Category Archives: Managing in a Recession

Constructed for Growth: S&OP in Action

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Today, Steelwedge is sharing the success story of our customer, Contech Engineered Solutions of West Chester, Ohio, an engineering and construction company that has transformed the way they do business thanks to a new S&OP process.

Over the past 100 years, Contech has grown into a diversified civil engineering site solutions company that provides bridge, drainage, erosion control, retaining wall, sanitary, soil stabilization and storm water solutions on a national scale. These solutions power national infrastructure systems like interstate highway and bridges but, recently, due to a slow economy and the unpredictable price of raw materials like steel and aluminum Contech faced a turning point. Continue reading →

The Titanic and S&OP: Are We Condemned to Repeat History?

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Glen Margolis
“Those who cannot remember the past are condemned to repeat it,”
George Santayana, 1905

This coming Sunday marks the 100th anniversary of the sinking of the RMS Titanic and a recent New York Times Op-Ed piece from Roger Cohen articulates how the ship’s captain Edward Smith and his elite passengers peacefully cruised the Atlantic in total luxury—completely oblivious to their coming fate. It turned out that the upper class passengers of the Titantic were not only unaware of their immediate destiny but also completely in the dark about the dawning of a new era – a period of profound darkness that spanned the Bolshevik revolution, WWI, the Great Depression and WWII.

HMS TitanicIn Cohen’s piece, he compares that era to today and asks if history is repeating itself once again. Were we happily floating through the post-Cold War “Peace Dividend”, a never-ending housing boom and the enormous growth in luxury goods before 9/11 suddenly struck? And then the Iraq and Afghan wars. And then the Financial Crisis. And what next? Maybe global climate change? Perhaps peace and prosperity?

So what does this have to do with sales and operations planning (S&OP)? Just replace the word “ship” with “supply chain” in the following quote:

“I cannot imagine any condition which would cause this ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern ship building has gone beyond that.” Captain Edward Smith, RMS Titantic, 1912

Many companies found themselves in this very situation earlier this decade and when their ship started sinking, they found that they have no choice but to change. To paraphrase a Steelwedge customer and senior executive at one of the world’s largest manufacturers of industrial equipment:

“The world is becoming a very unpredictable place. We needed to be able to react very quickly and respond to unexpected events. We must be prepared for demand changes like the Financial crisis, or the supply constraints that occurred when suppliers in Japan were devastated by the Tsunami and earthquake and when a plant in Southeast Asia was disrupted by flooding.”

While history teaches us a seemingly obvious lesson – that the future is not predictable, it also teaches us that those who are agile will adapt and thrive. Are you prepared for the unexpected?

 

The Manufacturing Sector is Healthy Despite Popular Belief – and How Supply Chain Leaders Should Respond

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It has been only a month or so since I joined Steelwedge from Aberdeen Group and I have already had many great opportunities to interact with customers and prospects around Sales and Operations Planning (S&OP) and Integrated Business Planning (IBP). I am planning to share my thoughts and ideas with you in a webcast on Thursday, October 13 on the topic, “Seven Keys to Integrated Business Planning Success.”

A very interesting statistic – the Purchasing Managers Index (PMI) for August 2011 – caught my eye this morning. This metric tracks the financial activity of purchasing managers connected to their acquisition of goods and services. It is calculated on a monthly basis through a survey conducted by the Institute of Supply Management (ISM).

Surprisingly, the statistic concluded:

“Economic activity in the manufacturing sector expanded in August for the 25th consecutive month, and the overall economy grew for the 27th consecutive month,” say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.”

A visual representation of the metric is below. Please note that the way the metric is captured, any value above 50 percent is an improvement and a 100 percent value indicates that everyone in the survey indicates an improvement. The degree of change month-over-month is reflected in the actual value. For instance, 65 percent PMI for a month is a bigger change than 55 percent PMI.

Figure: PMI for 2010-2011

Source: Institute of Supply Management

So what does this mean for the supply chain executive who is looking at S&OP and IBP initiatives?

