Last blog, we discussed a basic introduction to safety stock and the reasons for safety stock with a brief mention of reorder point. So, what is a reorder point? A reorder point is a certain level of inventory, which triggers a company/ buyer to place a new order from an item in order to prevent future stockouts. An important note about reorder point is the reorder point differs for each individual item as the safety stock, lead times, and daily demand will all differ, even if only slightly.
Safety stock, lead time, and the demand (sometimes referred to as the daily average) are the components to calculating reorder point, which is why we are writing this blog directly after our blog about safety stock. The calculation for reorder point (ROP) is fairly simple:
ROP level = (lead time in days*daily average demand) + safety stock
One important note is calculating the daily average demand. To do this, sum the demand over a given period of time (30, 60, 90, days, etc.) and divide by the number of days in that timeframe. Here is an example using the figures from our safety stock blog:
Lead time= 1.5 months or 45 days
Safety stock= 110 units
Say we want to calculate the reorder point level for the upcoming year using the last three months of demand (from Oct-Dec). To do this, we sum the demand over this period and divide by the number of days in those months (31 days for October and December, 30 days for November; for 92 total days).
You also need to calculate it without the safety stock to get 186 units. This gives you the point you need to place the 296 unit order. The maximum inventory you should carry without changing the daily average demand is the safety stock + the ROP level, which is 110+296= 406 units. A graphical representation of the reorder point can be found below:
This graphic is commonly referred to as the sawtooth model. It is important to note the inventory never drops below the safety stock maintaining the buffer inventory to avoid stock outs from demand variations! If you are having trouble figuring out when to place your next order, give this a shot!
This week we wanted to discuss the topic of safety stock. While we have touched on safety stock in multiple previous blogs, we have never dug into the topic itself. This blog is aimed to define what safety stock is, why it is needed, and how it is calculated.
Safety stock is defined as inventory that acts as a buffer to uncertainties in both supply and demand of products. A company’s total inventory consists of two types of inventory: cycle stock and safety stock. The cycle stock is the amount of inventory a company expects to sell within a given period while safety stock is layered in to protect against fluctuations in the supply chain whether customer driven or supply driven. For example, a company may carry four weeks of cycle stock equally 30 units, but due to the lead time and the service level carries an additional 15 units of safety stock giving the company a total of 45 units of inventory.
So what are the cause of needing safety stock? It turns out there are realistically dozens of reasons you may need safety stock, but here are some of the main reasons:
Safety Stock = σdemand* √LT* Z, where σdemand is the standard deviation of demand, √LT is the square root of the lead time, and Z is the Z-score of the desired service level.
The z-score can be found in a z-table, but some of the main z-scores are for 98%, 95%, and 93%, which are 2.05, 1.64, and 1.48, respectively. It is similar to finding the z-score for calculating a confidence interval in statistics. An example for an item with a monthly standard deviation on demand of 54.606 and a 1.5 month lead time with 95% service looks like this:
Safety stock = 54.60603*√1.5*1.64 = 109.6807 units or 110 units of safety stock
Stay tuned for the next blog to discuss how to work in tandem with reorder point and how to apply reorder point into your supply chain!
Today’s blog will be a shorter one, but one with some very good information! ASCM had recently released their “2022 Supply Chain Salary and Career Report”, which shines light on some of the changes to compensation as a result of the current job market and increased focus on supply chain during the pandemic. This blog will focus mainly on the U.S. portion of the report, although, the report does discuss Canada and Europe.
In the U.S., ASCM states that 79% of respondents having reported an increase in their salary. In 2020, that number was 59% showing a 20% increase year-over-year (ASCM). ASCM also reports that the average increase in salary was 9% with one-third of respondents receiving an increase of 8% or more. The largest single range was another one-third of respondents reporting an increase in salary of 2- 3.9%. Interestingly, entry-level salaries remained consistent with prior years at $60,000 while all other levels of experience increased in base salary (ASCM).
An interesting portion of the ASCM report is the section on common job trajectories for supply chain. I could try to put their graphic into words, but the ASCM graphic from the source cited at the bottom of the blog does an excellent job summarizing:
While this is a nice graphic to see and can be used as a reference, I cannot stress enough that these are common trajectories and not everyone’s career follows the common path!
Source: ASCM/ APICS, pp. 1–9, 2022 Supply Chain Salary and Career Report.
The last two weeks we discussed the environmental and social portions of ESG factors and impacts. As a reminder, ESG stands for Environmental, Social, and Governance. Today’s focus is on the governance aspect.
Governance factors are typically seen in the form of structures or policies to ensure risk reduction or mitigation. For example, one of our Just-In-Times issues a couple months ago referenced an article where an Apple employee that managed to defraud the company to the tune of $10M. This situation should have never been able to occur if there are the proper policies and structures in place to prevent a purchasing professional from operating without proper supervision and signoffs.
There are some steps in supply chain we can do to ensure a better governance outlook for our teams:
These are just two simple examples of governance, but the positive dividends they will pay are unquantified. While rounding out our series on ESG - it is imperative to ensure your organization has proper governance in place.
Last week, we discussed the environmental portion of ESG factors and impacts. As a reminder, ESG stands for Environmental, Social, and Governance. Today, we are going to focus on the social impacts surrounding supply chain professionals.
When we look into the social aspects of ESG in supply chain, we are looking at benchmarking and investigating what types of companies and suppliers they work with. We also consider the safety and health of employees working for the company. These are critical factors to consider, now more than ever. We are experiencing one of the hottest job markets, meaning employees are feeling empowered to require the best salary, but also, the best working conditions and circumstances. People are talking about treatment of employees constantly, and it is important to do the best by your employees if you plan to retain top talent.
There are some steps in supply chain we can do to ensure a better social outlook for our teams:
One of my favorite supply chain topics is something that does not always come to folks’ minds when they think about supply chain—ESG factors and impacts. Many are probably asking what ESG stands for: Environmental, Social, and Governance. For today, we are going to focus on the environmental considerations supply chain professionals need to monitor.
