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!
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?
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?
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!
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!
Today, we are talking about what the rest of the world is talking about—the Suez Canal. Attempted relief efforts are underway, and some minor progress has been made as the Ever Given remains a blockade for the Sues Canal. This is leaving other ships awaiting clearance the option of waiting for the vessel to be freed from its landlocked position or attempt the long journey around Africa. It is estimated that the situation is costing the global economy millions of dollars each day as over 10% of maritime trade travels through the Suez Canal.
Whether you are a consumer or a business professional trying to receive goods, you are most likely going to feel some sort of impact from this situation. Oil is going to be one of the obvious impacts as a lot of oil shipments pass through the waterway. As 2020 has taught us, contingency plans need to be in place. In the instance of the Suez Canal, there was a serious lack of contingency planning in place. Similar to the pandemic, it is unlikely that one of the world’s largest ships would shutdown movement through the Suez Canal, but as we are witnessing, it has happened and there should have been a plan in place.
This leads to the question—how does one put a contingency plan in place in the event one of the largest shipping lanes in the world is shut down? This is something companies globally utilizing this method of transportation need to be thinking about. We are in a state of compounding issues that would have been seen as unusual or even impossible on their own. No one would have thought a pandemic would have happened, but it did. The world is still dealing with the repercussions of the pandemic through increased demand for goods, strained supply networks, and overburdened transportation channels. We are looking at tight transportation outlets as is and then a blocked Suez Canal exacerbates the stress. No plan any company had prepared would have immediately shifted the situation, or have been able to avoid some of the short-term consequences, but companies with strong emergency plans and nimble supply chains are likely to rebound much faster.
One aspect of COVID-19 that companies are beginning to tackle is demand planning and forecasting. Whether a company’s demand fell out entirely for a couple months or a company was selling more than ever, we are seeing inconsistent demand patterns year-over-year due to the impacts of COVID-19. From this arises a very critical question, how do companies account for the heavy variation in demand when looking into their forecasting methodology?
First and foremost, we know how important customer input can be to the demand planning process, but this is going to take center-stage as businesses begin to see COVID-19 numbers decline and the world return to a somewhat normal state. Customer insight will be absolutely paramount in the demand planning process as we do not necessarily know whether these very low or very high data points will continue into the future. Most likely, they will not, which means statistical forecasting models are going to be over and understated depending on the circumstances. Having the customer collaboratively work with sales and demand planning teams will greatly reduce the risks of inaccurate forecasting under normal circumstances, but will be even more useful as demand planners look for guidance to curb future variation in demand.
The next part of this is history manipulation. I know, history manipulation or data manipulation never sounds like a good thing, but we very well may need to consider looking at the data and trying to reconcile the history to reflect what may have happened without the global pandemic. There are clear risks here. Perhaps a customer wants and needs have permanently changed as a direct result on the pandemic and adjusting your history to try to improve models will cause an even greater error versus actual sales. There can also be a loss of information as turnover in the company would result in a loss of knowledge if meticulous notes were not taken to depict what actions were taken to adjust in the need to revert back to the actual figures
***Here we can see an example of how COVID-19 impacted variation in demand. The pre-pandemic sales average hovered right around 14,600 units. During the pandemic, the monthly average shifted to roughly 3,800 units.
I personally believe that the most likely outcome will be a shift in the consensus process. Forecasts may be simply a baseline number for the coming months where market intelligence from the field will play a more significant role in moving the forecasts up or down. While adjusting history is an option, no one knows the aftermath of the pandemic and what exactly it will do to demand along with the continuing supply chain challenges companies are facing. By using true historical values to provide the baseline forecasts, supply chain managers and planners will need to be in constant communication with the sales teams on deviations from the plan. This will lead to an overall reduction in silos as these groups work more collaboratively. It should also be noted that there may still be some true variability in demand for the coming months for a number of reasons. Among those reasons, companies or customers trying to “catch up” from their ongoing supply chain challenges and secure stable supply from their upstream supply chain.
How about you? What are you discussing with your teams in how to approach the wide variability in demand you are seeing?