  1. Need for Operational Efficiency: According to the ISM survey, the overall sentiment is one of concern and caution. In this sort of a situation, increasing operational efficiency and reducing waste in the end-to-end value chain is the best approach that companies can take. S&OP and Lean are two weapons that companies can adopt in this endeavor. In fact ,we see that these two initiatives dovetail into one another when the S&OP plan needs to be executed.
  1. Multi-business S&OP: According to the ISM survey, respondents in general are reporting reduced domestic sales and increased international sales. This implies that large multi-national companies need to look carefully at balancing their supply towards demand and look at their S&OP process as more of a multi-enterprise/multi-business process rather than within their silos; for instance, being able to position supply in tax efficient countries and moving it closer to customer when the demand signal arrives (looking at building capacity in Eastern European countries, etc.). IBP processes should allow visibility not just at the divisional level but at the corporate level too .
  1. Working Capital Management: According to the ISM survey, respondents are reporting that their inventories are in general higher than their customer’s inventories. This is of course a result of network wide inventory reduction efforts that have gone on for many years. What it has really resulted in is pushing out of inventory upstream into the supply chain where every node believes that they are at the receiving end with respect to holding inventory. Companies need to really look at inventory from a working capital standpoint and as part of the IBP process. The working capital is dependent on the customer sales, supplier purchases and inventory – the IBP process is the only process that provides visibility to all three. These three variables have to be looked at holistically and not in silos. So, implement IBP processes that  can model supply, demand, finance and inventory in a holistic fashion

Figure. ISM Inventory Index for Manufacturers and their Customers

What are your thoughts? Do you agree with the analysis? Also, more importantly, why are the unemployment numbers so high when manufacturing is apparently growing? I have thoughts on this but would love to get your feedback.

 

Special Ordering Elephants and Other Demand Uncertainties

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It is known the world over as the purveyor of “all things for all people” and that includes animals. Apart from conventional pets such as cats, dogs, fish and birds, Harrods offers hamsters and mice for the less traditional.

But when the staff at London’s biggest department store was faced with a question from a man who was to later become President of the United States, they weren’t the least shocked. They could have balked, of course, when Ronald Reagan asked a salesman at Harrods if they sell elephants, but more surprised was Mr. Reagan himself at the salesman’s immediate response  – “Would that be Indian or African, sir?”

This anecdote wouldn’t have traveled the globe had Harrods replied with the more expected — “Sorry sir, we do not sell elephants.” The store no doubt never forecasted the demand for elephants but their planning provided for unexpected customer requests.

Last week, we hosted a webinar on the topic of “Incorporating Supply and Demand Uncertainty in Sales and Operations Planning” featuring Stanford University professor Blake Johnson. An internationally recognized expert in the field of supply chain risk, Blake explored how S&OP allows companies to balance supply chain trade-offs against the value of improved market responsiveness and customer service. Blake, like the adroit Harrods clerk, knows that planning for the unknown and unpredictable is an indispensable part of supply chain management, particularly in today’s uncertain climate.

The webinar was recorded and is available for on-demand playback.  Click here to learn more.

On a More Serious Note: Piracy at Sea and Supply Chain Risk

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While “International Talk Like a Pirate Day” is a light-hearted poke at the past, pirates are no longer a romantic notion to be celebrated.

Until a few years, most of us thought of piracy as a quaint problem from the distant past – a romantic time for most of us.  From a historical perspective, piracy in the USA is most associated with the period when Thomas Jefferson was sending American warships to the Barbary Coast to fight and payoff pirates that were disrupting American trade.

However, in the last ten years piracy – largely centered off the horn of Africa has again risen to the forefront – no longer a romantic notion of times past.  Today’s pirates were born of a vicious brew of our contemporary world – rising global trade, technological advancement, post-Cold War politics, poverty, violence and terrorism.

One may not consider it the foremost supply chain risk, but piracy endangers civilians, disrupts economies, encourages corruption, and could trigger an environmental disaster.    Acts of piracy — boarding a ship to commit theft or other crimes — totaled 2,463 incidents between 2000 and 2006 according to a report published by the RAND corporation. These trends are the result of a range of phenomena, including a surge in maritime traffic and a decline of coastal security.  The overall problem is almost certainly even greater than the figures suggest as researchers suspect nearly half of all piracy attacks are not reported, usually because of fears about subsequent investigation costs and increases to insurance premiums.  Pirate attacks have also risen steadily in 2009 and 2010 in spite of international efforts to protect shipping.

From a supply chain point of view, there are two key risks to manage. The most remote but most serious risk is the potential for a port or majoring shipping channel blockage due to the sinking of a ship or open armed conflict.  While this type of risk is not high, the consequences for companies that depend on specific suppliers or trade routes is huge.  The second type of risk – disruption of a specific shipment – must be considered in light of key resources with long-term lead-times and limited alternatives.  For these products, contingency plans must be considered.  Weathering supply chain risk – like managing piracy – is about understanding and tracking the fundamentals of your supply and demand chains and developing contingencies in your Sales and Operations (S&OP) plans for managing worst case events.