How We Look at Life in Four Ways

There are four (4) kinds of people:

  1. Pessimists
  2. Optimists
  3. Realists
  4. Hypocrites

Pessimists see only the bad in life.  Optimists look for the good in things.  Realists balance both good and bad.  Hypocrites don’t have a view about good or bad; they see life as a means to gain benefits for themselves.   

Pessimism, optimism, realism, and hypocrisy are how we look at and approach life. 

Pessimists stress adversity in whatever scenario.  They don’t like surprises of the negative kind; they believe there’s a possible catastrophe lurking around the corner.  Pessimists, thus, tend to be over-cautious and avoid adventures.  Pessimists hate risk; they’d rather stay far from it if they can’t mitigate it. 

Optimists, on the other hand, endeavour for the positive in their daily activities.  What pessimists see as dark clouds; optimists see silver linings around those clouds.  Optimists believe there’s good even in the worst of anything, and thus are motivated to drive for changes they trust will result in a better world.  Optimists embrace risk & dive into adventure, as they trust something great will come out of either. 

Realists balance both the good and the bad in their daily lives.  If a pessimist, optimist, and realist were facing a tunnel, the pessimist would see a dark tunnel; the optimist would see a dark tunnel with a light at the end of it; and the realist would see a dark tunnel with a light at the end of it and another dark tunnel after it.  Realists look for what they think reflects the starkness of reality: that there will always be positive & negative outcomes.  Realists plan for the bad and the good.  They calculate risks and assess for beneficial rates of return before making their moves. 

Hypocrites don’t care about the positives or negatives in life; they only pretend they do.  Hypocrites will side with either the pessimist, optimist, or realist if they sense some benefit from doing so.  Hypocrites don’t see good or bad, nor do they bother to calculate risks or assess rates of returns.  They ask questions like ‘what’s in it for me?’, and ‘how can I benefit from someone else’s work?’.

Pessimists won’t jump into a pond; they’ll say it’s too dark or dirty, and likely will catch a cold.  Optimists would jump right in, saying the water will be fine and it will be fun.  Realists would circle the pond to check its condition and carefully wade in.  Hypocrites would wait until everyone had made their decision about the pond, and then jump in and claim credit for the fun, or they will condemn people and say ‘I-told-you-so,’ if something bad happens. 

We may brand ourselves as optimists, pessimists, or realists, but we’d be reluctant to identify ourselves as hypocrites.  We don’t like to be called hypocrites because we equate them with parasites, traitors, or do-nothing individuals.  Being named a hypocrite is an insult, even if many of us are. 

The trouble is just as much we are pessimists, optimists, & realists, we are hypocrites too. 

Examples:

We ride gas-guzzling jet planes to travel to other cities to join climate change rallyists protesting against fossil fuels.

We bring our pets to be blessed by priests, but we support the same priests when they ban or rid our churches of stray animals.

We commit to teamwork at an employees’ corporate seminar, but we will run to be the first in line at the dining room buffet table. 

We complain about motorists stopping suddenly on highways, but we grumble when traffic police won’t let us park in front of the school where we wait to pick up our children as they come out. 

We whine about how slow the ticket booth attendant is as we wait to claim free tickets to the local movie theatre. 

The big difference between optimists, pessimists, & realists and hypocrites is authenticity.  We are honest about ourselves when we are either of the first three, but we would be offended if people call us hypocrites. 

Hypocrisy is about not being authentic about our opinions and approaches to life.  Hypocrites fake themselves to be pessimists, optimists, or realists so that they will get a cut of the benefits the other three supposedly will get. 

Hypocrisy is why we join clubs and make friends with people whom we really don’t care about.  Hypocrisy is when we insist our sons join the family business or demand our daughters stop dating boys who we don’t share religious or political beliefs with (or worse, who are of different ethnicity).  We notice much hypocrisy when corporate executives and government politicians release rosy press statements about themselves. 

But as much as we stigmatise hypocrisy as an evil, we apply hypocrisy purposefully as an alternative to pessimism, optimism, and realism.  This is because sometimes we don’t want to show our true colours as an optimist, pessimist, or realise, especially if doing so would lead to confrontations with others who don’t share the same outlook.  We, instead, opt to be hypocrites and pretend to be a member of the majority, such that we avoid conflict and have a better chance of getting some benefit out of it. 

We are either pessimists, optimists, or realists, based on our outlooks about life.  We either see only darkness, light, or the balance of the two, and we would be authentic about it.  Hypocrites have no outlook; they don’t see positive, negative, or balance, and pretend to be either of the other three. 

