How are you rewarded?

Last week, Cadent Resources was ranked among the top 100 Supply Chain Providers in the US by Supply & Demand Chain Executive. This year, recipients were selected based on project submissions.  We were nominated for a DemandCaster project that helped a customer manage the rising costs of its primary production material.

Frankly, it was a great project—one that really showcased DemandCaster’s capabilities—and we were excited to be recognized for the third consecutive year.

But the award got us to thinking. When we help a customer, what’s the payoff?  What’s the reward?

A check in the mail certainly helps, but at the end of the day, isn’t there more?  At Cadent Resources, we take that extra step to make sure our customers reach their goals. In the end, our reward comes in the form of their success. That’s a job well-done for us.

Back to the award: This year, Supply & Demand Chain Executive focused on solution providers that assisted customers in achieving supply chain excellence by preparing their supply chains for post-recession growth.  That’s pretty close to the way we see ourselves: Partnering with customers to help them achieve their supply chain goals and successfully navigate the uncertainties of business, everyday.

How are you rewarded? When you help your customer achieve a goal—by fulfilling a specific requirement that no one else could fulfill, or meeting a deadline that no one else would meet—how does that make you feel? Moreover, how does your customer feel? Does it change your relationship with your customer.

This award really got us thinking and we bet it will you too!

What is Activity Analysis?

In the world of Inventory Management, there are many classes of inventory. A key component of a robust inventory management process is to define, segregate and measure, from there we need to develop and implement action plans by the various categories. This method of inquiry by segregation is called Activity Analysis.

Activity Analysis is basically the task of delving into and capturing the complexities and nuances of whatever complex process you are attempting to manage or improve. In a process improvement framework it is akin to defining the current status of things by asking and answering the following kinds of questions:

1. What are the activities and/or categories in the process of interest?


2. Who are the owners, customers, and suppliers of each activity?


3. What do they do for the sub-activity and how much time is spent?


4. How is success defined - what are the measures, the KPI’s?


5. What is the value-add of each sub-activity, classification?

The above can be accomplished in a variety of ways including interviews, observations, process mapping, flow charting, Pareto analysis, and any of the litany of tools in Six Sigma and Process Improvement toolbox. The analysis has to be complex enough to capture the details of what is being done.

In inventory management, Activity Analysis may frame the aforementioned questions as follows:

1. What are the various categories of inventory?
   
   
   
   1. Raw Materials and Finished Goods Classifications
      
      
      
      1. ABC Demand Classification of material sub-class
      
      
      2. ABC Classification of sales orders
         
         
         
         1. Frequency, mean time between orders
         
         
         2. Size of orders in terms of items, volume, weight, revenue.
         
         
      
      
   
   
   2. Locations and Categorization
      
      
      
      1. Geography
      
      
      2. Replenishment
      
      
      3. Staging & Distribution
      
      
      4. WIP
      
      
      5. Returns
      
      
      6. Vendor Managed Inventory
      
      
      7. In-Transits for Raw, Pack and Finished Goods
      
      
      8. Incoterms of purchased materials
      
      
   
   


2. Who are the owners, customers, and suppliers? Who are the suppliers and customers for each?


3. What are the specific tasks required to manage these various classifications, locations, and categorizations? What is the value and non-value added of the tasks?


4. How is success defined? What are the measures, the KPIs?


5. What is the objective and improvement challenges for each classification, location, and categorization? Divide the classes, locations, and categories into segments of hard, medium, and easy to improve based on the objectives and improvement challenges.


6. What is the value add of each sub-activity, classification?

There is no wrong way to do an Activity Analysis. The analysis and data collection needs to be as detailed as your business to help determine the decisions that need to be made. Once this is done you will be able to define exactly the decisions that need to be made or the nature of the project at hand.

Check back soon … Our next blog will focus on Activity Analysis for new warehouse or re-layout of an existing warehouse.

The Taught String Theory

In the April Issue of our newsletter we introduced our “Taught String Theory” which illustrates how effective data sharing can integrate the demand and supply processes of customers and suppliers—as if tied together with a taught string. We are including it here for those that do not subscribe to our newsletter.

Simply put, by your customer pulling on their supply, you are prompted (and so are your vendors) to respond immediately to each others needs. Those actions in turn adjust the slack created by manual order entry and purchase order processes, as well as MRP, keeping the “string” taught, but agile.  

A Real Application

One of our DemandCaster® clients, a manufacturer of high-precision components, was unable to meet the stocking requirements of their largest customer, who had placed their supply management system on-line. The solution for our client seemed simple at first: keep all the managed items at their customers desired stocking level. But in reality, because of long lead times, and their customer’s constantly changing requirements, our client was unable to stay ahead of requirements and began managing by exception. More specifically:

• Reorder points and safety stocks were not calibrated to changing customer demand, causing their WIP to grow due to the constant starting and stopping in production.


• Stock-outs and shortages increased to nearly 50% of managed SKU’s.   

The first solution to address their problem was to create a series of complex spreadsheets to help them compile and analyze data. That process, however, required roughly two hours a day to prepare and was not easy to use.

Sharing Data to Improve Collaboration

Clearly our client needed a stronger tool that would help them access real-time information about their customer’s requirements.

