Role of Human Resources Planning in Optimization of Organization Supply Chain System

Supply chain can be interpreted as " a series of co ordinates effort and managing the inter-linkages of the various processes in the organization in order to executing the complete cycle of receiving an order up the the delivery of the order in the most cost effective manner".

This meant that the processes such a processing a new order received from a customer, to ensuring sufficient material are placed with suppliers to producing the order and deliver to the logistics for delivering to the customers.

It sound logical and simple enough to understand this concept as even before the term supply chain was coined up in the 1980s, this has been the way businesses are run throughout the whole world. However with the increase of competition among organizations and directly even between countries, the drive to ensure that the supply chain system serve the organization to drive it to further excellent.

This been said, the driving force to ensure organizations achieved it goal of increasing business and receive the rewards of increasing sales and profitability is the people.

When we discuss "people", we actually discussing about (a) right level of people to handle the tasks (b) right type of candidates to fill the job (c) right type of skills

I will called this the 3R.

There is no strategy which will work to ensure that you will win in a battle field when you may have all the weaponry in your amour but no soldiers or CORRECT TYPE OF SOLDIERS to operate the system.

RIGHT LEVEL OF PEOPLE

What this mean is that, if an organization is to function well, the organization has to be supported by its most important asset, i.e. the employees. Organization which take a hard look at the process of hiring and retaining it "non appreciative" asset will improve on it ability to attract the correct number of employees and this will keep ensure them to succeed in the longer run.

In many part of the world, we can see that organizations will "chop and slice" the number of employees once sales are negatively affected and profit drop. Sadly the choice is too simple to made when a company start to lose it shares and having a high cost of manpower.

However, this in itself reflecting the human resources planning in the first instance. How organization planned their resources and how a company view the potential of the businesses play an important aspect. Poor forecasting and poor execution of the strategic plan will eventually affect the manpower to sales ratio and taking middle ground view between some conservative and liberal view will be preferred.

Increasing employees efficiency instead of hiring will and should be the first option before any recruitment take place only for the risk of terminating these employees later.

However on the extreme side, there are organizations which failed to forecast well and took an extremely conservative view.

Many organizations are willing to pay overtime cost and additional delays to customers instead of ensuring the orders and total operation are run smoothly with the right number of staffing.

Overtime cost to the cost of production should not be more then 5% of total additional wages paid and in the long run anything more then this will mean the cost of the organization could be a :"runaway affect". I.e. escalating cost run up.

This meant that in the end of the day, the cost of overtime will be a "killer" to the organization and eat into profit and run up cost.

Right level of people is the total number of employees needed versus the sales forecasted and with people, it embodied the supply chain concept more effectively, i.e. the battle can be fought at a correct level.


RIGHT TYPE OF CANDIDATE (EMPLOYEES)

This has to be a serious consideration as well.

Type of employees hired, most importantly is not to make up the correct level of numbers and head count.

When Human Resources Department are pressurized to get the number up, the most common mistakes is to hired employees which will made up the numbers and ignoring the candidate profile.

For a company to successful, the right type of people hired will be extremely important. The key is the ATTITUDES AND APTITUDES OF THE PEOPLE YOU HAVE.

Positive attitudes will bring oiled the company manpower engine smoothly just like a new car and aptitudes will come handy with the correct attitudes.

Without having a right resources, an organization will always and normally run into road blocks. Human being are sometimes like an animal in the jungle. I.e. been territorial based and territorial based attitudes although is necessary to function correctly each employees own scope, but this can also bring disaster if there need to be a functional or system changes in the organization in order to improve things.

RIGHT TYPE OF SKILLS


Employing the right experience and skill level is important but not as important at having the right type of employees.

Hiring employees with the correct skills and experience bring advantage to the organization especially in the top level decision and strategic type of position. You may able to move faster a head but a organization which can think differently and outside the box and hire personnel in different industry may also be highly rewarded as well.

By been different and not stick to stereotype, Human Resources recruitment policy can bring better
rewards. Other experience from other industry may and will able to complement the industry you are in.

Human resource role in ensuring long term key success to an organization supply chain improvement and stability need to be reviewed constantly and with it, any system to be in placed will only then worked properly like an oiled engine tune to run a long, long marathon......

BUYER MANAGED SUPPLIERS SYSTEM

I just came back from a two weeks working visit to a small company in Ci xi, Ningbo, China. Me and my colleague practically struggled more then 12 hours per day during the course of the visit to ensure a new product are manufactured to the specification and scope of our organization.