Hypocrisy has a bad connotation, but we often are hypocrites, even if we won’t admit it.  We become hypocrites to be socially acceptable and benefit from relationships, never mind if we don’t really care about them or we’re just pretending to. 

Some people preach against hypocrisy.  But it isn’t a sin, as much as it is a way we see and deal with life’s challenges. 

In more ways than one, we are all hypocrites. 

About Ellery’s Essays

Strategic Planning as Problem Solving: Why Not?

We sometimes create problems more than we encounter them.

A large conglomerate builds a huge packaging facility in the outskirts of Manila.  When I visited the plant, I asked the operations manager why such a big facility was built?

“We built the facility to attract customers,” the operations managers said.    

“So, it was built, so customers will come?”  I asked. 

“Yes,” the manager said. 

“And have they come?” I asked. 

“Not yet,” said the manager.

The operations manager was in charge of entertaining potential clients and making sure the facility was efficient in production and cost. 

The large conglomerate advertises the available capacity of the plant through its network of contacts.  Over a few years, it got some clients but still had excess capacity. 

A large developer constructed a complex of high-rise residential and commercial buildings.  The developer depended on brokers and marketing employees to sell the buildings’ office and residential spaces even as construction was hardly underway.  The developer provided incentives for every unit sale but despite the efforts, sales was sluggish.  Worse, the building complex was beside a man-made river that overflowed during a heavy rain storm.  The complex was flooded for a short while but it was enough to turn off would-be customers.  To this day, the complex remains low on occupancy.  The developer’s marketing team continues to work hard to sell the complex. 

Meanwhile, a nearby building complex enjoyed brisk demand even before it was built, and occupancy remains high.  The competing complex is located near a major highway and successfully wooed several multinationals to set up their headquarters in several buildings. 

A bank opened a new branch in the neighbourhood. The bank assigned the branch manager a minimum monthly quota of new clients and a monthly target of new deposits for the branch.  To find the clients, the branch manager went door-to-door around the neighbourhood to sell her branch’s services.  Up to the present day, she sometimes meets her monthly targets, but sometimes she doesn’t.  “It can be quite hard,” she says. 

In the above-mentioned examples, the success of the packaging facility, the high-rise building complex, and the bank branch was measured on how well they got customers.  The packaging facility did get some clients but still had capacity for more.  The high-rise building complex constructed near an overflowing river ended up a failure.  The bank branch and its manager struggle month after month to meet quota. 

It is common in business for executives to invest in large projects and then hope that the returns of such investments will be realized right away.  In many cases, the executives delegate the responsibility of realizing the returns to their subordinates.  The executives package the responsibility as a challenge.  For the subordinates, it’s more of a problem given the pressure to perform to meet expectations. 

In these three examples, the subordinates work to solve problems stemming from the strategies of executives.  The strategy is the real problem and subordinates are stuck with the symptoms. 

In many organizations, executives expect their subordinates to just fix the problems even if the executives know their strategies are the causes.  To the executives, the strategy is a given and the subordinates just have to solve the problems a strategy may have created. 

Strategy shouldn’t be a given and executives should take responsibility for their strategic decisions.  The common pitfall in strategic planning is jumping into a plan not only without enough study but also without considering whether it will solve problems or create many more. 

Strategic planning can be viewed as a form of problem solving.  To put it anther way, the approach to strategic planning can apply similar to problem solving.  That is:

  1. Recognize a fuzzy situation
  2. Define the problem;
  3. Brainstorm ideas or solutions;
  4. Set criteria for the chosen solution;
  5. Decide on the solution. 

Change the word “solution” to “strategy” and one would have an approach to strategic planning. 

About Ellery’s Essays

Why We Need to Collaborate & Not Accommodate in Improving Supply Chains

We formalise our supply chain relationships via agreements we forge with our partners, who are our vendors, 3rd party service providers, & customers.  We manage our supply chain operations to ensure we perform to the agreed expectations of our partners. 

Most supply chains have existing infrastructure in place when we negotiate with our partners.  Our manufacturing & logistics facilities are set up and running.  Our fleets of delivery vehicles are available and ready.  Our telecommunication & information systems are in place and operating. 

We adapt our supply chains to terms & conditions of the contracts we have with our vendors & service providers, or to the commitments we made with our customers.  We plan, organise, direct, and control our systems & resources and enlist & work with people to establish standards & achieve objectives to ensure we meet our ends of the deals. 

