We’re seeing an explosion of powerful technology tools, from dashboards to Cloud services and real-time network algorithms. But are they doable, and do they make a difference? The answer is yes to both questions, but for supply management and manufacturing, new tools such as optimization require newer, better decisions.
Quentin Samelson, Nokia supply management executive and Motorola veteran, says technology tools hold enormous opportunity for industry. In supply management, he sees a second round of interest in optimization, this time as a tool that can bring real benefits. Optimization isn’t really a new concept — it has been around more than a decade. But early expectations outstripped capabilities, so few companies used the technology effectively. The perception in the early 2000s was that all we had to do was feed in the data (often outdated, incomplete and relatively low-quality), turn the crank and out popped the optimal plan.
It didn’t work that way, and it still doesn’t, but as we approach the middle of this decade, companies are much better prepared to:
- provide the detailed, high-quality data needed
- provide those data on a regular, timely basis
- act on results.
Some companies look at the concept from the standpoint of “help us make a decision about scheduling this manufacturing line,” or “make the trade-off between building more of product A versus product B, ” instead of trying to optimize everything all at once. Realistic expectations combined with better data mean that the technology is finding its niche.
Optimization
Optimization provides a set of tools to help planners decide how to best juggle inventory, supplier risk factors and market demand over multiple global sites. In telecommunications, where customer demand can shift dramatically with little or no notice, and companies must balance product volume across multiple facilities simultaneously as they expedite (and de-expedite) suppliers, optimization software helps rebalance product volume against material orders and plant volume. Keeping all of the value streams balanced is a complex task that requires good and visually simple technology assists.
Unfortunately, there are still many companies that don't even try optimization; some that try it often don't install it or they lose interest after initial efforts. But all of this is changing based on three factors that I’ve observed over the last three years:
- The technology has become more user-friendly. Where we once were forced to rely on multiple data sources — screens, printouts, dashboards — the user now has data and exception reports easily and instantaneously generated on-demand. Selecting a range of products to analyze, pulling in current MRP data and running the calculations to simulate a change in manufacturing schedule or product mix can be done far more easily than before.
- The amount of data that companies have available for analysis has finally reached critical mass. Not every company can provide a comprehensive daily exception report, but most companies can provide users with daily updates on at least their most critical situations. The days when everyone waited for weekly MRP printouts — then pored over them for a week — are over. More analysts rely on dashboards and “control towers” for daily updates; in some cases, they can drill right into the dashboard to examine precipitating factors.
- An entire generation of production and inventory control managers believed that you could improve factory/ warehouse utilization, improve customer service or reduce inventory one at a time, but never all three at once. In the early 2000s, most of us learned that this premise wasn’t true — we were in fact required to improve all three at the same time. But we’re not done yet. There will be continued pressure to reduce inventories while simultaneously improving service levels, and this will create a need for new tools. We’ve always known that the old inventory formulas didn’t connect well with detailed service level requirements over global networks, but approximation and painful experience were the only aids we had to improve performance, and we often settled for ugly compromises.
New, powerful optimization tools let us get specific about customer service requirements — if we have one high-value customer that requires 24-hour service, we can set the dial to trigger the calculation that will do it. If another market segment can work with 48- to 72-hour deliveries, the reset calculation for this different service level is immediate, and we’ll know the cost difference right away.
Behind all of the logistics and supply challenges, the financial implications remain. I don't see any reduction in the need for companies to focus on managing costs and inventories while improving customer service. (See No. 3 above.) Economic predictions for the next couple of years suggest that there won't be any magic new technologies or business models that will eliminate the need to keep working hard on efficiency and effectiveness.
Blind Spots
There are weak spots crying out for attention at the points where companies reduced costs through outsourcing and layoffs. Of course, a few organizations replaced weak internal functions with stronger external services, but more often they lost experience-based knowledge and skills, and these can’t always be replaced by outside services, especially when those services are offshore . Companies are learning that replacing internal resources with external services can be done with quality — but it's also easy to get it wrong — and, what muscle remains after strategic outsourcing needs to be rebuilt and supplemented with newer tools.
Named by Fortune magazine a "Pioneering Woman in Manufacturing," Patricia E. Moody, The Mill Girl at Blue Heron Journal, tricia@patriciaemoody.com, is a business visionary, author of 14 business books and hundreds of features. A manufacturing and supply management consultant for more than 30 years, her client list includes Fortune 100 companies as well as start-ups. She is the publisher of Blue Heron Journal, where she created the Made In The Americas (sm), the Education for Innovation (sm) and the Paging Dr. Lean (sm) series. Her next book about the future of manufacturing is The Fourth Industrial Revolution. Copyright Patricia E. Moody 2013. With permission.
