Managing Inventory

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How to Avoid the Aggravation of Unavailable Items

What is the Right Supply Chain Model for New Products

Hoarding and How to Discourage It

The Importance of Making Available What We Promise

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

The Pros & Cons of Steady Stream Supply Chains

About Ellery’s Essays

Managing Demand

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

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

Or can we?

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

One way is to manage the demand itself. 

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

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

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

We manage demand via the following means.   

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

Supplying True Demand

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

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

Order Only What’s Available

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

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

Limiting Our Customers

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

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

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

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

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

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

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

About Ellery’s Essays

We Should Be Grateful to People We Don’t See

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

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

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

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

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

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

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

About Ellery’s Essays

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

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

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

Fulfil Demand

And when we do that task:

They expect nothing less. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

About Ellery’s Essays

What Should We Do When There’s Clamour?

In November 2022, this happened:

Ticketmaster error message. Nov. 15, 2022

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

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

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

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

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

Clamour is a common occurrence for many products & services:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

About Ellery’s Essays

What Our Superiors Expect

Customers expect perfection in service. 

But what do our superiors expect?

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

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

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

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

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

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

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

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

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

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

  • Total Delivered Cost

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

  • Distribution

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

  • Risk Mitigation

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

  • Responsiveness

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

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

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

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

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

About Ellery’s Essays

What Our Customers Expect

What do our customers expect from us?

The Total Quality movement from the 1980’s preached that the people we work with are either “suppliers” or “customers.”  We played the role of either one.  The idea of TQM was to do the right thing right the first time when we, as “suppliers,” serve our “customers.”  We would expect the same from our “suppliers” when we become “customers.” 

In the context of supply chains, however, customers are the downstream users of our products and services.  They obtain and consume the items we sell in recognition of the value we put in them. Our customers are where demand for our products and services originate, and in which we strive to fulfil. 

In contrast to TQM, supply chain flows are predominantly one-way from “supplier” to “customer.”  As merchandise flows from one link to the next, we add value to the items via the operations we own and manage.  Demand from our customers determines the value of what we sell and deliver. 

We create demand via the marketing of products & services in which we entice customers to buy what we’re selling.  The sale marks the final stage of demand creation. 

When we make a sale, we convince customers to not only buy items for their characteristics or specifications, but we also persuade them to accept the terms & conditions that come with the items.  A sale finally happens when customers agree to the terms & conditions of the sale, obtain the items they are buying, and pay for them.     

When we sell to our customers, we form a pact with them.  Customers would agree to buy our items given the specifications and terms & conditions that accompany them.  Examples of terms & conditions are price, terms of payment (e.g. cash-on-delivery, credit approvals), and warranties.  In turn, we commit to supply the items to our customers based on agreed schedules or promised availabilities. 

The pacts we make with our customers come in different forms.  They can be two-way, that is, both vendor and customer formulate an agreement for the supply of items or services.  Examples of two-way pacts are:

  • material supply contracts between vendors and buyers such as for mining ore, drilling petroleum;
  • magazine, newspaper, Internet, streaming media subscriptions;
  • utility service agreements such as for electricity & water;
  • purchase of automotive vehicles or household appliances where buyers & vendors negotiate final pricing & terms before delivery or pick-up;
  • contract for the construction of a residence, or the building of an airplane or shipping vessel.

Pacts can also be one-way, that is, enterprises pitch items to would-be buyers with promises of benefits, services, and/or availabilities.  Customers buy into the pacts via order & purchase of the items. Examples of one-way pacts are:

  • E-commerce portals where vendors advertise items with accompanying promises of availability, delivery, and pricing;
  • Product advertisements & promotions such as where fast-moving consumer goods (FMCG) corporations pitch brand benefits and availabilities at retail outlets like supermarkets & stores;
  • Purchase of merchandise (e.g., food, hardware, household goods) at retail stores in which vendors display items on an as-is where-is basis.    

Execution of the pact between we as vendors and our customers starts with the order. The order is the final step in the demand creation process and the trigger to demand fulfilment.  The order quantifies what the customer wants to buy and formalises our obligations as “suppliers” to its fulfilment.  The order lays out the pre-agreed terms & conditions of the pact we made to our customers and formalises our obligations in supplying the items.   