It is a norm in many of our organisations to accommodate to what we agreed to with our partners.  We accommodate buying large volumes of inbound materials and receiving them into whatever limited storage space we have available because we want to qualify for vendors’ discounts.  We accommodate to individual customers’ preferences in delivery schedules & quantities, never mind if we make repeated deliveries in less-than-truckload (LTL) quantities which result in higher freight costs. 

A large beverage supplier offered a multinational retailer an additional 10% discount if the latter buys more than three (3) times its regular monthly ordering quantity before the end of the calendar year.  The retailer agrees to the deal and immediately leases out all the storage space it could find to accommodate the additional volume the beverage supplier delivers.  The retailer’s logistics expenses soar but the savings from the beverage supplier’s discounts more than make up for the costs.

But as much as the benefits seem to beat the costs, other trade-offs from the deal become manifest.  The multinational retailer distributes the excess merchandise bought from the beverage supplier to all its stores nationwide.  Three (3) months later, the stores return many of the beverage products, either due to damages or because some had overshot their shelf lives.  The retailer tells the beverage supplier it is returning the damaged or expired merchandise.  The beverage supplier refuses to accept the said merchandise all at once such that the retailer is forced to extend its warehouse leases to store the cannot-be-sold merchandise.  The retailer tells the beverage supplier it won’t be buying its regular supply of beverage products until the former is able to return all the unsaleable merchandise.  For three (3) months, the beverage supplier’s products are nowhere to be seen at any of the retailer’s stores. 

This cycle between the retailer and its suppliers has occurred every year.  Retailer buys plenty; ‘saves’ from sizable price discounts; incurs larger storage & transportation expenses; its stores return excess merchandise; retailer & suppliers get into conflict regarding returns.  For whatever the retailer and the retailer gained from savings and additional sales respectively, both parties lose in not meeting the demands of consumers.  Over the long run, competition from rival retailers and other beverage suppliers seize more market share from both enterprises. 

When we agree to new deals with our partners, we often put the cart before the horse in managing our supply chains.  We adjust our plans and operations to accommodate to whatever we agreed to.  Partners, on the other hand, also accommodate their operations to meet what we expect from them.  They also adjust their production and logistics activities to suit whatever we insist.    

Accommodation is not bad, but it exacts a price especially if it requires us to change our operations significantly and frequently.  How much is it worth when we change production schedules abruptly, arm-twist our vendors to deliver materials earlier, or deliver LTL quantities often?  It may look like that the benefits outweigh the costs but are we sure we got all the costs covered?

We should not accommodate when we make deals with our partners.  We should instead, collaborate, that is, we and our partners should work to adapt our systems & structures jointly, cooperatively, and rationally. 

Collaboration can only be a huge success in the supply chain field when we and our partners not only cooperate but also when we deliberately tailor our systems & structures together.    

Tailoring our and our partners’ systems & structures requires not only management but engineering expertise.  Supply chains are complicated, and we and our partners can’t just outright keep accommodating to whatever deals we both agree to.  We need to engineer our supply chains to customise them to the fast-changing business environments we work in. 

About Ellery’s Essays

Bridging the Supply Chain Management-Engineering Gap

Engineers turn scientific ideas into reality.  They do it by identifying problems, studying the data, and finally solving them. 

Engineers apply concepts from the pure sciences, such as Physics, Chemistry, Mathematics, & Biology.  We see these concepts come to life in the fields of civil, electrical, mechanical, & chemical engineering, and in their sub-specialties such as nuclear, aerospace, biomedical, metallurgical, telecommunications, & software engineering. 

Engineers are inventors and builders of tangible systems & structures, like buildings, factories, machines, roads, bridges, chemical processes, pipelines, dams, & data networks.  They create stuff we could sense, i.e., see, touch, hear, and even smell & taste.  If we don’t sense it, we’d have a difficult time appreciating it as an engineering marvel.  Seeing is believing when it comes to engineering. 

Supply chains are models of operative relationships which enable the flow & transformation of merchandise and services from their sources to their final consumption.  They, however, aren’t tangible.  As much as there are physical components to them such as warehouses, factories, equipment, and transportation, we can’t visualise supply chains in their entireties except via maps or flow charts. 

Supply chains are not easy to understand, and we have different points of view regarding them.  We manage them differently from firm to firm, industry to industry. 

Because supply chains aren’t tangible and because they’re founded on relationships, we don’t engineer them.  Instead, we manage them.  By management, we, together with people via partnerships, plan, organise, direct, and control resources to achieve targets consistent with our enterprises’ missions and goals.  Management has been our go-to approach to optimising supply chains. 

