Improving The Supply Chain: Continuous Improvement

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore continuous improvement issues adding some additional support as well.

Continuous Improvement

Projects come in a variety of shapes and sizes. The PMI model is the most popular with start and stop dates.  Agile projects are iterative and spiral inward towards higher quality and more features. Mega-projects are very large with complex supply chain relationships and sub-projects. Continuous improvement projects are most associated with Six Sigma efforts to reduce varitability but can arise from other efforts to lean out waste.

APICS approaches continuous improvement in supply chains based on a detailed set of instructions on how to proceed without disrupting, destroying, or diminishing supply chain performance. According to APICS, continuous improvement is about changing complex human systems one step at a time. Continuous improvement is also known as continuous process improvement (CPI) which is a central concept to Total Quality Management (TQM). APICS states that TQM is a management approach to long-term success through customer satisfaction as an outcome of participation of all members in an organization by improving processes, goods, services, and the culture in which they work. The APICS Dictionary 13th edition defines continuous improvement as a never ending process to expose and eliminate root causes of problems; small step improvements as opposed to big step improvements.  Further discussion follows on the key points:

Process: This is about ways to improve that bring value to the customer.  The effort approaches improvement from a holistic perspective.  Continuous improvement is about the whole process which is compatible with supply chain thinking. 

Never Ending:  The search for perfection has no endpoint. The idea is to make incremental improvements and keep raising the bar. There is no stable state and the circumstances and situation in the business environment change over time. Hence, the need to continuously improve. 

Root Causes:  Skepticism about quick judgements is built into continuous improvement. The idea is to pin point trouble spots and then discern the origin of the symptoms, the root cause. There are numerous methods to get at the root cause collectively referred to as root cause analysis. 

Small Step Improvements: Continuous improvement is evolutionary and not revolutionary. Goals may be set high and slowly achieved through incremental changes. 

Kaizen is cross-referenced with continuous process improvement in the APICS dictionary which defines the process as continuing improvement involving everyone. In manufacturing kaizen relates to finding and eliminating waste everywhere. Everyone in the organization contributes to improvement and this is an international philosophy. 

The Purpose

A single purpose for continuous improvement is difficult pinpoint given its broad swath across an organization.  There are numerous reasons, goals, and methods to reach many different purposes. For example, Just In Time diminishes queues, Six Sigma seeks to reduce variability, leans seeks to reduce waste, etc... Continuous improvement applies increasingly to service operations as well as manufacturing. In general, the purpose is to improve processes involved in producing and delivering goods and services.  Some common purposes behind continuous improvement are:

• To improve the processes of manufacturing or services, not focus solely on quality.
• To incorporate improvement considers into the processes themselves for ongoing sustainment
• To define achievable goals and develop quantitative measures to chart progress
• To increase productivity 
• To improve workforce satisfaction, safety, and quality of life
• To train employees to identify waste and participate in eliminating waste

In summary, continuous improvement's purpose is to create a culture of improvement throughout the organization affecting all aspects of the operations. 

The Model

While there are many models for continuous improvement, APICS uses those which build upon supply chain management. APICS divides continuous improvement into several stages that are consistent with classic operations management paradigms: 

• Process Analysis:  This is taking a hard look at the supply chain internal and external processes in an end-to-end perspective.  Processes can be mapped in flowcharts and process charts such as Supplier-input-process-output-customer (SIPOC) diagram. 
• Process Assessment:  Involves comparison of the process performance to determine progress and the amount of improvement necessary. Typical methods include benchmarking and the use of KPI's such as the SCOR metrics.  Linkages can be achieved between organizations when benchmarking to determine relative postures.
• Project Planning: Project management is and has been a subset of the operations management discipline.  Designing a roadmap or plan to move towards a goal or benchmark is the underpinning of project management. The small steps are an outcome of a work breakdown structure from which realistic schedules are built. 
• Implementation and Change Management: Once the schedule is built then implementation begins. This requires identification of supply chain partners who are stakeholders in the process. The implementation can  send shock waves through the organization and rattle the supply chain. It takes hard leadership and commitment from the employees to achieve successful implementation.  

Continuous improvement is an extension of lean manufacturing method that results in a full-scale assault on waste. Of specific interest is Six Sigma, Just-in-Time, and lean supply chain management. In future posts we will look into these aspects. 

Reasons for Adopting Continuous Improvement

The reasons for adopting continuous improvement follows:

• SCM is process oriented. The basic element of the supply chain is the processes that flow align the chain. 
• Supply Chain are dynamic. Supply chains evolve requiring constant reengineering and process improvement.
• Supply Chain evolve. Supply chains transition from cross-functional towards global networks requiring process improvement.
• Continuous improvement can reduce the costs of poor quality result from; internal failure costs, external failure costs, appraisal costs, and prevention costs. 

Continuous improvement should be a cultural trait within the supply chain that seeks to improve performance. 

Comment: A major challenge in many 'project organizations' is the lack of overarching organizational management methods emplaced to manage tasks. Many organizations 'wing it' making management of schedules nearly impossible. In proper organizational design and good leadership, work centers are well defined having clear sets of processes they perform and information requirements. These work centers then can be loaded with work packages, tracked, and set with priorities.  In many organizations processes are not easily mapped to work centers and may be erratically spread across several groups who perform the similar tasks under different conditions. This is especially true when there is a hodge-podge of numerous applications and systems emplaced. The root cause of this problem is often an outcome of a matrix organization that has run away having little guidance from top leadership.  Matrices almost always collapse into hierarchal structures as management turns over or problems arise. I am a strong proponent of the complex adaptive organization which is a supervised architecture that allow work centers freedom to manage themselves and self-organize under emergent conditions. 