In one-way pacts between we the vendors and our customers, the order and the pact are virtually the same. Examples are:

  • Clicking the check-out confirmation on the e-commerce portal;
  • Picking or retrieving items from the store shelf and checking them out for payment at the store cashier.

In two-way pacts, the order is either the customer’s requisition or the vendor’s supply schedule as per the pact.  Examples are:

  • Customers’ purchase orders or buying requisitions;
  • Subscription’s schedule of deliveries (e.g. daily newspaper deliveries, emailed newsletters);
  • Clicking buttons to stream subscribed on-demand media such as movies, television shows, games;
  • Claiming of products, gifts, packages as per customers’ signed up agreements with vendors. 

Customers expect us to keep our end of the pacts we make with them.  They expect us to honour our obligations, not just a few or some, but all of them.

And this is why the perfect order is the supply chain professional’s key performance metric.

The principle of the perfect order measure is straightforward:  fulfil orders completely, on-time, at the right quality, and at the mutually agreed service level.  All four (4) elements:  completeness, timeliness, satisfactory quality, agreed service level, should be present.  All four must be done right together; otherwise, it’s not a perfect order. 

The perfect order is the jumping point to the perfect payment. When we supply perfectly, customers are obliged to honour their side of the pact and pay us.  The sale closes when customers become fully satisfied with the items they bought and pay us.

The perfect order is what we as enterprise owners and supply chain professionals shoot for.  It measures how well we keep our promises to our customers, in which we should be able to do so without exception. 

We create demand by captivating customers with the items we market. In so doing, we realise sales via the pacts we make with our customers and the orders they place.  Pacts and orders spell out our obligations as suppliers to fulfil our obligations to supply our customers with the items they agreed to buy. 

The fulfilment of our customers’ orders is the essence of demand fulfilment.  As the order wraps up the task of demand creation, it triggers the process of demand fulfilment. 

Many enterprises don’t fulfil demand perfectly.  It has become more of the norm than the exception that we don’t supply items in accordance with the pacts we make with our customers.  We simply have not been keeping our promises with our customers.

It’s a tragedy but not one that we should live with.  Instead, we should take it as a challenge to improve what we’re doing.  We can be perfect in demand fulfilment.  The adage: nobody’s perfect, does not apply. 

Perfect orders are goals as much as they are measures.  Pursuing them requires the highest standards and comprehensive excellence in the processes that underlie demand fulfilment. 

But it begins first with the commitment to those standards and to the notion that we can excel.  A lot of hard work will of course be required and all we need to do to start is to gain the confidence we are up to the task.   

What do customers expect from us?  Perfection in keeping promises and serving their orders.  Nothing less.

About Ellery’s Essays

Two Kinds of Customers

Two (2) occupants of two (2) condominium residences were refusing to pay their share of association and water bills.  They, in fact, haven’t paid for over a year despite repeated follow-ups from the condominium’s treasurer.  The rationale of both occupants (who happen to be sisters, by the way) was that the condominium association wasn’t legal, i.e, it didn’t have any legitimate authority to exist and therefore collect from the residents. 

There are two (2) kinds of customers we deal with in business: the ones who pay and the ones who don’t pay. 

We welcome the former; we avoid (and hate) the latter. 

Customers who don’t pay include:

  1. Tenants who don’t pay on the due date;
  2. Shoppers who try to shoplift items out of a store;
  3. Buyers who use items but return them with excuses to get refunds;
  4. Clients who don’t reimburse us for services and threaten us if we attempt to follow them up. 

Ideally, we sell only to the customers who will pay.  Otherwise, we’d be spending a lot of time, resources, and effort trying to collect from the ones who don’t. 

Unfortunately, in real life, we somehow end up dealing with recalcitrant customers. And we often see ourselves preoccupied most of our time trying to get these people to pay what’s due us.  As much as we try to avoid them, these undesirable customers slip by and become issues we get stuck with.

Enterprises deal with non-paying customers differently. 

Credit card companies can be lax when they accept applications.  Sometimes they approve applications outright to build their cardholder base.  Credit card companies, however, write off a percentage of cardholders’ debt every year.  They rather not pursue credit card holders who outright are impossible to collect from.  They figure that the number of people who will not pay will be a small fraction of new applicants who would and thus, they would still be able to build their business profitably.  The credit card companies, of course, would blacklist deadbeat cardholders to make sure they won’t open new accounts in the future.    