During the course of the working visit, we observed many first hand working behavior of the locals and No, i am not going to discuss the new product status and the local managements view here. What I am going to talk about is supplier selection!

As many buyers will attest to it that cost of material will be utmost importance to the final product cost of the final product to be sold by the company in the market. Unfortunately in most part of the world, the cost of the product is bench-marked against the quality of the product. Thus, the higher level of effort put by the producer onto the production quality and overall standard, the higher the cost of the final parts.

The cost areas can be in the area of:-

a) Material used and cost of the raw materials itself
b) Cost of production, example production cycle time versus the wages paid
c) Fixed assets overhead cost of depreciation
d) Quality department overhead
e) Overall factory general expenses and management overhead cost

We all have heard of VMI system where the vendor will managed the inventory system for their customers. I will like to introduce BMS system where the procurement division will managed the suppliers.

 The company we decided to engage for this new product development can be considered a very small family unit operation and none of the system you will expect them to have is non existent. So many will asked why the hell we choose them to develop a completely new and strange product for the global market?

Well, the reason is simple, COST.

However in this scenario, the easy part is they will have a much lower overhead compare to established company with the international system and overheads cost distributed. The hard part is how to managed an organization which is efficient in cost but the risk aspect on quality is high.

Many will argue that this is no brainier at all as when qualifying a supplier, we need to review the overall aspect on cost, quality, consistency in system management, delivery on time record and other social and environmental aspects. Why this now?

There are a number of reasons we did this:-

a) the overhead cost is lower and thus product cost
b) we able to tune them to our need as they are a small set up and the business proposed to them will be grabbed with two hands by the owner
c) managed the process flow system and asked for implementation
d) control the cost of production by setting up process output monitoring
e) ensure they meet all local legislation on environment and social responsibility
f) when come to price negotiation, we as buyer will have upper hand as we knew their costing in details
g) material specification and suppliers are selected on their behalf based on quality and cost

By managing in this manner, buying power in term of delivery, pricing and quality performances will be controlled and view from the buying office.

There are many small family units companies around the world, especially in Asia are awaiting to be explored in such manner and if your organization have the volume and purchased value, looking into a "junior" partner to help your company growth will be an excellent strategy.

However, when managing such strategy there a long term disadvantages such as:-

a) the supplier expanded their business due to higher turn over and they will able to secure other accounts to support their business, thus, need to be wary and close monitoring.
b) over reliance of single source buying if the product is successful and create a demand pattern out of expectation.
c) risk management aspect

To counter these disadvantages, a 2nd choice supply base will be needed to be secured and even if this will be slightly more costly, this benefit will bring long term stability to the supply base. Your 2nd choice partner will be a organization with larger set up and system in place and cost can be higher then your developed "junior partner".

Developing a second choice will avoid your organization been taken "ransom" and also ensure that comparison are available.

However to take note, developing in such manner, an important aspect will be the production facilities evaluation will be an important factor as well.

In BMS system, the role of the procurement and quality function will be key to success and undertaking these system in your company also require much ground work to be done. Your company is practically running the supplier operation including reviewing cost of raw material and components, checking and confirming production plan scheduling, quality measurement report which the supplier will handle and emailed to your quality department for confirmation and reviewing.

The closest you can compare this will be to outsourcing system but in outsourcing, the bulk of material will be provided by the principal company but in here, the supplier are genuinely producing the parts and the buying organization closely monitored it.

Supply Chain - What will be your opinion?

Down load this link to take a survey:-
Supply Chain Survey

Just like any profession, there will be the excellent, the good, the average, below average and down the hill, the bad.

Many managers and company chief executive knew and realize that an above average supply chain system is needed for organization to developed. How often we heard the moan from a sales professional about losing business not due to cost but poor execution of supply chain strategies?

As a person who have worked in this industry for years, I personally have to turn away good marketer (sales professional) who present good presentation on their organization profile and able to do attitude just because of one key reason.

DELIVERY NOT ON TIME.

Organizations world wide need to realize that expanding sales figures and increasing profit are short term gain if not supported with a supply chain pillar which will able to plan and delivered the orders on time to the customer and without any quality issue.

However, we should not think that organization will also will survive with higher cost and higher profit margin with excellent supply chain pillars. Cost will be extremely important and non negotiable in most cases unless your product fall under the Blue Ocean competition category.

But there are competitors out there who can deliver in shorter lead time, with similar quality and same cost compare to your organization and if your support is poor, you will lose out.

What do you personally think of your organization supply chain management? What you wish to have? Which you wish you not having now? What type of leadership you wish your organization have on this area?

