Mar 1, 2023 | Collaboration, Lean, Operations
Our supply chains are suddenly under great scrutiny given the frailties surfaced by Covid. Calls for a greater proportion of domestic procurement are now more common than ever, but is domestic availability the only answer?
Most supply chains are actually run by procurement and logistics people. While there is senior management oversight, the actual purchase choices are routinely made in lower levels of most organisations. To affect change, this is where we need to start, in the bowels of the organisation.
The KPIs of procurement personnel are generally around invoice cost, as it is easy to track. In future, the decision should be more about security of supply, and total procurement cost, which are much harder to measure, and availability which is relatively easy to measure, but in my experience is often ignored.
The huge caveat of course is that the CEO must give ‘permission’ for the procurement people to go off the reservation, and make the necessary changes, and risk buying other than from ‘IBM’.
We also need deep supply chain mapping that captures the dynamics of the chain, and all the transaction costs that apply, as well as the visible financial costs.
The KPI’s of procurement must change if we are to build the resilience of our supply chains.
- Collaborative DIFOT analyses through the chain
- Switch KPI focus from cost savings, usually measured against the invoice cost, to give greater weight to availability.
- Tracking of the drivers of cost, quality and delivery throughout the supply chain.
- Quantifying transaction and opportunity costs, (particularly of management time) at all points through the chain.
- Measures of resilience such as alternative, qualified, and immediately capable suppliers, utilising differing logistics
Together these measures will give you a measure of the resilience of your supply chain, or its ability to recover competitive performance after a failure. The greater the number of nodes in a chain, the greater the risks, which become amplified as you move further way from direct control.
Local suppliers will have to be prepared for the scrutiny of their sourcing. Company A, procuring from Company B, where there are sub-assemblies necessary will want to stress check the suppliers to company B as part of their procurement processes. This will take supply chain transparency to a whole new level. To this point the concerns have been mostly about cost and the time in the chain. In future, it will go much deeper, digging into a range of items that deliver resilience and reliable quality.
The speed of recovery of your supply chain after the inevitable disruption will be key to competitive performance.
Oct 19, 2022 | Analytics, Operations
No matter your businesses size, digital capability has become a driver of commercial sustainability over the last decade.
It has become a clear case of digitise or die.
This does not mean you have to go from an analogue starting point to fully digitised in one step, that is unrealistic. However, failure to start the digitisation journey will eventually be the undoing of your business.
There are a number of logical steps you can take that will build capability quickly, without massive investment, although some investment, particularly of management commitment, is necessary. However, like any investment, you should expect a return.
If you are starting the journey, the following is one set of the steps you might expect to mount, not necessarily in this order, but this is a common pattern I have seen.
Step 1. Assemble a clear picture of the currently available data. Mostly this will be ad hoc, and manually collected. Machinery purchased over the last few years will have the facility to capture data that is often unused, or under-utilised. This might simply require some connection between the data logger in the gear to your server, or better still, to a cloud application.
Step 2. Build a common system for the assembly of data that will enable it to be analysed in a consistent manner. Many factors have differing sets of ‘data languages’ based on legacy practices, and short-term convenience. Creating a common data language is important, and the best tool for doing this are to map all the processes in the factory, and break them into what is in lean parlance, ‘value streams’. The languages can then be tailored to make sense to all who meet them.
Step 3. Invest in further data capture. In the early stages, this is often a case of retro fitting devices onto existing machinery and downloading it all into a common data base. Depending on your operations this can be as simple as excel. There are many available low level options that are of a modular design, so that as capability grows, the modules can be implemented progressively.
Step 4. Invest in the capability to analyse the data and turn it into actionable insights. It is at this point that people become invaluable to the system. Any digital system can only respond to inputs in the way they have been instructed. They are no good at assessing the inputs for which there has been no or little precedent, you need people for those vital tasks.
Step 5. progressively implement data generation and analysis to inform operations. Use the feedback to constantly improve the quality of the data and the analysis that is used to manage and improve operations.
