Ellery's Essays

Why and How Banks Should Improve their Services

In the late 1990’s, Asiatrust Development Bank, a relatively newcomer to the Philippine banking industry, expanded its banking hours from 8:30am to 6:00pm. It was a break from the traditional 10:00am to 3:00pm schedule that was the mainstay of other Philippine banks. Many small businesses and individuals particularly those who worked until evenings, flocked and opened accounts with Asiatrust.

Asiatrust also offered pick-ups of deposits from customers and post-dated check warehousing, in which post-dated checks can be safe with banks until their deposit dates. These added conveniences helped the bank snare more clients, notably small & medium-sized businesses

Some banks took notice of Asiatrust’s meteoric capture of market share and also expanded their hours and services. Asia United Bank (AUB) absorbed Asiatrust in 2012 but its legacy of services for small businesses and entrepreneurs lived on in the Philippine banking industry.

Almost thirty (30) years later, amid the pandemic of 2020, Philippine banks have reversed these services. Citing the risks to public health, banks have shortened hours; some have even closed branches. Banks have reduced staff, resulting in long queues of clients at branches and long waits when calling customer service hotlines. Bank internet services have slowed thanks to surges in online transactions.

Banks serve an important function in ensuring enterprises and their supply chains keep running well. Cash-flow transactions between vendors and customers transpire mostly via banks. Foreign exchange dealings, such as letters of credit (LC’s) and wire transfers, happen in most cases through banks. Philippine bank executives repeatedly extol their commitment to customer service but they balance that priority with that of managing present-day risks in order to maintain the health of their finances.

When banks downgrade services, enterprises’ supply chain activities may suffer. When a bank is closed or the waiting line leading into it is too long, for instance, clients may find themselves unable to consistently do routine financial transactions. This can result in delays in payments to vendors and depositing collections from customers. Receipts of materials and deliveries of merchandise would be negatively affected.

Cutting back services, especially those dealing with foreign exchange transactions, can hamper the timelines of enterprises to import materials or export products.

Banks have a golden opportunity to grow if they would just focus on service.

In the Philippines, more than 65% of adult Filipino households don’t have bank accounts. That’s 65% in potential market growth for banks. Many Filipinos don’t deal with banks because either it’s a hassle for them (branches are inconveniently far from their homes or places of work) or because it’s simply discouraging to open accounts (e.g. too many forms to fill, minimum deposits, low interest rates, restrictions on loans).

Small businesses make up 99% of commerce in the Philippines. Which means they also likely make up 99% of supply chain transactions in the Philippines. Even if the remaining 1% of enterprises that comprise big businesses may hold a large share of the commerce, the revenue and investment potential of small enterprises cannot be discounted.

Banks aren’t just important to supply chains, they are much like them and can even be managed as such.

Banks purchase and deliver cash to and from branches and require the logistics of armoured cars. They not only tap the talent of managers and staff to serve clients but also have work systems that can be optimised (e.g. tellers and customer services).

The science of determining how many branches to have and where to locate them are not much different from that for storage depots for manufacturing firms. And finding out how much capacity a branch should have (number of staff and how many operating hours) isn’t far from the capacity computations for assembly lines and logistics operations.

The risk management for banking operations which encompass safety and occupational health aren’t really unlike that for the standards and practices for supply chain operations.

Organisations with supply chains have been continually adapting to risk and improving customer service, pre-pandemic and amid the pandemic. If they can do it, banks can too.

The science of supply chain management and engineering can work for banks as much as it has in many industries. It just perhaps needs the insight to get it started.

About Overtimers Anonymous

Competitive & Non-Competitive Priorities and How to Deal with Them

In several firms I’ve worked with, I couldn’t help but notice that supply chain managers would sometimes be engrossed with priorities regarding compliance to government-mandated occupational safety & health standards. They would have long meetings and spend much time on the nitty-gritties of reports to be filed and procedures to follow.

But in the following week, the same managers would switch to issues regarding costs that were going over budget. The general manager of their company was concerned about expenses and wanted a meeting so the supply chain managers would be rushing to prepare their presentations to explain their respective functions’ spending.

Priorities would shift week after week, month after month. One day it would be safety, the next day it would be quality. When managers would ask which priority is more important, their boss would reply: “all of them.”

There are two (2) types of priorities enterprise executives deal with. These are competitive priorities[i] and non-competitive priorities.

Competitive priorities are those when addressed add value to the enterprise. Examples are sales, cost, quality, delivery reliability, and after-sales service excellence. As the term suggests, these priorities directly contribute to an enterprise’s competitive advantage.

Non-competitive priorities are those that executives do not recognise as adding value to the organisation but are too important to ignore. Examples are safety, security, industrial labour relations, community relations, government regulation compliance, environmental safeguards, and employee health. These priorities may not contribute to an enterprise’s competitive advantage but are imperative to its ongoing operations.

Enterprise executives see competitive priorities as vital to the organisation’s growth. Consumer goods executives, for example, would develop marketing and product initiatives to bring about higher sales.

Enterprise executives, on the other hand, see non-competitive priorities as crucial to the organisation’s survival. Executives, for example, would stress industrial safety as a program to prevent injuries. They would expect their organisations to adopt safety practices so that people don’t get hurt, and not lead to disruption in operations.

