A butterfly fluttering in Japan causes atmospheric perturbations that can result in a hurricane in Florida. Hence, the Butterfly Effect states that small changes in a system may compound into large differences at a later time and different station in the same system. The concept was originally introduced circa 1962 by an American meteorologist Edward Norton Lorenz, the Father of Chaos Theory. Science rediscovered Lorenz's work in the mid-1970's and engineers began to employ its use in the early 1980s. Business did not begin to consider the merits of Chaos Theory until the late 1990's when adaptability began to be of interest to organizations with rapidly emergent conditions. As supply chain complexity increased then chaos principles began to apply to the chain.
The Bullwhip effect is a result of a lack of visibility or transparency in the supply chain when estimating demand. Actors in the supply chain successively farthest from the end demand, compound errant demand estimates upon errant demand estimates. This creates excess supply that cost money, increase waste, and reduce profits. The problem successively increases from the end demand. The BullWhip effect is a single problem in the supply chain. Albeit, a significant problem. Thus, the high degree of focus. Butterflies, on the other hand, seem minor and can emerge anywhere in the chain creating upstream and downstream problems from where ever the disturbance appears.
Supply Chain Project Failures, Successes, and Case Studies
Motorola was experiencing high scrap rates on an ultra-high vacuum semi-conductor process overseas causing supply chain disruptions that demanded an improvement. A project to find a solution revealed in lab tests an alternative process resolved the problem. The new solution was approved for a switch but failed in real-world applications causing offshore plant shutdowns and failures to meet normal demand. The lesson learned for Supply Chain managers when dealing with projects that affect key processes is to start small and phase-in. Motorola issued a policy that regardless of lab results, critical manufacturing process transitions begin with less than 10% of the production line followed by review and analysis. Once approved then a scheduled increase begins over a minimum of four months (Hoffman, 2003). Project managers are accustomed to phases, milestones, and reviews. Supply chains are no different.
Shea Homes wanted to build more homes in less time without spending more money. The challenge was a resource restraint. A self-imposed requirement to do more with less or improve efficiencies. There were more than 54 subcontractors in the supply chain operating on multiple sites and multiple jobs. Often tasks were done out of sequence as subcontractors worked at a job site until there was a problem or roadblock then moved to another job site. The hopscotch approach wasted time, money, and was riddled with delays. The project manager established a critical chain that eliminated the multi-tasking replacing that with a continuous workflow and synchronous schedule. The critical chain was a cultural shift that required training. After implementation, Shea Homes observed a 42% reduction in time to build while increasing their return on investment. The change also resulted in guaranteed move-in dates, competitive advantage, and a marketing tool. The the critical chain strategy focused all efforts on the critical path to completion (Hunsberger, 2012). Project managers are very familiar with the critical path. Thus, supply chains should be organized around a critical path and such that all decision making is focused on the integrity of the critical path.
Redtag, Inc was faced with high supply chain costs with an objective to reduce costs by a minimum of 10%. The supply chain stretched from Asia to supermarkets across the United States. Deliveries were driven by events and holidays often with short lead times. In order to avoid delays, shipping and freight costs absorbed the short lead times. The solution was to form a strategic alliance with an inland freight distributor. Imports were taken as far as possible over water before arranging ground transportation. The lower inland freight miles traveled resulted in more than 30% reduction costs (Markarian, 2003). Strategic Alliances may improve the bottom line costs but they also place new constraints on the company. Project managers must understand the supply chain strategy such that, in this case, while the goods are on the water they are slow and cannot easily change modes. Other projects may be impacted by these kinds of strategic constraints that cannot be easily changed.
Legal troubles are common in supply chain disruptions and a supply chain project manager has a duty to mitigate legal troubles. Proactive reviews of contracts and procedures are essential (Markarian, 2003).
Establishing a Project Ready Supply Chain Culture
Supply Chains are dynamic enterprises in constant flux. A single organization may have a considerable number of supply chains and projects that may affect one or more of the chains. Projects and change can arise anywhere in the supply chain affecting quality, cost, schedules, and scope within the entire chain. There has to be a common operating environment for projects to occur within. We saw policies being written at Motorola to mitigate issues and critical path being established in order to create efficiencies among the subcontractors at Shea Homes. RedTag sought a strategic alliance. These strategies, policies, and processes need to be communicated. Anytime someone in the chain has changes or projects these have to be vetted against the strategies, policies, and processes in use up and down the supply chain. Finding who in the chain will manage this can be difficult. Some people think its the project manager's duty but that can be a problem as project managers do not always have operations management backgrounds.