When we look into the environmental aspects of ESG in supply chain, we are looking at understanding the environmental impacts of a company’s full supply chain. This is not only referring to a company’s carbon footprint, but can also delve into water usage and efficiency of usage. Prior to this larger trend of corporations being held to a higher standard in ESG factors, a company statement nodding toward reducing carbons emissions was enough for the environmental segment. Today, we are able to benchmark companies far more effectively and hold bad actors more accountable as we are able to obtain more and more data and metrics. Regarding carbon emissions, companies are working harder to fully capture their carbon footprint meaning that they need to include the carbon emissions that come from their full supply chain—the pollutants of 2nd, 3rd, and even 4th tier suppliers.
Another trend that we are beginning to see in environmental, which is tougher to measure, is the sustainability of resources and raw materials. Are companies able to obtain raw materials that are not doing great harm to environment? Should companies get out of products that are causing harm to the environment such as oil-based products or carcinogens? These are all important factors to consider when working on sourcing and product reviews.
So what are some of the ways that companies can leverage their supply chain to better achieve their environmental goals? As supply chain professionals, we tend to have a focus on efficiency, and that is one of the key strategies we can implement to contribute to meeting environmental initiatives:
Over the past few months, I had the opportunity to study for and sit to become a Certified Supply Chain Professional (CSCP) via the Association of Supply Chain Management (ASCM). The process was laborious and required immense self-discipline and countless hours of studying. Having studied Supply Chain in undergraduate school and focusing on Supply Chain for my MBA, I found the CSCP to be the toughest material to get myself through. However, there are resources and tactics to help you succeed and I am here to share what I found useful. Note – this is just what I personally found helpful, everyone learns in different ways.
So why the CSCP?
There are a number of supply chain certifications available in the professional marketplace. ASCM offers the following major certifications:
In addition to ASCM, the Institute of Supply Management (ISM) offers:
When I sat down to weigh the options I reflected on my professional experience and where I wanted my career to go. I spent five years in the defense contracting world and at the time of this article I am a Senior Planner in the dental product space. My aspirations point toward management of the supply chain on a global level. For this reason, I chose the CSCP. The CSCP does a great job at covering:
Thus, I felt the CSCP would give be the greatest breadth of knowledge.
Determining How to Study
After I landed on the CSCP it was time to get started. I was fortunate to have the financial support of my employer to take on the burden of purchasing the study materials. However, before I started, I needed to determine a study path.
ASCM offers three study plan methods:
Ultimately, I landed on the self-study option. The majority of my MBA was self-study so I felt confident I could discipline myself. However, there is plenty of value in instructor-led and instructor supported study. I will shamelessly plug my Alma Mater, Duquesne University, who has partnered with ASCM on these learning opportunities.
I also chose to bundle the Exam Prep Materials and the Exam Expense. This came with a 1-year membership to ASCM, which I was very excited about! In all, it ended up costing a little over $2,000.
Making a Plan
I am going to start with saying, EVERYTHING you need to pass the exam is in the ASCM provided Learning System. I bought Version 5.0 the day it was released and made a plan to take the Version 5.0 (2022) test the second day it was available. The key here was – making a plan.
The first step was taking the pre-test in the online Learning System. This helps assess where you should focus your studies. DO NOT WORRY! I scored a 40% on the pre-test and I have two degrees and 8 years of experience working in supply chain!
After the pre-test the Learning System will set an order of topics for you to study. I took this order and built a plan. My plan focused on reading two sections per week. Once I read each section, I studied the flash cards, completed the case studies, and took the associated quiz. I logged my quiz scores in an excel spreadsheet (see below) and kept moving forward. After 5-6 sections were completed, I went back and refined my knowledge where I scored less than 80% on a quiz. In some cases, that meant re-read topics and in other cases, I just needed a second shot at the quiz after reviewing the flash cards. In any case, I did not move forward until I achieved 80% on all quizzes in that block. This whole process took me 15 weeks. During this time, it was important to truly understand the material as I went along. It can be easy to memorize quiz questions, but that will not help you pass the exam. You need to understand the topic and be able to apply it.
After I made it through the material, I had 4 weeks to review before my exam date. I set my exam date within the first few weeks of studying because I knew it would keep me on track. During these 4 weeks I did the following:
Some of these I said above but I want to reiterate:
I elected to go to a local testing center vice testing online at home. I had an 8AM slot and was in a room of other people taking random tests. Nobody else was there for the CSCP when I was. The exam took me about 3 hours to complete. This included a review of flagged questions and allowed me to take my time on each question. It is important to read each question carefully because one word can toss you off. I will admit the test was difficult and I had moments of doubt during it. In general, the exam questions are more straight forward than the practice ones, but they are still difficult.
Once you finish all 150 questions, they will ask you to take a quick survey and once the survey is over BOOM – there is your score. It was a heart stopping moment for sure. Luckily for me it was a positive result. However, if you do not pass the first time – that is perfectly fine. It gives you the experience of what the exam is like, and you can refine your studies and try again after 14 days.
Once you do pass CELEBRATE! You deserve it! I got to my car and messaged everyone who knew I was taking the test. Do not be shy! This is a huge accomplishment.
In fact, the CSCP is my greatest professional accomplishment to date.
Be sure to post to LinkedIn when you get your e-certificate (within 24 hours).
You did it – you are a Certified Supply Chain Professional!
Dorian Evans, MBA, CSCP
Founding Member of Supply Chain Tomorrow
It was mid-March two years ago when a large portion of the American workforce began to work from home exclusively due to the pandemic. We are now two years down the road and many of us are still operating in the same work-from-home environment. This begs the question of what does the workforce prefer—in office or working from home? Based on the hundreds of LinkedIn polls people post, you could begin to figure that workforce is rather split on this issue. Many enjoy working physically in an office while a great number enjoys the freedom to work from their home offices. Realistically, there is another category of folks who enjoy a hybrid model, where they get to work from home most days, and go into an office a couple days a week or when required for certain events.