To put it in another way:

Competitive priorities address opportunities.

Non-competitive priorities address adversities.

Classifying priorities in either category may help enterprise executives not only what to tackle first but also determine who should be leading the respective priorities.

Quality and safety are everyone’s jobs but if there are no quality control or safety managers to lead priorities in either one, then it would probably be chaotic for the executives trying to handle them on top of the other important things they have to do.

It also pays to have awareness of the two types of priorities to know how they would affect the enterprise. Classifying community relations as a non-competitive priority, for instance, may prove worthwhile for an enterprise who has a factory situated within a largely populated city. It would encourage executives to invest in a manager who would engage with the factory’s neighbours and handle issues that might result in mutual benefits.

Being mindful of competitive and non-competitive priorities also gives the organisation a constant big picture of the work it’s doing. Engineers building a new storage facility, for example, would best have an understanding of what they want to accomplish. It wouldn’t just be about building for more capacity; it would also be about the impact on working capital, better distribution of products, reduction in damages, and safer working conditions.

Executives can sharpen their enterprise strategies with their awareness of both competitive and non-competitive priorities. The trick is to have balance and brevity. Some company mission statements tend to stress too much on quality and leave out the rest. Other corporate philosophies overdo it with numerous paragraphs that overwhelm the organisation.

We all have priorities. We just need to understand which ones are competitive and non-competitive in which the former addresses opportunities while the other takes on adversities. Both are too important to ignore so it would help if we classify the things we do as either competitive or non-competitive.

If we can’t do things all at once, we may need to check our structure and resources. We also should try to make sure our overall strategies aren’t complicated or overwhelming for our own organisations.

[i] Davis, Mark M., Aquilano, Nicholas J., and Chase, Richard B., Fundamentals of Operations Management, 1999, Chapter 2, p. 25

About Overtimers Anonymous

What Collaboration Is and Is Not

Collaboration denotes a cooperative working relationship between parties which leads to mutual benefits. It’s not commonly observed in industries and supply chains despite the potential benefits it can bring. This is because it’s not easy to do and in the first place, many business executives don’t think it’s worth the trouble.

Many enterprises, small businesses especially, don’t have the leverage to collaborate. Big companies look down at small ones, for one thing, and see no worth in pursuing collaborative relationships with enterprises that contribute little to their revenue or cost.

Even if a small business grows larger, it would still have trouble earning trust from suppliers and customers. It’s just natural to be suspicious and wary when dealing with others outside of our own organisation, if we aren’t already to those within our own workplace. Our parents did tell us not to talk to strangers when we were children. We were taught not to trust just anyone.

Collaboration has to start between individuals within an organisation before it can expand to those outside it. An organisation has to establish internal collaboration before it can externally collaborate with other enterprises such as vendors and customers.[1]

Internal collaboration is when “sales, marketing, and operations find a way to align and focus on serving the customer in a way that maximises internal profit.”[2]

When internal collaboration is achieved, then an organisation can move to external collaboration. External collaboration “consists of a supplier and a customer working together to achieve mutual improvement.”[3]

We should know what collaboration is and what it is not.

It isn’t a meeting. It’s not several representatives of one company meeting with those from another. It’s not enough also that representatives draw up agreed action plans or sign a contract after a series of meetings. Agreements and contracts aren’t collaborations; they’re just formalities to existing business arrangements that don’t outright lead to mutual improvement;
Collaboration isn’t an internet link. When an enterprise can order materials from suppliers via email or customers can order merchandise via a dedicated electronic data processing (EDP) network, that is not collaboration. That’s a connection. Such a network that eliminates time-consuming documentation may be a manifestation of enterprises working together but it’s really nothing more than a wired conduit between information systems;
Collaboration is about multi-function cooperation, not just one department with another. It’s about representatives from every relevant function of an organisation cooperating with counterparts from another. Suppliers and clients in collaboration wouldn’t be limited to price and order issues; they’d be discussing inventories, payables, quality, and operations reliability;

Collaboration is working together. It is about enterprises huddling as one in developing common mutually beneficial objectives and strategies;
It isn’t a merger. Collaboration doesn’t mean becoming one enterprise. There’s still a distance to maintain because there would still be diverging interests. A customer who’s into retail may not want to really involve herself too much with a supplier who’s into manufacturing, for instance;
Collaboration is dedication via leadership. Enterprise executives must lead by showing initiative, investing time, and developing trust with their counterparts. When executives dedicate, they show how serious they are to the organisation. Naturally, the organisation would follow the leaders;
But it’s dedication not commitment. Collaboration is more like a friendship, in which individuals come together as a team to explore opportunities and come up with common goals. But it’s not a marriage where an enterprise wholly commits itself to another. We don’t sell our souls when we collaborate;
Collaboration is not for everyone. Small businesses may not have much leverage to collaborate but who cares? Some firms may be perfectly fine without collaboration, for now or for the meantime. A hardware store dealing with thousands of items wouldn’t spare the time to collaborate with a vendor of very few items, even if the items make up a significant bulk of sales;
Collaboration is an activity that requires preparation and structure. Dealing with counterparts, whether internally or externally, with other functions or with vendors or customers, requires planning, policies, and a framework of assignment, accountability, and performance measurement. There must be a front-line team who will work with another from the other side. That team must know what it wants, what its limits are, and what it must answer for;
Collaboration is a system. At least it should evolve into one. Collaborating is not just a meeting of minds and just getting things done together. For it to be worth it, it has to result in a continuous mutually beneficial relationship. Each side should establish a shared routine of communications, negotiations, and transactions that point toward higher levels of performance that give rise to ever increasing benefits.