Over the last year, the globe has seen tremendous swings in supply and demand stemming from the effects of the pandemic. We saw manufacturers shut their doors for anywhere from a couple of weeks to a few months depending on the circumstances. This was an obvious reaction to COVID-19 and what had been determined as the likely trajectory of business during the onset of the pandemic. We also experienced shortages on a number of household goods such toilet paper and cleaning supplies. The shortages did not stop there. We have continued to see shortages off and on throughout the pandemic, notably in home gym equipment, electronics, and raw materials for manufacturing. What we are experiencing is the bullwhip effect — something that many of us in the supply chain world are all too familiar with, but consumers are now seeing firsthand.
Sharp drops in demand have led to manufacturers and retailers taking action, that was thought to be appropriate in order to safeguard their bottom line, by reducing inventories and cutting manufacturing where possible. Companies then began to drain their inventories as consumer demand started to grow, but manufacturing was far behind this uptick in demand. The global era of supply chain has led to sourcing decisions with suppliers scattered across the globe. This means that the ability of manufacturers to react to demand swings (especially all at once) is quite limited. If we consider the main links of the supply chain to be plan, source, make, deliver, and return, we can see there is a breakdown in the planning of what might happen, the forecast, and what is actually happening, the demand. Since the plan was incorrect, this will lead to inaccurate sourcing decisions adding to the delays.
The changes in the downstream (closer to the end-user) supply chain cause greater and more volatile swings in the upstream (earlier in the supply chain) supply chain as demonstrated below:
This shows how the suppliers may be impacted by small changes in the downstream supply chain. Changes in customer preferences or demand can cause bigger shifts in manufacturing which then lead to the greatest shifts at the very beginning of the supply chain. The beginning of the supply chain will get hit with the absolute greatest shifts and usually the least amount of time to react. In our current state of sourcing from international suppliers, combined with the continued shipping and port delays, this bullwhip effect is leading to great challenges of keeping up with consumer demand. This has resulted in business and manufacturing continuing to struggle with the increasing demand that was unforeseen at the beginning of the pandemic.
Understanding the impacts of changes to the supply chain on both the organization and the stakeholder’s standpoint is a crucial portion of the planning stage for any project. While it may seem that a small forecasting model adjustment or different warehousing layout change might appear to have minimal impact throughout the organization, that is most likely not that case. We often have tendencies to focus only on how a change will affect the immediate group and occasionally some of the secondary groups. For example, changing the warehouse layout may have a long-term improvement on pick efficiency, but will there be short-term setbacks of employees learning the new system? If this is the case, perhaps a secondary impact will be a delay in how long trucks are waiting to be loading. That is possible, but what a lot of groups forget to think about is who else that delay could impact. There is potential for that one change to then impact the end customer deliverable and then the sales team having to explain why a shipment was late. Many of these “issues” could become opportunities if a “heads-up” to the sales team about the change and explanation of the long-term benefits of the project were given. This can then better prepare them to deal with the bumps and bruises of a new process, as well as help them pass that information to their customers if needed. These are just some of the reasons why ensuring strong stakeholder communication within supply chains is so important.
Stakeholder communication plans should be part of every project’s initial focus. This is an opportunity to not only communicate better with external groups, but also brainstorm solutions and help teach other groups about the current state process and why it needs addressed. As supply chain professionals, we are uniquely situated to understand the end-to-end process of getting a product to the customer’s door. It is a responsibility of the supply chain to help educate other areas of the business and help identify key areas for improvement. The supply chain is able to make a great deal of change that can ripple through the organization for increasing benefits. I have personally seen small changes within the planning process greatly reduce waste—stabilize production, reduce inventories, and increase customer on-time in-full delivery (OTIF).
One key to success for these business developments is to foster strong communication within groups of professionals regardless of their familiarity with one another. This is a great opportunity for the team to demonstrate leadership by example and involve all the players that may not always be involved with a chance to weigh-in on the matter. This can help build stronger teamwork and new innovation within a company as well as improve the overall sense of communication throughout the organization. As far as externally, there is a really great opportunity to work closely with suppliers or customers to determine if there are common issues or creative solutions to problems that would benefit both parties.
