Challenges & Crises: The Two Types of Problems We Tackle in Business

We encounter all kinds of problems every day.  And they go by different names, such as:

  • Dilemmas
  • Situations
  • Emergencies
  • Obstacles
  • Opportunities
  • Illnesses
  • Chaos
  • Curiosities
  • Puzzles
  • Conflicts
  • Projects
  • Competitions
  • Controversies
  • Complaints
  • Burning Platforms

These problems, especially while managing our enterprises, end up as either of two types:

  • Challenges
  • Crises

We categorise the issues clamouring for our attention as crises or challenges depending on how urgent and important either one is.  

A crisis demands our immediate attention and response. If we don’t address a crisis, serious adversities would result. Running low on cash to pay bills, for example, is a crisis that can (and will) lead to the shutting down of the business.

A challenge is a problem which we resolve to make progress towards our goals.  Challenges emerge whenever we plan strategies and set targets.  We need to overcome challenges to get whatever we want and reach wherever we want to go.  How to price products competitively, for instance, is a challenge as the enterprise has profit goals to attain.

A crisis can be a looming threat or the aftermath of a catastrophe. It can be a risk that manifested itself or a probable danger in the very near future.  Whenever we face a crisis, we put priority to alleviate or mitigate it.  We don’t stop until we at least have tamped down the effects of the crisis.  A fire in the building is a crisis and even if we put it out, we’d have to deal with the impact of the damage afterward.  A crisis is not over until we are back on our feet. 

A challenge can either be a roadblock, or simply a requirement.  Challenges are either foreseeable or unanticipated but when we tackle them, we work to get around them or beat them.  We don’t grow or meet our goals unless we hurdle challenges.  We, therefore, take challenges seriously as we work to accomplish our objectives.  We, for instance, plan the employment of skilled people needed for our businesses and we lay out a strategy to offer & negotiate attractive compensation packages to hire & retain the best employees we can find. 

In crises, we go into survival or defensive mode.   We confront a crisis now otherwise we will suffer potentially irreversible damage or significant setbacks to our business.  We don’t review roadmaps or long-term visions because in a crisis, we are under threat or busy doing damage control.  In a crisis, our immediate task is to end it before it ends us.  If we’re on a boat and we see a storm coming, for example, we batten down the hatches.  We don’t dilly-dally otherwise our boat sinks. 

With challenges, we review our present states versus our future states.  We assess a challenge’s impact to our roadmaps and timelines, and we plan how to hurdle them.  When we buy a house, for instance, we foresee how we’ll be living in it in the next twenty (20) years versus today.  Do we allow for future expansion or do we plan to move out when our children grow up?  How much would it cost to live in the house over time? 

Crises demand our urgent attention.

Challenges demand planning based on what are important for us.

The problems we face as professionals stem from crises and challenges. How well we solve our problems starts with determining whether one is a crisis or a challenge.  Sometimes (if not most of the time), however, we make the mistake of mixing up one with the other.   

And making that mistake can be dangerous.

The treasurer of a commercial building association noticed from the property’s annual financial statements that there was a cash-flow discrepancy of PhP 6 million ($USD 107,000).  The treasurer could not trace where the cash went and requested the building’s property management to immediately find the money.  The property management contractor, however, took more than a year to make a report, despite continued urgent follow-ups and complaints from the treasurer.  Exasperated, the treasurer asked an external auditor to take over the investigation.  The external auditor, however, also took so long to report, which left the treasurer very frustrated. 

The missing cash caused delays in investments in building improvements.  An elevator broke down and was not fixed.  The building’s fire protection system had sprinklers that did not work.  Worse, as time passed, it got harder to trace where the missing cash went. 

The missing cash was a crisis but, unfortunately, was treated more as a challenge.  The result was the likelihood that the building wouldn’t recover the money and services for the owners & occupants would not be up to par.

In another example, a large manufacturing corporation had a warehouse full of slow- to non-moving inventories of materials and products. The chief executive officer (CEO) assigned the problem to task force to handle what to do with the non-moving inventories.  The task force, after several months of study, recommended that the corporation invest in an enterprise resource planning (ERP) software system to streamline its inventory management system.  After many weeks of planning and implementation, however, the ERP system failed to reduce the non-moving inventories. 

The corporation’s chief finance officer sounded the alarm that the non-moving inventories were dragging down the company’s cash flow.  But the CEO didn’t think it was a crisis and he delegated the problem back to the task force for further study. 

The CEO saw the non-moving inventories as a challenge as the non-moving inventories didn’t pose an immediate threat to the corporation’s business.  But because he didn’t put much importance to it, the corporation didn’t grow as much as it could have because of the inventories’ drag on the company’s finances. 

What we see as challenges can really be crises.  And what we see as crises can just be challenges.  But challenges can evolve into crisis if we don’t address their importance and crises can downgrade into challenges when we respond to them and mitigate their immediate threats.  

We deal with all sorts of problems every day.  In the course of doing our jobs, we categorise problems as either a crisis or a challenge, depending on their urgency and importance. 

