The Floods in Thailand and Contingency Planning

There were floods in Thailand the past week. The floods were the result of inordinately heavy rains. There is no place for the rain water to go as the intense population growth have minimized the flood plain. The paving and building have also minimized the amount of water that can be absorbed by the ground. It is definitely a story we should follow from a humanistic standpoint as over 350 lives have been lost and countless numbers of people have had their lives and businesses disrupted. The property loss and clean up costs will be astronomical.

The impact of these floods have caused ripples in the global supply chain. As it turns out, Thailand is a major source of some automotive and computer components. The auto industry in Japan has been trying to catch-up for lost production due to the earthquakes there earlier this year and now they are impacted by this. There were reports that Toyota was suspending all production in the US for a week. They have also curtailed overtime in their Japanese factories and cut back their production in Vietnam and the Philippines. Honda halted their production of vehicles in Malaysia. Both companies operate factories in Thailand and those factories have been idle during these floods. Both companies rely on a supply base in Thailand for about 100 parts. Shortages of just one part out of thousands of components can shut down an automotive assembly plant.

Perhaps more importantly, Thailand is a major source of hard drives and thus more of a choke point for the computer industry. Western Electric has two plants in Thailand dedicated to hard drives. These factories supply 20% of the hard drives globally. The factories are not currently producing and Western Electric has stated it cannot fully access the damage and provide an estimate when the factories will return to full production. Acer and Samsung seem to be mostly affected by this shortage. Acer has even raised prices immediately much like orange juice seems to go up in price the minute a frost is reported in Florida.

We have commented on the global supply chains most companies are now part of . We have discussed in this blog the difficulties of a natural disaster in one part of the world influencing global commerce. From the volcano in Finland to the above mentioned earthquakes in Japan and now to these floods in Thailand we have commented on risk, disruption management, and contingency planning.

Luckily, none of these disruptions have been too long. The recovery has been quick in most cases. There has been no need for contingency planning beyond what we have recommended and what most companies do: Pull the executive team together and have “what should we do” meeting.

We like to remind our clients and readers to at least think about contingency planning when these types of disruptions occur to others. Take a moment and read our Practical Guide to Contingency Planning and add contingency planning on the agenda of your next management team meeting. Your organization will be better off with it.

The Economy - We Need to Do Something Radically Different

In our previous post we discussed why the recovery has been so difficult. Our common “prescription” have failed to cause any positive change. This does not mean all is lost? Not at all. It does mean that we cannot be doing the same old things and expecting to get the results we always achieved. This is especially true when the world has changed and we believe it has changed. In such a case, we need to do something different to forge our own future.

• What kind of country are we now?


• What is the current socio-economic class structure do we have?


• Is this what we want? 


• Is this what it should be? 


• If not, and there will be negative responses to the above questions, what kind of class structure should the US have?


• More importantly what kind of economy will get us there?


• What do we have to do to get to that kind of economy? 

We are not talking about a planned economy. We know those do not work. We are talking about having a general plan and investing in our people and infrastructure to make that happen. We are talking about uncovering or creating new stimulus levers that will actually work.

If we do nothing but play with taxes and interest rates as if it were 1985, factory jobs will not magically appear. In our current scenario, they will only reappear when the US is the low cost wage producer in the world. We should be in pretty dismal shape if we wait until we are at that stage.

We have to acknowledge this New Normal. As a nation, we need to acknowledge that what used to work in regards to stimulating a recovery are not enough in this New Normal. We need to re-invent and re-invigorate ourselves. We need to NOT accept this New Normal and create a newer one much more to our liking. We are mystified why none of our civic or business leaders are advocating this.

A friend of ours, Guillermo Fernandez former President of Colgate Mexico, told us recently that what the US needs is a new Marshall Plan. The original Marshall Plan was the work of George Marshall the post World War II US Secretary of State. He led the creation of what was officially called the European Recovery Program. It began as humanitarian aid to war ravaged Europe and evolved into a program to modernize Europe’s industrial infrastructure and business practices. The program began in 1947 and ended in 1951.

We definitely need a new Marshall Plan. This time, however, it has to be focused on our own ravaged industrial base. We need to work on creating a new manufacturing base in this country based on business practices that are the best in the world. This would involve training our people for the jobs of the future and creating the environment where US businesses produce in the US.