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Supply Chain Compliance

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore supply chain compliance issues adding some additional support as well.

Supply Chain Compliance

Business operations are subject to a width variety of compliance concerns from associations, regulatory agencies, nation-states, and performance standards. Compliance issues originate from but are not limited to:

• Tariffs and taxes 
• Environmental concerns 
• Financial reporting 
• Transaction activities 
• Control measures 

Two important areas of regulations are financial disclosure (Sarbanes-Oxley) and material content reporting.

Sarbanes-Oxley Act (SOX)

SOX, as applied to supply chain, was enacted by the US Government with the intent to protect investors by segregating duties in an effort to diminish conflicts of interest. For example, a buyer and seller must remain segmented having no associations that would influence the transaction towards personal gain between the two parties. The US Securities exchange commission is responsible for enforcing SOX. The two provisions that affect supply chain are sections 401 and 404.

Section 401 applies to all publicly traded companies but has limited applicability to contracts requiring quarterly and annual reporting of off-balance sheet transactions. This section requires disclosure of material off-balance-sheet transactions, arrangements, obligations (committed and contingent), and other relationships of the issuer with entities or persons if the arrangements have current or future material effect on the organization's finances and operations. This impacts service contracts particularly. Carriers and vendor managed inventory (VMI) are often used arrangements to hedge risk and move inventory off balance sheet.  VMI often involves the supplier retaining control and ownership of the inventory even at the customer site rather than having the customer take ownership upon receipt. Pre-expended inventories are often based on consumption where the vendor owns the inventory at the customer site until the piece is removed from the bin and installed.

Section 404 is broadly relevant to supply chains including outsourcing. Firms that move in this direction open opportunities to improve management and develop a competitive advantage.  This section requires internal controls that do two things; 1) expresses management's responsibility for establishing and maintaining controls and procedures for financial reporting and 2) contains an assessment of effectiveness of the controls and procedures.  Supply chains must be well structured processes in order to meet the level required by SOX. Transparency across all supply chain processes is necessary. Isolated practices such as inventory tracking is not sufficient for SOX efficiencies and effectiveness.

Sections 401 and 404 apply to outsourcing and off balance sheet agreements with suppliers must be reported (401) with effective internal controls (404). Everyone in the supply chain needs to be aware of the implications when dealing with publicly traded companies.

SOX also requires reporting of risks and strategies that will go into effect after disruptive events in order to mitigate the effects. This includes events like Acts of God, accidents, and threats of various sorts.

The Securities and Exchange Commission has an enforcement arm that investigates misconduct and violations of US Law. The SEC works in conjunction with other law enforcement to bring justice to criminal conduct.  Penalties range from civil violations where fines are $1,000,000.00 and 10 years in prison to criminal which includes fines of $5,000,000.00 and 20 years in prison.

Material Content Reporting

Material reporting is part of a larger effort to encourage the use of safer, recyclable, and recoverable materials as well as responsible end-of-life handling. Dangerous goods are often referred to as Hazardous Materials or HazMat. There is a plethora of laws regarding the movement, storage, and use of HazMat. All such goods must be accompanied by a Material Safety Data Sheet, MSDS, and be tracked cradle to grave. 

The Global Reporting Initiative (GRI) is composed of several hundred stakeholders that disseminates globally applicable sustainability guidelines for voluntary use. The Initiative works in cooperation with the UN.  GRI is assisting in the development of reverse logistical KPIs that assess and improve environmental performance in advance of likely legislation and laws issued by governments.

The US shoe manufacturer Timberland has developed 'EcoMetrics' to assess environmental impacts. These metrics include:

• Energy to produce
• Global Warming Carbon Footprint
• Material Efficiencies
• Percentage of renewable energy used in manufacturing

Comment:  The improper storage of sodium hypochlorite and violations at Aberdeen Proving Grounds that resulted in a massive fire put both military and civilian employees in prison. While at Naval Air Miramar, The Home of Top Gun, I was assigned collateral duties as the HazMat officer in conjunction with my duties in materiel control. When I took the program it was non-existent and within three weeks of a major inspection by California EPA. I immediately enrolled in training for HazMat handling.  The program we put to together involved several activities; segregating the materials into three categories (general hazards, oxidizers, and combustibles), establishing storage for each category and tracking usage, then we organized the administrative aspects of policies, contingency response, and tracking cradle to grave.  While other tenant commands were fined for their programs and handling of HazMat, our command received no fines or violations. The lesson gleaned from this was that the civilian inspection authorities mean business and the fines can mount up quickly. There is personal accountability for violations and poor decision making.

US Food and Drug Administration, FDA

Good Manufacturing Practices, GMP, require attributable control of the manufacturing process to ensure safety and quality in goods that for human consumption. This affects the supply feeding the raw materials into the manufacturing process. The US FDA has developed regulations requiring more thorough documentation of the chain of custody of drugs. The supply chain must provide the information documenting the movement materials and account for losses of controlled substances.

Environmental Concerns

Environmental concerns are mounting as nations and even regional cooperatives focus more and more on international commerce. The concerns focus on the introduction of foreign insect and bacterial species as well as the disposal of hazardous materials or foreign materials that become hazardous when mixed with indigenous life and materials.

ISO 14000 is a voluntary environmental standard which often conflicts with local laws by creating legal issues for companies when the intent was to be responsible to the environment and ecology. Therefore, companies often avoid voluntary compliance standards like ISO 14000.