We were in Pittsburgh for a supply chain event with Duquesne University and had the opportunity to listen to a speaker, Jacob Hince, discuss working from home. Mr. Hince made some great points to students about how to work from home effectively and discussed how many jobs are shifting toward a more work-from-home environment outside of the pandemic. One of the major reasons for companies making this shift is due to cultural changes resulting from the younger generations. Many, of all generations, value not spending hours a year commuting, saving money, living more sustainably, and gaining extra time with family or friends.
One of the main points the speaker made was to truly be the master of your own schedule and ensure that you are planning accordingly to make time to get your work done outside of the many meetings added to your calendar. In the work-from-home environment, many folks schedule half-hour or hour-long meetings for something that may have been a quick conversation at your desk. This means your calendar gets filled up very quickly and there is a need to occasionally block time for particular activities.
Much of working from home effectively revolves around one main detail—discipline. It is important to prepare for meetings as you would in the office. It is critical that you are communicating effectively without losing the personal touch of in-person interactions. Employees need to act intentionally to maintain those connections with their coworkers and balancing personal conversations with work conversations that help unite a work group.
Finally, I personally find it extremely important to establish boundaries when operating in a work-from-home setting. I can say that I have been at fault for poor boundaries in the past because it was very easy to keep up with late-night emails when your computer might be just a few feet away. To the same extent, it is a two-way street. There needs to be time dedicated specifically to work and your working hours should be maintained. That does not mean you need to put aside the freedom of working from home. If flexible work hours or arrangements are permitted by your organization, you should be able to work however you want as long as everything is getting completed and you are communicating effectively.
What tips do you have for an effective work from home environment? Let us know in the comments!
Today, we are discussing inventory planning. What are push and pull inventory planning techniques?
Push: Push inventory planning takes historical data and uses forecasting methods to determine where and when inventory needs to be available. This is typically performed in a classic stocking environment and can be more successful for products that have a longer shelf life and will not go out of style quickly. An example of push inventory planning is in the fashion industry, where teams analyze the market for trends and begin producing the next season’s clothing line months in advance. Should they be wrong, clothes are sold at a steep discount for companies to recover as much, financially, as they can.
Pull: A pull inventory planning approach involves having the customers use their point-of-sale data and determining their inventory plan. The customers would then provide their replenishment timing and estimated quantities to their upstream suppliers in order to allow them to plan their own production or replenishment. Two of the main ways to implement a pull system are through a reorder point (ROP) or through distribution requirements planning (DRP). ROP is usually favored for purchased finished goods (from outside suppliers) while DRP is often used for internal products or longer lead time products.
It should be noted that there are few pure examples of push and pull inventory management practices out there. Most businesses are typically using some sort of hybrid depending on their portfolio mix. Others may segment their products in order to put those products that are capable of using ROP well on that system and continuing to forecast the others.
One of the simpler concepts of supply chain is 5S. While 5S is fairly easy to understand and implement, many companies do not implement 5S due to that idea that it is considered to be “cleaning up.” 5S does involve cleaning, but it is more advanced than that. 5S is a process—a methodology. In a 5S workplace, every item has a home, and only the items needed in a workspace are supposed to be in that workspace. So, what is 5S? In its original Japanese, 5S is 5 words beginning with the letter “s”: seiri, seiton, seisō, seiketsu, and shitsuke. This translates into 5 English words or phrases:
Sort: This is the step that is the removal and additional of necessary tools to a work area. If the tool is not needed in a work area for standard use, it should not be there.
Set in order: The “set in order” stage is intended to build upon the sorting step in this organizational aspect of 5S. This step ensures every tool or item has its home. Items and tools should also be arranged in a way that is logical for the worker or user as well as close by to prevent waste. Often, you will see shadow boards used in this stage to show where a tool belongs and highlight if it is not currently in the correct location. Signage and marked walkways highlight work cells, process goals, and safety areas.
Shine: The “shine” step is the one some think is the entire 5S process. This step does involved cleaning—yes, but it is more than that. This step is used to ensure all equipment is functioning correctly. This can even entail machine calibration and testing. Daily checklists are often used in this step to maintain that the identified cleaning steps are being completed.
Standardize: This is the point where the above steps turn into a process. A company or work team needs to ensure the steps are occurring regularly and being implemented correctly.
Sustain: This is where the 5S mentality becomes a habit. This would typically be facilitated by a 5S champion. Audits, inspections, and key performance indicators can be utilized to ensure the 5S process is being sustained.
It should be noted that implementing a 5S workplace mentality has many benefits. Some of these benefits include improved safety and reducing injuries, defect reduction, and less waste.
is immediately getting more complicated—but it does not have to! Do you know the Greek Alphabet of Supply Chain? Below, we have summarized what the alpha, beta, and gamma values represent in a forecasting model:
Alpha- Alpha is used for single exponential smoothing, which represents smoothing for level demand. It is referred to as the smoothing factor or smoothing coefficient. The value can range from 0 to 1. If you have a higher value, the more recent months of history in your product impact the model more. The smaller the value, the more history that is considered to produce the forecast.
Beta- The beta value is used in double exponential smoothing. Beta represents smoothing for trend and works in tandem with alpha in a double exponential smoothing model. Commonly, you will hear the Holt’s model being referred to when using a double exponential smoothing model. Like alpha, the beta values ranges from 0-1. An important note about alpha and beta is that they are independent of each other. This means that the sum of the two values does not need to equal 1. You could have an alpha and beta of .6 if you want or an alpha of .3 and a beta of .8 for example.
Gamma- Gamma is a value used to smooth for seasonality. Charles Holts and Peter Winters designed this method of triple exponential smoothing often referred to as the Holts-Winters model. The gamma value can also range from 0 to 1 and is independent of alpha and beta.
Now that you know the Greek Alphabet of Supply Chain, how will you use it?