The no right or wrong answers to all our problem and what ever we implement, the stake holders have to realize that it all boiled down to the human mind and human behavior. Unhappy employees, no matter how good a system you plan for will not work.

Please down load the survey if you not mind spending a few moments of your time while reading this article and answer the survey.

I promise to published it once it ready and share with my readers








 

BLUE OCEAN Supply chain strategy

Majority of companies world wide are in RED OCEAN businesses where competition is extremely high and quality and cost of production determine if the product are able to led the market or merely been a follower

BLUE OCEAN on the other hand, recommended strong product leadership and unique feature which make competition non existent or weak (until the competitors catch up provided there is no copy right issue)

How can a business itself  escape  from the Red Ocean field and move gradually to the Blue Ocean greener pasture while staying in the same industry?

Unfortunately these opportunity are not in abundance and more often then not, what ever the leadership taken by certain company will be meet with competition of similar magnitude in matter of weeks and months!

One sure method will be thru innovation strategy by introducing new product and copy righted it to protect the inventor and the company business and market it very smartly to ensure the product will be successful in the end. However for every new innovation which are successful, there are many more times new product which failed to brightened the sky. That could be marketing issue or product design by itself.

Now, let us view how a normal business can move further then it competitors and closer to the Blue Ocean field instead of staying in the Red Ocean field and fight your sweat and blood out for survival.

Blue Ocean strategy called for strategic anchoring of strategies which keep competitors at bay. However not a single strategy can stay too  long in current trend and constant upgrading of innovative products and services are required.

Take as an example Apple I phone system. In order to keep competitor at arm length, they have to continue to innovate the concept and ensure they stay ahead. And smart phone industry is a Red Ocean fill up with products fighting for shares and only the best stay ahead with it own Blue Ocean strategy within the Red Ocean.

How can an organization supply chain assist in implementing Blue Ocean, taking into consideration innovating new product is not the responsibility of the supply chain system in totality. That belong to the R & D division.

Let view the total structure of a company and we will able to see how this can take place.

REVIEW YOUR UPSTREAM PROCESSES 


Review your organization structure and investigate and analyses which upstream processes which you do not have and which upstream processes which your organization are involved in.

Definition of upstream processes are those processes which involve the sourcing and procuring of raw material for your industry. For example, let take a typical company manufacturing paper. The upstream process which they should be in will be forest full of trees to harvest the pulp to produce paper.

From the supply chain strategic point of view, any process which an organization which are not in control of, this will put process in the Red Ocean category. If your competitor are involved in an upstream process which you are not involved in, then you already at a vast disadvantage as resources are by nature, scare and the higher the demand, the higher the cost of material.

When you are not involved in the upstream, you are in fact extending the channel of distribution from your supplier and every extension will have a value chain which add up cost.

REVIEW YOUR DOWNSTREAM PROCESSES

Downstream processes are processes which you are involved in the manufacturing of the products your organization is producing and marketing it.

Down stream processes impacted your customer directly as this include your channel of distribution and marketing strategy beside actual production of the goods.

The key note in down stream processes are any cost which you are not efficient in managing it and no way to manage it, if a cheaper alternative are found for example outsourcing of the processes, then this will be the best method.

However, if your competitor are able to do it alone without outsourcing it, then your organization supply chain need to be overhauled and review why it is so. Outsourcing for manufacturing and distribution although add up cost which your organization wish they can save but the bottom line is how the decision made will save the day will be more important.

Large multi - national organization for example HP computer or Apple may able to have a world wide marketing offices to handle distribution of the products made by them. This may not be cost factor alone but overall protection of the product quality and brand building.

The cost of handling your own organization branding and distribution will be a good feel factor but if this is not advantageous to your organization on cost and this make your organization at a disadvantage then thoughts have to be put in on how best to handle such decision.

REVIEW YOUR OVERALL COST AND NEEDS

The basic component of any organization will be cost and cost and cost.

Nothing else matter.

Reviewing upstream and down stream activities is also about cost and when we mentioned cost here we have to review the highest standard achievable. Lean manufacturing standard, six sigma black belt methodology, agile supply chain system and world class production standard. These are common name but all serve the same function,i.e. to reduce your cost and improve efficiency.

Review where your organization stand compare to your competitor. Never provide any excuse to yourself why your organization cannot do it when your competitor can. The excuses are self defeatist strategy by itself.

Analyze why your overhead are higher then others?

Common statement i usually heard and feel are classic example, "our quality is better" which is why our cost is higher.