Overall, there is very little cohesive international standard. Supply Chain Managers must look to the local laws as well as think through situations with forethought to ensure the safety and sustainment of the ecologies. This may mean the use of shields on mooring lines to prevent rodents from either boarding the ships or leaving the ships while in port. Another approach to some environmental concerns may be to use steel pallets rather than wooden pallets to avoid transmission of invasive insect species that may bore into the wood. There may also need for Clean in Place (CIP) standards before loading and transporting containers. CIP standards require hot water wash downs in which water temperature and pressures must attain standard ranges during the wash down.  Water solutions may include soaps and disinfectants.

Overall, the degree of environmental compliance concerns are generally locally mandated or should be consistent with the organizations core sustainability initiatives. 

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Supply Chain Security

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore supply chain security adding some additional support as well.

Supply Chain Security

Proper supply chain management involves a wide array of security and compliance issues having implications for timing, cost, and information systems. Failures to comply with security and compliance issues impact customers, costs, and legal outcomes such as civil and criminal penalties.

Security Design and Concerns

Keeping the supply chain secure is a challenge most often. Not only does the chain need to protect against loss due to flooding, fire, theft, damage, and vandalism but the growing threat of terrorism has increased awareness as well as urgency of the security concerns. Of course, direct terrorists acts are at the forefront of people’s minds but there are collateral issues such a trafficking of weapons, goods, money, and humans in which terrorists may attempt to co-opt or leverage elements of the supply chain as part of the logistics of terrorism. State actors may engage those elements of the supply chain disrupting operations for a time. Therefore, it is to the benefit of the supply chain managers to seek methods and means of reducing this risk.

Key security efforts involve:

• Ensuring the physical security of modes of shipment and storage
• Meeting increased identification requirements
• Establishing systems to limit or deny access to the supply chain Comply with global anti-terrorism initiatives such as Customs Trade Partnership Against Terrorism (C-TPAT)
• Securing the supply chain information systems from malevolent and malicious attacks

Customs Trade Partnership Against Terrorism (C-TPAT)

C-TPAT is a combined state-business effort purposed to increase security of supply chains and the US borders. The idea is to achieve the highest level of security in the supply chain. This requires the voluntary cooperation of supply chain participants such as importers, carriers, brokers, warehouse operators, and manufacturers. Acceptance requires a online application and a signed agreement to take the following actions:

• Assess the firm’s own supply chain security in relation to C-TPAT guidelines.
• Submit a supply chain security profile to the US Customs
• Develop and implement a program to enhance supply chain security to meet C-TPAT guidelines
• Communicate the C-PTAT guidelines to partners in the supply chain and work towards including the guidelines in supply chain relationships

The benefits for participating in C-TPAT include:

Fewer inspections and reduced time at the border Access to participating C-TPAT partners Eligibility for account based processes such as bimonthly or monthly payments Emphasis on self-policing rather than customs verification.

Comment: I served in the Operations Net Assessment Group on a project called African Partnership Station which was a variation of Global Fleet Station. The objective was to build international and regional cooperation among participating nations to police their littorals, ports, harbors, and international commerce in order to diminish war and deter terrorism. The key element here is that the United States increased the capacity and capabilities of host nations to perform the necessary tasking to deter terrorism.  As part of the effort the US trained port supervisors and staff on how to secure the ports, perform inspections, and maintain security postures. Then the US coalition force performed exercises with host nations to assess effectiveness and skill levels. As a collateral effort to this project, we also conducted an Energy Security Conference in which European and African principles discussed the need for secure energy to drive their economies. The primary underpinning of Democracy is a capital economy. The principle underpinning of a capital economy is energy which punts the economy into motion. Terrorist and radicals who despise democracy, capitalist, and capitalism target energy. Due to this coalition effort, industry can take advantage of safer ports and shipping lanes reducing risk as opposed to regions where piracy and terrorism are a high risk.

GreenPeace Trespassing on an Oil Drilling Rig
Source: GreenPeace New Zealand

I want to take a brief moment to address the depth of security issues and how they mask themselves often as something innocent or seemingly important. Modern day Global Warming can be traced to European Pantheism which is a belief that creation and a supreme deity are one and the same. Thus, the need to worship the mother Earth and deify nature. The Progressive Political party latched onto environmental movements such as global warming and biodiversity following a series of environmental conferences during the formative years of their strategy during the late 1980’s. A constituency of environmentally sympathetic nations was built and  then this constituency targeted US energy demands. Thus, Global Warming was co-opted as a means to undermine US Democracy and the capital economy. Energy companies operating supply chains accessing, refining, and transporting energy resources to the US were then confronted with environmentalist action groups who were leveraged to increase stressors on the system. Hence, the increased need for security of the ships and off shore facilities but many nation-states who control security forces were constituencies of the global warming movement. In this case, industry became subjected to political whims and follies of clashing world views. The energy companies responded by disassociating with nation-states and formed their own terrestrial and maritime security forces to defend their interests and supply chain pipelines. "Whether or not security is the government’s responsibility, oil companies are coming to the realization that they must provide their own solutions (Elliot, 2013)."

Iraqi Northern Oil Field Security Force
Source: DVIDS Taken 08Feb09

The take away from this is that security ultimately rests in the hands of the supply chain operator. Many companies begrudgingly relent to enhanced security which becomes an overhead cost to operating the chain. The first line of defense is to build relationships with the communities affected by the presence of energy producing organizations.  In the case of the oil industry and piracy or terrorism, a security consortium was formed that provides security across the industry for sensitive operations. Each member contributes funding. 