If you have worked in any business that sell goods or products, you have probably talked about your “A” SKUs. Sometimes, businesses talk about their A SKUs without actually performing an analysis on their product portfolio to determine what products are A’s, B’s, or C’s. There is actually an analysis to determine ABC classification known as an ABC analysis. There are some common reasons why a business might interpret a SKU to be an A product when it is not. One reason is the item has been around for awhile. This gives employees the interpretation that the product has a high volume because it is well-known. When a product is thought to be an A, but is actually a C, it could be an indicator of product lifecycle management practices or a need for complexity reduction efforts.
But what is ABC analysis? ABC analysis is an analysis of a business’s product portfolio based on volumes. Once you have the total volumes for each product, the Pareto Rule comes into play—known often as the 80/20 rule. You can do this simply in a spreadsheet by sorting the volumes from largest to smallest and then continuously summing the volumes by SKU until you get to 80% of the total volume in around 20% of your product portfolio. This is sometimes translated into sales dollars instead of sales volumes, but the same process could be followed.
Classified B products should represent roughly 15% of the volume or value. With the 80% from the A SKUs and 15% of the B SKUs, 95% of your volume should be accounted for in the analysis. Finally, your C products are the bottom 5% and most likely will be your largest grouping of SKUs. C products are low volume or low value and typically are not considered a priority to keep in stock. Many of these items are kept in the product portfolio as they are a complementary product that aids in sales of A or B items.
ABC analysis is only part of the new standard--ABC/XYZ analysis. While ABC analysis is a step in the right direction for managing a product portfolio, this only accounts for one piece of the puzzle, which is the volume aspect. The XYZ analysis accounts for the uncertainty or volatility of the products. To determine the classification of XYZ of a portfolio of products, you only need to calculate the coefficient of variation and then set bounds. Your most stable SKUs within your bounds will be X SKUs. Y SKUs have some volatility and Z SKUs are very volatile.
Combining ABC and XYZ will give you nine options for classifying SKUs, which can be seen in the table below:
Sadly, we are quickly approaching the completion of two full years of the being in a pandemic. It was just over a year ago when I wrote my first blog post discussing if supply chain would learn from the pandemic and better practice contingency planning. Throughout this pandemic, there have been glimmers of hope for the betterment of contingency planning in the supply chain world. Yet, it seems that most businesses still have not fully grappled with the idea of implementing supply chain contingency plans and avoiding the “knee-jerk” reactions surrounding catastrophes.
A huge part of supply chain is maintaining an appropriate level of inventory, which translates for most companies in operating with as minimal inventory as possible while still achieving a target service level. However, the world has changed, and maybe for good. Supply chains need to rethink the idea about what an appropriate inventory level is in order to meet their stated service levels. Companies are most likely building in additional lead times for their orders and recalculating safety stocks and stocking strategies based on that. It begs the question, though—is that enough? Sure, our suppliers are stating a lead time of 45 days, but there are port delays, labor shortages, and a transportation crisis we have not seen before. How can your safety stock calculation account for all these intangibles? One strategy could be to view the actual delivery time your suppliers are able to meet, but even then, consumer demand alongside already thin inventories might still maintain the current shortages.
Service levels seem to be taking on an even more important role for customers. Yes, price matters. Yes, relationships matter, but companies need to have products available for their customers and shortages are creating distrust in both the business-to-business (B2B) and business-to-consumer world (B2C). B2B suppliers are prioritizing their most critical customers and ensuring that they get the bulk of their volume while the smaller customers tend to suffer. The customers unable to obtain materials or products are looking elsewhere for others able to fulfill their needs opening the opportunity for other suppliers to get into business with strategic customers.
The same can be said in the B2C world. Customers are going to stores and cannot find their favorites brands. This is forcing them to try an alternative or competitor product. Suddenly, brand loyalty is not as important as it was before and is leading to a more open customer-base. Companies are having to weigh whether low inventory is outweighing the loss of business. Recently, we have seen Toyota take over GM as the top seller of vehicles in the United States. Some of their ability to take this top spot was due to their supply of semiconductors. This is coming from a company that invented the idea of just-in-time inventory. They saw an industry problem and decided to accumulate inventory to safeguard their ability to produce rather than be reactionary to the situation.
Companies everywhere are citing supply chain troubles hitting their bottom line as the recent quarter had ended. Both Toyota and GM have stated their quarterly numbers were lower than expected due to supply chain issues. Boston Beer Co. (maker of Samuel Adams) and Constellation Brands (maker of Pacifico, Corona, & Robert Mondavi) have both stated disappointment in their quarterly figures citing supply chain troubles in their bottle supply. How and when will companies tackle supply chain contingency plans? It may take years for some companies to recover from the current shortages, but will customers still be looking for their business when they finally are able to stock products?
Like nearly everyone at this time of year, I am spending time reflecting on the past year. Taking time to appreciate the positives, but also considering the negatives. Reflection is an important task for all of us and the new year seems like the perfect time to do it with promises of a fresh start and an opportunity to change. But here is the thing, I am not a fan of the age old “New Year Resolution” mindset.
There are a few reasons why I do not love the idea of New Year Resolutions, but mainly that they set people up to fail. Most resolutions are sweeping initiatives to keep all year long and are phrased in a very general way. One that comes to mind is, “I am going to work out everyday in 2022.” What does this mean? Is it realistic? I would say no. Inevitably, there is going to be one day where the prospect of working out simply is not going to happen due to family priorities or a long workday. This leads to another issue with the idea of a resolution. If you set this goal of doing something every single day and you miss a day, you are more likely to give up on it entirely and abandon the objective. Resolutions can often times be treated like excuses. In October, someone might say they are not going to work on that goal until the New Year since that is his or her resolution. This delays the opportunity to start working toward improvement now.
Finally, a resolution is rarely a SMART goal. I am personally a big advocate for setting SMART goals. SMART goals are specific, measurable, attainable, relevant, and time bound. By setting broad declarations for the start of the year, you typically are not setting yourself up for success. Is your resolution an attainable goal? How are you measuring success? Now I realize that this is a harsh criticism on resolutions, and this is not a “one size fits all” scenario. If resolutions work for you, that is fantastic, and you should not feel in any way obligated to change that. But, if you have trouble sticking to your resolutions, I have a proposal on how to switch it up and set yourself up for success.