The real truth is frankly the quality gap can be close easily by your competitors in matter of months and year but the cost of your higher production can be a trouble maker for your organization in the near future.

Do we remember the Japanese car manufacturers decades ago when they offer cheaper car compare to western cars?

Frankly unless your product is on a very much higher echelon level, the cost factor will be a extremely important factor to consumers purchasing pattern.


REVIEW YOUR COMPETITORS STRATEGIES 


Check your competitor supply chain strategies from supplier management to cost reduction and product costing.

Running a business is like running an endless marathon where the finishing line is not visible until you decide to give up your business or you manage to swim away by miles to the Blue ocean field via innovative strategies and products.


REVIEW YOUR CUSTOMER SUPPLY CHAIN STRATEGIES AND ANTICIPATE 

Understanding and anticipating your customer demand and interest far ahead before they arrive at your door steps with demand and some of these demands may spell trouble for you.

Successful company understand their customers needs and assume the relationship like a married couple. *(refer my blog on threat at negotiations) and anticipating it will keep the "wolves" from stealing your "wife" away.

Your organization must be able to sustain customer relationship not only on current tactical needs but strategic needs as well. Tactical needs are covered by your day to day operational efficiency like delivery on time and good quality but strategic needs are very important.

I will like to compare this to a married couple physical needs (tactical) and emotional needs (strategic).

Keeping your large account and smaller account for lifetime is an achievement which cannot be compare with the actual return in profit to your company. And be a "wolves" to attack your competitor "wives" or "husband" will put your company away from the rest of the field.

Example of supply chain excellence in customer management will be VMI system to your customers and anticipate future order peak or low season and not taxing your customers vice versa. Of course new product offering will add more points to your company to swim further away but new product without checking on excellent quality and not supported by overall supply chain structure will not work.


EVALUATE YOUR PROCTOR FIVE FORCES STRATEGIES

Proctor 5 forces of competition remain relevant and all the upstream and down stream context mentioned above plus reviewing your supplier supply chain needs and competitor strategies boiled down to Proctor 5 forces strategies.

The strength and weakness of your competitors, the barrier to competitions, bargaining power of suppliers and customers, threat of cheaper substitutes and intensity of the businesses itself are all useful tools to apply when handling your organization desire to swim from the Red Ocean to the Blue Ocean field.

How Your Organization been Viewed by Others?

You are what you eat.

That what your doctor may said to you one day or how other may said to you based on your behavior, or action.

Do you know how your organization been viewed by your suppliers, customers and other third party who may know about your company? Is the organization you worked in or owned by you are viewed positively by others?

Are these opinions or perceptions formed by them give your company a good standing?

Many may not realize it but the way other perceived how an organization operates and it internal organization culture behavior can create a barrier to good relation with its customers, suppliers and potential future interaction with others.

A simple example of an organization friendliness and trustworthy to do business with is by comparing and look up and down the list of countries have been ranked annually for corruption and red tapes for examples. The lower the countries profile down the list, businessmen will be more wary in doing businesses there unless there are other incentives which can counterbalance the negative profiles.

Organizations are just like another country and there are the various departments evolved in it. The actions and steps taken by these department and sanctioned by the top brass of the organization will reflect public perception. Public here mean the parties having transaction with the organization and these perception will disperse to a wider environment without anybody realizing about it.

To stay ahead of competition and to ensure customers still standby an organization depended very much on how well this same organization stand in the eyes of the suppliers. A good quality suppliers which offer excellent services will translate into better cost product to the customers. It is as simple as it seem but it is true.

Did we remember two year back when Toyota have to recalled cars due to defective parts supplies by its suppliers? This create an emotional customer lash-back and create problems for the for the company.

So back to the question, "DO WE KNOW WHAT OUR SUPPLIERS AND CUSTOMERS THINK OF US AS AN ORGANIZATION?"

How can we create the image we wanted to project for our organization?