We must be careful, however, to know the difference between crises and challenges.  In the end, it depends on how much we value our enterprises that would determine how we distinguish between the two. 

About Ellery’s Essays

Comparing Supply Chain Management versus Supply Chain Engineering

What’s the difference between supply chain management (SCM) and supply chain engineering (SCE)? 

Supply chain management is the management of people, structures, & systems that underlie the relationships of functions which enable the flow of merchandise & services from their sources to their destinations and users. 

SCMs work with existing systems & structures as they harness resources, negotiate with vendors & 3rd parties, and manage their teams to transform materials to products and serve their enterprises’ customers. 

Supply chain engineering involves the building of those systems & structures SCMs manage.  SCE’s tasks include setting up logistics networks, developing procurement & production systems, proposing & implementing additional capacity projects, erect new facilities, customising demand & inventory management systems, writing up methods & procedures, and improving the environments & conditions of workplaces. 

SCMs plan, organise, direct and control existing systems, structures, & facilities. 

SCE’s study, design, and construct new systems, structures, and facilities. 

Both SCMs and SCEs overlap in that both manage the resources and people assigned to them.  But each has its own exclusive aims. 

Both SCMs and SCEs have huge scopes.  Supply chains encompass activities from the acquisition of merchandise, the transformation of materials to finished products, the storage & handling of inventories, the dispatch & transportation of items, to finally the delivery of items & post-sales services.  Supply chains   extend beyond the borders of enterprises and thus require negotiation & collaboration with vendors and 3rd party service providers.  It can be overwhelming for both SCMs & SCEs. 

Supply chain management is related to operations management, a subject that falls under the business administration degrees in many colleges.  It has become a visible and high-profile field brought on by the need to be perfect & productive in the competitive business world of the 21st century. 

SCMs have merited a place in the upper echelons of organisations, in which more and more enterprises have welcomed chief supply chain officers as valuable members of the executive suite. 

SCE, meanwhile, is a spin-off from Industrial Engineering (IE), which is concerned with the boosting of productivity via improvement of systems, methods, and the workplace.  Industrial Engineering, however, is a not well-defined field and remains one where many do not see it as deserving as equal to other engineering disciplines. 

It doesn’t help that IEs are constantly re-defining what Industrial Engineering is and thus, have not gained much recognition because they have not resolved their identities universally among enterprises and industries. 

And since IEs are constantly trying to convince people who they are, even as they themselves try to figure it out, SCEs naturally would not have much of a starting chance for recognition themselves.  Supply chain engineering is invisible, misunderstood, and unappreciated, and will remain so for some time.

Which is too bad. 

Supply chain management has become a high-profile job.  We have come to rely on supply chain managers to seek solutions to the causes of disruptions in the flows of our merchandise.  We have elevated SCMs to critical roles to attaining the productivity we want in our operations.  We see supply chain management as a hopeful avenue to enterprise success.   

Well and fine for SCMs but unfortunately, SCMs are only as good given what they have. 

Being managers, SCMs do a lot of work via their relationships with the people that report to them (e.g. procurement, logistics, planning, manufacturing), their peers in other departments (e.g. sales, R&D, finance, marketing, legal, personnel), their superiors (e.g. CEO, COO), and with customers, vendors & 3rd party service providers.  It is through these relationships that SCMs get things done. 

Managing relationships, however, has its limits.  In relationships we work with what we have.  We work within systems & structures.  We make do with whatever resources we have available.  Owners may give us budgets to augment our resources but SCMs usually just add to whatever they have, instead of changing how things are done. 

For example, because of looming risks in sourcing via international trade, SCMs would seek vendors closer to their operations.  They would opt to source from multiple vendors, rather than to just one or two.  They add to their alternatives but don’t really change the system of procurement. 

SCMs do get things done, however. SCMs succeed in serving the demands of customers and they make great strides in continuously improving the productivity of their operations. 

But only to a certain extent. 

When it comes to changing how things are done, supply chain managers aren’t the best fits.  That job best goes to supply chain engineers.

Whereas SCMs work with what they have and who they relate with, SCEs change the structures & systems that underlie supply chain operations.  SCEs change how things are done and the very platforms where they are done. 

Going back to the example above about sourcing from vendors, whereas SCMs may source from multiple vendors closer to home, SCEs would study & develop changes to the procurement process altogether.  SCEs would examine the system of sourcing and how the enterprise buys the merchandise it needs.  They would look at better ways to improve the system; they would look for that one best way of procurement. 

SCMs manage with what they have on hand to realise results.  SCEs change systems & structures so that SCMs shall realise results further from what existing systems were capable of. 

We see supply chain management becoming a highly recognised high-profile profession that has earned a key role in achieving enterprises’ strategic priorities. 

It, however, can only do so much with existing systems & structures.

Supply chain engineering gives us the potential to change our supply chains to make them more capable and productive.  SCE, however, is not a well-known field and lacks recognition in most, if not all, industries.  

There are a lot of issues and challenges facing enterprises in their supply chains.  We could use all the help we can get not only from supply chain managers but also from supply chain engineers as well.

If we are to tap our supply chains, we should not only manage them well, we should also change them.  We would need to recognise the potentials of the supply chain engineer. 