No one is going to help us they way the original Marshall Plan did for Europe We are going to have to help ourselves.

From our blog to the ears of our President and Congress…

Why Recovery is so Elusive

There was an article, finally, in the Sunday September 11, 2011 New York Times: “Is Manufacturing Falling Off the Radar?” by Louis Uchitelle (http://nyti.ms/oUFOlr). It was the number two article on the front page of the Business section. It should have been the headline story on the front page. Well perhaps not on the tenth anniversary of 9-11. From our perspective it is a topic that should be top of mind and central to the discussions on how to emerge from our current economic condition.

Manufacturing has to be at the center of any discussion and strategy to revive and improve the economy. It is precisely the blue collar middle class jobs that we have lost in the past 10 - 15 years that is the reason we are not recovering the way have in previous recessions.

Face it; we have turned into a corporate and service economy. The corporate part is largely white collar and administrative. The only part of the supply chain that remains in this country is distribution that services the US markets. Corporations have become international entities that look to survive, thrive, and grow however and wherever they can. Lately, that has meant focusing on developing markets internationally and primarily in India and China where, coincidently, all the market growing is currently happening. This has also meant finding the best low cost venue to produce. That clearly has not been the United States.

As a result, we have been exporting jobs. This is a nice way of saying that factories close here. People are put out of work here. Entire towns and communities are turned upside down. And… eventually… we lose so many good paying middle class jobs that the middle class is smaller. Where did these people go? To the lower class where their livelihoods are merely a struggle to subsist and where there is not much hope this class of folks is going to fuel any recovery by their increased consumption.

There is an economic reality to this. It is called globalization and resetting of the equilibrium that is the result of moving from national to international markets. If the corporations left the factories and jobs here, they would have been at a competitive disadvantage. If they left the factories and jobs here, they would have had to seek bankruptcy protection and then move their factories anyway.

Bottom line, as a country, we cannot count on our corporate citizens to be overly patriotic and go above and beyond to create and maintain jobs here. We are not able to stimulate our way to recovery. The folks that used to work in factories now work… where? Retail? Food service? Their former employers are not calling them back or creating new jobs as the GDP increases? Why? Because the jobs simply no longer exist here. Companies will create new jobs and hire people in the countries where the factories are. We will increase the spending power of those peoples and thus stimulate their economy. It seems that simple.

S&OP: Closing the Gap between People and Processes - Part 2

Part 1 of this series of blogs may be found here. Part 2 continues herein.

The origins of S&OP are not well documented. It seems to have emerged gradually with the introduction and evolution Materials Resource Planning (MRP). The Oliver Wight Company was the first on the scene in the 1980s to offer training and consulting focused around MRP at first, then evolving into the precursor of S&OP. The time phased planning of MRP is at the heart of S&OP.

Since then two factors have made for the very real promise of S&OP:

1. The evolution and prevalence of ERP systems with 
   
   
   1. Right information in the all the right places at the same time 
   
   
   2. Sophisticated demand, production, and transportation planning functionality 
   
   


2. The formal S&OP process based on a monthly operating cycle 

Many organizations have these things in place. Yet, their S&OP process does not live up to their expectations. There are countless articles, books, and seminars on S&OP focused on implementing it and then make it work. Our contention at Cadent Resources is that it is not the S&OP process or the systems available to coordinate and manage the data. These are necessary but not sufficient conditions for S&OP. The real challenge is to get the people part of the process right. The real challenge is viewing S&OP as a Socio-Technical Process and then working diligently to improve the Process. In a sense this is the Mother of All Continuous Improvement Projects. Overall, implementing S&OP, on the macro level, is a two step process:

1. Get it up and running. This actually is the easy part. 
   
   
   1. You can hire a consultant to help. You should assign a key mid-level manager or director to run it. 
   
   
   2. The management team should approve the process.
   
   
   3. The key however is to get started. Get it soundly organized and initiated. 
   
   
   4. This part of the process is 3 - 9 months depending on the current level of planning in the organization. That is 3 - 9 months from management’s decision to implement until the day it goes live. 
   
   


2. Continuously improve every aspect of it. 
   
   
   1. This is the harder part of the process.
   
   
   2. This is where the commitment and dedication of the management team to make it happen is critical. There are no short cuts in this area. 
   
   
   3. This part of the process is never ending and is best measured in years. 
   
   

Years? Yes, years.