Toss out the idea of creating a resolution and create goals for yourself—SMART goals. Don’t make a goal that has to last the entire year. Structure quarterly goals that you can review and adapt. The shorter interval is likely to help you enable success. Instead of “work out every day,” you can start with making sure you go on a fifteen-minute walk before work three times per week until March because you know that is time available to you. You might realize you actually have thirty minutes in the morning and can revisit that goal in a couple weeks or months and revise it for the next few months. Maybe you start feeling more in shape and decide to change it to a jog rather than a walk. Regardless, you can build on the shorter-term goal and improve incrementally. We are often conditioned to swing for the fence with our goals, but the reality is, not every goal has to be a homerun.
The point of this blog is not to completely bash the “New Year Resolution” mentality, but to offer an alternative to reshape how you think about resolutions and goals. I personally know I have had some success with resolutions in the past, but that is rare for me. Setting goals in a different format has helped to be more successful overall in completing both personal and professional challenges. This will also help to avoid delaying goals. You can update your goals whenever you want and do not need to wait until the New Year to try again!
As the work year starts to mount up, I have come to realize and respect the importance of a group that makes much of what we all do possible. Can you guess who? That’s right – the secret support group to supply chain is… the IT folks out there. Often, I found myself in awe of how a group of professionals, who may have absolutely zero experience about a particular subject matter such as supply chain, manage to design, create, and successfully execute a technological solution. I tend to view IT professionals as not only the folks who can create a new system or dashboard, but interpreters between the business/operations teams and the IT groups that build solutions for our teams.
I have worked on a number of projects over the years now that have required intricate system creation or manipulation, design of new reporting tools or dashboards, and capabilities for our team that may not have previously existed in our day-to-day. IT has been able to make most of those challenges successfully completed projects to ease the pain of our routine. Many cases include highly specific language and methodology for supply chain that someone outside this field may not understand. IT groups manage to absorb the needs of supply chain, translate that into something meaningful, and execute on it—sometimes with a number of revisions to make sure it is correct.
This group is often overlooked for their feats, but recognizing this significant group of people and the value they are constantly bringing to an organization is imperative. Many took supply chain for granted prior to the pandemic. Supply chain has gained great recognition globally for overcoming the many crises we have faced, but we should also give the IT teams credit for helping us achieve these great successes. This goes for outside of supply chain as well. IT impacts all aspects of an organization as well as our daily lives. Many IT groups can be credited for making our flexible work-from-home schedules possible. Did you schedule your COVID-19 vaccine through an online portal? IT teams everywhere were scrambling to get those built and played a crucial role in curbing the spread of the virus.
We need to make sure to tip our caps and give a big thank you to our IT personnel, our secret support group to supply chain. Without those critical folks involved in our organizations, much of what we are capable of would not be possible. Think about it. How many projects have you worked on that would not have been possible without your organization’s IT group?
An important topic during the holiday is taking time for yourself. Anyone who knows me will be able to tell you that this is something that I struggle with personally, but still understand the importance of. After all, I usually travel with my work computer even if we are just going away for a weekend in case something comes up.
Getting time off and a moment to reset is extremely important for our mental health. We are constantly plugged in due to email being connected to our phones or coworkers having our cell phone numbers. What we need to remember is that it is okay to let that inbox have a few emails sitting in it on your day off. It is okay to miss that call when you are using a vacation day. This is where I struggle. I struggle to trust that others will be able to handle my usual responsibilities while I am away. One of my worries when taking a day off is that my responsibilities will be a burden on my team members. The teams we are on are integral to our success everyday and it should be no different when covering for you while you take that hard-earned day off. Trust that those you work with will have your back and just as you have their back when they are out of the office.
We also need to be better at encouraging coworkers and employees to disengage from the day-to-day of work. Approving a vacation day is one thing, but it is entirely different to hear a manager say, “Approved—and really take this day off. Don’t log on. You earned this time to rest and relax. Your team can cover for you on this day off.” Validation from a manager can go a long way, but it is also nice to hear from your peers. Encouraging your coworkers to disengage is a wonderful way to begin to shift the culture and mindset surrounding time off.
I have been working to be better about this and separate work time and personal time. This is something we should all strive to do because it goes without saying that we need that time to ourselves and to our families or loved ones. If you are taking some time off over this holiday season, try to really take that time for yourself. You deserve it and you NEED it.
We have written about this topic before, but this is a subject that is able to be dug into with great depth—supply cha as a competitive advantage. Previously, we discussed this in more general terms. Supply chain can impact various groups, and companies can capitalize on that when they recognize opportunities to leverage their supply chain in new ways. Today, we wanted to focus on a very specific example, which is how supply chain can specifically impact product design to create a competitive advantage.
As always, defining who you are going to be working with can be one of the most crucial aspects of this process. We can assume that in new product design or redesign that marketing, sales, engineering, supply chain, manufacturing, and finance will be involved. Supply chain can impact all of these groups in the process in a number of ways. There are some of the obvious ways that supply chain is going to play a role such as network design (stocking locations), transportation lanes, purchasing of materials, scheduling production, and forecasting. These are going to be included regardless of how involved supply chain is integrated into the process assuming supply chain is already involved in the new product development plans.
However, further integration of the supply chain can reap major benefits. Given the current global environment, supply chains are going to be focused on material availability rather than locking in on price as the key factor. Supply chain can help consult with the engineering group when designing a new product or reengineering to offer insight on the most volatile products. This comes with the added benefit on engineers understanding the supply environment if they are between a few components going into a product. Considering the difficulty with acquiring materials from abroad currently, this also opens the door to the conversation of localizing certain products or at least sourcing from a domestic source. This will also involve finances as costs will also play a role in determining if a material is feasible and what the final price of the product will need to be in order to be profitable.