Here is a number of suggestions which we can offer ourselves and implemented:-

a) Improve the overall structures of the organization with clear scope and authority and real clear line of segregation of senior executives responsibility.  A clear cut structures and responsibility  with properly defined job description will ensure that when third party engagement with the organization, there are clear cut what is involved and how these interaction can be done correctly and accurately.

b) Know your organization activities like the back of your hand. All senior and junior executives must able to know organization objectives and Key Performance Indices and where the strength and weaknesses of the organization. This allow your suppliers and customers to have confidence on your operation and keep in touch with you for more development of businesses and other activities. Nobody like to deal with organization which does not know its needs and ability as this create wrong signal to outsiders. Even if your suppliers love your businesses, they will be wary what to expect the unexpected later.

c) Set out a strong Corporate Social Responsibility strategy and get this communicated well to the public. There are still many perception that a CSR policy is always a public relation promotion.While this can be true, the real purpose of a good and strong policy actually set the tone for internal pressure to perform and "walk the talk". Example of a CSR policy is to ensure your employees and their family welfare are taken care of in event of any mishap and this increase motivational feels. Or a policy which ensure that all material used are able to be recycled again which meant the environment are taken care of. Green environment policy. This type of image projected will give your chosen suppliers and customers having a good feel when dealing with your organization.

d) Have clear policy procedures on everything which can affect a company image. Example an organization will need to have a clear supply chain policy statement and guideline to supplier to adhere to to prevent negative action from occurring and this give your suppliers the knowledge how to behave with the organization employees. Other policy and procedures needed are for example, Customer complaint policy statement and policy, Security Policy and procedure and Human resources policy and procedures. This will act as an deterrent of any objectionable action either by the employees or by the outside party.

e) Be consistent in all action taken. This is very important to all concern. Fair play in short.

f) Strong willed leadership from the top. As the top person in an organization, the ability of this person to able to project confidence, articulate behavior, unbiased decision making and live by all the policy and procedure of the organization like a holy person with a bible will help the organization to sustain further.Untainted in every aspect and gain respect from internal parties and external parties alike.


Now with all the suggestion above, what next?

Organization need to measure it own performances. Let throw away all the ISO standard for a while. Let focus on behavior and how your organization have been viewed and judged not only by your suppliers and customers, but also the employees itself.

The best method will be with survey form which assure confidentiality of the respondents and interviews been carry out.

I personally remember, we conducted employees survey in one particular organization I was involved in many years back and there was no name or employee badge number on the form. Just a form filled with question and all we need to do was tick the box. Same applies to our associates and these respond was collected and send to a independent office outside the organization for tabulation.

Improvement steps if needed are then proposed from these forms.

Nobody like to invest in a place where nothing is clear cut and your associates and employees felt unfairly treated and this include the organization we worked in. So the start has to start somewhere and it is recommended that it start at the place you are working now.

Negotiation - Use of Threats versus Strategic Partnership (updated)

http://theaccidentalnegotiator.com

I read with interest blog about the strategy of using threats from the the above link. Threats and counter threats are always on the negotiation table no matter how the negotiation goes. Overall, I fully agreed to the information on this article contained in the link blog attach.

However.....

I tend to view a supplier - customer relationship just like a married couple or a man or woman with his or her mistress. Unlike a husband and wife with children in tow relationship where the relation are already filled with objectives to be met and how both partners want the child to grow up and how to ensure their relationship growth further with trust and fulfilled promises.

So when we negotiate, the common interest will be:-

a) Volume of business involved
b) Quality and material specifications
c)  Price of the material
d) How much the business meant to both parties
e) How the profit margin for both sides, how much the profit the supplier will gain and how much profit the customer will have by using the material

Just like the mistress who may feel unhappy if the "contributions" are not to expectations and she or him need to instead of receiving "profits", they need to reduce the gain or even just break even in order to keep the business.

Thus, threat is good to gauge how good the threat meant to each parties and also is it real and most importantly one of the party or both will walk away if the threat on the table is "too much". No commitment on long term, so it time to wind up the partnership.

Just like the mistress.

My thought is for threat to be made, make it clear what is at stake and if the threat a camouflaging strategy. Threat can be used in a strategic manner in which both parties lay the card on the table what at stake and how to resolve these threat to the business.

This will encourage a strategic thinking on how to resolve the issue and come up with a winnable solution for both parties, just like a good husband and wife team. But then, husband and wife do divorce too right but that will be the last resort.......mistress just walk away if she or him not comfortable with the threat.

My point is when having a supplier - buyer relationship, it is good to identify a supplier who you able to "married" to and trust and will work hand in hand with your organization. Threat will then be view by both parties as opportunity to explore for improvement in the process of business.

A supplier who will rather behaved like a "mistress" if you can managed to identify them, threat to these supplier will be taken into full blown account and the key objective will be how much benefit will be derived to accept any offer for renewal and if the benefit is not "attractive" these supplier will walk away or reduce the businesses.

STRATEGIC SUPPLIER PARTNERSHIP

Strategic supplier partnership

Supplier partnership is an integral part many procurement policy. However how do we measure these partnership and is it bringing to the buying organization benefit?