This comes from companies that are deemed best-in-class at S&OP. The people in these companies that run S&OP believe it is all about Continuous Improvement, constantly getting better in every aspect bit by bit, sub-process by sub-process, month by month.

Consider why this is the case:

1. S&OP touches every part of, well, sales and operations. This includes the entire Supply Chain from Purchasing to Manufacturing to Logistics. This includes Sales and Marketing or is often referred to as the Demand Chain. It includes finance who need to evaluate the collaborative plans in S&OP against the budget. 


2. It is about getting these organizations that are not often for cooperation and collaborative planning to indeed cooperate and collaboratively plan. This is no small task. 


3. Ultimately, it includes the management team. They are the only ones through their “ownership” of the process and by their review of S&OP each and every month can encourage, cajole, and demand (when necessary) that all the functions mentioned in the first bullet actually cooperate and collaboratively plan to the drumbeat schedule of the monthly S&OP cycle.

Based on the above, there are a lot of moving parts in the S&OP process.  Beyond that there are inter-department and functional, let us call them, “intricacies” that are embedded in the culture.  These intricacies do not automatically disappear with the launch of S&OP.  It takes both a firm resolution to make S&OP work and a dedication to the Continuous Improvement thereof to make it work.

More to come in part 3.

S&OP: Closing the Gap between People and Processes - Part 1

On September 14, 2011 we presented a webinar, Sales and Operations Planning: Closing the Gap between People and Processes. The webinar can be viewed on our On Demand Webinar Videos collection. As a follow-up to the well received webinar, we are going to blog about many of the items we covered in the webinar. This is the first in that series.

Sales and Operations Planning is, of course, a business process and methodology. But, even more so it is a journey of continuous improvement. What is the objective of S&OP? The objectives are to impact and improve the large core of the day to day operation of the business. Through better planning and collaboration between the functions of the business, the goals of S&OP can be summarized as follows:

• To proactively balance Supply and Demand to get everyone to agree on:    
  
  
  
  • One Demand Plan
  
  
  • One Supply Plan
  
  
  • Fulfilling the Plan 
  
  
  
  


• Having the right products:
  
  
  
  • In the right places
  
  
  • In the right quantities 
  
  
  • At the right time 
  
  
  
  


• This is done in order to optimize these fundamental business measures:    
  
  
  
  • Maximize revenues 
  
  
  • Maximize service 
  
  
  • Minimize inventories 
  
  
  • Efficient and effective management of capacity  
  
  
  
  

This is not much to ask for. These are the primary goals of any business. It is what we all do. It is what we all strive for. People have been trying to do this in some form since the earliest days of commerce and trade. In today’s fast paced, complex, and global environment, the need is greater than ever. Markets and economic drivers change at the speed of information. Businesses must be agile and skilled in their planning and execution. Those who are not do not perform well and risk going out of business.

Why then do we struggle with something so fundamental and critical to business?

Engineering and operations management curricula have been teaching Inventory and Production Planning or Management at the undergraduate and graduate levels for years. People have spent their entire careers working in and then leading operations. We struggle with the same problems all the time: basically the same objective that underlie most S&OP implementations. 

• Maximize revenues 


• Maximize service 


• Minimize inventories 


• Efficient and effective management of capacity 

We should add that we endeavor to do all of the above at or below budget.

Managing operations pre-computers was the balancing flow of information and the flow of goods. The movement of information was excruciatingly slow and inefficient. This mismatch was best exemplified by “The Beer Game” which was a manufacturing and distribution simulation developed at MIT in the 1960s. Since then, there has been a steady improvement in the flow of information.

That flow of information improved with the capability of specialty systems and eventually in the fully integrated Enterprise Resource Planning systems such as SAP and Oracle that we use for end to end business management. ERP systems essentially flip-flops The Beer Game scenario. The information flow used to be the limiting factor for sound Supply Chain Management. That is no longer the case. it is possible to have any and all information available to anyone in the supply chain who wants or needs it.

If the goal is to have the right products in the right places at the right time in the right quantities, it is essential to have the right information in the right places at the right time. This is now possible. This instantaneous access to information is the engine that makes an integrated planning process like S&OP possible. Possible becoming probable with a lot of hard work and continuous improvement. This is, essentially, the focus of this series of blogs.