The Significant A to Z Challenges of SCM

The significant A to Z challenges to effective SCM

When Toyota Production System has been used as the foundation for Lean Manufacturing, many companies begin to learn how to go lean. After some years of transformation, people begin to get tired of the many challenges. Some of the issues are listed below for general discussions:

a) Top management not walking the talk due to excessive supply chain issues, IT project creep, resistance to change, and problematic planning and control systems
b) Top management get stressed due to mis-information
c) KPI’s and performance measurements look good but the primary objectives of SCM have not be addressed effectively
d) Management and staff turnover resulting in the inability to sustain a consistent corporate culture and value system
e) Difficulties in achieving level production strategy due to high product mix and long set-up time
f) MPS performance has been erratic because time fences were set to zero planning period
g) Bill of materials accuracy problems
h) VMI cracking up due to the bullwhip effects and inventory inaccuracy
i) ERP system not providing accurate visibility and inventory accuracy
j) Cycle counting programme is not able to improve inventory accuracy
k) Customers not happy with the delivery services and quality
l) Lack of effective integration or synchronization of people, processes and IT
m) Over usage of raw materials and components due to scrap
n) Inconsistent quality even after ISO certification, Six Sigma, Lean Six Sigma, TQM or other initiatives
o) Project consultants do not understand the actual business issues and rushing to implement a wrongly configured ERP/SCM systems
p) The HQ insist in rolling out a standardized configuration for all branches and subsidiaries throughout the world, ignoring the significance of local business practices
q) We have the managers and they are paid to ensure effective and efficient SCM
r) The critical mass have their own islands of information and Microsoft Excel spreadsheet, so we need middleware to integrate the IT solutions. The end result if the weak accountability when there are discrepancies
s) The customization of ERP solution at US$12,500 per man-day is not solving the SCM problems, and it is creating a significant project costs over-run. It is creating more problems than solutions
t) The people with Six Sigma black belt, Lean certification, SCM certification and some fanciful certifications are not able to help to mitigate the day-to-day SCM problems. A lot of fire fighting but the problems do not seem to go away
u) People become very defensive during any SCM meetings, and a lot of finger pointing. The leaders seem to be lost in charting a correction direction forward
v) Nobody seems to be addressing the root cause of the SCM issues resulting in a very stressful working environment
w) There seem to be a number of teams working on enhancing financial performance, business process improvement, customer focus, as well as learning and innovation, so that it can satisfy the Balanced Scorecard. Unfortunately, the alignment and integration have been very lacking
x) Everybody seems to be working longer and longer hours, so much so it does appear to be short-handed.
y) If Toyota is losing billions of dollars in this economic downturn, does that mean Toyota Production System or Lean Manufacturing have inherent deficiencies that need to be addressed to avoid any future mishaps?
z) Is there a perfect SCM solution out there?


The A to Z SCM issues are a collection of the challenges faced by the top management, middle management and operations management. They are the opportunities if we can address them effectively.

It is not the job of CEO alone, but the top down management direction and bottom up execution and implementation. The need to integrate and synchronise cannot be played down because of the inherent resistance to change.

In the next economic upturn, the masters of SCM are the ones to reap better profit and organization dynamics.

Time to change.

Challenges of supply chain management during a recession

The recent recession starting third quarter 2008 has been drastic, and many enterprises have been hit hard due to the deep plunge in the sales revenue.

What started as a sub-prime debacle had created a chain reaction similar to a domino effect. The oil price dropped drastically thanks to the consumer panic and restraint on spending.

It was not easy to manage the supply chain strategic planning if the decision support system or the business intelligence were highlighting a transient decline in sales, but without any other data to justify a potential economic tsunami. Maybe a thorough regression analysis and the extrapolation could point towards a downward spiral, but top management was finding it difficult to establish the quantum of the likely damage in terms of the level of decline of sales revenue.