Partnership beside bringing in better competitiveness to the transaction in term of pricing, quality and delivery, also involve innovation and new ways of handling information, resolve situational problem and bringing added value to both parties.

As a buyer and decision maker in organization, i would want to see supplier and buying organization work out the parameter involve which will sustain the business relationship in the long term and these are:-

a) Supplier Performances which is a very basic condition to any organization. How can a supplier able to sustain it performances every year in term of delivery, pricing, excellent communication, quality control and able to understand the customers business.

b) Transparent costing which most suppliers, especially in Asia and certain extent elsewhere. As a buyer, you will need to be confidence with the cost you are given by suppliers. Counter check on pricing with new sourcing of vendors will help but this by itself is self defeating in any business partnership as the trust is been placed on a very thin line. I myself will want to check and see a genuine reporting of material usages on the part and the actual cost use. Labor cost and other overhead cost will be expected to contain variance but all i need to see will be a percentage figure which will be a industry average.

c) Offer Innovative New Design which keep up to the market trend. Suppliers who does this make them more valuable to any customer and as a buyer I always appreciate such suppliers and of course they is a take here of better value to the supplier in term of cost
and profit but if any supplier able to do this innovative things, they and the customer will be able to stay above compare to the competition

d) Supplier who can offer insight to their customer supply chain system and help to offer some improvement will be extremely valuable. These type of insight can be from mutual discussion on how to improve efficiency and their ability to take some measure to improve their customer performances and lastly i will value supplier which ......

e) Able to improve costing of their product. Most supplier when they begin to supply new material to customer will incurred investment of people and equipments assets and this sunk cost will need to be recover from the sales of the material to the customers. I would expect them to try to recover the investment in terms of number of months or few years depending on the cost of investment versus the expected sales. If the suppliers are able to reduce the cost and remove this element later after the cost has been returned, but maintain a very small portion of it for maintenance and improvement, these are the type of supplier we will tend to value most.

These five element need to be there most of the time and we will sure value such suppliers. However as a customer ourselves, we need to play an important role as well and these roles are as followings:-

a) Be transparent with your policy and keep our suppliers aware of happening in your organization as a assured supplier will be able to add more confidence on their part to support any buying organization.

b) Behave like a supplier. All business organization will have their own customers as well as their own supplier. Think what your customer will do for any action or reaction your organization take.

c) Offer analysis of your business situation and seek understanding for any expected slow down or increase in business to assure your supplier understand the situation. The first instance any supplier will react when they see a slow down in business is to suspect they have lost it or their customer in trouble. Preempted this thought from their thought.

d) Give ample lead time to ensure your suppliers able to act efficiently. One reason for cost to go up is due to the need to perform extraordinary tasks like overtime and secure expensive material to meet unexpected short lead time orders.

e) Pay on time.

Asking Customer to Accept Deferred Delivery

We have a very large account in our portfolio and this particular customer is BIG. When I meant big, I really meant BIG.

In size of the organization itself in term of employees, in term of business values it generated every year, in term of market capitalization. We often compare that for every 8 hours of sales it generated, most companies will take months to have!

Yup, you may guess this customer that we have have turnover in the billions of dollars per year. Not one not two but slightly exceeding hundred billion per year.

When you have such a customer in your list, you will love it and at times feel threatened by them as well. Imagine the sales person who handle this account lost it? This could meant a potential lost of high amount of revenue and worst case, a closure of a plant as well, depending how much they purchase.

In our case, they purchased up to >50 million dollar of goods per year from us.

In supply chain, you always want to be extremely careful with this type of account and ensure your capacity for production, inventory and quality and bottom line delivery performance is always on the top of it.

Negotiation power, they will be on the top of you as competitors will be fighting tooth and nails with you to gain such an account and you need to be efficient.

What will you handle a situation where you are caught with your pant down in term of supply chain performance? Example would be a raw material delay to your production and after confirming delivery date to the orders, you found yourself in a quandary that a particular shipping week will be delayed?

Imagine that this customer do not like been delayed even 1% of their order.

How do you deal with it?

Frankly irrespective of customer profile, it is always negative to delay an order after confirmation of delivery date. Most companies will not think twice about delaying an order but there also many companies who dislike even to think about delaying customers deliveries.

Think about industry like automotive or avionics or even electronics parts where thousands of employees waiting for parts to be delivered for production and you failed them. Think about the penalties involved and even the reputation of your organization in the market place......