Collaboration is not only about getting two parties together, ironing out differences, and coming out with an agreement. It’s not a meeting. It’s not something that leads to a contract or even a merger. It’s an activity where counterparts work together toward a common purpose for mutual benefit. But it’s not a marriage; counterparts should respect each other’s individual personality and path. It requires a team with a set agenda and that’s dedicated to perform. It eventually becomes a system where the parties perform and grow together in a shared environment.

It’s not easy to start, not easy to sustain. But it might be worth the effort. Because two heads are always better than one. Working together is better than working alone.

About Overtimers Anonymous

[1] Reuben E. Slone, J. Paul Dittman, and John T. Mentzer, The New Supply Chain Agenda: The 5 Steps that Drive Real Value (Boston, Massachusetts: Harvard Business Press, 2010), chapters 5, Kindle.

[2] Ibid, chapter 5, Kindle.

[3] Ibid, chapter 6, Kindle.

How Maintenance Can Make the Difference Towards Victory or Defeat

https://weaponsandwarfare.com/2015/09/01/golan-heights-1973/

On October 6, 1973, Egyptian and Syrian military forces launched attacks on Israel. It was Yom Kippur, Israel’s holiest religious holiday and despite defensive contingencies, the Jewish state’s citizens were taken by surprise as thousands of tanks, artillery pieces, and soldiers invaded the Golan Heights at the north and at the Sinai Peninsula at the south.

While media attention focused on the Egyptian invasion at the Sinai, Israel’s survival hung on a balance from the Syrian offensive at the Golan Heights. The Syrians had brought 1,200 Soviet-made tanks backed by 1,000 artillery pieces and another 1,000 armoured personnel carriers (APCs). Israel had only up to 250 tanks going into battle. Syria’s Soviet-made surface-to-air (SAM) missile batteries shot down responding Israeli Air Force (IAF) jet fighters, effectively neutralising air support. It was a duel to be determined by two ground armies in which the odds were stacked in favour for the Syrians. It was a life-or-death struggle for Israel. [1]

Within 100 hours from start of the attack, however, Israel had beaten back the Syrians. Israeli professionalism, gallantry, coupled with advantages in terrain, had prevailed. Some would say it was a miracle.

The Syrians had hit all engaging Israeli tanks during the battle of the Golan Heights. Of the 250 Israeli tanks that Syria had knocked out, 150 of those tanks returned to battle after they were repaired within 24 hours. Some of the 150 Israeli tanks were even hit more than once but still returned to battle within hours.

At the height of the fighting, Israeli tank crews brought their damaged vehicles to repair centres behind front-lines. Soldiers would rescue tank crews and towed the tanks back. Logistics personnel made sure there were ample stocks of spare parts as mechanics and engineers quickly fixed the tanks and made them ready for service within hours. Tank crews meanwhile used the respite to rest and eat. [2]

The Syrians had no such system. Tank crews would simply abandon their damaged tanks. There was no replacement or repair for any Syrian tank that was hit. The Israeli tanks, meanwhile, returned to the field again and again to engage their enemies. Even at overwhelming odds of up to 10 Syrian tanks for each one from Israel, the Syrians could not keep up. After four (4) days of fighting, the Syrians withdrew. Israel emerged victorious.

The Yom Kippur war was a testament how the Israeli military valued its soldiers and equipment. While its Arab opponents relied on the Soviet military doctrine of unleashing large numbers of tanks and soldiers, Israel opted on the ability to rotate its weaponry on the battlefield. The Israel military’s system of maintaining their equipment and rotating them back to service undoubtedly contributed to its victory in the battle for the Golan Heights.

Maintenance of fixed assets is a commonly neglected area in enterprises. Buildings, trucks, material handling equipment, production machinery, and office hardware are part and parcel of most, if not all, enteprise operations. Yet, some enterprise executives don’t see the value of maintenance of such assets in good running working condition.

We hear the complaints all the time:

A purchasing assistant has to share her laptop with a colleague whose desktop personal computer is waiting to be fixed;
A quality control laboratory technician delays the release of a finished product because a replacement part for her broken-down testing machine hasn’t arrived yet;
Employees on a shipping dock can’t finish loading trucks because their forklifts constantly stall;
A building roof leaks when it rains and disrupts production on an assembly line.

Enterprise executives should not view maintenance as a burden. They should see it as an opportunity for competitive advantage.

Setting up a maintenance program does not require management re-invention. As with any management process, it involves setting goals, formulating strategies, and establishing policies.

Supply chain engineers (SCE’s) can help enterprises assess the system of managing the procurement and inventories of spare parts and marry it with the performance measurement of operations.

Maintenance may be daunting especially for supply chains that employ complicated processes and equipment. All the more reason for enterprises to engage the engineering prowess of SCE’s who can assess and untangle the myriad complexities of equipment set-ups and recommend solutions to optimise the balance between operational uptimes and maintenance downtimes.