Retailers lay out their stores so shoppers will need to pass through check-out counters before they can exit.  Security measures such as guards and closed-circuit television cameras (CCTVs) screen for would-be shoplifters. 

We interview potential tenants before we rent our residences or offices.  We prepare ironclad contracts that would give us legal avenues to evict tenants who don’t pay. 

Some of us demand down-payments to cover the costs of our products & services when we are unsure about the credit-worthiness of our customers.  It won’t hurt as much when customers don’t pay the balance of their bills. 

The adage, “customers are always right,” only applies when we accept them and when they pay up.  If we believe they won’t pay, we don’t welcome them. 

Some customers pretend to be good payers.  They later delay their payments and stop altogether.  This was the case of the two (2) sisters who refused to pay the association dues of the condominium building.  They started out paying on time, but then after several years delayed payment.  They later paid only after several follow-up statements.  Finally, they stopped paying and threatened legal action if the association pursued them.

The association countered with its own threat to cut off services to the two (2) sisters but the latter is unperturbed.  The two (2) sisters obviously have no intention to pay for the services & utilities of the condominium building.  For the paying members of the association, it’s unfair. 

There are two (2) kinds of customers.  The ones who can & will pay and the ones who will not pay.  We appreciate the former; we dislike & avoid the latter.  We invest in the means to accept the former and screen off the latter.  We often find ourselves, however, spending much time & effort with the few who slip through.  We end up either writing them off, blacklisting them, or legally acting against them. 

We don’t classify anyone as customers until we accept them and they pay, agree, and comply to mutually beneficial terms & conditions. 

About Ellery’s Essays

We are Consumers in a Take-It-or-Leave-It World

https://commons.wikimedia.org/wiki/File:Emirates_777_Economy_seats.jpg

I’ll never fly, Emirates, the Dubai-based airline, ever again.  At least I’ll avoid it as much as I could. 

The Emirates flight I took from Manila to Dubai was horrible. I had a economy seat in which I could not get the in-flight entertainment system to work.  The flight attendants ignored my requests for assistance.  The obese male passenger beside me had a smelly hairy arm that kept invading my space.  The plane was an older model Boeing 777 and the cabin & restrooms were not clean or well maintained.  Ventilation was poor.  I could not sleep. 

I also would not want to ever go to the Dubai airport.  While waiting in transit for my connecting flight, the waiting area was packed with people.  There were hardly any available places to sit.  It was very hot even though it was 4am in the morning, local time (the airport air-conditioning was no match for the Dubai desert heat).  The restrooms were also very bad; floors were wet and the tap & toilet water was boiling hot (even from faucets marked cold). 

In fairness to Emirates, my connecting flight to Frankfurt, Germany, via the Airbus A380 was more comfortable, roomier, and much, much cleaner.  The in-flight videos were of excellent quality.

It was the same with my return trip.  Nice Airbus plane via Dubai, and a lousy long flight again on a decrepit Boeing 777 on the way back to Manila.

It was obvious that Emirates deployed older and not-well-kept planes for flights between Dubai and the Philippines and assigned newer & nicer planes for European and American destinations.  It was apparent Emirates didn’t care too much to serve passengers from the Philippines with the same quality of service as they did for those heading to first-world countries.

From that experience, I never booked Emirates ever again.  I have opted other airlines like Cathay Pacific Airways or Singapore Airlines which had way better service and planes serving Manila. 

We have expectations when we book with an airline, especially one that advertises its world-class service and a very modern fleet of planes, coupled with an airport said to rank with the best in the world. 

When we book flights on an airline, especially for the first time, we rely on what other passengers have experienced and written about.  In the case of Emirates, the airline has received much positive reviews and awards from travel groups.  It has been touted for its sterling service, amenities, and its very roomy cabins.  The Dubai airport, where Emirates is based, also receives very good feedback.  Emirates advertises these positive reviews and passengers naturally would have high expectations. 

We therefore become terribly disappointed when our expectations are not met.  We book our tickets, pay the fare, and instead of the excellence we expect, we encounter inconvenience and poor service.  And since we are already in our seat in a flight that takes as long as nine (9) hours, we have but no choice but to endure the experience.