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Elliot, R. (2013) Security management: crude oil and corruption. Resourced on 26 Oct 2013 at http://www.securitymanagement.com/print/43?page=0%2C0

Young, N. (2011). Warships, polar bears, ice and oil do not mix well. Green Peace New Zealand. Resourced on 26 Oct 2013 at
http://www.greenpeace.org/new-zealand/en/blog/warships-polar-bears-ice-and-oil-do-not-mix-w/blog/35218/

Secrets of Success in the Digital Age Part 1

Dale Carnegie

Comment:  I ran a series on Dale Carnegie sometime ago that summarized and reviewed his 1936 book "How to Win Friends and Influence People".  These were principles for cultures with a high degree of social interaction and people who had a strong understanding of face-to-face social relationships or a high context culture. The United States entered the postmodern era about the time Carnegie published his book. Postmodernism began to change human interactions, lauded relativism, and questioned authority. In the 1980’s the digital age began to take root and by the mid 1990’s the webpage had been created spawning the DOT com boom that rippled through society. As the digital age expanded and strengthened physical and virtual realities began to blur. Virtualization resulted in entire companies nosing into virtual clouds and sprawling cubical farms transitioned to having people isolated from other around them or to be outsourced to home workers. The social interactions became virtual and faceless in most cases as work dialogues were over emails, phone conferences, and instant messaging.  Therefore a new set of skills becomes important - skills for the digital age.  The Carnegie Institute has developed coursework for this purpose.  This post will review the highlights of this training.

Essentials of Engagement

The Carnegie Institute, CI, makes the personal appeal that a professional’s earning power is related to the ability to influence others. CI points to skillful human interaction as the key and professional success which is directly related to the strength of key relationships as everyone wants to feel important and valued as a contributor. The challenge is being heard in a world drenched with self-promoters and digital voices.

Flattery is excessive and insincere praise that is given to further the giver’s interests. Flattery is a most often viewed in a negative manner. For example, a boss may embellish an employee with misplaced praise such as 'I am am going to give you the best recommendation I can.' This on the surface is a flattery alluding to an outstanding recommendation when in reality that comment is really a gratuitous insult as the caveat the best I can is a nebulous limitation on the recommendation. Gifted jerks are skilled at this kind of demogoguery as it is easy to do and stokes their selfish pride in themselves. Affirmations assert a truth or virtue in a solemn manner with sincerity. Returning the example, an affirmation would sound something like, 'you performed well on this project bringing it to an error free conclusion. Please feel free to referred people to me for a strong recommendation any time.'  The more one leans towards affirmation instead of aloofness and flattery the more influence one will gain in the relationship. The difference is simple - genuine concern and appeal to principles in the digital messages.

Digital messages are received on an individual basis regardless of the size and scope of the network or organization.  Effectiveness at building strong virtual relationships relies on email, tweets, texting, blogs, and social networking posts. Time should been taken to craft meaningful, personal responses to all digital requests. While leaders and managers are driving schedules, they should attempt to casts the messages in terms of the recipient. This is a fundamental underpinning of Carnegie’s earlier works to become genuinely interested in other people and to talk in terms of other people. The language and tone of digital responses should be in the spirit of encouragement and reassurance making appeals to principles and genuine concerns.  If feeling agitated or frustrate upon receiving a digital message, wait to respond and blow off steam. When crafting a response later, fall back on the principles of building digital relationships. Cast everything in positive terms and use personal face-to-face time including video teleconferencing to discuss sensitive differences. The take away is to take time to observe the good in others and see things from other perspectives in the digital messages.

Influence requires more than intuition and intellect. A good listener will use social networking to discern what another truly wants. Listen and learn as they divulge over time their hopes, fears, likes, and goals. Express an interest in what they want. Use a gentle hand to attract others to your point of view rather than push them. Understanding what makes others tick and their core desires develops a heart to influence them into action.  A good metric to assess the strength of these relationships is the amount of face time versus digital interactions. You should find time each day to have face-to-face conversations with key stakeholders and influencers. Effective relationships is the objective.

Comment: In my experiences working in large offices and cubical farms that have become virtualized, people bury their noses in the computer screens. Thus, building relationships with the machine rather than actual people. In fact, other people assume the facade of the computer becoming the voice behind the machine.  Thus, a person becomes an email response or IM rather than speaking to a human by name. A good indicator of this culture is when face-to-face interactions become increasingly difficult. A person in close proximity requires that meetings are scheduled over the machine rather than walk ups. Impromptu walk ups often startle people who were buried in their computer screens. This phenomenon is called Peripheral Paralysis as people's attention, sensory and motor control are consumed by the computer monitor. All they are aware of is the screen contents and motor control is reduced to keyboard and mouse movements. The individual may be appear motionless for long periods of time with a seemingly catatonic stare into the computer screen. 

Thus, the playing field has transitioned or blended into the digital realm. Relationships are going to have to be developed based on digital messages as first introductions are occurring via digital channels. Crafting these messages and relationships skillfully is a real challenge as digital messages can be misconstrued often since they lack contextual information such as body language, vocal tones, and other information commonly sent during face to face communications. 

Early communication making the introductions and developing the relationships before there is a requirement to do so should be at the forefront of the process. 

References:

Carnegie, D. (1981). How to win friends and influence people. New York: Pocket Books.

Carnegie, D. (2012). Secrets of success in the Digital Age: Essentials of Engagement.  Resourced on 19 Oct 2013 from Secrets of Success in the Digital Age - HR.com. 

Managing and Leading People in a Supply Chain

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore supply chain leadership and management adding some additional support as well.

Managing and Leading People in a Supply Chain

In many of my posts I discuss organizational design, usually looking at capacity and capabilities then coupling this to complex adaptive systems, CAS. A major challenge in organizations is the ability to effectively and efficiently handle demands on capacity and capability under emergent conditions that stress the organizational design. Most often people are unyielding to rapid change bringing a host of human conditions into the mix. CAS can stabilize the situation as staff operate in stable nodes to queued work loads. The dynamics and flux are absorbed into the self-organizing communication pathways and logistical networks.