Using DemandCaster®, we integrated our client’s customer’s shared stock availability and demand plans with the client’s ERP-system data. That connection enabled a vastly different level of collaboration between client and customer, allowing our client to:

• Carefully calibrate the replenishment plan based on the changing needs of the customer.


• Trigger replenishment orders to maintain stock at contracted levels, based on consumed stock and shared forecast data.


• Eliminate buffering of orders and lost time between the customer issuing a PO, receipt of that PO, and our client acting on it.

Application of Lean

We also implemented a lean process to reduce batch sizes and cumulative lead times, thereby increasing speed and flexibility. The information was then used in DemandCaster® to calculate optimal kanban quantities to manage the replenishment process and capacity. The current open-shop orders and subsequent planned orders were then transposed in the DemandCaster® capacity module to allow for viewing of constraints—and thus proactively manage bottlenecks either by rescheduling planned replenishment orders or increasing capacity (adding hours or outsourcing operations).

Within four months, our client dramatically improved performance across a number of key metrics:

• Reducing stock-outs and shortages to 3% of managed SKU’s


• Reducing WIP more than 50%.


• Eliminating two hours of lost time they were able to re-apply to managing the process.


• And, their customer was blown away with our clients seamless effort to integrate demand with supply.

Ease of Use and Trust are the Linchpins

Though we used DemandCaster®to illustrate the power of collaboration, in some cases spreadsheets will suffice. The key is understanding the purpose of collaboration and making it easy for your partners to engage in an open and trusting manner. If the process is too hard to manage or there is a lack of trust in the information that is provided, any hope of realizing the benefit of collaboration will be immediately lost. In most cases technology makes the process easy and minimizes inconsistencies in data. Making the collaboration process work is up to you… and your customers.

Economic Curveballs and Sinkers

Even though the baseball season started a couple of weeks ago, we wish the world did not join in the fun by throwing curve-balls and sinkers at this recovery! $4 plus gallon of gasoline, supply chain disruptions in Japan, and the talk of holding the the Fed’s debt ceiling in check are a couple of massive curves that potentially place our economic growth in peril.

In the April 19th issue of APICS eNews, APICS reported:

• According to the Federal Reserve, manufacturing in the United States grew for the ninth consecutive month this March


• NPR reports that factory production—including consumer goods, business equipment, and raw materials—increased 0.7 percent over February’s figures, despite supply chain disruptions related to the ongoing crisis in Japan.


• Industrial production as a whole is up about 12 percent from its June 2009 low, but it trails the September 2007 peak by about 7 percent.


• Of all major market groups, output of construction-related goods increased the most, with 1.5 percent growth. Consumer goods also increased, with 0.9 percent growth following two months of little change. Long-lasting consumer items such as appliances, home electronics, and automotive products increased, while output of products with shorter shelf lives decreased.


• While economic recovery depended on business spending in the early stages, the March figures suggest consumers now are fueling economic growth. Consumer spending rose in March, and the unemployment rate reached its lowest point in two years.

This is all great news, but we are still concerned that the aforementioned challenges are very real land mines that we must watch and manage carefully.

Any opportunity that was recently afforded via the ever improving economy for slightly heavier inventories may be ending. Keep your demand plans as short term as possible, continue to drive down lead times, drive S&OP, and collaborate with your suppliers and partners in earnest. Those continue to be the keys to navigating this on-going period of uncertainty.

Four Strategies to Help You Meet the New Normal, Head-On

Back in January we posted our Supply Chain Resolutions for 2011. In our March newsletter, we shared our four improvement strategies for the remainder of 2011. We are posting them here for those readers that do not receive our monthly newsletter. Our four strategies are:

1. Collaborate! Now more than ever is the time to actively communicate with your customers and suppliers. Where possible use technology to share data and demand plans. Extend your planning process to include your suppliers. Imagine if you and your suppliers were tied together with a taught string. You pulling on supply prompts your vendors to react immediately to your needs. Collaboration via data sharing and active communication eliminates the natural slack in manual processes that introduce delays and demand and supply volatility and inaccuracies.


2. Become faster. Implement lean manufacturing methods to reduce waste and become more nimble. You want to be in a position to respond quickly. Reducing lead times both internally and externally is critical.


3. Measure. We are big proponents of data based decision making. As the economy is slowly picking up, you need to evaluate the following to get peak performance from your ERP.
   
   
   
   1. Are your lead times and run times all up to date?
   
   
   2. When was the last time you did an ABC reclassification your finished goods and materials?
   
   
   3. Take a hard look at your customer service performance. Are there holes in your performance. Often if there are issues inventory is to blame which in turn could mean you have capacity issues or do not have appropriate inventory policies. The new normal dictates a continual review and adjustment of these levels.
   
   


4. Refocus. It is a great time to revitalize your continuous improvement efforts.
   
   
   
   1. Asses your top issues, concerns, priorities? What improvement in these areas would provide the biggest P&L dividend to your business?
   
   
   2. Regarding collaboration, put a joint continuous improvement team in place with your major customer or supplier to improve or implement a Collaborative Planning Process.
   
   

The ongoing uncertainty and the new normal of the economy is rife with challenges. The winners are those companies that challenge their own reality and challenge the very basis they go to market.