the traditional energies. We should pay for the higher costs and just bite the bullet from whatever low return on investments in renewable energies. The idea is to support the ESG agenda, the activists’ agenda, their agenda. Our agenda, which includes continuously improving productivity in our supply chains, are not important.

The same applies for social issues and governance. ESG activists would lobby for regulations that require diversity in our hiring & assignment of employees. Politicians would push for more transparency in our transactions with vendors & customers, to ensure everyone is above board in following ESG laws & standards. It doesn’t matter if the regulations are complicated or would add unproductive steps to our supply chain operations. It’s their laws we should follow; supply chain productivity is not their priority.

Activists & politicians don’t care if our enterprises have to pay more to comply to ESG norms or laws. They don’t care if ESG entails sacrificing productivity. What’s important is what they want, not what we in our enterprises want. Our side does not matter.

Our basic role as supply chain managers is to improve productivity of our operations. Productivity is about progressing efficiently towards whatever priority goals we have set. Our enterprise priorities typically consist of accumulating wealth, attaining competitive advantage, boosting good reputations, and gaining influence.

For our supply chains, we translate these priorities via keeping our delivery promises to customers, conforming to highly set quality standards in what we buy, make, & serve, and in ensuring the highest value in our products & services.

ESG activists don’t empathise with our enterprises’ priorities and our inclinations to improve productivity. Their rationale that ESG enables competitive advantage, better reputational standing, and growing influence, is borne out of illusion.

ESG would mean higher costs in the form of installing & managing not-so-reliable renewable energies. It would cause trade-offs in finding the best talented people versus building in more diversity in our organisations. It would result in more red-tape complexity to comply with governance transparency rules.

ESG is not a catalyst to productivity. It is an impedance. As much as we all want a better world to live in, we should keep in mind that productivity just as much helps in bringing that about just as much as we may believe ESG does too, if not even better.

Productivity via efficiency and progress towards our enterprise goals is about doing more for less, in a direction that benefits just about everybody, given just about most, if not all, of us work in enterprise organisations.

Whereas ESG is about forcing us to comply to rules set by other people’s agenda, productivity is about empowering us to set our own roadmaps to how we better manage resources & change our systems & structures towards mutually beneficial outcomes.

Wouldn’t it be wiser to be more proactive towards productivity than to be told by other people what to do?

About Ellery’s Essays

What Does ‘Back-to-Basics’ Even Mean?

Back-to-basics is a line I had heard in just about every enterprise I worked with. Executives would say to subordinates, “we should go back to basics,” with me and the subordinates wondering if the executives knew what that even meant. Do the executives know what they were talking about?

When we say back-to-basics, we probably think of:

Doing what succeeded sometime in the past
Doing things strictly by the rules we had set some time ago (also known as going back to doing things ‘by the book.’)

#1 sounds easy. We just have to re-discover what we did in the past when times were good.

#2 requires some re-education on our part. We’d have to dust off those old rule books or standards which we haven’t read or referred to for so long.

The basics we want to go back to are what we think that worked well in the past. To put it another way, we want to go back to what it was like some time ago, to those good old days when it seemed we were doing better.

Back-to-basics is an ideal. It’s more like a fantasy, like a pot of gold at the end of a rainbow. It’s not only elusive, it also doesn’t exist, at least anymore. Whatever we may have experienced in the past cannot be fully repeated. As adults returning to their native lands would realise: we can’t go home again.

Back-to-basics is a yearning for better outcomes. If we recognise that we can’t go back to what we were doing in the past, maybe we could at least reset or re-engineer whatever structure or system we’re using today. Back-to-basics, thus, becomes a strategy to redo whatever we’re doing.

But do we really know what ‘basics’ we want to go back to? What, in the first place, do we mean by ‘basics?’

Executives would say they want their enterprises to go back and pursue what their original purposes were, what they (or the original founders) had in mind, and how they worked to get the desired results.

And when asked what those original purposes and desired results were, the executives would hesitate or draw a blank. They don’t know! They base the ‘back-to-basics’ on personal experiences or from stories from senior veterans who say that times were different and better then.

