Sustainability is one of the hottest topics in supply chain and I’d expect its going to stay that way permanently.   It’s good for the environment and the right thing to do.   And it’s good for business and no one can argue with that.     Sustainability is really all about doing the right thing.  The right thing for the environment, for people working inside the company and also for those who live and work nearby.

One way to look at sustainability is as another evolutionary step along the road of  ‘quality’ that has taken us through the Toyota Production System (TPS), to Lean Enterprise and now to Sustainability.    Each of these steps has taken our focus further beyound the virtual ‘four walls’ of the enterpise.  Lean made us look at the entire supply chain.  Sustainability turns our focus beyond the global supply chain, to the impact the chain has on the environment and the people in and around it.

Doing the ‘wrong’ thing comes from weakness which leads directly to the temptation to take shortcuts not just to make more profit, but just to survive.  Companies can’t drive sustainability, the ‘right’ thing to do, unless they’re efficient and effective and doing the right things operationally.   The ability to do the right thing comes from strength, from depth of purpose and strong cultural foundation.  That sounds like Lean to me.    If you are looking for companies that truly support sustainability, look past the website PR and focus on what really enables them to do ‘walk the talk’.

Green

 

Another story that I love to tell takes me back to a class in my MBA studies at The University of Michigan.    My major was finance, but as in all curricula there were  ‘core’ courses that everyone has to take and this one was Organizational Design and Human Resources Management.   On this particular day we were involved in a role play.   Four people in a group.  Two observers.  One supervisor and one subordinate.  The supervisor had just received a complaint from a customer about the subordinate (an outside sales representative) and had to deliver the news and develop an action plan.  I was the supervisor in our group.  After the ‘plays’ the entire class reassembled and discussed the results – led by the observers.

One of the observers in our group got up and said he didn’t like the way the supervisor in our play asked unrelated questions at the start of the meeting ‘how are you?’, etc.  He said the off topic questions were off topic and seemed underhanded.   My hand shot up so fast I almost dislocated my shoulder.   The instructor picked me and I related a story about why this lead in was a concious strategy.

I had a manager of a supplier that I dealt with on a day to day basis.    As with many manufacturing facilities, each day presents its unique ‘pile’ of challenges.  Some larger and deeper than others.    If he was having a good day, I could take a direct method and we could get right to the problem.  If he was having a bad day, throwing another one at him in a direct method would only insure it hit the side of the stack and bounced off.    I explained that is why such questions are vital.   It didn’t matter I was dealing with a subordinate.

Listening first  always gets peoples attention.   Listening leads to understanding and the foundation of every good connection and relationship.   The person in my group who commented was headed to be a poor salesperson.   I hope they found some help along the way.  Not from our instructor.   The look on his face as I was explaining it was like deer looking into you know what.    Big school research, statistics and all that and too far removed from real interpersonal skill development.

Who hasn’t met that person who has the answer to all your problems, but they never let you talk enough to tell them your problem?  They are talking up a blue streak down one path when you are trying to go another.  Its the foundation of almost every misunderstanding I can remember.  Somebody talked too much.   Thought too much about where they were and wanted to go an not enough about where the person or people they were talking to were and wanted to go.  It’s how you make deals, win negotions, followers and almost anything else you want.  You learn by listening, not by talking.

My father in law has a great saying that sums it up “You can sit there and look the fool, or speak and remove all doubt”.    Another favorite is “God gave us two ears an one mouth in an intentional symbolic relationship of  how much they should be used”.  Listen first.  Talk second.  Good advice.

 

My wife and I rang in the new year very quietly.    We went to a party with some friends, but left early and came home well before midnight and watched a movie.    It’s the first time in our lives we didn’t tune into one of the live watch-the-ball-drop shows, pop champagne and toast and smooch as we ring in the new year.  Now that we live on the left coast, it’s not the same as when we were back in Detroit which celebrated new year in the same time zone as the big apple.   We feel torn between celebrating when the country enters the year with New York as the lead, or hanging on until midnight strikes out here three years later.  I think this year we just gave up.  My wife looked up during the movie we were watching, the clock was three minutes past new year and we paused to say thanks for the last year and decade and made our wish for the new year.

I’m not one that puts a lot of  thought or effort into new year resolutions.  Tomorrow is promised to no one much less another year.   I reflect on the last day and the one coming up.   The last week and the one coming up.  It’s what you do if you are type A like me.   If I need to make a change, I don’t wait for the new year to start, I just get on with it.    The passing of one year into the next is still a good time to reflect on what has past.  To give thanks for our blessings.  To review recent life lessons and use those to help us  face whatever the future has in store for us.   Life teaches us lessons every day.  Some we learn easily and move on.  Others we either miss completely.  Some come back to us for a reminder.