APICs recognizes the challenges which were discussed in the Evolution of Supply Chain post. Thus, executive management must be committed to the process orientation and cross-functional team-work across the supply chain. APICS breaks the solution of managing people into roles and leadership.

Roles

A challenge as organizations transition to world class excellence is the emergence of new process related roles. There is no agreement on how to structure a supply chain or which business functions to include or exclude. Once the business selects the end-to-end process the linked elements begins to look like necessities. Since everything is linked collaboration among the roles must be emphasized. The supply chain roles can be directly assigned to the supply chain or collateral duties within various departments and organizations affecting the supply chain. Position directly related to the supply chain management should possess these attributes:

• The ability to see the entire supply chain as a series of linked processes and not isolated functions. 
• The skill and experience necessary to manage critical relationships 
• An understanding of the business model 
• The ability to make decisions from statistical analysis and facts 
• Advanced cost management ability 
• An understanding of electronic business systems

There are a host of disciplines affected by the supply chain or affect the chain itself but are not part of the supply chain. For example; Engineering, Marketing, Finance, Accounting, Human resources, Information Technology, and Legal. Overall, everyone that touches the supply chain in some way should have some level of visibility and ability to communicate up and down the chain. With the right level of participation and well defined roles, surprise can be eliminated and the bull whip effect can be marginalized.

Leadership and Management

There is debate about leadership versus management with many theories circling around. Few dispute that supply chains require great managers and inspiring leaders. Managers perform roles in the organizational chart. Management in supply chains must understand the cross-functional boundaries and develop teamwork as well as perform the routine tasks associated with keeping the supply chain on track and performing well. Whereas, leadership is outside the organizational chart and not always present in a manager, even the best. Leaders arises to an occasion then returns to its humble origins and are often terrible managers. Managers are pragmatic and task oriented. Leaders are visionary and charismatic inspiring innovation and effective management. Managers follow the leaderships vision.

Comment: As an operations manager and retired Naval Officer, I want to take a few moments to discuss leadership, management, and supervisory differences. The real world is not perfect and often lacks clear delineation between each of these as there is managerial-leadership and supervisory-leadership models. In leadership circles, there are leaders with followers, leaders of leaders, and leaders of leadership. Inexperienced professionals in leadership roles often have convoluted ideas of leadership confusing management and supervisory roles with leadership roles. The basic leadership process model is presented in the Leadership Series posts; of specific interest is the post The Leadership Process.  

Leading people involves vision and setting the goals as well as the character and conduct of the effort. Leaders are ideologues who have visions and goals in which people see the virtue of pursuing.  Strong leadership aligns goals and objectives with the constituency needs, objectives, and goals. Whereas, the poor leadership example of dictators impose a vision on the constituencies. Managing people involves filling roles and ensuring that the right tasks are being pursued. Managers implement a leader's vision by creating and complying with policies and road maps that put strategy-to-task. Not discussed by APICs are supervisory roles. Supervisors are task masters who ensure that policies are complied with and tasks are properly executed. A supervisor reports what has been completed and the status of work in progress. Supervisors tend to have a work focus on a narrow specialized discipline or set of tasks.

Supervisor-leaders are self-directed and find ways to improve quality and throughput. Supervisor-leaders find efficiencies and ways to become more effective within their domain of expertise. Manager-leaders do the same but across multiple supervisory domains.  Whereas leaders are the most broad based. Managers typically are organizationally introspective. Meanwhile, leaders are organizationally visionary or looking outward to the future and direction of the organization.  Leaders of leaders are those who go beyond the organizational domain and lead the broader domain of industry or a consortium for example.  Leaders of leadership establish longevity and durability within a domain such that future leaders look to the giant for inspiration.  

Conclusion

Managing people is different than leading people. Supply chain management requires good manager-leaders as well as those who are expressly leaders in executive positions. Once the supply chain is established then roles define the tasks and activities within the supply chain that are managed.  However, the supply chain is in constant flux and leaders, managers, and supervisors must quickly adapt to the emergent conditions.  Hence, supply chain visibility is essential ingredient to managing and leading all supply chain participants.

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Supply Chain Financial Performance

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore supply chain financial performance adding some additional support as well.

Supply Chain Financial Performance

The supply chain is a long cost center that spans beyond the organizational boundaries. Efforts at managing cost focused wholly on removal or reduction of costs, waste, time, movement, and defects in order to improve financial performance of the chain including logistics and warehousing. Spend management controlled the outflow of funds in order to purchase goods and services in support of outsourcing, procurement, e-procurement, and supply chain. Saving money never goes out of fashion but the equation includes revenue too as profit is the difference between money spent and money earned. Supply chain financial management is becoming more complex in the contribution to the bottom line. The two documents used are the balance sheet and income statement.

The Balance Sheet

The Balance Sheet is a snapshot of the owner's share of the company at any point in time out of the resources owned and debt owed. The notion is that assets must be in balance with liabilities and equities. Inventory valuations in the supply chain must be accounted for on the balance sheet until the inventory is sold then converts to revenue. The age of the inventory must also be accounted for since the value changes over time. Supply chain operating costs are also accounted for in the balance. In the end, any retained earnings are rolled over into the next balance sheet cycle. Supply chain managers are seeking to reduce liabilities such as inventory carrying costs and losses due to age and obsolescence while increasing assets which include cash and converting goods and services into revenue quickly.