Often the dominant supply chain actor manages the chain by fiat but this is not always good for the supply chain. The dominant actor may be remiss or selfish in managing the chain. On occasion, the supply chain is managed by an external actor such as an appointed fiduciary, working group, or by a council. This happens when there are legal issues surrounding procurement and/or unbalanced competitive actors influencing outcomes. In many, supply chains there is an absence of overarching management. Project managers operating at any station in the supply chain may find themselves in a vacuum of management and with multiple projects that could impact the entire supply chain. If in the dominant role then establishing management of the supply chain projects is easier but that is not always the case nor good. In short, a supply chain project manager must wear other hats to include an OM hat. The best project manager can do is manage from their station if unable to rally support for overarching management and project managers should use the project plan.
Project Management hovers around the project plan, Figure 1, which has numerous subset plans such as change management, communications, and quality plans. Sometimes these subset plans are just a paragraph in the larger project plan or may not even appear depending on the project. Nonetheless, the project plan is the primary artifact in any project.
Figure 1: The Project Management Documents
Plans are limited because they are focused and narrow in scope. In the case of a project plan, the subset plans are unique to the project and can be different for each project even though common elements exist is a supply chain. As projects come and go, sometimes with a high degree of frequency, tracking policies can become confusing. Additionally, supply chains are coalitions of many players. Some are dominant and wield control over the supply chain. Other players are minor contributors and a single supply chain can become costly for them with little influence. Standards need to be set with stable expectations for performance for all players. Plans are too short-lived and can vary by the different leaders. The solution to this challenge is the establishment of programmed management or management programs.
Management programs in the Operations Management, OM, the view is different than Program Management in the Project Management Institute's, PMI's, view. PMI considers program management to be a project-of-projects or simply the Mega Project architecture. Operations Management considers a management program to be a loosely written document for specific management of an activity detailing the principles, processes, responsibilities, authority, and decision-making guidelines. The concept of loosely written refers to the degree of cohesiveness in the document. Strict cohesiveness binds activity from operating outside the policies and rules using terms like shall, must, and sets discrete limits. A loosely cohesive program is flexible and allows room to operate using terms like may, should, and sets ranges vice limits. The degree of cohesiveness is a combination of strict and loose. Management programs are useful in highly complex operations involving rapid change, regular turnover of personnel, quality and safety concerns, as well as financial impacts among other issues. These program documents are the baseline management policies, provide stability, and available to everyone.
Mapping typical project management plans to the supply chain in order to organize management programs, Figure 2, should use the APICs supply chain model. These project management plan elements are expanded and become written management programs for the supply chain.
Figure 2: Mapping Project Management to Manufacturing Supply Chains
When developing a management program, a supply chain working group should be formed in order to obtain buy off from everyone upstream and downstream. The program should detail policies and responsibilities for not only the dominant actor in the chain but more so for others whose projects may affect the entire supply chain. The programs should detail processes for vetting impacts, communicating, and processes as well as timelines before acting. There should be an annual review of each program and a process for interim changes. Once agreed upon the program should be published for all actors in the supply chain.
When a project develops, the elemental pieces of the project plan are already established and known. The project should incorporate these standing policies and practices with authorities and responsibilities already understood. The program management concept was established in the post Project Complexity Perplexes Procurements in order to gain control over complex procurement processes during large scale projects.
In conclusion, establishing the policies, procedures, authorities, and responsibilities as a stable program up and down the supply chain helps avoid the injection of unanticipated changes during projects. For example, a material quality change that reduces cost for one actor with the intention of improving supply chain performance may reduce quality for another down stream causing increases in warranty issues. Having a supply chain quality program in place helps project managers identify and vet quality change impacts to the supply chain during process improvement projects.
References:
(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.
Hoffman, W. (2003). Missing links. PM Network. Resourced from http://www.pmi.org on June 5, 2014.
Hunsberger, K. (2012). Chain reactions. PM Network. Resourced from http://www.pmi.org on June 5, 2014.
Markarian, M. (2003). Tightening the supply chain. PM Network. Resourced from http://www.pmi.org on June 5, 2014.
Originally posted on January 15, 2014.