Some wanna-get-rich consultants exploit our dilemma of having not clear directions. Their favourite spiel is to tell executives to formulate visions, missions, objectives, & strategies (VMOS). Crooked consultants don’t care to solve what the real problems may be behind why we want to go ‘back-to-basics.’ They offer, instead, buzzwords and sounding-good themes that lead to profitable contracts that benefit them more than their clients.

We should admit when we’re stuck and don’t have answers. ‘Back-to-basics’ thinking is a defence mechanism, a rationalising response to conceal or escape the stress of being unable to overcome a challenge.

Rather than resign to whatever is giving us adverse results, we should face whatever is bugging us and solve it.

VMOS may be well and good in translating dreams into clearly defined goals and plans, but they are not meant to solve problems. When we are clueless to what we ought to be doing and we’re harking to go back to basics, it’s an indication that we need to confront whatever is making us think that. VMOS could be just another defence mechanism.

If we can’t hack it ourselves, then by all means, let’s ask people to help us. Let’s engage qualified credible consultants who will help us solve the problems, not offer silly teambuilding exercises or irrelevant proposals that don’t directly result to desired deliverables.

A leading 3^rd party logistics provider, for instance, pitches consulting services to improve the supply chains of multinational companies. Its favourite approach to solving their clients’ problems, however, is to assign contracted personnel to run their clients’ operations. By taking over the clients’ operations, the 3PL promises better bottom-line results. But in most cases, it doesn’t happen. The clients still experience problems while the 3PL would blame & replace their own personnel for poor performance. The client, meanwhile, becomes over-dependent on the 3PL who bills & profits from the contracted personnel. The client remains clueless about what it should really be doing, which should be to face the problems and solve them.

Hearing executives mention back-to-basics indicates their frustration in overcoming pressing challenges. Back-to-basics is more of a fantasy which stems from us activating our ever-so-human defence mechanisms. We distract ourselves from the problems we can’t seem to tackle.

We should confront challenges & crises and solve them, not sweep them under the proverbial rug in the guise of telling our peers we should go back-to-basics. We should seek help if we can’t capably do it ourselves. We should just make sure that the people we engage with will really do help us, and not take advantage of us.

About Ellery’s Essays

What is Your Supply Chain Doctrine?

In our modern world of the 21^st century, supply chains are the lifeblood of enterprises. We rely on the procurement, manufacture, and logistics for the supply of essential products & execution of services.

Supply chains, given their breadths & complexities, are not easy to manage. We who work in them know that supply chains span beyond our enterprises’ borders and that we must relate with vendors, customers, & 3^rd party service providers to achieve success

Many so-called management gurus preach we should first formulate visions, missions, objectives, & strategies (VMOS) for our enterprises. They say that a VMOS should be the basis for whatever we do in our jobs or businesses.

But as much as a VMOS provides a roadmap for an enterprise, a doctrine is more apt when it comes to managing supply chains.

A doctrine is a principle or set of principles which become the basis for any course of action. A doctrine isn’t a VMOS and does not necessarily stem from one. Doctrines, however, do go hand-in-hand with the development of VMOS and vice-versa.

Doctrines help us manage the supply chain operations which fall under our enterprises’ direct oversight. Doctrines not only define how we oversee operations on our enterprise’s side of the supply chain but also are the foundations of how we relate with those who connect with us, i.e., vendors, customers, 3^rd party service providers.

A doctrine can be a long narrative or brief phrase. The Monroe Doctrine of 1823, which became the basis for American foreign policy, was contained in a speech by then United States’ President James Monroe to the US Congress. More than two hundred years later, American President Donald Trump in his inaugural speech in 2017, presented his political doctrine in two words: “America First.”

A supply chain doctrine would determine how we buy, make, and deliver our products & services in line with whatever VMOS our enterprises’ top executives adopt.

Doctrines for enterprise supply chains aren’t new.

Toyota’s waste-elimination doctrine, which the automotive firm espoused for decades, resulted in Toyota becoming a top-tier global automotive conglomerate, thanks to successful reductions in inventories and breakthrough productivity improvements.