I finished the year by playing golf.  Twice in the last two days in fact.   I’m an above average golfer.  My index hovers around 10.   I can break 80, or I can blow through 90 like I did yesterday.    With five holes to go, I needed to shoot par to shoot 90 even.  I shot one under (and then noted I added wrong).    The lesson came on the last approach shot.  I had hooked my drive left, luckily not in a nearby trap, but behind a tree that would impede a direct path to the hole and the green.    I needed to carve a hook shot with a utility club around that tree (from an uphill lie I might add) to get anywhere near that green about 200 yards away.  Now I’ve been to the range once in the last two months.  I haven’t played twice in the same week since summer and most of my golf since fall has been par 3 where I take nothing higher than my seven iron.  I had no earthy reason to expect anything near success in executing a shot like that.  I did it! I wound up 10 yards beyond the hole and off the green, but it was right behind the flag and I chipped to inside a foot for a gimmie par.

All I remember is standing over that approach there was nothing in my mind other than a picture of the shot I needed to hit.  Nothing else.   One shot illustrates what I love about golf.  Nothing compares to watching a well struck shot soar through the air to its intended target.  More importantly, in my humble opinion, no other game, no other pastime, no other activity teaches you the importance of focus more than golf.   As you walk or ride between shots there is ample quiet time and the choice of how you use it is the foundation of the outcome.  You can wallow in doubt.  You can think about the improbability of what you are trying to accomplish.  The micro faults in fraction of degrees that can lead to disaster.  The blades of grass or spike marks that can cause the ball to veer away.  Alternatively you can picture your intention clearly with absolute focus and resolve.   The lesson isn’t that focus is guarantee of success, but that doubt is an absolute predictor of failure.

Now that doesn’t mean than someone who has never hit a golf ball can picture it in their mind and make it come about.  The ability has to be in there somewhere.    It isn’t that much different with life.  Picturing myself in the leading role for a box office smash hit movie is not a realistic goal.  Something between here and there is more like it.  What you picture in your mind, if its right for you, you will bring about.  Your mind doesn’t know if you are seeing is what you fear or what you want.  If a picture of doubt crosses your  mind – step away and collect yourself.  Focusing on the negative only hastens its arrival.   Focus on the positive outcome.

I finished last year with that lesson.  One I’ve been shown many times and probably will again.   I offer it to you with the best wishes for a new year and decade that brings peace and prosperity for us all.

 

If I made a survey of the Christmas wish lists for all supply chain executives ‘Better Customer Forecasts’ would be in the top 5 of almost every list, and number one on most of them. It’s one of the most popular topics in supply chain literature and for good reason.  Forecast too little and you won’t be able to supply your customer.  Worse, someone else might, and that might lead to permanent loss of business.  Forecast too much and you invest in resources that aren’t needed and may not be needed for a long time, if ever.  This is the most popular entrance ramp to the slippery sloped highway to financial oblivion.

 Much of what I see published on this topic pushes software services and systems that enable more ‘real time’ collaboration with customers and suppliers, aligning supply with demand, statistical analysis of customer performance, and the list goes on.  These systems can be very useful tools and potentially the missing link in achieving superior supply chain performance.  There are also many things that go into the successful conception, design and deployment of these kind of systems, I will not restate those here (Maybe in a later post).

Understanding your customer is the key concept that is so often misunderstood or neglected in the pursuit of better forecasting.  Almost every customer will send a bad forecast once in awhile. Most of the time the customer will catch them. It’s the ones where the customer doesn’t understand how far off they really are that can do damage.  You need to understand the difference between what they say they can do and what they really will do.  Don’t make the mistake of booking good news that can never happen.

The lean concept of ‘Takt time’ is very important here.  Most all systems have built in constraints that on one hand frustrate our ability to do more or go faster, but are very useful if we watch for it and use it to our advantage.  How many of you understand your customer’s constraints?  How much can they feasibly use in an hour, day or week? What is their theoretical maximum capacity?  Are they even measuring it?  How closely have they come to achieving this maximum capacity and for how long a time?  Running at 50% of theoretical is not uncommon.  How many days in a row have they been able to do 80% of their maximum?