The Israeli military in 1973 made sure their soldiers had the support of a superior maintenance system to defend their country. The repair centres behind the front-lines those fateful days at the Golan Heights had enough tools, well-trained crews, and a well-stocked inventory of parts to fix damaged tanks and equipment and bring them back to battle.

Maintenance made a difference to a country’s miraculous victory. What more can it do for enterprises in highly competitive arenas.

About Overtimers Anonymous

[1] Jerry Asher with Eric Hammel, Duel for the Golan, (New York, New York: William Morrow & Company, Inc., 1987) book jacket.

[2] Ibid, page 192.

The Three Capacity Types

How much can we make?

How much can we buy?

How much can we deliver?

These are typical questions executives ask their managers all the time. Executives often want straightforward answers; they’d rather be spared the complicated assumptions behind any of them.

Calculating capacities can be a headache. It’s never really as straightforward as a machine’s rate of production or how many items a person makes in a day. Operators sometimes slow machines down or speed them up. A shorter person may not make as much as a taller person. Raw materials from one vendor may lead to higher output than that from another supplier.

How executives view an enterprise’s supply chain capacity is also often different from that of employees. Executives usually prefer what’s the most that can be produced and delivered. Employees typically equate capacity with how much they have delivered in reality.

Answering the questions of capacity therefore requires knowing what assumptions to base on and what data and formulae to use.

I usually propose three types of capacities for enterprises:

Maximum Capacity
Operating Capacity
Demonstrated Capacity

Maximum capacity is how much an operation can make or deliver assuming it runs at its highest designed rate all the time, that is, 24 hours a day, seven days a week, 365 days a year (366 if it’s a leap year). No breaks, no shutdowns.

maximum capacity = design rate x 24 hours/day x 365 days/year

Note that it involves the highest designed rate, that is, what the operation is engineered to do. The design rate isn’t what it can actually do but what it’s supposed to be capable of.

Operating Capacity is how much an operation can make or deliver assuming it runs at its highest designed rate based on a schedule. Operating capacity computations are based on planned timetables but regardless of downtimes.

operating capacity = design rate x scheduled operating time

Note that operating capacity uses the highest design rate and 100% of the scheduled time. Operating capacity does not take into account planned or un-planned downtimes, such as break-times or time lost during an operation for whatever reason. For example, in a production process that has a design rate of 100 pcs per minute and is scheduled to run eight hours a day but with allowed breaks totalling 1-1/2 hours, the operating capacity would be:

operating capacity = 100 pcs/minute x 8 hours/day x 60 minutes/hour = 48,000 pcs/ day

Operating capacity does not factor in the break-time. It does not consider any slow-down from the design rate.

Demonstrated Capacity is based on the actual output of an operation. It is determined by multiplying the actual operating time with the actual operating rate:

demonstrated capacity = actual operating time x actual operating rate

The actual operating rate is the regular rate of output or what an operator or supervisor establishes as the equipment’s or workplace’s attainable output of items. The actual operating time is the total amount of time the operation was running after deducting planned and un-planned downtimes. For a production process that has a design rate of 100 pcs per minute, but an actual output of 5,000 pcs per hour that has a schedule of one eight-hour shift a day with 1-1/2 hour breaks, the demonstrated capacity would be:

demonstrated capacity = (8 – 1.5 hours) x 5,000 pcs/hr = 32,500 /day

Demonstrated capacity does not take into account the design rate or the total eight (8) hour scheduled shift. It only considers the actual operating time and actual rate of output. It does not, however, deduct any unacceptable output (e.g. scrap, rejects).

Executives, especially financial managers, prefer maximum capacity when it comes to assessing how well an enterprise is utilising its assets. If an enterprise’s supply chain schedules an operation at one (1) shift a day, it would be utilising at most one-third of an operations assets’ capability, which reduces the potential return on investment for the assets. For an enterprise’s owners, that would be tantamount as wasted opportunity.

Supply chain managers favour operating capacities in measuring efficiencies. Operating capacities would be the baselines to determine how reliable operations are.

Many operators and supervisors like demonstrated capacities for performance measurement. Some would see operating and maximum capacities as unreachable parameters. They’d instead measure their output against what they can attain, which would be demonstrated capacities.

When it comes to determining what the capacity of an operation is, one has to be aware of who’s asking and what is being looked for. Is it how much an operation is capable of? (Maximum Capacity). Is it how much can be achieved at full efficiency over a planned time frame? (Operating Capacity). Or is it how much can one realistically count on to attain? (Demonstrated Capacity).

Enterprise executives, managers, and engineers may have their own versions on capacities. It should be based on what one is after. An executive seeking the best return on investment would have a different perspective from an operator who wants to know how much can really be done.

Capacities apply to every operation. Variables such as design rates can be tricky to determine, especially if the design rate is to be determined from labourers or logistics. Supply chain engineers can help provide the data.

That’s what they’re there for.