I have to deal with this situation recently and the most important think when writing emails to inform delays is the pressure you felt even before you lift your little fingers to tap the keys. However, it is always to my mind to inform a delay well in advance and provide alternative solutions and counter measures to the client rather then having to inform them when it is too late.

So i did inform them.

Blah blah blah the reason and how important is the business to your organization and the best ship date you can handle and the date always to my mind be reasonable. Not more then three days delays and the plan for improvement.

Press the send button... and then pray hard that they will accept without complaint.

Guess what?

They did accept it and i do not feel elated or happy but the thoughts that we need to be better and get on top of the issue in future.

Key reason customer accept delay is be honest with them about the REAL issue, no BULLSHIT and give them time to plan. Do not give them last minutes information on delays, this is truly unprofessional at all and create much problem on both ends.

Create the trust between you as a supplier and they as a customer, just like a good lover who trust each other.

That how we should manage matter and your organization will gain the respect it deserve and your clients are comfortable with you. No broken heart later.

A STORY OF AN ORGANIZATION DYSFUNCTIONAL SCM SYSTEM

I have a story to tell and this is based on an organization which I will not reveal the name or location but it should be a good lesson on how to manage a Supply Chain System. We will not be interested the system they use. Irrespective of Lean management or some other conventional system they are using, this is not the real issue at all.....

This company was a small start up with core business in manufacturing and employees count was small with one management employee plus a number of production and warehousing personnel. Business was good and with a small set up and a single manager to make all the decision, thing was easy and decision making was extremely easy. We shall not discuss about if those decisions was effective or efficient for the company as this is not the real part.

However, over the years, business beginning to grow and the owner of this investment realize that to manage a organization which has a few hundred thousand dollar turnover a month and to manage the same set up worth business dealing worth 4 million to 6 million dollar a month is something else. They will need more resources and more employees in management, warehousing, shipping and production plus quality. They also need to be more efficient in handling the business.

The cost incurred to the organization in air freighting material from overseas due to no material in stock cost them a few hundred thousand dollar per year and the overtime cost to manage the order is worth at least in the 7 figures dollar per year. Payment to suppliers was based on invoices not properly verified internally before payment and worst of all planning is non existent for production, shipping and planning,

Soon, the organization decided to introduce a Supply Chain Management system in the organization and for this, they need somebody who will manage this task, hence a Supply Chain Manager came on board.

The first thing this manager did was:-

a) Set up a purchasing policy on purchase, verification of material receipt, warehousing management and supplier selection and review area where cost was not in the organization favor and desire that this will be turn around

b) Required a micro production planning system in order to ensure material are always available in stock for all orders

c) Production meetings on daily basis

d) Review and required demand planning system so that customers orders are able to be forecast and build to stock instead of made to order and this will be an efficient manner of operating to reduce overtime and material stock out when there is a sudden increase of order and this can be anticipated.


Except for (a) and (c), none of the above get done and as happened every year, customers orders started to increase on certain period of the year and material will be late in arrival, employees have to be placed on compulsory overtime and everyone in the organization was stress out.

The SCM Manager was blamed for these and was made to answer all the delayed on shipment and to compensate for this, she has no choice but to increase inventory and add up holding cost.

So a viscous cycle begin...

Even when the product are profitable, however due to overtime need to be perform, higher inventory level been kept (and sometimes the wrong item kept as well) the performance of this company begin to suffer. To add further to injury, recruiting was non performing to replaced employees which resigned and this reduce capacity further and again add up to cost....

What the problem with this organization?

The answer was simple,  beside the SCM system in name, all the others stake holders are non committal or understand  the system and the mentality of running a business was early 20 century style but with 21st century ideas. The is a GAP which need to be closed up.

To most of the employees and management team, when there is an issue with meeting an order, the guns are aim to one direction, i.e. SCM department. In fact they are wrong and correct at the same time but ......

When implementing SCM system, it is not the SCM department alone to carry the burden, and the responsibilities and accountability has to start directly from the very top of the organization and strategic decision to take place and implemented and this later to be developed into the operational (tactical) strategy which all departmental managers has to follow through.