Working with the manufacturing team can also had many benefits to the business. Scheduling will make sure the product is being produced, but supply chain can do more than schedule. One thought is to organize a kaizen event. This is where an individual identifies a problem and a group get together to work on resolving that problem or improving a process. Supply chain can work to help not only identify problems, but also help with the solution. Supply chain professionals are usually experienced in process mapping and time-studies. This allows for the supply chain to work to observe a process, map it out, and offer solutions to improve the process. This can either be in regard to reducing the time to complete a process or developing a better layout for a process. Safety can also be an important consideration for organizing a kaizen event.
Supply chain can be impactful in more ways than the standard purchasing and scheduling role. Corporations that recognize this ability will development a strong competitive advantage and a more robust product development process.
Do you have a story about how you leveraged supply chain as a competitive advantage and was able to impact product development?
Let us know in the comments!
Sustainability is often considered to be an afterthought for businesses due to the financial goals of a firm taking precedent. It is true that a company needs to remain profitable, but evidence shows that companies can achieve both a favorable bottom line and commitment to a sustainable culture when integrated properly. How is this done? There are a few key actions that can help keep companies profitable with sustainability in mind:
Build sustainability into the company’s mission statement- If sustainability is built into the mission statement of a company, every employee should have this in the front of his or her mind each and every day. Job seekers should gain an understanding of the companies practices early. If the company is successful, this practice can help attract the type of talent needed to continue to support these initiatives.
Accumulate a team of sustainably minded individuals- Similar to adding sustainability into a mission statement and attracting individuals committed to sustainability, hiring and building a team dedicated to goals tackling sustainability will make achieving those goals much easier. Sustainability is not simply a goal, but a culture, which means everyone in the company should be committed to sustainability.
Create a sustainability department- Creating a sustainability department or adding a Director/Vice President of Sustainability can be instrumental in moving toward a more sustainable future. This act shows the company has taken steps to amplify their focus on going green and demonstrates a strong commitment within high levels of the organization.
Integration with financial goals- By integrating sustainable initiatives with financial performance, a company can easily highlight the ways it is benefitting the company and environment. While many stockholders and investors may only care about the financials, sustainable investing and green investing are growing movements. Evidence of investors, consumers, and regulatory bodies taking a greater interest demonstrates the importance of companies growing in their corporate social responsibility.
Sustainability should not have to be an initiative for companies to focus on in the future. Sustainability should be implemented across the business world now. Employees throughout the organization should be allowed the opportunity to work toward these practices and should be able to contribute to determining what a company’s sustainable goals will be. By having input from employees on sustainable goals, a company can help build a culture around sustainability and deepen how connected those employees are to the goals of the company.
What are you waiting for? It’s time to add sustainability to your next meeting agenda. Remember, if done properly, companies can remain profitable with sustainability set as a priority.
As supply professionals, we have a responsibility to all other segments of our businesses to ensure we are engaging and teaching those segments about what our discipline entails. Supply chain is not easily understood. It takes time and patience to help others in different areas of a business to understand the interconnectivity of the various aspects of supply chain and how they affect each other. Any easy way to begin this conversations is by asking co-workers, “what does supply chain mean to you?”
From sales to production to customer service, it is crucial that all teams in a business understand the supply chain and how one issue may affect getting the end product to a customer. We are seeing this every day with the rise of finished good shortages on the customer side. When teaching someone somewhat green to the field of supply chain, an easy starting point is to discuss the bullwhip effect. The bullwhip effect explains very simply how changes in the downstream supply chain (closer to the customer) can impact the upstream supply chain (toward the suppliers). A great way to illustrate this is through a simulation called the “beer game.” This is an inventory exercise that demonstrates these changes by varying the end customer demand and having the various pieces of the simulated supply chain react to those changes usually causes huge shortages or overages of “material.” Anyone can participate in this simulation and can not only show how the supply chain is impacted, but also help participants understand the different departments within the supply chain.
Departmental understanding is also important for those outside of the supply chain. Often, coworkers will look to communicate with whoever they are comfortable with or already know, but that does not mean that is the person they should be working with on the issue. For this reason, the supply chain should have a robust organizational chart that has high level details about what each department is responsible for to streamline finding that correct person to help.
Finally, supply chain has a duty to communicate processes. Processes are a major part of the supply chain and the related processes to another department can be extremely valuable in gaining traction between the two groups. This includes helping groups understand ERP systems and the impact they play on the business. This can help other departments understand the supply chain and the roles they play within it as well as how to positive impact it to make it more efficient. Groups outside the supply chain can also begin to learn the value of supply chain and where the supply chain can be beneficial in helping create need value. The supply chain is able to play a role in new process development, which can save money. It can also be part of the product development process to understand bottlenecks and capabilities, but can also work to avoid design flaws that others may miss not having a different perspective in the room. It is this type of collaborative effort that allows the various business departments and a supply chain to work to develop a strategic competitive advantage.
One of my favorite supply chain topics to discuss is how supply chain can be more than simply getting one item to a particular location, but can also develop a competitive advantage for firms. The standard definition of supply chain focuses on the flow of products, information, materials, services, and payments. Executives can view supply chain as a competitive advantage within this context, but can dig deeper into how to create a strategic supply chain advantage.
Supply chain departments can play an even stronger role in a business as they couple with business partners to influence the organization more. This means the supply chain group of a company works collaboratively with product innovation/design, marketing, sales, finance, HR, and information technology. Working with all these various groups allows the supply chain team to have input on how they are able to help reduce costs or ease struggles in the business environment. A supply chain organization should also work to create valuable technology whether that be through alternative materials, innovative logistics processes, or reworking the network design.
Supply chains are intended to add value to a business rather than be a sunk cost for a business. The best supply chains in the world are able to reduce the cost of doing business and the variability of the business while also improving customer service. Supply chains can expand even further beyond partnering with the internal business groups by working with external business partners, such as suppliers and customers to understand and navigate challenges. This can lead to creative solutions that are favorable to both the company and their external business partners. Perhaps a supplier is having trouble getting space on a cargo ship to move materials to the United States from Asia. If the supply chain has more pull with the carriers, there may be an opportunity to work together to help alleviate the issue.