This made demand management a real challenge as to what should be a reasonable realistic demand for the next 18 to 24 months. This is probably why level production strategy, of producing a fixed volume month in month out, became a financial nightmare if no timely decision were made. On the other hand, the chase strategy would be able to adapt to the situation with greater ease resulting in massive costing reduction measures. With the inherent hiring and firing tactic associated with the chase strategy, many people were retrenched in order for the corporate survival. It is not easy to conclude whether level or chase strategy can be more effective, although it may be better to have hybrid strategy with multiple supply chain strategies for different products and demographics.

This “Bermuda triangle” shock has compelled us to be agile, flexible, responsive and adaptable in order to survive.

The agility methodology that has been evolving has always been advocating that PEOPLE are the most flexible, responsive and adaptable facet of a competitive enterprise. It is timely to develop the people to have the holistic knowledge and skills to innovate and improve the supply chain processes continuously to be enabled by IT solutions that can be re-configured to suit the requirements.

Education and training must be on-going to ensure the thinking process of the people do not stagnate or become complacent. There must be that “hunger” for new challenges, knowledge and skills to make human capital competitive.

Extended enterprise business model has been seen as a viable corporate strategy, more so with the unavoidable globalisation with the notion of making products andywhere by anybody credible

Business transformation and be counted

Business transformation and be counted

There may not be that many differences between September 2008 and September 1998 afterall.

In 1998, I was at the state of Pennsylvania USA, communicating with Dr. Alvin Gunneson about the Agility Methodology and how it could be applied to corporations based in Asia. Unfortunately at the end of the business trip, there was the dawn of the Asian financial crisis that caught many nations by surprise. Many nations collapsed and were later bailed out by the IMF.

In 2008, I was greeted in Liverpool with the bad news of Lehman Brothers and the collapse of the British XL Leisure leaving many of the travelers stranded in various parts of the world. When I moved over to Kansas City USA for the APICS International Conference, there was the big shocking news of financial trouble at AIG and other financial institution. The financial crisis has hit USA and Europe, and will this spill over to Asia?

Global economy getting turbulent

With the crude oil shot up to US$180 or so, the world was reacting frantically to knee jerks in the drastic increase in the price of petrol, food and other products and services.

Most people begin to change the lifestyle and managed to reduce the spending on petrol and others. The crude oil was forced to go below US$100 due the significant decrease in demand. The turbulence may have lasted one to two quarters, but the damages have been created in one way or the other.

Financial industry in US and Europe in crisis

The US government will have the bail out bill to prevent the collapse of the financial industry. This is going to be US$800 billion in the first round and then probably another US$800 billion some time later. With trillions of dollars needed to mitigate the potential damages, it will be critical that the US economy can withstand the test of time.

The EU government probably will take a different approach by not initiating the bail out but instead allow for other mechanisms to come into play so as to reduce the potential damages.

Recalling Dr. Jack Welch’s infamous “Cost Down or Close Down” directive

When Dr. Jack Welch was tasked with the transformation of GE, he did not hesitate to introduce drastic measures and directives, to ensure that the senior management of all the subsidiaries got the loud and clear message of “Cost Down or Close Down”.

The people might not have stomached the directives well, but then GE was transformed permanently. However, that was not enough for GE to be globally competitive, so the next directive was to be “number one or two, or out you go”. The rest is history.

Dr. Jack Welch was voted the most successful and famous transformist of the 20^th century.

The destiny of some of the British great corporations

During my studies at the University of Liverpool, I had the opportunity to work with Pilkington Brothers and BICC Group of Companies. Pilkington was the world’s largest floating glass manufacturer but lost the competitiveness and was taken over by other manufacturing group. BICC lost the world’s number one position in cables manufacturing, and could not regain the former glory. Globalisation and internationalization have created new global giants and affected the conservative ones into sunset or takeover target.

Now that Range Rover and Jaguar have been taken over by the Indian Tata Group, we may see many more international takeovers and mergers.

The Internationalisation of the University of Liverpool

The rather conservative red bricks university has been going places. The on-line MBA has been a great success globally. The Suzhou campus is growing from 1,000 students to 2,000 students in a short period of time through a joint venture.