Apple stressed a Just-in-Time doctrine for suppliers in the assembly & delivery of its highly rated products.

Fast-growing fast-fashion e-retailer, Shein, relies on “an on-demand manufacturing model. It subcontracts thousands of small manufacturers in China. They make products in small batches to test market appetite and replenish orders as demand increases.” Shein’s doctrine can be summed up in two words: “on-demand.”

Netflix was the pioneer in the doctrine of mailing (and later streaming) movies & TV shows to customers instead of customers visiting stores.

Many firms have copied Amazon’s e-commerce doctrine in which customers order & pay online.

Tesla banks on a data-driven doctrine in its relationships with suppliers and in how it manages its manufacturing. Tesla relies on data such as “lead times, parts quality, & carrying costs” to rank & favour vendors such that the firm can discover opportunities to strengthen its supply chain.

“Frito-Lay operates 30+ manufacturing facilities across the U.S. and Canada, and more than 200 distribution centres,” in an obvious manifestation of the corporation’s logistics doctrine to ensure availability & delivery of its product lines to anywhere in North America.

When we define a doctrine for our enterprise’s supply chain operations, we establish how we operate independently and together with our partner suppliers, service providers, & customers.

Doctrines are our beliefs translated to principles which guide us to our decisions and actions. They may sound like visions, missions, and strategies, but they are not.

We lead our enterprises via VMOS statements, which are our way of succinctly clarifying our dreams and goals. Doctrines represent principles, how we do things. They are the bases of our policies.

Do we mass produce items for stock, or do we tailor items for individual customers? Do we transport only when we have full truckloads, or do we ship immediately, even if it’s less-than-truckload (LTL)?

Do we buy from suppliers in bulk to take advantage of volume discounts or do we buy in small lot sizes to ensure completeness of materials in inventory?

Do we allow customers to order by the piece or do they must buy by the pallet? Do we allow for short-notice change-overs in our production lines, or do we limit changes in manufacturing schedules to not more than once a week?

Do we accept rush orders or is every order first-come first-serve? Do we prioritise customers who pay in cash or regularly buy more than the rest? Or do we treat every customer order the same, regardless of order quantity or value?

How much quality defect tolerance will we give suppliers? Do we insist on zero defects or will there be an acceptable quality level (AQL)?

Do we allow overbooking of passenger flights, or do we make sure we don’t?

Do we source the cheapest maintenance parts, or do we seek items which are built to last?

These are the kinds of questions supply chain doctrines address. Some may sound easy to answer but in reality, they may not be. Doctrines are the bases of how we decide given different scenarios.

Doctrines aren’t fixed from the start. We will eventually change them as situations change and they get tested with the realities that come with managing supply chains.

We just need to make sure we’re ready to know what principles in those doctrines we are willing to flex and those we will remain steadfast to.

About Ellery’s Essays

How Realistic is a Supply Chain Vision?

Many entrepreneurs have invented all kinds of applications for a variety of uses. We have apps to help in our finances, make music, learn new languages, find places we’ve never visited, make reservations, book rides, and buy tickets.

The one app we (still) don’t have is the one that makes & delivers products. I wouldn’t be surprised if there is some wannabe upstart group of technical geniuses developing a killer app which could do that.

There are, however, app-driven devices in the market which come close to executing production & delivery. Drones, self-driving cars & trucks are already shipping goods to far-flung places and would perhaps be bringing packages to our doorsteps within the 2020s decade. Industrial robots are already ubiquitous fixtures in factories and it’s probably just a matter of time before artificial intelligent (AI) software will be automatically programming them to design & fabricate items on their own.

We can foresee self-propelling supply chains, managed remotely, where AI driven devices plan & execute operations in fully automated manufacturing & logistics facilities and at the same time, dispatch driverless vehicles to deliver items locally & worldwide.

This is what we may define as the ultimate of a digital supply chain. Everything is done via keyboards, mouse clicks, & virtual reality (VR) headsets, with the autonomy of app-driven AI devices running the show.

We see this scenario and make it our vision. We justify its benefits in terms of the breakthroughs we will gain in productivity and customer service. We love the idea that AI-driven automated supply chains could tackle day-to-day issues we would no longer need to sweat over.