The Income Statement

The income statement shows the net income over a period of time and may be referred to as a profit and loss statement. This document reports profitability several ways to include gross profit, net income, operating income, etc... Business ratios are common to the income statement. However, the bottom line is net income which reflects all liabilities including taxes paid and all expenses. The net income is shown on the balance sheet and contributes to retained earnings. However, depending on the business organization, retained earnings may be rolled over or in some cases zeroed out and dispersed as owner's income. 

Taxes!

Nobody likes taxes. In the old days, a common colloquialism was to never let taxes influence decision making because they are always there and always got to be paid. As globalization set, countries, cultures, and political ideologies became accentuated increasing tax complexity. Nonetheless, taxes in the supply chain involve two aspects; taxes paid and taxes saved. With proper supply chain planning, global supply chains achieve huge tax savings when aligned with supply chain efficiencies in many circumstances. This applies to multi-national companies as they relocate assets and operations to low tax countries.

Another strategy is to consolidate and locate procurement and sourcing offices in low tax countries magnifying the savings of consolidation and low taxes. Taxes are levied against streams of corporate income. If that income occurs where the office is resident then the consolidated streams enjoy lower taxes. Central procurement offices can also take advantage of lower tariffs, value-added taxes, and other port of entry taxes.

Reviewing logistical networks and ports in use regularly or on cycle can also achieve efficiencies in tax savings. Taxes in some regions increase, particularly as populations increase and political motivations change. Moving facilities out of high tax regions and changing ports of entry can contribute to tax savings.

Conclusion

Supply chain financials involve careful design of the supply chain as there are tradeoffs between machines, manpower, materials, methods, and money. The tradeoffs affect taxes paid or saved but also affect other performance attributes such as customer focus. Established supply chains should undergo reviews in order to find cost savings. Negotiated tax terms with host nations, cities or other governmental agencies will also result in savings. When it comes to taxes, everything must be on the table.

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Supply Chain Metrics

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world class contracting. For example, my Masters program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore supply chain measurement methods adding some additional support as well.

Supply Chain Metrics

Metrics are key to assessing supply chain performance. One of the keys to using metrics is not to focus too much on the analysis or numbers. When this occurs, the phenomenon is known as analysis paralysis  and should be consciously avoided.  While there is no guarantee of achieving an optimal metric value, metrics do give the organization a goal or objective. Relative to that goal or objective is a performance measurement. The organization must first identify the objective then select meaningful metrics in support of that objective. APICs chooses to use Key Performance Indicators, KPIs, that are tied to strategic objectives. There are two approaches:

1. The Balanced Scorecard - designed to measure multiple dimensions in addition to the financial. 
2. SCOR Based model - designed by the SCC.

KPI Review

APICS points to a number of attributes that are intricately part of a strategy that is expanded into objectives and subject to being assessed by measurement. Useful KPIs cannot focus on silos and must cross all aspects of the supply chain activity under observation and associate with other supply chain traits. Briefly the traits include: Velocity, Visibility, Variability, Collaboration, Trust, Customer Focus, Flexibility Security or Risk, Compliance, Environmental, Elemental Profitability,  Financial Impact or costs.   KPIs may also measure supply chain effects such as the Bull Whip Effect. Overall, a KPI must be tied to the corporate or supply chain strategy and has trade offs with other aspects of the supply chain.

The Balanced ScoreCard

Introduced in 1992, the balanced score card was designed to give managers a comprehensive over view of the business performance and has been adapted to supply chain use. The balanced score card increases the focus to 4 dimensions of measurement than a single dimension which has been financial or return on investment, ROI, prior to the score card.  The four dimensions are:

1. Customer. The customer view of the business has value for current and future business. 


2. Business Process. This perspective focuses on effectiveness and efficiencies within the operation or supply chain. 


3. Innovation and learning. The perspective hones in on the organizations or supply chains ability to identify, assess, select, and take the actions necessary to resolve supply chain issues.


4. Financial. This focuses on traditional financial, after the fact, performance. Still important but limited in its scope of predictability.

Developing a meaningful and impact driven score card requires careful preparation, leadership, and follow-through. Key traits include; communication, unity of effort from top to bottom, and schedules that assign responsibilities. Management needs to be visibly behind the initiative.

The SCOR Based Approach

SCOR defines five main supply chain processes; plan, source, make, deliver, and return from which metrics are derived. APICS focuses on level 1 metrics which are high level despite the approach going much deeper. Level 1 metrics tend to cross over multiple processes. The advantages are:

Cross-functional and cross-company supply chain metrics. It includes formulas to calculate numerical values for each attribute for world class performance. SCOR approach was developed and refined by dozens of major firms and applied to many initiatives.

High performance supply chain. The SCOR based approach considers performance attributes in support of high performance. 

Reliability: This metric relates to perfect fulfillment's. Loss rates, return rates. However, the only level 1 measure is perfect order fulfillment.

Responsiveness: This metric is a measure of latency in the supply chain or the amount of time it takes to complete a delivery. The only level 1 measure is order fulfillment cycle time.

Agility: This is a measure of capacity and capability within the supply chain to respond to unusual orders and quantities. Flexibility, adaptability, and risk are attributes that lend to agility. Some of the metrics include:

• Upside supply chain flexibility is the number of days required to achieve a 20% increase in quantities delivered. 
• Upside supply chain adaptability is defined as the amount production increase that can be sustained for 30 days. 
• Downside supply chain adaptability is the reduction in quantities ordered that van be sustained for 30 days without inventory or cost penalties. 
• The overall value at risk, VAR, is the sum of the supply chain values at risk, VARs, for Plan + Source + Make + Deliver + Return.