There will be a Graduate School being set up in India, and plans to have more of this in other strategic locations.

APICS’s New Product Introduction (NPI)

APICS has woke up from the over dependence of the decades old Certified in Production & Inventory Management (CPIM), and begin to develop new products. Certified Supply Chain Professional (CSCP) was launched in 2006. Lean Enterprise and Global Sourcing courses are launched in 2008.

This drastic transformation is the reflection of the need to ensure that professional certifications have to be customer-focus and demand-driven. This is in line with lean enterprise and supply chain management.

The Way Ahead

Business transformation seems to be the way ahead for every organization or enterprise in order to survive the impact of globalisation and internationalization.

Lean Supply Chain Management

Lean Supply Chain Management

The global economy is subject to cyclical ups and downs, enterprises have to transform to cope with internationalisation and globalisation. The collapse of some of the banking giants may be just the tip of the icebergs of the challenges ahead. The US$700 billion bail-out of the American financial industry is absolutely necessary to avoid the repercussions and chain reaction as well as possible massive loss of employment. What will happen to the rest of the world is yet to be seen, and some nations may not be able to survive the financial "tsunami". The potential damages may surface some time in the future.

In a turbulent marketplace, it can be traumatic for the traditional supply chain management that is centred around the decades-old time-tested re-order point technique coupled with the easy to operate MIN:MAX inventory control. More so if the enterprises assume that the future will repeat the past performance without the ability to accommodate possible variation due to intrinsic and extrinsic factors.

The fact that Dell Computer have decided to sell off the manufacturing plants to the would-be contract manufacturers within the next 18 months can be a very good corporate strategy. This is probably in line with the Agility Methodology and the Agile Virtual Enterprise Conceptual Framework, whereby corporations transform to capitalise on the core competencies and leverage with others to remain globally competitive. Apple Computers and HP have been adopting the agility business model for some time now. It is little surprising that Foxconn becomes the world's leading Original Design Manufacturer (ODM) for some of the greatest global brands. The Foxconn Taiwanese owner started off the company in Taiwan as Hon Hai (Red Sea) and venture into China with Foxconn to create a blue ocean with an annual sales of US$70 billion. A success story that has not be well publicised but Mr. Guo is the richest man in Taiwan.

Toyota sale revenue is around US$0.25 trillion per annum and is now the second largest car maker in the world. The famed Toyota Production System (TPS) as been incorporated into the Lean Manufacturing process framework, and have become popular for manufacturers and enterprises wanting to achieve good customer service, high quality product, low cost production, good management, respect for people, short manufacturing lead time, short cycle manufacturing, continuous improvement and all the best practices for planning and execution.

While many enterprises are busy trying to figure out how to implement lean enterprise, Toyota continue to achieve significant success and brand power through the very fundamental philosophy of simplification and standardisation. While Toyota continuously perfect the leadership, management and people development, many enteprises may be too caught up with trying to fit TPS into a rather complex manufacturing environment. The outcomes are often fairly predictable due to the less effective approach of trying to live with the existing habits, norms, performance, systems, traditional management, incompatible metrics, and culture.

Lean does not happen overnight. It requires a subtle cultural change, extensive education & training, value stream process mapping and simplification, a paradigm shift, continuous improvement & innovation, and effective people development and management.

It is time to go lean to survive the global competition.

Made In China

Made in China Phenomenon

China is now the production super house of the world, and the world has a lot to learn from the supply chain management challenges of this amazing emerging economy.
It is worth researching on how Western management thinking and practices as well as ERP technology can enhance China's production supremacy.

a) High volume, low cost and reasonably good quality
The dominance of the Made in China products has made "Everyday Low Price" possible for most of the supermarkets and hypermarkets. It does appear that this phenomenon is unstoppable at the moment.

With more than 1.2 billion people to feed, China have to use the simple law of material conversion or transformation, to produce products in high volume, low costs and of reasonable good quality to be sold in any parties on a willing buyer willing seller basis.