A vision of an AI-driven automated digital supply chain would become our basis for our operations management’s missions, objectives & strategies, if we’re not already adopting it now. We cannot hesitate to venture. Otherwise, others, our rivals especially, will overtake us and we’ll be left behind.

We who are subordinates of leaders who mandate such a supply chain vision would be expected to be disciples. Leaders would assume we accept the vision wholeheartedly and work hard for it.

How realistic, however, is such a vision?

Supply chains aren’t really like chains consisting of singular interlocking links. Rather, they are made up of multitudes of operations fostered by relationships with independently owned organisations or individuals. No one organisation or individual dominates any supply chain. It is improbable, if not impossible, to find a supply chain run exclusively by one entity.

Not that anyone has tried.

There are enterprises, particularly multinational conglomerates, who have been attempting to take total control of entire supply chains, from start to end.

Automotive corporations like Toyota and General Motors have bought stakes in suppliers of critical components & spare parts and have shown interest in the mining & processing of raw materials, especially those needed for electric vehicles (EVs).

Behemoth retailers like Walmart and SM dictate contracts & set non-negotiable policies with vendors, who either comply or face ouster in favour for other eager alternatives.

Consumer giants like P&G invest a great deal in downstream distribution channels to monitor & manage the retail presence and the resulting market shares of their products.

Apple manages supply and distribution of its product lines from its contracted assemblers to its many famous Apple stores around the world.

Amazon has formed its own transportation fleet of trucks & airplanes (and drones and soon maybe, ocean-going container ships) in parallel with 3^rd party providers (e.g., UPS, FedEx) to deliver items globally.

ExxonMobil’s supply chain begins from the exploration & drilling of crude oil & natural gas to the refining & shipping of petroleum products to retail stations and industrial customers. ExxonMobil’s reach is global from drilling platforms, tanker fleets, to refineries around the world.

But no matter how powerful they are, enterprises such as conglomerates do not have 100% dominion over their supply chains. There will be the equipment vendors who ExxonMobil executives will still need to negotiate with to operate the oil rigs. Apple has to renew partnerships with outsourced contractors to assemble its iPhones, iPads, and Mac laptops. Amazon depends on book publishers and name-brand suppliers for the many products it sells on its e-commerce platform. P&G must maintain relationships with commodity vendors to ensure continuous supply of ingredients for its consumer products. Walmart and SM depend a great deal on last-mile land transportation providers (truckers) to shuttle goods from distribution centres to their outlets.

As elegant and cool a supply chain vision may sound coming from any powerful corporate executive, it can’t be fully realised unless all links are at least amenable to it.

Executives of greatly perceived power may try to bypass any stalwart individual who represents an obstacle to their vision. Apple, for example, tried to make its own chips for its products but instead, ended up (probably reluctantly) negotiating a multi-billion-dollar supply contract with Qualcomm.

A vision of a digital supply chain where most, if not all, activities are automated is nice to see and hear. But first things first, everyone must be on board to it.

Supply chains aren’t meant to be empires led by oligarchs or autocrats. They represent relationships between enterprises. As much as there may be very influential individuals in those links, how they and the links relate to each other shall determine how successful they can form a unified vision.

About Ellery’s Essays

Five Characteristics of Supply Chains

Supply chains had become popular in the 2020’s, thanks greatly to the era of the coronavirus pandemic when our world experienced major economic disruptions in transportation, production, and deliveries. Because of aggravations such as missed deliveries, shortages, and overstocked inventories, we pledged we’d do better in managing our supply chains.

But we hadn’t done much better. Supply chains, despite our recognition of its importance, continue to challenge us. We face disruptions in sourcing critical materials, climbing prices, and uncertainties in demand. We haven’t come to grips in improving, if not just controlling, our supply chains.

Some of the reasons why we haven’t been that much successful with supply chains lie in their characteristics. Supply chains are models. They represent interdependent relationships between enterprises in which their overall common purpose is to add and reap value from the merchandise & services which flow through and between organisations & operations. Hence, working to optimise supply chains require us to understand what they are.