We, however, seems to be getting to the point that management may no longer be enough when it comes to improving supply chains.

As supply chains have become more global and complex, managing them has become more difficult.  Adversities are becoming harder to address as broader supply chains become more exposed to risks and uncertainties.  These adversities range from day-to-day issues (e.g., delayed deliveries of raw materials, infighting between functions) to crises (e.g., pandemic, wars, labour strikes). 

We are also dealing with more items, more activities, and more territories to cover.  Some of us oversee the operations for thousands of products.  Some of us negotiate with numerous vendors and service providers from all over the world.  It doesn’t help that enterprises continue to expand product lines, or to merge or acquire other businesses.  

We did, however, accomplish a lot thanks to supply chain management. 

We transformed our enterprises to adapt to the realities of global supply chains.  We collaborated with suppliers and set up supply, information, & logistics networks which enhanced visibility.  We reduced lead times in production and transportation.  Our enterprise superiors have appointed chief supply chain officers who changed organisational structures to break down functional barriers.

We adopted cutting-edge technologies from blockchains to artificial intelligence.  We began to use drones & self-driving vehicles to deliver products to customers within the day they order and we automated our warehouses and production via robots and automatically guided vehicles.

But despite our investments and our initiatives, our supply chains remain far from their productive potentials.  Even as our enterprises have grown in wealth and influence, our supply chains aren’t much different than they were at the end of the 20th century.  Inventories swing from high to low or worse to out-of-stock.  We fall behind in serving when our customers clamour for our products.  And we frequently have to fight fires from ‘burning platforms.’

To put it simply: we’re stuck. 

Engineering is where we go when we want to improve what we’re managing.  Engineers help increase our capabilities especially in tackling overwhelming adversities.  They help getting us out of where we’re ‘stuck’ in. 

We, therefore, need engineering to help us become better in optimising, if not at least managing, our supply chains. 

But before anything else, we must realise and accept that engineering is no longer limited to the application of the pure sciences but the tapping of lessons from the social sciences as well. 

We must consider the relationships that are the foundations of our supply chains.  If we are to engineer improvements into our supply chains, we’d have to improve those relationships. 

This is kind of uncharted territory.  Industrial Engineering (IE) is the closest to of any engineering discipline to handle supply chains.  IE evolved from the accomplishments of Frederick Taylor in his introduction of workplace standards and his subsequent publication of his Principles of Scientific Management.  Taylor bridged the gap between engineering and management with his efforts to apply science in the improvement of worker productivity. 

We don’t hear much about Frederick Taylor or his Principles of Scientific Management in our present day, but the lessons we learned from him echo in how we improve the productivities of our workplaces.  We do time studies to determine value-adding and non-value-adding activities, for example.  We track the turnaround times of transportation vehicles.  We minimise idle times of our production lines and utilise the most we can get from our machine capacities. 

Many of us don’t appreciate Industrial Engineering as an engineering discipline because it addresses problems that are more intangible than what other engineers solve.  IE works on stuff like methods, procedures, movements, operator-machine interfaces, & organisational hierarchies, which are the kinds of things that are not easy to see or grasp outright. 

Industrial Engineering is more of an application of social science than pure science.  We don’t do as much physics, chemistry, & biology in uplifting workers as much as we apply economics, sociology, and even politics.  We associate IE more with improving the efficiencies of people via simple techniques like time & motion studies.  We don’t appreciate that IE does substantial engineering such as in ergonomics, facilities planning, and operations research. 

Industrial Engineering, nevertheless, has proven to be valuable in improving overall productivity.  Frederick Taylor’s Principles of Scientific Management have made us not only more conscious of efficiency in what we do but also more proactive in finding the most optimum means to achieve our goals. 

We as Industrial Engineers have our work cut out to detach IE as a subset of management to a discipline of engineering.  We need to cross the bridge from seeing ourselves as management engineers (an oxymoron) to engineers who are builders of not only the tangible but also the intangible. 

The opportunity to prove ourselves as builders of both the tangible and the intangible lies with supply chains. 

As Frederick Taylor and Industrial Engineering has done with the human workplace, we can do the same with supply chains.  We can apply scientific thinking to improving the productivity of supply chain operations. 

We can bridge the gap between supply chain management and supply chain engineering.

About 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 3rd 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:

  1. 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:

Figure 1: The Supply Chain Realm

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: 

  1. 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