A very important corporate strategy is to sell products to the customer with the focus on the basic objectives of quality, cost, delivery, flexibility and service. The supply chain strategy has been centred around the 24/7/365 modus operandi to maximise machine utilisation and labour efficiency.

The interesting development is China's ability to attract billions of dollars of foreign direct investment yearly with very competitive incentives and the opportunity of penetrating the domestic market itself. The foreign investment has also help to produce the much needed human capital to sustain the enviable economic growth.

The dis-satisfaction of a portion of the Tibetan population, the earthquake in Sichuan, and other recurring flood problems have put China to test. However, they have sufficient resources to overcome or contain the issues at hand without external help. This self reliance is in itself a very important national pride.

b) China versus the rest of the world
The WTO,s Doha Round and subsequent roundtables on the move towards globalisation and trade liberalisation may be a distinctive advantage to China.

The trade liberalisation of garment and textile nearly crippled Sri Lanka, Bangladesh and some other smaller economies. Without interference from USA and EU, China would have virtually total control of the global market. After intensive negoatiation, some form of quota system has to be implemented to allow other countries the chance to survive through export.

In the foreseeable future, it is unthinkable to allow trade liberalisation of any other industrial sector. As a result, the compromised interim solution is to have nation-to-nation free trade agreement (FTA) to allow for some form of regulated liberalisation.

c) Ensuring high employment rate
The life expectancy of the people of China is increasing, and is a real cause of concern. This is further complicated by the one-child per family policy resulting in a very obvious ageing population.

The government of the day must keep reinventing to ensure high employment rate, so that the people do not become a liability in the socialist system. In certain part of China, it is a challenging task to motivate people to work and earn less if they were to be unemployed.

d) Efficiency and effectiveness of supply chain management (SCM)
There are grouses and complaints about the Logistics and SCM in China, but the consolation is that the goods eventually reach the intended destinations.

The Western management believes in the heavy usage and reliance on information and communications technologies, China has an abundance of affordable human resources to get things done albeit slightly slower than expected.

There is also the contention that ICT can enhance the speed and efficiency of mundane transaction and routine processing, but it may not provide the effectiveness.

Perhaps when it comes to creativity and innovation in logistics and SCM, the human factor is critical for decision making.

Development of human capital for SCM competitiveness

Development of human capital for SCM competitiveness

Companies big or small have been spending money to educate and train up SCM practitioners. Management sooner or later realize that the efforts to develop the human capital may have been wasted as the participants of these various education and training programmes do not demonstrate significant or subtle differences in improving the supply chain management.

There is a need to have an effective methodology to develop human resources. It is believed that practice makes perfect. We can see in football, soccer, tennis, golf, badminton, squash and almost any other games, that there is a need for the holistic training and development besides the natural talent.

It is in fact most powerful to get everybody back to basics to begin the baseline and the journey of continuous improvement to the ultimate goal. However, most management tends to favour the big bang approach and the perceived ability to leapfrog to the best practices. It is like everyone can be a Tiger Wood or David Beckam given the intensive “how to” training. Many have been let down, simply because there is a learning curve involved and not everybody can have the same learning speed, absorption, creativity and innovation.

There are corporations spending millions of dollars pushing the employees through education and training, sometimes within taking into consideration what are the practices outside their own environment. Some corporations take great pains to protect their decades old policies and procedures, and miss the opportunities to learn from outside some of the more effective concepts, tools, techniques, methodologies, and process thinking. In-breeding can be hazardous, more so if the competitors are adopting better practices from the market.

Not many people like to go through what people at GE underwent during the Jack Welch’s leadership. The simple philosophy of “Cost Down or Close Down” or “either number 1 or number 2 in the market, or out you go”, may become very stressful but can be very rewarding.