Examples of strategic decision needed will be:-

a) Identify the capacity planning of the total organization and from this, identify the lead time for order with the customers in order not to increase operational cost

b) Identify which order need to to be Made to Stock (M.T.S) and which order has to be Made to Order ( M.T.O)

c) Inventory level of the M.T.S item to be set up. We need to understand here that when setting M.T..S system the driving force for raw material will be the stock of the finished products. With M.T..O system, lead time to customer to be identify and this run in tandem with lead time from supplier and reducing this lead time will be long term objective in many system implementation.

d) In which manner order to supplier to be managed and how delivery to be enforced from suppliers

e) Managing information flow and system efficiency and which Key performance Index need to be review on regular basis. Many companies are asking managers to report KPI for sake of reporting without understanding the true value of the reports and if these report can be independently verified

f) To what extend level of inventory for raw material / semi finished product and finished product to be invested will be also a key policy. Weight of each investment need to be calculated on the return of investment and stock turnover ratio which need to be achieved.

From these decisions, the operational level managers will then have to implement strategy into daily operational tasks.


Bottom line i wish to explain here is that Supply Chain Management is not a problem with supply chain alone but it is a system which need to be anchored to a very strategic decision, i.e. decision on how to run a business.

Closing sales and orders is one decision every one will love to have and hear but frankly managing Supply Chain will ensure if:-

a) the order will be profitable

b) what will be the actual cost of the order and if this cost can be managed in a better way

Supply Chain - How to determine your supply chain strategy

Many businesses are managed or run on the primary thought of getting the sales and deliver the orders and one wonder is this all?

Managing a grocery shop supply chain or managing a small cafe  supply chain one may thought it is easy because the key element of running these businesses are:-

a) stock the shop with goods which people will want to buy from a grocery shop, for example a packet of salt or a can of milk

OR

b) for a cafe, you just need to purchase your coffee beans and tea or beers and get a fairly good cook or the owner cook can cook themselves provided he or she purchase all the ingredients as per the menu listed in the menu displayed on the front of the cafe.

Easy right?

Well, not so i guess.

The owner of the grocery shop has to decided how much sales he can do in a day or in a week or month and how much he need to stock up, right? Well his or her job could be easier because sundry items will have longer shelf life and he will purchase enough quantity to stock up based on how much the business venture willing to fork up as working capital. For the cafe, it is very similar one may think, but he will have also have to come up with the strategy what food he will like to sell to his potential customers or which foods or drinks type he will offer and most of all, the owner may also have to think about how long he can keep his vegetable or meat in the freezer and how many plates of food he will sell in a day......


OK, wait, a while....will the owners of these businesses have to think who will be his best source of supplies? His best source of discounted price and as he already think of these two, he will also need to know when they can deliver the materials and also will the groceries or food or meat will be in fresh and mint condition?

That supply chain, i.e the art of managing the supplies in order to have the best deal for the business.

Let now review how will be a larger organization deal with this matter......

Most business owner or CEO or top management managers will like to think and think very alike the cafe or grocery shop owner. However, before thinking it will be as easy as the above, think again if these are as simple as ABC.

Well i would expect some of them to think along those line and even though this is very true because the art of doing business is to make profit and the way to make profit is to have sales and purchase raw material cheaper then your product and overhead cost. That is true.

How about thinking how to handle it more efficiently?


Let now consider what CEO or top management managers has to think about.

a) How to manage the customer order is important. Do the business have to wait for the order to comes in after all the promotion and sales activities?
b) What type of product the business is dealing with? High tech expensive products? Daily consumer product in the super market? Product with fast changing technological advances?
c) Who will be the businesses customers?
d) What volume expected of the product been sold?
e) What the value of the product?
f) What the profit margin?
g) Where are the suppliers or sub contractor located? Is this nearby or few days or weeks by sea freight or hours by flights?
h) Output unit of production compare to budgeted forecasted sales?
i) What the business capacity?

This is what i consider strategic thought and these strategic thought will be transformed downward to tactical or operational strategy.


From this strategic thought, top management will decide if:-

a) Outsourcing of certain material is necessary when compare external and internal cost
b) Build the product complete to stock or build the product complete to order to be received
c) How much to produce for stock?
d) What type of lead time to be provided to customers based on capacity?
e) Does the business need to build semi finished product and stored it ready for assembly?
f) How about proposing to large account to agreed on a number of strategy, for example offering to managed customer stock with VMI plan?
g) How to managed the logistics side of the businesses?


These decision will then be transferred down to line managers or operational staff to carry out the strategy with tactical approach.

Without this kind of brain storming on the higher level, businesses very often will find themselves in a quandary on what to do and handle when come to the real crunch of handling businesses expansion and change.

Businesses sometimes grow in a pace too fast that owners of businesses are suck into the promise of profitability and this make sense as all businesses are meant to make a nice income for its owners. But a fast growth in sales need to be strengthened with supply chain strategy rethinking how to manage it right.