We want to challenge you this week rethink how you are working within your supply chain. Are you simply doing what is needed to move materials from point A to point B or are you adding further value to the business? There is never a better time than today to start to rethink and reshape how a company is approaching their strategic supply chain advantage considering the ever-growing business challenges on a day-to-day basis. Get creative, be a leader, and initiate change!
What kind of leader are you and what kind of leader do you aspire to be? The two main types of leadership that we will discuss today are transactional and transformational leadership. A transactional leader will focus on group performance and day-to-day activities to reach goals. Transformational leaders will on focus on a shared vision, which can be used to motivate and engage the group she or he is leading. Both leadership styles are certainly needed in organizations, and one is not necessarily better than the other. You can find each type of leader throughout all levels of organizations, but often, roles will be a large determinant of what type of lead you have the ability to be.
Expanding on what qualifies as aa transactional leader, there are particular characteristics that help define what a transactional leader is. One characteristic is close supervision of employees and their effect on group performance. This can result in closely monitoring each employees work and understanding where shortfalls have occurred to avoid them in the future. Transactional leadership typically involves a reward-punishment incentive system as well. Finally, transactional leaders operate within the current organization structure and tailor work to fit what that would usually dictate.
Transformational leadership, on the other hand, uses a variety of methods outside of reward and punishment to motivate their team. Transformational leaders are typically role models for their team and demonstrate a shared vision to establish a sense of significance behind the group’s work. This shared vision is an important pillar in motivating employees to complete goals successfully without the need for close work review by the manager. Transformational leaders also establish an environment that allows for “followers” to safely challenge ideas or norms and present ideas of their own. Individual needs from a leader are often considered by transformational leaders, who then work to successfully meet the needs of each employee to enable his or her success.
It should be noted that these two leadership styles, like much else in the world of supply chain, are not mutually exclusive. Both approaches can, and are often, seen working with some traits of one leadership style integrated into the other leadership style. One clear example is in transformational leadership. Transformational leaders are defined as finding various ways to motivate their employees, but that does not mean there is not a reward and punishment system at all. While finding different mechanisms to engage employees is a core tenet, an overperforming employee may still be rewarded for his or her overwhelming success. Regardless of what kind leader you are, it is important to understand different types of leadership and how you can incorporate different leadership techniques to your own unique leadership style. It is also critical to understand that because you are not a manager does not mean you cannot be a leader. Motivating your coworkers or leading the lead on a new project can be excellent ways to practice your leadership skills and prepare for moving up the organizational chart.
After reviewing both transactional leadership and transformational leadership, which style most fits who you are? What style does your boss fall under? Comment below!
Blockchain can be an intimidating term for anyone who has not learned much about it, but it is an important developing technology to understand in supply chain. Typically, blockchain is going to make one think of cryptocurrency, as blockchain facilitates the entire existence of cryptocurrencies such as Bitcoin. What is critical to understand is that blockchain in supply chains can achieve elevations for businesses.
First, a blockchain is a database that continuously adds “blocks” of data in a chain to constantly be building. The way this is achieved is through an initial block, the genesis block, housing the initial set a data and its own unique hash. A hash is a randomly generated value that is unique to that specific block. Every block after that will include the data being stored, its own hash, and the hash of the previous block to create the “chain” of blocks of data. Any type of data can really be stored in the database from shipment information to transcripts to customer account data. As new data is created to build the next block, that block gets added to the end of the chain and is tied to the previous block through the unique hash. As a security measure, data changed in any previous block would break any of the subsequent chains unless approved by the parties involved.
Uses and Benefits of Blockchain
Blockchains are decentralized in the sense that all users have access to the database and the data is transparent to all users. This not only establishes integrity in the database, but builds greater trust among those partnering to use the blockchain. The blockchain also creates greater efficiency and security. The Maersk example is an excellent way of how blockchain can be leveraged to improve efficiency. Maersk intends to use blockchain to provide real-time information for its large volume of shipments across the world. This not only would greatly reduce the time and effort being put into tracking this information, but also adds a new layer of security. The blockchain is tamper-proof as it would take an incredible amount of computing power to change one piece of data in a block without disrupting every other block in the chain since every block after the change would also need altered. This means that security of blockchains is very mature and any attempt to manipulate data would be immediately noticed. It is estimated that blockchains would be transformative to business and potentially save millions to billions of dollars.
Every new technology does have drawbacks though. Blockchain is relatively new and there are different standards to how it should be constructed. Blockchain is also a ledger that is still developing and will likely continue to evolve over the years. Finally, blockchain would require old records to be entered into the chain in order to allow for the database to have more integrity. An example would be new academic records utilizing blockchain leaving older professionals at a disadvantage if their information were delayed in getting uploaded.
Supply Chain Implications
As industry professionals, a vast number of benefits to utilizing a blockchain in supply chains can be seen. The example of Maersk above is one major way that supply chain could be transformed and revolutionized by the technology. International shipments end up having a lot of parties involved from the supplier, the transportation company, a broker, and the customer (to name a few) and coordinating communication between all these groups can be very manual and quite difficult. Leveraging a blockchain could greatly improve the transparency and efficiency of tracking international shipments, which would allow for workers to dedicate more time to value-added initiatives.
Another example would be how Walmart is able to use blockchain to track the origins of materials or products. Having data integrity and knowing where every raw material comes from would be a key data point and also aid in ensuring ethical, sustainable operations. This can also be used with suppliers for consignment and vendor-managed inventory processes.
As we see above, blockchain has the ability to optimize the industry in a way we have not yet witnessed. For example, utilizing blockchain in supply chains can allow for customers and suppliers to share information of inventory management through a database of the highest integrity. How can blockchain make your business more successful?
Krauth, O. (2018, February 9). 5 companies using blockchain to drive their supply chain. TechRepublic. https://www.techrepublic.com/article/5-companies-using-blockchain-to-drive-their-supply-chain/.
Technologies with Potential to Transform Business and Business Education: Blockchain. AACSB Business Education Intelligence. (2019, May). https://www.aacsb.edu/-/media/aacsb/publications/research-reports/blockchain%20brief_final.ashxla=en&hash=FCFE1A43EFE1EFD5EF1A54D901801B2686133DDE#:~:text=Blockchain%20is%20a%20database%20technology,significant%20shifts%20in%20higher%20education.