Highlighted in our Friday quote last week, we wanted to demonstrate how impacts from the pandemic continue to lead to supply chain challenges. Notably this week, ocean carriers are canceling sea voyages as a result of port congestion. The port congestion is mostly a result of companies ramping back up from COVID-19 shutdowns. This has led to an overall increase in the number of shipments. Further exacerbating the issue, port employees have been contracted the virus and precautions due to the pandemic are slowing the movement of goods and shipments. The result—ships are having to wait a couple additional weeks before docking and unloading.
The situation results in two major questions. First, will we see a major shift in the transportation industry and how companies begin to transport material? The second question is how will companies approach their strategic sourcing activities? We know a lot of companies are sourcing materials abroad due to the cost difference from locally sourced products, but companies now need to determine if the cost savings are worth the risk of materials being across the globe. One alternative solution is building certain requirements into the bid processes and future contracts. These requirements could require certain criteria be met to ensure stable production. An option could be requiring particular levels of safety stock be maintained domestically to account for large supply disruptions. Another key will be the focus on secondary sources for material. Are companies approaching sourcing in a strategic way by having all possible supply lines in one geographic location with long lead times? Supply chains are going to need to evolve even further to accommodate these supply disruptions that are looking to be far from over. It seems what we will see is not only an increased focus on how to get materials from a transportation perspective, but also how companies approach their overall sourcing initiatives to shield themselves from further potential risk.
What types of evolution do you see happening in your supply chain. Are sourcing changes happening within your organizations? What other related supply chain challenges is your organization experiencing?
For most of us, organizational contingency planning is a lofty concept. More often than not, we have limited input in what happens when catastrophe strikes. In the rare event we do, our actions are limited to specific functions. Procurement might change the sourcing of materials or dictate the ordering patterns to add safety stocks. Production may increase their throughput to buffer the finished good demand for the customers. Other functions in the company may determine that inventory should be reduced. As you can see, these actions are often knee-jerk reactions and can quickly expose the dangers of silos in contingency planning.
The onset of the COVID-19 pandemic is a prime example of companies implementing supply chain controls in order to offset the effects of the event. Across the board, every company had to take some sort of approach in an attempt to offset what was happening across the globe—shutdowns, shifting production to medical equipment, etc. Most companies; however, did not truly have contingency plans in place for a pandemic and were scrambling to forge a path forward. This highlights the importance of true and real contingency planning. Furthermore, many of the companies that had contingency plans in place either created or executed their plans in silos. This lack of communication or common goal led to a chaotic environment for employees, suppliers, customer service, and more.
This brings me to my ultimate question, “How will the contingency planning of the future look?” Will companies recognize the mistakes of the past for being ill-prepared for any possible disaster? Will companies recognize the dangers of silos in contingency planning and work to break down those barriers? Moving forward, I would expect not only to see a higher level of dedication in contingency planning, but also a more thorough approach to establishing plans with inputs from all functions and all levels. What do you think we will see as far as contingency planning moving forward?
In our last post, we discussed interview tips that focused mainly on helping candidates interviewing for open positions. Today, we want to discuss interviewing from an employer’s perspective—more specifically, interviewing strong candidates with increased nerves. For the most part, candidates going into an interview are going to have some degree of nervousness (unless you are speaking with someone who relishes in the opportunity to present him or herself). It can be difficult to navigate the interview when someone is outwardly nervous. This can also be somewhat frustrating considering the individual is clearly qualified for the position based on the resume.
When dealing with nervous candidates, it is important to ensure that you are considering how you are appearing in the interview. It is vital to convey calmness to the candidate while being cognizant of your own body language. Keep your body language relaxed. Your calm demeanor will help relax the candidate. Don’t forget to smile!
An interviewer can also set a calming tone in the interview by engaging in some small talk prior to or during the interview in order to spread out questions. Sometimes, the worst thing for a nervous candidate can be an interrogation type interview with a constant line of questioning. A dialog is much more helpful in relaxing the candidate and tends to be more effective in getting to know the candidate personally and professionally.
Nervousness is not an indicator that a candidate is the wrong fit for the job. As an interviewer you have to be careful when taking nerves as a reason to dismiss a candidate. There are plenty of incredible candidates who, unfortunately, are passed over for positions because of their nerves in an interview. A lot of the time, they are actually the best candidate for the job. Be sure not to miss your next great hire for this reason—interviewing is very stressful!