We can complain, sure.  I did and the Emirates flight crew simply ignored me.  But it’s already irrelevant.  The deed has been done.  We’re left to deal with what has been given to us, never mind if it didn’t meet our expectations.  

https://images.summitmedia-digital.com/yummyph/images/2022/10/28/starbucks-2023-planner-tumblers-1.png

Every yuletide season, Starbucks offers a promotion for customers buying their coffee. 

In November 2022, Starbucks Philippines rolled out its 2023 Starbucks Traditions Promo. The mechanics of the promo was simple: collect stickers for every purchase of any coffee beverage and claim rewards upon accumulating the minimum number of stickers. 

The promo promised planners, tumblers, and cups in which the customers can choose any one when claiming their rewards.  I wanted the tumbler.  The promo advertised the tumbler as a “15oz leak proof flask that comes in gunmetal grey colour with sleek matte finish with a modern Siren interpretation.” 

By end of December, right before the New Year of 2023, I had enough stickers to claim my reward.  When I went to the Starbucks branch I regularly go to in the first week of January, the baristas said they had no more stock of the tumbler.  But they promised there would be a re-supply by end of January 2023.  A sign on the counter said the same message. 

When I returned at the end of January, the baristas said there were still no more stock of tumblers. When I asked again one week later, the baristas said there will be no more tumblers coming.  The warehouse was depleted.  I can still get the planner, however.

I would have considered a planner if the baristas in the first place told me in early January that I had no hope of getting a tumbler.  But they didn’t and instead said that there would be supply.  One can imagine the let-down; I was wishing for the tumbler.  Getting a planner in February would give me little value. 

I emailed Starbucks to complain.  In a prompt reply, Starbucks apologised for the inconvenience and stated that items were on a first-come first-serve basis and it is so stipulated in their terms & conditions of the promo (it’s not).  Starbucks advised I could check other branches if there are still available tumblers and gave me a link to their directory of stores. 

I went to three (3) different Starbucks branches and the respective baristas confirmed there would likely be no more tumblers forthcoming.  There was scant hope I would get the tumbler.  There were still planners available, however. 

I contemplated rebutting Starbucks but decided not to. There was no point to waste more of my time. 

The Starbucks tumbler experience, just like Emirates, was a disappointment, I bought enough Starbucks coffee for the promo and I expected a reward I could get as advertised.  I didn’t. 

Once we book a flight, enrol into a promo, buy a product, or engage a service, we have expectations. 

We expect good quality, service, and delivery for the price we paid and for what has been advertised.

Enterprises sometimes clarify those expectations via rules, terms, & conditions in fine print contracts that accompany the items or services we are buying.  They remind us to beware that there are limitations we should be aware of in our purchases.

Nevertheless, contracts don’t completely clarify all of what we should expect.  We rely a great deal on what the enterprises pitch to us.  If Emirates advertises excellent service, a world-class airport, and state-of-the-art amenities in their airplanes, we will then expect nothing less.  If Starbucks says we can choose and claim tumblers, we expect we can do so. 

We live in a world where enterprises raise our expectations to make us choose their products & services.  When we do buy what they’re selling, we experience and respond uniquely as individuals.  What one of us may say is nice may be felt differently by another.  Passengers who didn’t mind an Emirates plane’s broken in-flight entertainment system may give a good review of their experience versus those who were annoyed with the inconvenience.  Customers who preferred and got their planners would give high satisfactory remarks for the Starbucks Traditions promotion versus those who were counting on but never got the tumbler.

For enterprises, business is about wealth accumulation, competitive advantage, esteem, and growing influence in their businesses.  Hence, they look to the responsiveness of markets, not our feelings as individuals. 

If they are succeeding in their goals with their markets, they could care less what a few individuals experience on their own.  We as individuals who become dissatisfied but won’t matter to their bottom lines would just have to either take what enterprises give or just shut up and move on. 

Enterprises, in the past, have attempted to satisfy individual expectations in the hope of boosting their mass market priorities.  They tried mass customisation, in which companies would tailor items to individual customers but still produce them in numbers to achieve economies of scale.

E-commerce, as pioneered by Amazon, offer thousands of items and multiple delivery & payment options to cater to varying customer expectations. 

Restaurants & fast-foods offer different variants in their menus.  Starbucks offers up to 255 items to its customers. 