Let me make an example.  A customer buys one type of widget from you and they forecast usage of 1,000 per week, but over the last year, they averaged 500 per week and have used 800 or more only twice.  A great deal of your material lead time is 12 weeks or more.  Your customer gives you a forecast for 1,000 units per week for the next three months.  If you booked this order and unless the constraint has been broken, they will use half of this amount and you will be sitting on a greater and greater pile of excess inventory.  Assuming no downstream intervention, the excess could grow on average by 500 units per week to a maximum of 6,000 units – equal to the average quarter consumption.  I’m not sure how you track inventory turns and performance, but this isn’t good by any measure.

The example above is obviously a worst case scenario.  Lead-time is the real enemy in this situation, but if you had a near zero lead-time supply chains, you wouldn’t be reading this. How this would work out in the real world would depend on what kind of material commitment horizon arrangements exist between the various customers and suppliers along the chain.  I know it is very dangerous to load numbers different that what your customer gives you, but you better speak up if you think they are sending out instructions that don’t make sense.  Knowing the system better than they do is how you increase your value to them which is always a good thing.  If the customer doesn’t listen – and some don’t, well, find ones that do.

As I said before, there are a lot of good software tools that will help you manage your supply chain.  Unless you understand what is behind the numbers going in and the limitations of what comes out, you can make just as many mistakes and even more quickly than before. Know what you can really do and expect to do.  What your customer can do and what your suppliers can do. If you know this, you are well on your way to putting more advanced supply chain software to use.  If you don’t, you won’t get your return on your system investment.

By the way, this concept is even more important in the reverse situation. Change the word ‘customer’ with ‘supplier’. Do you know your suppliers constraints?  Do they know? Have you buffered your production peaks if they can exceed your suppliers?

 

Strong leadership is fundamental to a successful lean enterprise.   Lean is viewed by many as a transformation and any thesis on change management will point to leadership as fundamental.   Lean is not a temporary, transitional state, but a fabric of principles that once adopted, lead to a mindset and culture of unending continuous improvement – in an sense unending change.   If  leadership is fundamental to managing change, then it is even more important a lean enterprise.

Any strong and viable business must adhere to lean principles, whether they know it or not.  Lean is a merging of quality, operations managment, financial management and even marketing discipline that when properly applied will not just improve results but have the potential to lead to market dominance.  Lean principles are the path to delivery of  higher value goods and services, more quickly, cheaply and more profitably.    Lean is what good leaders adopt and adhere to and poor ones either don’t  recognize or have trouble implementing.

People are what make a lean enterprise go or not, by following where they are led.   One of the cynical acronyms of lean is ‘Less Employees Are Needed’.    It is the first open manhole cover that must be navigated around to avoid progress derailment.   People trust good leaders to take them from ‘muda’ work and move them to new jobs needed by  new customers and even grow into new products and new markets.  Leaders are not strangers to those in the plant and on the line.  Leaders have built a feel for the operation that extends beyond the scorecards and reports by often rolling their sleves up and working shoulder to shoulder on the floor and in the conference rooms.   This kind of involvement is fundamental to developing the current and future value maps and streams and identifying the first Kaizen.   Good leaders don’t leave that job to consultants and delegates. 

Are your sleeves up or down?

 

Maintaining inventory at the right levels has always been an important but most often elusive goal.  The aftermath of the financial crisis has only made it more important and yet more difficult.  Customer forecasts are within more conservative ranges.  Many Suppliers are less inclined to hold inventory.  Reducing inventory without making fundamental operational changes will lead to lower customer service levels, customer dissatisfaction and eventually, reduced revenue.  Carrying more buffer inventory to cover customer ‘spikes’ is a less savory option.

Most operations have some level of excess inventory due to forecast and mix, engineering changes or quality issues.  The low hanging inventory reduction ‘fruit’ is to identify and segregate these buckets until the relieving actions can be completed.   Once this is in control, the key is to keep it from happening again.   Unless processes were way out of control to begin with, the inventory reductions from these areas  will not usually pay for increases in buffer stocks for active customer programs – and until the causes for the excess are eradicated through sound management control, they are likely to return anyway.

The biggest opportunity for reducing inventory is having supply and demand match.    Demand forecasts are never perfect.  Forecasts are either ‘lucky’ or ‘lousy’ or somewhere in between.  We can always work scrub harder, ask more questions to try to get a better forecast, but we can always count on falling something short of perfect.   The only perfect solution to reducing inventory while maintaining (and almost surely improving) customer satisfaction is to reduce lead-time and batch sizes throughout the chain, with zero and one being the respective goals.

Buying in quantity to get the price discount usually costs more in other areas.   In many cases, its of benefit only to the salesperson’s quota and incentives and often has little to do with the economics of manufacture.  In a lean environment, the opposite is most surely the case.  Suppliers manufacturing in lower batch sizes with shorter cycle times often have higher quality and lower costs.   Yield in many cases swamps allocated cost loadings and let’s not even start talking about those on a lean blog.