Number 1: Supply Chains are Complicated

We hardly will find a supply chain we could call simple.

Supply chains are not singular flows limited to three (3) activities, i.e., buy-make-deliver. Supply chains are made up of multitudes of activities. Each activity interacts directly or indirectly with the others in which the performance of one affects the results of another and the supply chain in whole.

Supply chains also don’t go in one direction. They diverge and converge. Iron ore from a mine, for example, go to mills which convert them to all kinds of steel products such as bars, ingots, or plates. These steel products, in turn, become raw materials for all kinds of items like structural beams, cars, appliances, & furniture. Some scrap metals from the factories return to steel mills for reprocessing. The steel supply chain involves countless vendors, 3^rd party providers, & customers, aside from the multiple items it makes available.

In supply chains, we buy not only materials to convert to finished products but also purchase spare parts for our machines. We build multiple factories or outsource production to 3^rd parties and set up distribution centres. We book with brokers to import & export items and at the same time dispatch both vehicles we own or hire to deliver items to buyers.

Any flow chart of any supply chain would show arrows moving to and from activities. It gets even more complex when we map activities of items which share operations with others. Operations for one day may not be the same as the next, depending on what items we’re churning out.

Each supply chain activity is either value-adding (e.g. conversion of raw materials to products, quality control inspection & passing of inbound imported items) or non-value-adding (e.g., items waiting for loading on a vessel, retrieval of rejected merchandise from customers, shuttling empty passenger planes between airports).

As each of us have differing views of value, we may not entirely agree with one another on what operation adds value and which does not. That makes mapping supply chains and pinpointing what activity to prioritise for managing more complicated.

We can rely on our superiors to decide what adds value and what does not. But it’s not that straightforward, because of the next characteristic.

Number 2: Supply Chains Are Beyond the Scope of Any One Enterprise.

No one enterprise rules over an entire supply chain. There will always be an ingredient, material, or service which we would need that would come from outside of our scope of management. Our enterprises can be as simple as a farm where we live off from harvesting our own crops and from tending to our own livestock. We would still need, however, to buy seeds, fertiliser, feeds, nutrients, medicines, supplies, and any other stuff which we can’t make on our own. And the people who sell us this stuff won’t necessarily be under our authority. We’d be negotiating with them to marry our interests with theirs.

We likewise cannot dictate to the customers who buy our crops & livestock, following the example of the farm. We also would need to negotiate for terms & prices favourable for both us and the buyers.

There are conglomerates which vertically integrate their operations, in which they buy stakes in vendors and 3^rd party logistics providers to expand their influence over their supply chains. Some corporations insist on exclusive contracts with suppliers and dealers to lock in supply and distribution of their merchandise. But as much as they may dominate a good part of their supply chains, companies, no matter how big, can’t have it all. There would still be some parts of the supply chain they won’t have full control over.

Supply chains require cooperation and synchronisation between their links. Interaction is a constant. Relationships are vital. Collaboration is a must. We may define our own whatever strategy for our own enterprises, but we cannot escape negotiating with firms who are outside our scope of authority but whom we need for supply or delivery. We can’t have our own vision unless other firms in the supply chain share common ground with us.

And if you think it’s easy to share common ground. Consider the next characteristic.

Number 3: Supply Chains are Vast

Many supply chains, if not all, encircle the globe and involve so many enterprises. For whatever we sell or buy, we are connected in some fashion with many industries around the world. The fruits we buy from Korea could have used fertiliser from Canada. China may have assembled our mobile phones together with lithium-ion batteries their local vendors also produced but which the metals for the phone’s circuits may have originally come from South Africa.

Just about all items we buy and sell may have passed through supply chains which passed from international sources and utilised all kinds of transportation (e.g., sea, rail, air).

Hence, most supply chains are global. They are not necessarily centred in one place as much as they are dominated by one or few enterprises. As much as nations & corporations like to have total control, they’d be contending with operations that are far-reaching and consisting of many types of activities.

The vastness of supply chains has prompted us to develop the structures & systems which convey the flows of products & services. This leads us to the next characteristic of supply chains.