Education and training without alignment to the corporate and supply chain strategies can be a total waste of money, time and resources. The HP versus Dell corporate and supply chain strategies have been challenging, resulting in HP being the world leader at the moment. GM versus Toyota is another good case example. Nokia versus Motorola mobile phones is another example. There are many other exciting examples for corporations to benchmark. Al these should be part of the education and training to develop the competitive human capital.

No doubt people are generally reluctant to change, but then if their quality of working life can be enhanced with the right knowledge surely they can be motivated. How many people in supply chain management enjoy raw material shortages, finished goods shortages, perpetual expediting, lines down, stress-related quality problems, undesirable productivity, poor customer delivery and service, and on-going fire-fighting.

Some of the golden rules for development of human capital:
1) Top management walking the talk
2) Shared vision and missions guided by KPI’s for performance management
3) Education and training for almost everybody to have the same conceptual process framework, key concepts, key processes, and the appropriate KPI’s
4) Established proper project organisation and team
5) Identify the key action items and roadmap
6) Encourage process improvement teams to compete for overall performance with mutually agreed metrics
7) Ensure the process improvements are aligned to corporate and supply chain strategies
8) Encourage benchmarking with the outside world
9) Cultivate positive recognition and reward systems
10) The journey of continuous improvement and innovation

It is important not to have education and training just to satisfy the annual hours required in the KPI of the Balanced Scorecard.

Effective Planning for SCM Efficiency

Effective planning for SCM efficiency

It is generally acceptable to assume that with good forward planning, execution and control of operations will be much easier.

In the early 70’s, Dr. Joseph Orlicky developed the Theory of Dependant Demand, that led to the materials requirements planning (mrp) system. MRP has evolved over the years to Manufacturing Resource Planning (MRP II) in the 80’s. This holistic manufacturing planning and control system was extended into the process framework of supply chain management. The planning system has not changed very much in the push system environment, but the execution has been transformed into either a push or a pull system.

The push system that is schedule-driven is effective for the job shop and batch production manufacturing environments. However, when the manufacturing layout can be transformed from the process layout to the product layout or cellular manufacturing, then the mrp-centric push system become less suitable because the pull system methodology becomes more efficient.

However, in the job shop and batch production environment it is not so easy to implement the Kanban pull system. The mps-driven MRP II system is still the best fit, but can be made to execute more easily with the high performance master production schedule (mps). Without high mps performance, expediting and fire-fighting on a day to day become the norm rather the exception. In a stressed working environment, the quality of production may be compromised.

As a trade-off, some factories begin to load actual customers into the MRP system, resulting in nervousness in the workplace as well as excessive reactive mode of operations chasing for the parts that are in shortage. Using the MRP to generate the shortage report and have planners and buyers busy on the daily basis to chase for materials become a working culture though not a fruitful and conducive one. If some of the materials cannot be delivered on time, then production stoppages and delivery delays to the customers will happen. In order to mitigate the frequent material shortages and last minute expediting, factories begin to resort to consignment inventory in the name of VMI (Vendor Managed Inventory) agreement, to put pressure on the suppliers to ensure material availability even though there may not be accurate visibility of materials requirements across the planning horizon. The so called VMI arrangement is a glorified form of Vendor Owned Inventory or consignment, and not the truly VMI collaboration.

That means in practice it is possible to forego formal planning by having suppliers to be responsible for the availability of materials however bad the forecast has been. The suppliers may be living under immense pressure and stress trying to have the best guess for the customer’s materials requirements. The wild goose chase becomes a way of life.

For companies that have achieved the significant repeatable volume then it is possible to even change from the process layout to the product layout, and begin to implement just-in-time manufacturing or lean manufacturing. This transformation is possible if the volume of production for the product or product family is high and repeatable.

If the planning is effective, then there will be less material shortages and poor customer service due to late deliveries. The planning hierarchy starts from business planning, sales & operations planning, master planning and material planning. Each level of the priority planning is validated by resource or capacity planning to ensure feasibility. This structures level by level planning can be cumbersome but sometimes unavoidable. Ever imagine planning without taking into consideration of resource or capacity constraints.