Making adjustments to the flow and operation of your floor is on the critical path for full improvement but starting that complex and long journey is the subject of another blog entry or two.   In paralell with those efforts, a lot of good can be had by working closely with key suppliers.  Start separating ‘cycle’ time and ‘lead’ time in your discussions.  We often only talk about lead time.  They are very different things and often will help you understand how different suppliers operate, or what lengths they are willing to go for you.   Both of these things are good to know.  

Lead times apply to the normal promise for a new order that was not anticipated.   Cycle time is the amount of time between release of an order to the floor until it is ready to ship.  If you provide a regular and decent forecast, and you have earned trust as a valued customer, you should expect responses closer to cycle time than full lead time – but not always – be careful. 

By decent forecast I mean you can explain dramatic changes from one period to the next.  That way you show you put thought into it and you will be distinguishing yourself amongst the few.  You’d be surprised at the number of companies with fancy computer systems that don’t understand what they put into them.  If the forecast is the music, its no wonder no one recognizes the songs that the plants are trying to play.  

Even for parts with spotty or seasonal usage, suppliers will usually make arrangements to buy materials and have them ready to produce if you agree to take the product within a reasonable time – that is if you have built the trust with them that you will deal fairly with them and not leave them holding the ‘bag’ of parts when the plan changes.   Be careful there.  If you string them along, don’t blame them if that extra material isnt’ there when you need it.

 

‘5 Why”s is a lean tool that is taught by lean practicioners as a key tool in problem solving.   The crux of this skill is too keep asking  ‘why’ about something until you get to a potential root cause.   Most of us learn this long before we are introduced to lean enterpise.   Its the game we played with our parents (and dove them nuts) as we explored the world as young children.     Little did we know, we were practicing a skill that would be very useful to us in the business world.   At the risk of being obvious, the delivery should be a bit more mature as we get older.

How this works, is that each time you ask ‘why’ you peel back a layer and eventually you get to a fact that will lead you to a solution.   One of my favorite applications of this is in vetting suppliers or to prepare for negotiations.   In both of these situations, the truth may be hiding behind veils of spin and smoke.   The success of any negotiation is driven mainly by how well you prepare for it.   Knowledge is power and what you don’t know will hurt you. 

The higher the stakes the less you can take at face value and the harder you need to work to get to the truth.   Ask the same question over and over again, phrased differently and to different people over time and you’ll get to the truth.  If there is any deception or ‘spin’, the more people you ask, the more likely you’ll catch one or more that is off their guard.   Talking to those not direclty involved in planning  the negotiations can be particularly revealing.  Take this to another level by assigning someone on your team to do the same thing.

 

No, this is not a post on ‘Texas Hold ‘em’ as I have yet to be bitten by the Poker bug.  The intellectual exercise is intriguing to me.  Sitting in one place for extended periods is not.  This post is about an important lesson to never take anything for granted and speak what is on your mind – especially where people are involved.

I was a supervisor in an engineering department at a Fortune 100 company.  My boss told me that two engineering sections  would soon be folded into one group and  it would be reporting to me.   It made sense.  I already had one of the two groups and both groups did very similar work.   The other supervisors and managers in the department were very good about sharing their experiences with the people in my new section and helped me prepare for what I was about to take on. 

One very interesting case was ‘Bill’.  I was told by more than one of my peers that ‘Bill’ was a constant problem.  He didn’t perform as well as the others in his group and managing him would be a challenge for me.   Prior to the switch taking effect, I reviewed each person’s file and what I found in Bill’s was astounding.  He was definitely lagging behind the rest of the group, but he also had a list of patents as long as my arm.  The issue was not his technical skills.   There was an almost two year period where he had a lot of absenses and an extended leave for medical reasons.   This leave was coincident with the end of the patent list.  I asked HR about it an was told he had some health issues, but without discussing the exact nature of his illness, he was now ‘well’ and had a very clean bill of health.

Our one on one finally came.   He reviewed what he’d been doing.  I went over my expectations, but intially avoided any mention of his relative performance gap.  I tried practicing how I would bring it up, but I didn’t like any of  my approaches.  I wound up putting my quandry to him directly in the form of a question.   What was preventing someone of his strong technical background from keeping up, if not passing, his peers in terms of the amount and quality of work being done.

I was sure he was going to get defensive.  He looked at me puzzled for a minute and said.  “Wow…..No one’s said that to me before”.   He was actually very appreciative that I had been honest with him,  He said he do what ever needed to keep up with the group.  You know what?  He did just that starting the very next day and it continued up to and beyond my leaving the group.   From that day on, he was a star employee.

