Wednesday, July 9, 2014

After thoughts of supply chain strategy

I have opened an article reviewing supply chain strategy. Having worked in supply and distribution over the course of almost a decade I believe this article is spot on when it comes to the complexity of supply chain. In most cases I have witnessed first hand. Supply chain operations are an after thought. Because supply chain is an afterthought there is an opportunity for people that specialize in supply chain solutions to take over the delivery of said services. I would even argue that the bar is not high when it comes to delivering theses services. If one were to look across the industry there are a wide variety of 3PL or Third Party Logistics and even 4PL or Fourth Party Logistics. The most interesting would be 4PL in that they do not own any assets themselves. The question that comes to mind is how is it that an organization that owns no assets can compete with an organization that has immediate assets at their disposal to complete the job?

Supply chain strategies: Which one hits the mark? 
According to the Article there are four main drivers affecting supply chain design.
1. Demand variation or demand profile. This is simply the stability and consistency of the manufacturing assets and workload, and consequently is a main driver of production efficiency and product cost.
2. Market Mediation costs. Market mediation costs are costs associated with the imbalance of demand and supply. Examples are product price markdowns to compensate for excess supply, and lost sales when demand exceeds supply. 
3. Product lifecycle, which is continually getting shorter in response to the speed of change in technology, fashion, and consumer product trends, affects the predictability of demand and market mediation costs. Consequently it, pushes companies to increase the speed of product development continuously  renew their product portfolios.
4. Relevance of the cost of assets to total cost becomes critical in industrial sectors where business profits are highly correlated with the asset-utilization rate. Companies fitting this profile must assure high utilization rates, often to the detriment of working capital and service levels. In industries where the relevance of the cost of assets is low, companies may choose strategies that focus on responsiveness. In these cases, the asset-utilization rate falls between high and low, but responsiveness to unexpected demand is high, increasing customer satisfaction and reducing market mediation cost.


I remember working for a company that did manufacturing work. As the company made plans to consolidate operations they struggled on the back end of supply chain. As an everyday worker the challenges we would be faced with would be finding locations to store product. I don't mean a little bit of product I mean a lot of product. We had an excess of renting trailers where product would sit for months at a time I remember walking the parking lot and opening up the doors to over 150 trailers with a flashlight and clipboard to give updated statuses of the location of trailers and the product that was on them. To make things even more complicated we had over 5 different warehouses spread over at least 3 towns 2 counties and two states. If the strategy had occurred prior to consolidation there would have been triggers for phases of the operations to happen.

Phase one might consist of locating several warehouses to alleviate the lack of storage based on estimates from prior operational indicators. Secondly if I were to purchase/rent additional trailers I would have understood how the information would have been able to be tracked in the current inventory system. In this particular instance one shift would have an issue with available trailers and report the trailer as inoperable. The following shift would call in maintenance to get the trailer fixed and maintenance would not be able to locate the trailer and the trailer would not get fixed until a series of calls. Another point of friction would be that within the county there were not enough warehouse locations suitable for additional storage.So not only was there an issue with locating trailers there would be an issue on returning product from a satellite warehouse to the shipment point. There had to be a significant cost to transporting the product outside of the county to return to the point of shipment. There was an additional issue of locating product once the product was located in the satellite warehouses. There weren't any official locations setup in those satellite warehouses so product might be mixed in with other product or the final count might not be accurate.

So as I reflect on the mentioned scenario and the article I read.

Considering demand variation upon consolidation. There was absolutely no demand forecasting available with a measurable footprint. After working there some of my questions are about operational information. I remember going into an interview asking a 3PL logistics house what their operational numbers look like. Ie. what does your operational footprint look like? How many people across the organization understand the information? What does your inventory turnover look like. If these questions are not understood and known by management then as a worker you can expect to spend a lot of time scrambling putting out fires. As a manager you cannot expect  your leadership to make significant gains because they too are putting out fires. As a young military officer I learned that routine operations have to completed routinely otherwise when significant changes come you will not be able to react accordingly.

                 Sixty percent of the art of command is the ability to anticipate; forty percent of the art of command is the         
                     ability to improvise.
                 -Brigadier General S.L.A. Marshal

Considering market mediation costs, to me this means that you are able to anticipate operational levels based on customer demand or cost of raw materials. In the same time I worked there was a big issue with buying some of the raw supplies. The contracts for raw materials had an unexpected increase to the point where we did not anticipate. I imagine the company I worked for had a serious consideration for exiting the business. When you combine an increase in prices for raw materials and complications with supply operations it is no wonder I don't see as much market share from this business in the same businesses.

Considering product life cycle the business I worked for was a consumer good but, it has not been affected by any new technologies in the product line. The main driver of the business is cost of the end product. In the end I believe the business lost a significant share of their market.

Considering the assets products that were made had a decent amount of cost associated with production and need a high utilization rate.

As a young military officer I believe their operational understanding makes them able to have an impact on supply chain. Even though the terminology is slightly different. Their ability to analyze change and communicate the ensuing change is available from day one. They would be able to apply the leadership learned in making tentative plans when the information is available. They would be able to understand that the impact of operations and where to look for issues. I think that the internal operations of these organizations could be lacking in the development of business processes. What I'm referring to is the SOPs of the organizations and workflows. Are there standards to how the company operates? Are there up to date instructions on how the job occurs? Are there training methods in place to make sure that people can perform the functions of the job. In the military these are referred to as mission essential tasks. If I am new to an organization I'm going to look to see if someone brand new to the organization can take over with minimum instruction or instruction with written form and continue the job/process. Then is the standard applicable to the process? How do you know that you are getting the job done in a manageable amount of time? These questions and viewpoints if measured are what can make the difference between an effective strategy and daily operations of supply chain.

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