About Overtimers Anonymous

The Nimble Supply Chain: Is It Even Possible?

https://www.jigidi.com/jigsaw-puzzle/jsb9j9vu/jack-be-nimble/

Managers like things to turn out elegant. A well-laid out factory that produces flawlessly. A warehouse with more than enough storage space and material-handling equipment. A complete fleet of trucks that delivers all the orders without delay. A smoothly running purchasing system in which supplies and materials are bought at the best price and arrive on time.

Nice to dream about but hardly the reality. All it takes is one disruption to mess everything up.

The COVID-19 pandemic of 2020 is the popular example. Many enterprises have closed thanks to sudden drops in demand and supply. What many executives thought would be a good year turned out the opposite.

But as much as the pandemic was the biggest whammy to business in recent memory, it is not the last and it certainly wasn’t the first. Disruptions happen all the time in different degrees and forms. There will always be uncertainties and resulting variabilities in supply and demand. Consumers will overstock or switch to other brands. Business customers will be fickle about buying new equipment. Vendors will speculate and change prices, terms, and the availabilities of items. Third-party providers will abruptly ask to renegotiate contracts.

Many consultants cite the need for supply chain flexibility and resilience in order to re-grow and survive. But that’s not the answer.

What we need are nimble supply chains. Nimble means having the prowess to adapt and respond quickly to changing circumstances without having to invest or spend too much in resources. It’s more than being synonymous to agile. It involves the ability and tendency to adapt rapidly to changing circumstances. Enterprises not only need to run fast but run fast and dodge unpredictable obstacles while aiming toward moving targets.

Hence, the challenge for supply chains: with all its differing functions and all the uncertainties, how does one become nimble from start to finish? Can it even be done?

The answer is yes but it would need changes in mindsets.

First, nimble is not a buzzword. Consultants and so-called experts have promoted buzzwords like agile, just-in-time (JIT), Six Sigma, ERP, Lean, and responsive. Many projects have ended up dead-on-arrival while consultants and so-called experts made money out of them. When we say we want to be nimble, it doesn’t mean uttering it in every meeting. (“we need to be nimble!”, why aren’t we nimble?”). We need to define it and make a strategy out of it.

Second, nimble does not mean a total change in how we operate. It’s more of finding and focusing what to improve and where. How fast can we switch to a different item? How do we shorten the set-up times between products? How do we adapt our order-to-delivery systems? How do we quickly source new materials?

Large consumer goods firms such as Unilever and P&G have bragged about their introduction of hand sanitizers and face masks in the wake of the COVID-19 pandemic but it took them several weeks to develop the items. Toyota has made it a routine to retool their assembly lines and make available a new vehicle model in a matter of hours, if not minutes.

Third, it is relevant to all functions in the supply chain. Nimble isn’t limited to manufacturing (where a lot of people think it does). And even if an enterprise thinks it can be nimble just on the production line, it is doubtful its supply chain will be if its logistics and purchasing functions aren’t geared up for it.

A large wholesaler excelled in the procurement and inventory management of merchandise but had room for improvement when it came to deliveries. The wholesaler hired a freight trucking company to deliver products to customers. The wholesaler insisted that the trucking company supply large 6-wheeler trucks to maximise loads and minimise freight costs. Trucks, however, often had to wait for hours till they were fully loaded and the wholesaler usually loaded the trucks with up to 10-15 customer orders each. Either way, deliveries were frequently delayed or trucks weren’t able to deliver all of the orders in a single day. Customers complained. The wholesaler finally relented to the trucker’s call to use smaller four (4) wheel vans which delivered to customers faster, sometimes within the same day orders were received. It turned out freight costs didn’t significantly increase as four (4) wheel vans could do several trips in a day.

Fourth, nimble applies in every industry. Whether it be consumer goods, industrial, or energy, going nimble can help enterprises of every sort.

For many years, a large cement company sold to a captured market. It had steady revenues and all it had to worry about was cost. Its factory was designed to mass produce cement bags by the hundreds in a day. One day, however, the government allowed foreign cement producers to enter the market. Suddenly, the cement company found itself at a pricing disadvantage. The cement company eventually closed down its factory. Imported cement was cheap and had better quality. The cement factory never bothered to improve its products or its operations. It thought it never had to.

Fifth, nimble isn’t limited to enterprises that sell tangible products; it works for service-oriented organisations too. Hospitals in Taiwan have long realised that fast turnaround of patients is crucial in keeping costs down and reducing wait times for sick people seeking treatment. Taiwan hospitals were well-prepared for the COVID-19 pandemic. They had an inventory management system that assured enough medicines, supplies and personal protective equipment (PPEs). They also set up a structure in which assigned medical teams, consisting of doctors, nurses, and staff, would be dedicated exclusively to the contagion. These teams would work separately from other medical practitioners dealing with patients with other ailments. The strategy worked and Taiwan was nimble enough to dodge the virus bullet.

Sixth, and finally, it needs an engineering approach. Leaders set directions, managers plan and implement, but engineers do the nitty-gritty design and development of structures and systems essential to the improvement of operations.

Enterprises don’t construct factories on their own. Enterprises hire engineers to do that. In the same way, they should engage supply chain engineers to build systems and structures that would enable an enterprise to become nimble.

Enterprises don’t have to start from scratch. And it would not need super large investments. Engineers can identify workplaces along the supply chains that would significantly contribute towards becoming nimble.