About Ellery’s Essays

Freedom Comes via Control & Influence

Gurus and so-called motivational experts teach that we are free to decide our future, to do whatever we want, to believe whatever we wish.  We can be whatever we want to be.  We can pursue personal goals and choose our path to happiness. 

Viktor Frankl experienced life in several Nazi concentration camps through World War 2.  He lost several members of his family, including his wife.  He was deprived of liberty. 

Viktor Frankl said we determine our happiness (meaning of life) via our freedom of will.  We are free to think what we want, to feel what we believe.  

Liberty is a condition or right to engage in actions as allowed or limited by the laws of wherever we happen to be.  It is freedom limited by other people, that is, societies, governments, enterprises, private associations, etc.  We can do only what the laws allow. 

Freedom in the context of free will and what gurus & motivational experts talk about is about the unlimited space we have to decide our fates, to choose what we like, and to go to wherever we want to be. 

What the gurus & motivational experts don’t say, however, is that freedom comes with a price. 

Boundaries of countries, regulations, economics, culture, peer pressure, and our social & family ties attempt to corral that unlimited space.  Some of these boundaries are real, some are all in our minds.  But they’re there and we pay a price whenever we challenge them for the freedom we want.  What we have within these boundaries are liberties, not freedom. 

Freedom is not free.  The more we want it, the more we’d have to pay for it, to work for it, to fight for it.

Sometimes it’s not just a good idea to fight for that freedom of unlimited space. 

I’ve seen young families opt for the good life of travel and neglect their families.  They cry at the funerals of their passed away relatives as they regret not being there when they were needed.  Afterwards, they travel again and in their later years, they regret not saving enough time for retirement.  Their children, meanwhile, follow the same footsteps of enjoying the good life and neglect their families. 

As much as we are tempted to negatively judge people for choosing paths that seem wrong, we are in no position to do so.  The people were and are free to decide what they wanted and they paid the price for it. 

Freedom isn’t about enjoying unlimited space but is about gaining more control and influence. 

Control depends on our values & principles.  We steer our lives based on what we believe are important to us.  And we put our efforts and resources to controlling our actions towards those values & principles. 

The beauty of our values & principles is we can change them as we learn and experience.  And in effect, we can change what we control. 

Our degree of control depends on what we can influence.  We should strive to be more influential to gain greater control.  Influence is not power; it’s the ability to bring others to share your values & principles, and to lead yourself & others to common goals. 

Influence is a paradox in that in order for us to sway others to our side, we need to listen and consider the opinions of those others.  To sway, we should allow other people to sway us.  Influence is a two-way street; we influence as we also are influenced. 

Freedom is that unlimited space we wish to enjoy.  Liberty, on the other hand, corrals us to a limited domain depending on where we are.  We strive to gain and experience more of that unlimited space that lies beyond liberty.  We pay a price for it when we do. 

Our freedom, however, grows via how much we control and influence.  Control is about maintaining our path towards our goals.  Influence is about getting more control over those things that limit our freedom.  We gain influence not by asserting our beliefs but by considering other people’s points of views and sharing ours. 

[The Philippines celebrated its 125th Independence Day on June 12th, 2023].   

About Ellery’s Essays

Starting with the Symptoms

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mapping

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

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

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

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

Data Research

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

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

Analysis

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

We analyse via different means, such as:

  • Scientific
  • Statistical
  • Financial
  • Subjective
  • Comparative

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

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

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

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

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

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

Identification

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

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

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

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

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

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

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

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

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

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

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

About Ellery’s Essays

Managing Uncertainty

baby sea turtle off to ocean

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

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

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

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

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

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

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

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

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

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

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

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

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

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

About Ellery’s Essays

The Convincing Need to Test Ourselves

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

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

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

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

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

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

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

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

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

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

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

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

About Ellery’s Essays

Managing Performance

We as supply chain managers typically oversee the following:

  • Demand
  • Inventories
  • Performance

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

We manage demand to synchronise supply.

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

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

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

Managing performance necessitates the basic skills of:

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

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

Scheduling Operations

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

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

The best tool for scheduling is usually the simplest:

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

Organising Crew & Resources

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

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

Examples of tasks in organising include:

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

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

Ref:  What Organising Really Means

Setting the Pace

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

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

Examples:

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

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

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

Disciplining the Teams

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

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

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

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

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

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

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

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

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

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

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

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

About Ellery’s Essays

Managing Inventory

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How to Avoid the Aggravation of Unavailable Items

What is the Right Supply Chain Model for New Products

Hoarding and How to Discourage It

The Importance of Making Available What We Promise

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

The Pros & Cons of Steady Stream Supply Chains

About Ellery’s Essays

Managing Demand

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

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

Or can we?

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

One way is to manage the demand itself. 

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

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

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

We manage demand via the following means.   

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

Supplying True Demand

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

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

Order Only What’s Available

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

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

Limiting Our Customers

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

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

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

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

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

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

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

About Ellery’s Essays

We Should Be Grateful to People We Don’t See

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

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

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

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

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

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

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

About Ellery’s Essays