Costs: (2 metrics) This is a measure of indirect and direct operating expenses for the supply chain to function. Ie supply chain management costs and cost of goods sold.

Asset Management: The effectiveness of the supply chain and organization to support demand satisfaction. This includes fixed assets and working capital. Utilizations of cash and returns on investments.

• Cash-to-cash cycle time is the time it takes for an investment to flow back into the company after it has been spent on raw materials.
• Return on supply chain fixed assets is the measure of return an organization receives on its invested capital for supply chain fixed assets in all five supply chain processes. 
• Return on working capital is the magnitude of an investment relative to a company’s working capital position versus revenue generated from a supply chain. This includes accounts payable, inventory, supply chain, costs of goods sold, and supply chain management costs.

SCOR model and Risk Management

The SCOR risk model is associated with 4 of the 5 SCOR processes. Return is not considered in the risk assessment. The risk management effort results in:  Faster implementations, more comprehensive identification of potential risks, better application of SCRM best practices, abd better SCRM coordination with customers, suppliers, and stakeholders

Comment: Most of industry and companies think they are unique or different in some way that differentiates them from the rest of the market. Rarely is this the case but to a greater extent many companies choose to step-out-of-the-box and break the mold in order to create profit opportunities. While APICS has its own cookie cutter approaches and methods to managing the supply chain, there are other practices may be leveraged as well in order to break that mold. For example, effects based outcomes closely follows the score card approach but breaks out of the mold allowing for more than 4 dimensions while connecting strategy to tasks.

Managing a supply chain is a juggling act and metrics are typically used as a barometer of performance. The supply chain manager must gauge performance and twist the rheostat up or down in the various aspects of the supply chain. Once the chain is designed, the supply chain manager should have a dashboard that is scanned routinely in a high velocity chain. 

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.

Chaos as Strategy Part III

Comment: In the earlier post we looked at the military's approach to chaos and cultural paradigm shifts in thought necessary in order manage and leverage chaos as a strategy. We also looked at chaos as both a science and an art then connected the art to emotional design. I will expand on emotional design as coupled to organizational design and chaos. The objective to illustrate that chaos is manageable then provide some project management tactics, techniques, and practices that help during chaotic situations. This will be the last post on this topic for now. 

Emotional Design and Chaos

Leveraging chaos involves an organization that can support and be accurately responsive to surprise, perceptions, and intuition with a low latency. Similar to a warfare commander who organizes war fighting elements such as ships, planes, tanks, and forces for battle, companies must be structured for battle leveraging their organization and staff for profitability and survivability. The idea of applying warfare methods to business is not new and has been popularized by books such as The Art of War by Sun Tsu or Leadership Secrets of Attila the Hun by Wess Roberts. Both of these books explore war fighting tradecraft but fall short of structuring systems and organizations. In this series, we are leveraging emotional design which involves three elements; the visceral, behavioral, and reflective.

These three elements interplay in differing ways that result in judgements and rapid decision making during a dialectic conversation about what is good or bad, safe or dangerous, right or wrong, beautiful or ugly, etc... Humans then act on these perceptions. (Norman, 2004, p. 22 ). The conversation is both overt and internalized as well as in ongoing with or without all the participant's contributing. Business leaders must not only participate in the conversation but somehow contribute in a way that favorably sways the conversation. Principle based character ethics is one approach that should be leveraged. Business leaders and project managers should appeal to well established and acceptable principles in order to be seen as forthright and upstanding. The quickest way to loose respect in business, the workplace, or marketplace is to use personality or situational character ethics. However, the marketplace is often unfair and business can be thought of as warfare as pointed to earlier. Therefore, surprise, perceptions, and intuition must be leveraged to the advantage of a company and operation. Information warfare methods shape the conversation. I will save this for another post. I do want to couple organizational design to emotional design in order for the business to be responsive to surprise and the business leaders intuition.

The primary objective is to have an adaptable organizational architecture that leadership can array in different ways to meet marketplace challenges without disruption to the organization.  A closely coupled objective is to have a self-organizing architecture that adapts or adjusts to emergent conditions simultaneous to leadership's efforts to array the organizational elements if different ways. This is possible by virtualizing the organization using complex adaptive systems approach. But first let's link emotional and organizational design. 

Emotional Design and Organizational Design

In emotion design of an organization, the visceral relates to beauty which has the traits of harmony and unity within a system. The organization that results in smooth and responsive operations during stressor conditions as well as adapt or self-organize to changing conditions without becoming confused or disjunctive is said to exhibit beauty.  A measure of beauty is the Golden Ratio which can be applied to physical and virtual relationships of design. ie timing sequences, resonance, and various ratios throughout the organizational design. 

The behavioral component of design promotes usability or functionality which must answer the question does the organization perform under the intended or contingent stressors and deliver quality results. Accuracy and latency are perhaps the most important measure of usability. Latency is the time interval from discovery to result or outcome the organization takes to identify, evaluate, and implement a solution to a challenge or emergent condition. 

Reflective design element provokes thought or intellectualization. Like warfare commanders, business leaders leverage intuition to their advantage while assessing perceptions for accuracy and value. Often optics, what does situation look like, can be deceptive. For example, General Schwarzkopf created an optic for Saddam Hussein that a 10,000 troop Marine force was his worse nightmare. Hussein focused on this optic as Schwarzkopf moved them around, split them up, and would hide part of them such that Hussein consumed his time looking for them. In the meantime, Schwarzkopf swept around with a large mechanized ground force and marched on Baghdad approaching from several directions at once. Hussein was stunned to learn of this force as a giant dust cloud stirred on the horizon and the earth quaked under the thunderous approach of the advancing mechanized force. He surrendered. 