It can consist of re-designing production lines to quickly change over to different items, such as what Toyota did. Or it can involve having smaller trucks to deliver rapidly to customers, as what the wholesaler did. It can also just entail identifying areas to reduce costs and improve quality which the cement company failed to do.

Supply chains operate in a normally disruptive world. Enterprises need to be nimble; flexibility and resilience aren’t enough. Buzzwords are useless. For an enterprise to be nimble, it needs to define its strategy, focus on where to improve, and involve all functions. Enterprises have to believe that nimble applies to all industries, even service-oriented ones.

The best approach to nimble is via supply chain engineering. Supply chain engineers have the best qualifications to build the nimble enterprise.

About Overtimers Anonymous

DRP, Deployment and the Role of the Supply Chain Engineer

Distribution Resource Planning (DRP) was my first assignment as supply chain planner for a large consumer goods firm.

It was the late 1980’s and Manufacturing Resource Planning (MRP 2) was at the height of popularity in the corporate world. The company I was working for was embarking on integrating MRP 2 in an information technology upgrade of its operations and DRP was one module offered.

DRP is a planning tool in which one schedules the deployment of items, usually finished products, to distribution centres or depots at different geographical locations. It manifests itself in matrices such as the following for a depot and a central storage facility:

The matrices serve as templates in which the planner can see how much a depot needs at a point in time in the future. In the following example, it’s week three (3) in the future:

To anticipate the out-of-stock on Week 3, the planner simply schedules the shipment of product to the depot. Assuming a lot size of 800 and a two-week transit time, the planner schedules a shipment from the central facility at Week 1:

It’s simple enough for one item and for one depot. The work adds up when it includes several depots:

For multiple items and multiple depots, the work adds up even more:

As much as the planning is simple per item per depot, the work becomes more cumbersome and complicated with multiple depots and multiple items. Hence, DRP works best with the help of MRP 2 software that would automatically compute the schedules for all items for all depots.

It’s no wonder then that organizations look forward to artificial intelligence (AI) in planning the deployment of products. It’s just a lot of simple work that a machine can do instead.

If only it was that easy.

DRP deployments don’t take into account uncertainty and sudden disruptions. It assumes things will go as planned when in reality, they do not. Such as when a planned arrival is delayed:

Customer orders as a result are not served. And the disruption may even cause customers to speculate:

In such scenarios, automated planning is no longer useful. Human intervention is needed as the central facility would either rush stocks to the depot or the sales force served by the depot negotiate with customers to smoothen demand.

When it comes to uncertainties, planners tend to build up inventories to avoid situations like in the aforementioned example. It defeats what DRP is trying to do which is to keep inventories manageable and at the same time serve customers only when they would be needing their items.

Information technology (IT) software does not provide a fool-proof automated solution for planning inventories and deployment. Yet, many managers make the mistake expecting that computer programs will do so. DRP is no exception.

Deployment is a critical step in the supply chain, especially for enterprises that have markets in far-off places. It isn’t something that can easily be automated. It requires a framework founded on an overall strategy.

An overall strategy answers how the enterprise shall distribute its products:

Do we set up depots or distribution centers at different geographical regions?

Do we deliver directly to markets from a single central distribution facility?

Do we build manufacturing and distribution facilities at different locations?

Do we just rely on a 3^rd party logistics (3PL) provider to do all the sales and distribution of products?

The distribution strategy will need to align with how the enterprise wants to sell and deliver its products.

Will selling be via retail channels?

Do we negotiate contracts with distributors, wholesalers, and/or licensed dealers to sell at different markets?

Does the enterprise utilize e-commerce for customers to order and couriers to deliver?

The framework for deployment consists of both policy and structure derived from a distribution strategy.

Policy would cover such areas as:

Inventory: how much to keep, when to replenish, how items are handled (e.g. first-in first-out);
Service: how items are dispatched (e.g. minimum quantities, lot sizes, less-than-truckload [LTL] limits);
Quality: how merchandise is inspected, how damages are prevented;
Risk: how products are secured and accounted for.

Structure would involve the assets and people directly involved with deployment. These would consist of:

Facilities such as depots, warehouses, storage equipment (e.g. racks, tanks, vessels), & materials handling (e.g. forklifts, conveyors);
Transportation assets from trucks, vans, to shipping containers and air-freight;
Organizational structure and management set-up.

The effectiveness of a deployment framework depends on how well the enterprise develops its policies and structures. This is where supply chain engineers (SCE’s) can help.

SCE’s can assist executives in studying various scenarios for an enterprise’s deployment framework. These range from assessing the capacities and financial effects of product flows via different network options to determining optimal inventory levels taking into account the risks of stock-outs and overstocks.

SCE’s can also fine-tune options on how an enterprise can deploy its products efficiently and effectively. For example, SCE’s can help executives decide whether cross-docks would be a better option to rapidly move products from centralized locations to customers.

DRP is a good tool for supply chain planners. But like all good tools, it is most effective when it fits in with a framework founded on a well-developed distribution strategy.

Supply chain engineers have the expertise to help enterprises optimally spread their inventories to the markets they want to sell to, with the tools and software they are familiar with and can muster.