How could this happen?  There were years of performance reviews without any mention of an issue, but you could see  between the lines by comparing what he was getting done to the others in his group.   I can’t be sure, but what I think happened, is that no one pushed him after his medical leave.   I was too embarrassed for my peers who were his previous supervisors to make an issue of it.  He was also much older than his peers (and I) and another issue was fear of what he’d do or say if someone challenged him kept them from facing the brutal facts.     

I took away a couple of things from this that I have not forgotten.  I had at least one or two peer supervisors who needed to up their game in handling performance appraisals.   Always be up front and honest with people in performance appraisals good or bad.  Challenge your assumptions about what was or was not done in the past – or how well it was done.

 

Anyone who has been in business for any length of time has been wrong at least once in their career.  Learning from our mistakes is how we grow, right?  One of my personal growth opportunities was a senior manager in strategic procurement for a Fortune 100 company.  Outside consultants had sold management on their leading us in an accelerated commodity strategy process combined with a ‘free markets’-style Internet auction.

I wasn’t happy about it and I wasn’t alone. I’m a “do-it-myself” kind of guy and I don’t need other people taking care of my business. We had a lot of good people. We knew our commodities. We were taking cost out at a competitive rate based on the commodities, but I couldn’t argue that our business was in trouble from a profitability standpoint and needed help. No one was getting a vote on this and it was up to all of us to get on board and move forward.

To make a long story short, it was a very successful undertaking. We saved more money and we found more new suppliers than we would have doing business the same old way. The outside consulting group helped us in a lot of ways.  They added people to the mix that allowed us to do things faster than we could have on our own.  Yes, those outside people needed to be brought up to speed, but that could be said about anyone we would have put into a special task force initiative like this. The consultants value add was process knowledge.  They had been through this drill before.  On different commodities and in a different line of businesses, but it was successful all the same because the process really doesn’t change all that much.  We knew the process, but had run it  less aggressively and at a more relaxed pace with team leaders and members that were taking time out from the day to day tactical side to drive this strategic initiative. We learned how to do it better and faster than we had before.

One very important factor in my mind, was that by bringing in someone from the outside with strong top management support and visibility, it sent a very strong signal inside and outside the company that the game was being changed and pushed people outside of their comfort zones.  Current suppliers responded more competitively than they had in the past.  The aggressively competitive bids of outside suppliers could not be ignored and forced us to add suppliers we may not have considered as strongly in the ‘business-as-usual’ process.  The next time your business needs a strategic kick start, don’t be shy to engage outside talent. I know I won’t.

 

I joined a discussion a couple weeks ago and generated a bit of a firestorm.  Someone posted a question about how forecasting helps you become lean. It’s one of my hot buttons, so I couldn’t help myself.   The best characterization I’ve heard for forecasting is that it’s either ‘lucky’ or ‘lousy’.  I don’t remember where I first heard it, so I must apologize for not being able to properly throw credit for this gem.  In all the lean training and literature I’ve been through, I can’t recollect a mention of ‘Forecasting’ being on the critical yet never ending path to ‘The Goal’.

Forecasting is nothing more than an educated guess.  Until the day that lead-times all go to zero and the supply chain response is infinite, forecasting is a necessary evil.  Obviously, the more resources that have to be committed prior to receiving an offsetting commitment from a customer, the higher the exposure and forecasting becomes increasingly important.  As lead times decline and responsiveness increases, the forecast becomes less important, but the necessity for it will never completely go away.

 The goal should be to be able to effectively satisfy customer demands despite greater and greater deviations between foretasted and actual demand levels.  The only way to do this is to reduce the lead time between customer ‘stimulus’ (pull) to supply chain ‘response’.  The companies that are on the real road to lean understand this and the ones are trying to take the back alley short cuts do not.

Are you taking lead-time as a given?  Do your suppliers embrace lean and tools like SMED, small lot production etc? Are you buying mostly on price and not total cost?  Are you buying in volume and taking the discounts when smaller quantities may be better for both you and the supplier – so they can serve you and their other customers?  I’ve seen all too often when a volume discount was based more on the incentives for the salesman than on the physics and logistics of the transformation.

 If I can draw a correlation between the discussion activity centered on forecasting vs. lead-time reduction, collectively we’re not spending enough on the latter. Effort spent on forecasting today must be re-spent on it tomorrow.  A lead-time reduction improves your ability to serve the customer for time eternal moving forward. Spending a bit more time here will pay huge dividends down the road.