Step 6. Rinse and repeat. Digitisation is not a task with a completion date, it is a journey without an end.
As I headed towards the ‘publish’ button, a notification of a new program by the Victorian government popped into my inbox. The ‘Digital jobs for Manufacturing‘ program will fund training of employees of eligible Victorian manufacturers in a 12 week part time course run by Victorian universities. Have a look.
Header credit: Tom Gauld who takes an ironic, but widely felt frustration felt by SME’s at digitisation at www.tomgauld.com
Oct 4, 2022 | Analytics, Management, Operations
Too often KPI’s are all about the result, rather than the drivers that will deliver the result. When you are measuring just the outcomes, you have missed the opportunity to improve and optimise the actions that will lead to change the outcome being delivered.
Take for example the Cash Conversion Cycle (CCC) time. This measure is a fundamental tool in the improvement toolkit.
By improving the rate at which the cash outlaid to generate a customer service or product is turned back into cash by the payment of invoices, you reduce the amount of working capital required to keep the doors open.
The real benefit is to be found in the active management of the drivers of the CCC. The days taken to complete the cycle is just tracking the result of a set of actions that take place elsewhere, Manage the inputs, and the days will reduce.
For example, detailed examination of the debtors ledger will tell you which customers are slow to pay, thereby decreasing the speed of the cycle. It then becomes an item of potential improvement. Perhaps the salesperson responsible is not diligent enough, perhaps your collection processes are not explicit, you lack follow up, or clarity on your terms. In the end, perhaps you can decide that that a specific customer should be handed over to one of your competitors, weakening their cash position.
The same analysis becomes second nature around the inventory numbers: raw materials, WIP and finished goods. Improving those numbers without hurting the levels of customer service can dramatically improve the productivity of the investments made in the enterprise. As an added benefit, customers will thank you and give you more business.
As with anything, the absence of the information that details the drivers of an outcome, makes it hard to make improvements.
Another example. Sales personnel are often compensated by commissions on their total sales. If you want your salespeople to be out hunting for the next customer, rather than glad-handing existing ones, paying a commission on all sales is a poor strategy. It discourages the more time consuming and riskier task of finding and converting new customers. Existing customers in most cases can be professionally managed by an internal customer service function. The better use of commissions might be to encourage business development.
When you spend time identifying and managing the drivers of outcomes, the dollars will follow.
Sep 27, 2022 | Change, Operations
The world of manufacturing is in a state of perpetual change. The rate of which is accelerating at a scary pace, and Australia is falling further behind.
Manufacturing moved from being powered by steam to powered by electricity, a process that took over a hundred years from the early 1800’s to the 1920’s, but we did not notice it due to the time. It took 50 years for the internal combustion engine to go from early iterations to general use in affordable cars, and the telephone took even longer before it was standard in most homes. The dominant business model was based on Industry ‘verticals’ that usually included controlled supply chains.
By contrast, we moved into the age of digital in the early 90’s, and everything changed in a generation.
Suddenly we are seeing ‘ecosystems’ of manufacturers who compete in some things, and collaborate on others, people who do not have one employer only, industry boundaries are not just blurred, they are becoming seamless.
Amazon is a great example. It is a retailer, wholesaler, provider of systems and technology, newspaper publisher, technology investor, space explorer. Not an industry vertical in sight, rather a web of interconnected interests and cash generators.
The architecture upon which our manufacturing has been built for 100 years has broken down, and we seem unsure of what has replaced it.
If we are truly now in a ‘knowledge economy,’ it follows logically that we should be competing on the rate of learning we can achieve. Sadly, this is inconsistent with the way most Australian organisations are structured and run. The application of digital technology is evolving daily at a rate at which we must learn or be left behind. Algorithms that learn are increasingly intruding, while reflecting and building on patterns of behaviour, without us recognising it is happening.