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The Feasibility Study Ends with a Plan, Not A Solution

The feasibility study consists of the following steps:

Defining the Problem
Brainstorming Possible Solutions
Developing Criteria for the Solution
Evaluation and Selection of the Solution
Assessing the Solution’s Practicality and Benefits
Making a Plan

It starts with defining the problem. It ends with a plan.

A lot of people make the mistake of ending a feasibility study with a solution.

After they have the answer, many of them neglect to ask “what’s next?”

They rely on the stakeholders to figure that last step out. That’s a big mistake because most of the time, the stakeholders have no clue as to how to do so.

The process of finding a solution begins with brainstorming. This is already controversial as some would argue that one should first set criteria for whatever idea or answer is presented.

What inventory and procurement policy should we establish?

Brainstormed ideas:

Buy only when customer orders?
Eliminate all items except ten (10) fast-selling products?
Keep no stock of top 20 most expensive items to make?
Have a single exclusive vendor for each material item and make vendor accountable for inventory?
Have at least three (3) suppliers per material item purchased and keep at least one (1) month’s equivalent worth of sales per item?
Put all inventory on a huge container vessel that would constantly be at sea and move from one port to the next to load and unload merchandise?

Brainstorming comes first because it is a no-holds barred free-thinking exercise that allows minds to capture all the thoughts possible to address the problem. Nothing is filtered or evaluated. Every thought is acceptable and listed.

Criteria comes afterward but they should relate to values, principles, and strategic objectives.

Examples of Criteria:

Solution has to be easy to implement;
There should be minimal risk in running out-of-stock;
There should be minimal investment in training and education:
Material costs should not increase;
Working capital should decrease.

Brainstormed ideas are then filtered based on the criteria. Those that obviously wouldn’t fit are thrown out outright. The ideas that qualify would remain.

The remaining ideas then pass through an evaluation process.

The evaluation process is mostly an intuitive one. Whereas defining a problem depends a great deal on data gathering, analyses, and presentation of evidence, evaluating candidates in search for the best idea or answer to a problem is mostly done via perception and insight.

We weigh candidates against the criteria we developed earlier. The weighing is an attempt at rational calculation but most of how we do it is based on opinion. We predict benefits on what we think will happen, not really with any rationale.

A feasibility study is a contrast between the rational definition of a problem and the intuitive search for a solution. That’s why as soon as a solution is selected, we need to refine it and move forward to developing it into a plan on how to make it into a reality.

Refining the selected solution or idea is simply clarification of what we think needs to be done. Whereas a problem is best described in the form of a question, a solution should come out in the form of an action plan.

As an action plan, a solution or selected idea should follow a SMAC format. It should be Specific, Measurable, Attainable, but Challenging.

We will develop an ABC Inventory & Purchasing Policy.

A feasibility study ends with a plan, not a recommended solution. Solutions are intuitive but a plan brings it into reality.

With a plan, an organisation will know what to do next.

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A Feasibility Study Starts with Defining the Problem

An employee has an idea and brings it to her boss. The boss says “good idea!” and forms a team to do a feasibility study. The team determines the idea feasible for a new product.

The boss authorises the introduction of the new product. The product, however, does not sell. Customers think it’s too expensive. The boss kills the product. The employee who suggested the idea is fired. He gets rich when he sells the product on his own.

There is a fine line between an idea and a solution. Both are not the same. An idea is a thought that develops into a concept. A solution is an answer to a problem or it’s a process or method to deal with a problem.

More often than not, we mix up the two and we do a feasibility study without really thinking through whether what we’re studying the feasibility of is an idea or a solution.

Why is it important to know if we’re studying an idea or a solution? Because the best approach to doing a feasibility study is knowing the purpose of what we’re studying in the first place.

If we’re studying the solution, we’d need to make sure what the problem the solution is answering.

If we’re studying an idea, we’d need to know what we’re developing from the idea. What is the idea’s purpose?

Feasibility studies typically consist of the following steps:

Defining the Problem
Brainstorming Possible Solutions
Developing Criteria for the Solution
Evaluation and Selection of the Solution
Assessing the Solution’s Practicality and Benefits
Making a Plan

If somebody is going to say I just laid out a problem-solving approach, I will say yes, I did.

A problem-solving approach is the core of a feasibility study. If it isn’t, it would make no sense to do a feasibility study. How can one judge the feasibility of something if one doesn’t know the purpose of that something or what problem it is solving?

In starting a feasibility study, it pays to know what the purpose is. Hence, the first step is problem definition.

A problem is not necessarily a disruption, a roadblock, or a painful symptom. A problem in the context of a feasibility study is what we’re trying to achieve. It typically comes in the form of a question that starts with “what” or “how.” And it should be as specific as possible.

What can we do to lower the cost of electricity in our factory?

How can we reduce our pending orders faster?

Please note that defining the problem is not as straightforward as it looks. Just asking a question does not mean we have defined the problem.

Defining the problem requires diagnosis. Diagnosis requires data and analysis.

A doctor does not simply define a patient’s problem just by the patient’s symptoms. The doctor would diagnose, that is, do tests, study the results, establish the cause, and prescribe a procedure to cure.

Likewise, with problem definition. We need to gather data, analyse the data, organise the evidence, identify root causes, and conclude what the problem is.