There can be so many different shampoo, beverage, and hardware items.

Fast-fashion retailers like Zara and Uniqlo offer deliveries to individuals who couldn’t find the available right-size clothes at their stores. 

Enterprises can’t satisfy everybody, however, what more with all of our individual expectations.  In the end, they simply tell us to take what’s available or leave it.

Emirates and Starbucks made promises they really could not keep to everyone. In fairness, we could say they did all they could to satisfy everyone. 

It’s one thing to pitch promises and raise expectations even for just a few individuals who may not really matter.

It’s another thing when they can’t keep those promises and, in the end, just tell us to simply take it or leave it. 

About Ellery’s Essays

Attaining Flow via Systems & Platforms

We complain how little time we have.  Or we complain about how long we have to wait.  Either time is too short or too long.

We lose track of time when we’re engrossed in a task.  But we use a lot of it when we distract ourselves from our jobs. 

Time is an intangible resource that we spend even if we don’t use it.  Once it’s passed, it’s gone.  We cannot get back what time we lost.

We put a lot of effort into extending our lifetimes.  We spend much time today to improve our health and earn money which we aim to use in the future. 

At the same time, we expend a lot of time today doing things that we know are not important or not urgent.  We play games, watch videos, and browse through social media for hours on our personal devices.  We eat out, go to bars or clubs, or just sit and chat with acquaintances over a few beers. 

And then we end up complaining that we don’t have enough time to finish the things we want done by deadlines we personally had set.

In the 1980’s, we marvelled how fast we can send a document from one place to the next via overnight courier.  In the 2020’s, we’d complain if our smartphone doesn’t send a scanned document in a few seconds. 

We have built machines to be faster, but we remain impatient with the platforms and systems where these machines are working in. 

If we aim to be more productive with our time, we need to do two things:

  1. Attain a state of “flow;”
  2. Build systems & platforms that would support “flow.”

Mihaly Csikszentmihalyi (pronounced Me-High-Chick-Sent-Me-High) wrote the book, Flow: The Psychology of Optimal Experience, which described a “state of concentration or complete absorption with the activity at hand and the situation.”  It is a state where we are so engrossed in a task or job that we lose track of time. 

In an interview with Wired magazine, Csíkszentmihályi described flow as ‘being completely involved in an activity for its own sake. The ego falls away. Time flies. Every action, movement, and thought follows inevitably from the previous one, like playing jazz. Your whole being is involved, and you’re using your skills to the utmost.’

When we are in flow, we are at our most productive state.  We are focused to finish or achieve a goal and we are using just about 100% of our faculties to get it done.  Time may seem to fly but it’s time worth used, just as long as we are sure of our goal, and we end with a sense of worthy accomplishment. (Two of the most upsetting and frustrating outcomes from a flow state are [1] we realise we’ve been working on the wrong goal [2] we lose our work due to unforeseen circumstances such as a crashing computer or a dog eating our homework). 

Flow happens when we not only have the prepared state of mind but also have the right setting, tools, materials, and data available.  It happens not only when we are psyched but also when we have supportive platforms and systems.

We can’t be at the best state of flow if we are mentally ready but will only have a few minutes of privacy.  We can’t have flow if we plan to do a research paper but don’t have the resources to access data.  We can’t work to sculpt a masterpiece if we don’t have the tools and the plaster.

In the enterprises we manage, systems and platforms are very important in the attainment of flow and achievement of goals.

Car companies in North America are investing heavily in setting up charging stations along highways and roads in the United States to support the growth of electric cars and trucks.  Electric vehicle sales remain almost non-existent in Asia as corporations and nations fall behind in building a similar network.

Supply chains have become a global issue as industries and governments realised that seaports, airports, and railways have not kept up with high-capacity, deeper-draft shipping vessels, more airplanes of varying sizes, and changing train transport models (e.g. high-speed trains, railroad safety, labour standards).

Even the custodians of information technologies have found themselves at a loss as their platforms & systems are not equipped with safeguards against disinformation and cyber-crime. 

We should aim to have flow in what we do and what we work on.  Getting to flow is not only attaining a state of mind but also having the support of systems & platforms to help us get there. 

In a world where we work hardly as individuals but greatly as connected communities, systems & platforms have come to matter a lot in ensuring our productivity.      

About Ellery’s Essays