Friday, October 17, 2014

Focus and Leverage Part 383

In my last posting I suggested that you purchase Debra and Chad Smith's new book, Demand Driven Performance Using Smart Metrics,  I'm here to tell you that the more I read this book, the more I see its valuable contribution to how businesses in today's world should be running.  The over-riding message in this book is the need to change how businesses operate because the landscape has changed dramatically over the past 50 years.

In their book, Debra and Chad have summarized just how much the landscape has changed from 1965 to 2013 and most of the changes are not subtle ones, but rather changes that have made the old rules obsolete.  Let's look at these changes and I think you will see why we must change how we should operate in what the authors refer to as the "New Normal."

Supply Chain Complexity
Low. Supply chains looked like chains – they were more linear.  Vertically integrated and domestic supply chains dominated the landscape.
High. Supply chains look more like supply webs and are fragmented and extended across the globe
Product Life Cycles
Long. Often measured in years.  The rotary phone was untouched for decades.
Short. Often measured in months.  Don’t blink, you might miss the new smart phone launch.
Customer Tolerance Times
Long. Often measured in weeks and months
Short. Often measured in days with many situations dictating less than 24-hour turns.
Product Complexity
Relatively low.  Can you believe that people actually worked on their own cars?
High. Most products now have relatively complex mechanical and electrical systems and microsystems.
Product Customizations
Low. Few options or custom features available.
High. Lots of configurations and customization to a particular customer or customer type.
Product Variety
Low. For example, in 1965 Colgate and Crest each made one type of toothpaste.
High. In 2012 Colgate made 17 types of toothpaste and Crest made 42!
Long Lead-Time Parts
Few. Here the word “long” is in relation to the time the market is willing to wait.  By default if customer tolerance times were longer it stands to reason that there were fewer long lead-time parts.  More so, supply chains just looked different.  Most parts were domestically sourced and thus often much “closer” in time.
Many. Today’s extended and fragmented supply chains have resulted in not only more purchased items but more purchased items coming from more remote locations.
Forecast Accuracy
High.  With less variety, longer life cycles and high customer tolerance times, forecast error had relatively little impact – you had time to make corrections.
Low.  The combined complexity of the above items is making the idea of improving forecast accuracy a quixotic adventure.
Pressure for Leaner Inventories
Low.  With less variety and longer cycles the penalties and risks of building inventories were minimized.
High.  At the same time our operations are asked to support a much more complex demand and supply scenario (as defined above) they are asked to do so with less working capital.
Transactional Friction
High. Finding suppliers and customers took exhaustive and expensive efforts.  Choices were limited.  People’s first experience with a manufacturer was often through a salesperson sitting in front of them.
Low. Information is readily available at the click of a mouse.  Choices are almost overwhelming.  People’s first experience with a manufacturer is often through a screen sitting in front of them.

The authors tell us to Always Remember:  Old Rules + New Circumstances = Expensive Lessons.  The comparison in the table above indicate the magnitude of the "old" versus the "new" circumstances.  The author's point is, "As these circumstances have changed dramatically, so too must operating models and the rules associated with them."

Debra and Chad Smith tell us that there are two "mission-critical" areas that contain many of these types of "rules."  Area 1 is planning and materials management and Area 2 is costing systems.  They also explain that the rules embedded in these two areas (planning and costing) combined to create a mode of operation known as push and promote.  These rules were probably appropriate for the time period in which they were developed, but not for today!  The authors remind us that companies that continue to operate using the rules of push and promote will put more in and get less back!

In closing this posting, the authors tell us, "Regardless of the circumstances associated with 1965 or 2013, the recognition of manufacturing as a process is essential to understanding how it should work.  Understanding how it should worl gives us the capability, in light of the current conditions, to define what the rules surrounding it should be.  Which rules need to stay?  Which need to go? Which need to change? Which need to be added?"  Finally, the first law of manufacturing is:  All benefits will be directly related to the speed of flow of information and materials.  In my next posting I'll discuss the what the authors believe the meaning of "All  benefits" as stated in this law.

Once again, this book is, in my estimation, a true "game changer" and I encourage everyone to go get a copy.  And while you're at it, get a copy of Carol Ptak and Chad Smith's book, Orlicky's Material Requirements Planning, 3rd Edition.  In fact, much of what's in Debra and Chad's book, is expanded in Carol and Chad's book.

Bob Sproull


Rui Dantas said...

Hi Bob,
I was just about to order Chad Smith's books.
If I just order one of them, which one will you suggest to start: Orlicky's MRP or the one with Debra Smith?

Bob Sproull said...

Hi Rui. They are both exceptional books, but if I had to select one book, it would be the one by Chad and Debra Smith. Having said that, I would also recommend Chad and Carol's book because it goes into much more depth with respect to MRP. I am happy that I have both books.

Rui Dantas said...

Ok, both it shall be.
Thank you.