Inventories are high but we run out of stock every end of the quarter. We import in large lot sizes. Our stocks spike when the imports arrive. Arrivals of imported merchandise come in at the same time. Demand depletes our stock but some items run out faster than others. We order when we notice items nearing out-of-stock. It takes six (6) weeks for merchandise to arrive from the time we order and prepare the import documents.

What inventory policy should we develop for our imported merchandise?

We would also need to listen to what stakeholders are saying, especially what their ideas are. It may sharpen the problem definition further.

Our purchasing staff suggests we break up the imports into smaller quantities but that would mean foregoing bulk discounts from vendors. They suggest negotiating with vendors such that we can order in bulk but have the order shipped in staggered smaller quantities.

What inventory and purchasing policy should we develop for our imported merchandise?

Defining the problem is a significant step in the feasibility study. Once we know the problem clearly and specifically, it can be downhill from there in finding the solution or developing an idea.

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Balancing Unstoppable Production and Benefiting from It

Float Glass Process https://www.glassonweb.com/news/hot-hold-operations-flat-glass-sector

I used to work in a flat glass factory.

The flat glass factory I worked at used float technology. It starts with a furnace that melts raw materials such as silica (sand), soda ash, dolomite, and limestone. Molten glass flows from the furnace to a tin bath, a chamber of molten tin, in which the liquid glass from the furnace floats on the molten tin to produce an almost flawless sheet of flat glass.

Float glass factories run continuously. Shutting down is out of the question because it risks damaging the furnace and tin bath which would result in lengthy cleaning and expensive rebuilding.

Re-starting a float glass facility is likewise very expensive. Restoring the flow of float glass requires tedious re-calibration operations and the difficult pulling of the liquid glass from furnace to tin bath.

I know because I participated in one such operational re-start. It was hot, time-consuming, and it cost the company I worked for a lot of money.

The economics of keeping a float glass hot and running outweighs any temporary shutdown regardless of whatever the demand for glass is. Unless it’s a permanent shutdown, flat glass companies will keep their float glass plants running no matter what.

Float glass plants typically produce a minimum of 450 tons of sheet glass a day. Glass companies, however, believe there is enough demand to absorb the daily unstoppable production. Never mind that glass demand fluctuates with the highs and lows of the construction and automotive industries.

Unstoppable production is a reality in several industries. Steel manufacturers have blast furnaces that cannot be shut down. Petroleum corporations cannot outright stop the output of oil wells. Farmers cannot reschedule harvests.

We are taught that the purpose of supply chain management is to fulfil demand. How does one then balance the management of unstoppable production with the swings of customer demand?

Unstoppable manufacturing dictates the need for efficiency. Ongoing production operations means ongoing supply of materials, supplies, and labour. There has to be enough storage space, materials handling, and transport to handle the continuous manufacture of products. At the same time, enterprise executives need to ensure that there is demand for what is continually produced. Sales and marketing managers would strive to find buyers or markets to sell whatever is made.

Continuous production, however, should not be the centre of attention. Selling products to keep manufacturing operations efficiently running should not be the sole purpose of supply chain professionals.

Customers and what they want should always be the focus. There should be a balance between supply and demand in which the supply chain operations aim to meet customer expectations at the same time reap the benefits of such for the enterprise’s stakeholders.

Flat glass companies market a variety of products. They sell custom-cut window glass for buildings. They produce coated glass window panes that insulate homes from the heat of the sun and thick glass sheets for furniture tables. They sell glass for car and truck windshields. They also sell glass that are used for solar panels and photoelectric cells. The variety of products sums up to a high demand which justifies the continuous production of flat glass.

Agricultural enterprises also allocate harvests in a variety of ways. Fruit companies sell outright to wholesalers and supermarkets and at the same time export to other countries. They also sell to fruit processing enterprises which manufacture canned and preserved items.

Supply chain engineers (SCE’s) can help unstoppable producing enterprises by focusing attention on distribution and inventories. They can help managers determine how much of what product to make, how and where to spread the items, and how much raw and packaging materials to buy and store.

Oil companies, for instance, invest in storage tanks and lease super-tanker vessels to temporarily store production when demand is low. The companies would dispatch the super-tankers to position their stock near to buyers who would be ready to purchase them when demand recovers.

SCE’s can also help find out what kind of product to make and keep. For example, SCE’s can determine how much work-in-process inventories to make instead of finished items. Steel and metals manufacturers produce heavy rolled-up coils and ingots which they later convert to items such as bars, parts, sheets, plates, and pipes. With the help of SCE’s, manufacturers can set inventory policies for work-in-process products and devise customised make-only-when-needed systems for finished items.

Manufacturing is not a quick on-and-off kind of operation. There is a cost when production facilities halt and re-start. As much as possible, production lines should operate continuously, for efficiency’s sake.

Efficient production, however, is not the end-goal of supply chain professionals. Fulfilling customer demand is. An unstoppable production process exists because of the confidence an enterprise has in selling all of what it would make. Balancing the flow of product from vendors to manufacturing to logistics to customers should always focus on delivering to customer expectations and in terms of what enterprise stakeholders seek in terms of their organisation’s strategic mission and goals.

An enterprise can make plenty, deliver plenty, and profit from plenty, with the help of supply chain engineering expertise.

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