Number 4: Supply Chains are Only Strongest at Their Weakest Links

As mentioned in Number 1 above, supply chains aren’t simple singular chains limited to buy-make-deliver activities. Rather, they are complex relationships in which merchandise & services flow to and from multiple activities.

But, however, complicated they are, supply chains are strongest only at their weakest links, that is, they depend on every operation’s performance. Any operation’s results would have an effect on the total supply chain

But wait a minute. If supply chains are complicated and involve so many multiple operations, wouldn’t there be redundancy? Enterprises could easily make up for one link’s subpar performance with other equivalent ones, right? In the event of failure of one link, we can switch suppliers, hire other transport providers, or keep production lines running via standby machines or spare parts, correct? And we can also keep inventories of merchandise to buffer against the unreliable links?

Our mantra is to fulfil demand. When there is demand, such as a customer order, we serve it. Demand, however, is not a steady constant. It swings depending on the instantaneous needs of customers. And demand isn’t really steady, it grows or declines over time.

In our operations, therefore, there will be times we will have more than enough capacity and there will be times we won’t. We may have more than enough trucks, for instance, to deliver our products at the start of the month and won’t have enough to deliver when salespeople submit last-minute orders to pursue quotas at the end of the month. Even if we have the inventories, our operations may not have the immediate capabilities to fulfil the demand at that moment it comes in.

Weak links are like moving targets. Today it may be transportation, tomorrow it would be manufacturing. Demand is a dynamic; it does not remain constant. even if we know how much customers will buy in a month, we wouldn’t know how much they’ll order today. Any one operation may not have the capability to serve the needs this instant.

We second guess where our weak links would be. We boost capacities, source from multiple suppliers, and negotiate contracts with different transportation outfits. But any given day there would be a particular operational link that would be setting the pace of performance of the supply chain, given the demand of that day.

We develop a lot on infrastructure like roads, bridges, railways, shipping lanes, & ports to strengthen our supply chains. We upgrade our manufacturing & logistics facilities and set up transport networks. We invest in information technologies & automation. By doing so, we try to mitigate the weak links in our supply chains.

But we need talented people to ensure what we do to improve our supply chains will succeed. But the talents we need has to fit in with the supply chains they will be engaged with.

Number 5: Every Supply Chain is Unique

We can identify an enterprise by not only its product or service but also by their supply chains.

No two (2) supply chains are alike. No matter how identical two (2) competing items may be, there will always be differences in how they’re made, where their components or ingredients come from, and how we conduct their logistics.

The organisations behind supply chains also would differ. The talents of managers, staff, and technical crews would not be the same from one enterprise to the next. A supply chain would differ from one another as much as individual human beings do.

Supply chains rely on the talents and experiences of the organisations which manage it. Vendors, enterprises, and customers play their parts in supply chains; each has a role and not any participant is left out. Outsiders, like contractors & consultants, who don’t have roles in supply chains cannot be expected to be recognised as experts even if they may have their own experiences & insights.

Hiring, therefore, is only a starting point when it comes to bolstering a supply chain’s organisation. Training & organisational development count too, as well as the retention of well-honed talented managers, engineers, operators, & technicians. It’s the wisdom of people who have worked long in their supply chains that would be invaluable to new people.

Consultants & mentors from outside the supply chains can help when it comes to teaching management principles. Engineering education is always a plus. But I believe the best talent comes from those who learn from the guidance of experienced in-house managers & workers.

Supply chains are complicated, go beyond any enterprise’s scope, are vast, are strongest only at their weakest links, and each is unique. These five (5) characteristics are what make supply chains not only not easy to comprehend but also downright challenging.

Because supply chains are made up by our relationships with vendors, customers, & 3^rd parties, we must focus on how we deal not only with the links within our enterprises but also with all individuals who add value to the stream of goods & services.

We can’t work on supply chains by our own authority. We can’t dominate them as much as we may gain more influence. We negotiate so we can all collaborate. Never mind if we find it a hard reality that we must work with other people in supply chains.

Any success we attain would be worth it.

About Ellery’s Essays