Manufacturing is a physical process, increasingly being driven by digital, and that rate is accelerating, making it necessary to be competent in both the physical and digital, or fail competitively.
Manufacturing is becoming a hybrid beast.
It seems to me that future survival increasingly depends on our strategic priorities moving from the trends in our physical and competitive environment, to those in our relationships and learning environments.
These are much harder to measure and anticipate, so it is easier to ignore them until too late. Don’t be caught with a blindfold.
Sep 21, 2022 | Innovation, Operations
Yesterday, Tuesday Sept 19, 2022, I went along to the Modern Manufacturing Expo at the Sydney showground.
Expectations were high that I would be able to see the emerging technologies, techniques, product, and service innovations that might support the re-emergence of manufacturing in this country. Specifically, I was also looking for ideas for my clients.
Perhaps I was too focussed, and saw just what I wanted to see when I registered some time ago.
It took a bit to find the expo, as there was no signage at all. Instead, there was signage for the ‘Workplace Health and Safety show’. Confused, I wandered in to ask directions to the manufacturing show to find they were the one and the same.
So, I went into the pavilion hoping to find some of the inspiration and conversation I was looking for.
The manufacturing part of the show was in the back corner. A discarded program I found indicated the manufacturing part had 25% of the floorspace, but it seemed more like 15%, and then, there was not much to see.
My question, hopefully not too frivolous is, do we not need a vibrant and successful manufacturing sector in order to support the plethora of OH&S products, services, and associations? Where are their revenues going to come from if the manufacturing sector remains as constrained as it is currently? Judging from the exhibitors yesterday, OH&S has become the end, rather than a vital means to the end, which should be a vibrant, innovative, globally oriented manufacturing sector.
This is not to throw rocks at those who turned up, made the investment, and were there to generate awareness and leads from those in attendance, in addition to the obvious networking opportunities. It is simply a commentary on the lack of support from across the broad base of manufacturers and their suppliers, education, government, and service providers.
Perhaps it was just a lousy marketing effort by the organisers, the costs were too high (although the OH&S crowd fronted), or maybe it was just one too many expos?
At least my effort was rewarded by running into someone with whom I had a useful conversation about a topic that had nothing to do with manufacturing, and as he lives two streets away, I tend to see him around a bit anyway.
To my mind, the old question of which needed to come first was clearly answered yesterday, and sadly, we seem to have it the wrong way round.
Jun 20, 2022 | Change, Operations
Over time, as changes in the world trading environment evolved, corporations of all sizes matched that evolution through their supply chains by seeking efficiency.
China began to open its economy in the 1980’s, bringing a massive previously untapped labour pool onto world markets. The accountants in developed countries did what they do and took advantage of this cheaper labour by shifting manufacturing operations. This hit the labour market in developed countries hard, and drove change towards automation. The change also brought huge increases in the standards of living of millions of Chinese that increased total demand dramatically.
A key part of the automation processes was the deployment of operational improvement practises, lean, six sigma, JIT, and others. The driving force in these deployments was efficiency.
Over time as manufacturing focussed on efficiency, we did not recognise the downside sufficiently, and sacrificed the resilience in our supply chains against any sort of disruption. We engineered redundancy out, as it did not deliver efficiency.
This is all very useful in the relatively benign environment we had, barring a few hiccups like the 2008 financial meltdown. However, it becomes toxic when the brown stuff really hits the fan, as it did with Covid, and now the Russians. Having practised in Georgia in 2008, and the Crimea in 2014, they have gone after the bigger prize of Ukraine.
Suddenly the patterns of demand for all sorts of products from microchips to grains and consumer products have radically changed, and we discover the downside of engineering out resilience in favour of efficiency.
As one product becomes disrupted by the chaos, it creates waves of second and third level effects, many of which nobody has thought about. Suddenly, and belatedly, we recognise the interconnections and dependencies that compound the disruptions.
The huge challenge for manufacturing leaders is to devise new models that continue to build efficiency, while not sacrificing resilience.