Nearly every day, articles are coming across our newsfeeds about the potential for inflation and how we are on the cusp of prices soaring. This anxiety has led to volatility in the stock market and uneasiness from consumers. Is it really inflation or an impact on supply chains due to ongoing struggles from the pandemic conditions?
By no means am I an economist, but I understand the warning signs of inflation. While there are some signs of inflation in the sense of gold and silver prices increasing, those stock prices actually began to rise at the start of the pandemic. This is opinion, but that signals to me that consumers were not losing confidence in paper money because of potential inflation, but due to the overall global environment.
Another aspect of inflation is the rise in commodities, such as lumber prices. As we all have seen, many commodity prices are on the rise right now, which is contributing to increased prices in both the housing market and the manufacturing world. While another sign of inflation, this is where the supply chain struggles of the world and the bull-whip effect need to be analyzed. Back at the beginning of the pandemic, there was so much uncertainty that companies, both manufacturing and housing, ceased operations for the short run until the impacts of the pandemic could be recognized. The result of this was every supplier in those industries having to follow suit in some way due to the decline in demand for their products.
Fast forward to the July-August 2020 timeframe when manufacturers started to restart operations and the housing market began to exceed expectations. Now, whatever demand these companies were getting over the last few months had completely drained most resources with little production to backfill that inventory. Everyone was trying to limit their financial impact of COVID-19 on their business and running with the minimum inventory possible. Something incredible happened at the same time though—consumer demand for goods soared. The automotive industry is an excellent example. There are simply not enough cars right now and consumer demand is far outpacing the current supply situation.
Let’s remember our blog about the bull-whip effect and how small supply changes downstream affect the greater supply chain upstream in larger waves. Suppliers reacted exactly how any rational business owner would to a substantial drop in demand. The trend did not continue however, and the demand came back far sooner than anticipated with suppliers being behind and low on inventory. Suppliers’ costs also began to rise as the cost of transportation has increased. These significantly increased transportation costs cut into the margins of the materials substantially, leaving the suppliers having to pass the costs downstream to the customer. The price increases are also a mechanism to moderate demand. Some customers are going to be willing to pay the additional dollar per pound on a raw material and others will hold off. Manufacturers and builders will pass that cost along to the customer, but in all likelihood, these price hikes are not here to stay, unless the supply shortages continue.
So are the current market conditions resulting from inflation or an impact on supply chains? It’s not entirely clear. Are there signs of inflation? Absolutely, but these signs can be understood and explained from the supply chain struggles that have plagued businesses for the better part of a year. It is important, whether a supply chain professional or consumer, to critically think about how products are being impacted by the supply chain and what impacts are resulting from the tough global environment.
For some, a horizontal move is considered taboo as they strive to climb the corporate ladder, but that is not always the case. There are a variety of reasons that a horizontal move may be the right move for you. It is easy to get “trapped” in a discipline within the supply chain world as you can start your career and transportation and remain there for the entirety of your working life. That is completely fine if that is what you choose to do. Others may want to diversify their options.
This is where a horizontal move can become advantageous. It can allow someone with a very narrow scope of knowledge and expertise learn more about the supply chain from a different perspective than their current role. In some cases, this could make that employee more attractive to consider when hiring for a promotion as he or she has gained valuable knowledge in multiple disciplines. Another important consideration is that a horizontal move can allow you to experience a different segment of the business outside of supply chain. For instance, you could remain in a transportation supply chain role, but instead of working in the imports of raw materials, you could work in the transportation of finished goods allowing you to see that side of the business.
Along with reasons of diversifying your experience as a supply chain professional, you could also make a horizontal move in order to gain a larger understanding of other roles… meaning jumping into marketing, finance, etc.. The reasoning could be as simple as the new role being something that has always caught your attention and seemed exciting or it offer the ability to continue to build your professional resume. A final consideration is to enhance so called “soft skills,” such as leadership ability or problem-solving. Someone may be an appealing option to move up the corporate ladder, but that person may also need to grow in order to achieve that next promotion. That is where taking a horizontal role that is specifically designed to enhance those qualities can come into play.
Everyone has their reasons for wanting to (or not wanting to) make a horizontal move, but the most important reason is that it is truly something that YOU want to do! Do what you think is best for you and enjoy it as much as you can!
An important topic of discussion that has been arising as of late is the idea of the Golden Circle and knowing your “why” for existing. The Golden Circle refers to the “what,” “how,” and “why” of an organization or role. Nearly everyone knows what they are doing or trying to do within their job or company. At a very fundamental level, this could be as simple as selling products to customers. As we dig deeper, we arrive at the “how,” which refers to how you are completing the “what.” The “how” can refer to the actual process implemented to complete the “what.” Less people understand the “why,” yet this is what most customers are truly looking for according to the philosophy.
The “why” can be the reason for the existence of an organization. This is commonly found in the mission statement, but can also be found in other aspects of the business, such as codes that establish organizational culture. “Why” is critical to understand since the idea is based on consumers preferring goods from companies to which they can relate to their purpose. The first part of this blog is to challenge you to understand the “why” of your organization. Understand what your company’s reasons for existing might be and how this can set your organization apart from the crowd.
The second part of this blog is to challenge you in another way. What is your personal “why?” Yes, the why of the company is important, but equally as important is your own personal reason for wanting to be in this role or business. For supply chain professional, I personally find it somewhat easy to find a reason to exist—supply chain affects everything! Whether you are in start-up tech or retail clothing, supply chain plays a role in the organization. This is the case for every organization. If you are not necessarily passionate about supply chain (but we hope you are!), you can find a strong “why” by trying to work for an organization, industry, or product that you are passionate about. This is what will drive you through the day and keep you energized, especially when facing adversity. Times might get tough, as is the case with COVID-19, but a sense of passion and drive for whatever it is you may be doing can help one get through those tougher times.