Likewise, it is not uncommon for companies to create optics that are distractive. For example, a power company was installing micro power generation plants throughout the South Florida metropolitan region but ecological groups resisted the construction of the units. The CEO announced construction of a unit near the neighborhoods of the protestor leaders who immediately dropped all other protest and focused on the N.I.M.B.Y. optic. Construction of the other units went smoothly but the unit near the protestors neighborhoods was experiencing significant delays. Whenever the protestor's attention waned from the optic, the company would try something outrageous with the unit near their neighborhoods. In the end the CEO acquiesced to the protestors and withdrew the bid to build a unit near their neighborhood. The protestors celebrated popping Champaign bottles and lauding their victory over the evil capitalist power company that accomplished the objective of building the other units. The company sold the property near the protestor's neighborhood at profit.

Like the previous book's these are mostly tactics and techniques. Let's combine these with the ideal organizational architecture.

A Better Solution to Managing Complexity and Chaos

The organizational design promoted in many of my posts is the Complex Adaptive Systems, CAS, architecture. I like this approach because of the adaptability and manageability without causing disruptive conditions. CAS is an ideal approach to leveraging chaos both to withstand natural events and deliberate efforts that disrupt the organization as well as to leverage chaos as a business strategy both internally and externally. The challenge is to understand how to apply complex adaptive theory in combination with other methods to organizational design.  

CAS is an architecture of communication pathways and interconnected nodes like natural systems such as crystalline structures, molecular chains, and to a greater extent neural networks of the brain when animated. For this post, CAS is a network of nodes that self-organize by identifying and connecting to other nodes based on demand for a node's output. The nodes can also be arrayed to form new processes   or ways of thinking for the organization. 

For clarification, the network of nodes and communication pathways can be viewed as a neural net having firing signals and information transfers along the connecting pathways.  These connecting pathways are viewed as forming line of logic or knowledge. Hence, the nodal network is a knowledge manufacturing instrument as well as producing physical goods. The lines of logic are virtual and can be layered. All nodes are stable and process their workload based on queued work seeing the first order connection only. Although, notice of incoming work is possible if the line of logic is already known and established. Logistical networks move any physical goods being processed while informational networks move virtual activity. 

Nodes are fully encapsulated processes that can be associated to U-shaped cells commonly found in lean manufacturing having the inputs and outputs. The communication pathways duct information exchange requirements between nodes or the U-Shaped cells.  The network is self-organizing based on processing needs. Cells advertise their physical and informational products. Computer networks and logistical network animate the nodal network exchanges. Cells can be internalized or outsourced based on financial and strategic considerations. Cells can be called into action on an as needed basis.  Software can manage the entire nodal system as supervised intelligence. Latencies can be leaned out and the network response times can be dramatically shortened as the cells are self-directed establishing relationships with other nodes as required. Applying complex adaptive system concepts to organizational design can lean out the organization and leverage chaos to its favor given the rapid self-organizing nature of the design.

Cell or node design is not complicated. A cell is simply a set of fully encapsulated processes, activities, or steps that are performed by the cells systems and staff. The cell is buffered and receives inputs from the network, performing work, then outputting the work in progress for other cells to act on or as a finished good.

Leveraging Tactics, Techniques, and Procedures

Common to operations management on a practical level is the need to manage the operations or in this case the nodal or cellular network. Operations managers (OMs) and project managers (PMs) can see the network laid down at any point in time (with the proper management tools) and node queues or backlogs.  Cell workloads would become evident as queues buffer the cells taskings. Work flows would become self-evident as cells make connections to other cells which schedule the arrival of the taskings, work packages, or job followers.  PMs then can monitor project activity for conflicting taskings more readily. Project management transitions from the cowboy PM who wrangled the staff and constantly searched out conflicts to having the company self-organize dynamically to reflect the workflow priorities and schedule.

As a rapid paced and dynamic marketplace changes, the organizational nodes respond by adapting, and self-organizing without the overhead of business and system analyst creating latency in the organization as they assess what to do. Leadership may also review the standing exchanges between nodes then adjust processes to optimize performance.

In a war fighting scenario, the cells can be arrayed to deliver desired outcomes the leadership seeks. For example, a new technology disrupts the marketplace obsoleting conventional practices due to lower operating costs.  In the case of the cellular network, a cell can be stood up that leverages that technological process then added into the network or leadership may resource this cell by outsourcing. The other cells simply repoint to the new cell added. In another scenario, leadership may have a hunch about a new product or service then decide to build a new process. After mapping the process out and creating a work breakdown structure, cells are identified that would support the new process. The cell's queues load with the work packages as the process moves through the network. Capacities and capabilities are assessed quickly.  A cell's staffing can be increased or identical cell's can be stood up in parallel to handle the additional throughput. Costs are well known. Leadership can assess all the processes layers throughout the organization quickly compressing decision making. In an ultimate circumstance, cells can be arrayed to process then deliver information and knowledge much like the human brain. Truth reports assess the accuracy and validity of the arrayed path through the network. With proper tooling and design, this can be accomplished from a desk in a matter of a brief moment.

Overall, the CAS network is a pliable and adaptable approach to managing an operation that can lean out inefficiencies and be leveraged in ways that result in increased knowledge about the organization, marketplace, or some other phenomenon. Hence, chaos has been wrangled and is now leveraged to the advantage of the leadership. 

Reference:

Norman, D. (2004). Emotional design: why we love or hate everyday things. Basic Books; New York. 

Pierce, T. (1998). Proceedings Magazine: teaching elephants to swim. (vol. 124, 3, 1, 143). U.S. Naval Institute.