The Advantages of Partnerships

Supplier partnerships are much more than just working closely with suppliers. They’re built on a foundation of trust and communication that enables both parties to get better results than they would have in a typical supplier relationship.

True partnerships offer several advantages, all at the same time:

  • World class pricing and competitiveness
  • Greater profitability for both parties
  • Shorter lead times with more flexibility and agility
  • Enhanced quality
  • Increased inventory turns

If you want to reach a world-class level of performance, examine your relationships with your key suppliers to make sure they are partnerships that yield win/win results.

© 2014 – Rick Pay – All Rights Reserved

The Six Characteristics of an Effective Vision

As we think about planning for the coming year, I’d like to share my top six characteristics for an effective vision, whether at the project level or the company level, or perhaps even at the personal level:

1) Imaginable. It creates a clear picture of where you want to go with your company, department, or project.

2) Desirable. The vision is appealing to all stakeholders.

3) Feasible. While the vision should aim high, it needs to keep its feet on the ground and be achievable.

4) Focused. A good project vision is focused enough to provide a paradigm for decision-making. As the project proceeds, refer back to the vision, asking, “If we take this action now, will it bring us closer to our vision?”

5) Flexible. The vision should be elastic enough to allow people to take initiative. In other words, the boundaries are wide enough to allow room to play the game and be creative.

6) Communicable. It isn’t a three-inch binder. It’s one page or less, and clear enough that everyone involved can understand it.

© Rick Pay 2013 – All rights reserved

Creating Innovative Operations

One of the four key elements of a successful operations and supply chain architecture is creating innovative operations. Innovative operations leads to world class performance, which puts companies in the top 10% of performance. It requires different thinking, not just increased efficiency.

The two vital elements of innovative operations are agility and flexibility, which help to avoid performance plateaus. Agility helps managers think quickly, execute swiftly, and change strategies when needed to respond to market forces. Flexibility is the ability to bend without breaking, to be willing to change while maintaining focus on the future vision for the company.

To develop innovative approaches, companies must make revolutionary changes before evolutionary ones. They must be agile before implementing continuous improvement. They must be quick on their feet and manage dramatic change successfully. These traits lead to world-class performance through creating innovative operations.

© 2013 – Rick Pay – All Rights Reserved

Executives Expect Value From Supply Chains

One of the most interesting findings in the recently released results of the Supply Chain Management World 2012 survey is that companies are looking to their supply chains to do much more than provide parts and raw materials. Executives now see the supply chain as an integral part of creating flexibility in production and response to market demands.

The survey involved 1385 supply chain, operations, and other executives from around the globe. They represented a variety of industries, primarily high tech, but also including consumer packaged goods, industrials, food and beverage, healthcare, pharmaceuticals, and others.

“Our research shows that more and more companies are using supply chain excellence as a means to create value and competitive advantage,” said Hau Lee, PhD, chair of SCM World and professor at Stanford University. “Those that still view supply chain management as a supporting function, or see it only as a way to reduce operating costs…are missing great opportunities.”

According to the survey summary, “The most significant ways in which supply chain excellence boosts top-line growth, according to survey respondents, are the ability to launch new products on schedule, ramp up production quickly, ensure repeat purchases through greater customer loyalty, and receive priority treatment from suppliers when key materials and components are in short supply.”

Do you view supply chain as a supporting function in your company, or as a way to create competitive advantage?

© 2012 Rick Pay – All rights reserved.

Authors: Paige McKinney, Rick Pay

Ford Pursues Flexibility

We’re all familiar with the Toyota Production System, but not everyone knows that the Toyoda family learned a great deal from Henry Ford’s manufacturing systems. However, the post World War II Japanese economy was unable to assemble the large volume of parts that Ford’s system required. Instead, Toyota crafted a different production model that didn’t demand a large stockpile of components, paving the way for future innovations in manufacturing and supply chain innovation.

Today, Ford’s business strategy is leading to a new push for flexibility. According to an August 6th article in Reuters, increased efficiency and flexibility in production is part of Chief Executive Alan Mulally’s business strategy. “The ‘One Manufacturing’ system is designed to provide standard processes, greater flexibility and improved investment efficiency.”

I’ve written about letting the voice of the customer inform operations strategy choices, and Ford seems to be doing just that: “Plants that are flexible will be able to switch more quickly to manufacture vehicles, based on market demand for different models built in the same plant…at times these changes can be made week-by-week.” This is an excellent example of a company that is embracing agility as a way to increase profit.

© 2012 – Rick Pay – All Rights Reserved

Authors: Paige McKinney, Rick Pay

Agility Requires Speed

The key to successful supply chain management is reliability and predictability of supply: knowing how much you’re going to get and when you’re going to get it. Take as an example a manufacturer who had trouble finding a reliable source for a simple metal flange used by their plants in Mexico. They had to choose between storing a lot of inventory or changing their supply chain. In this case, they began buying the part in the US and shipping it to their facilities in Mexico.

Another issue is agile operations. There’s a difference between agile and lean. The Toyota production system is actually founded on speed: how can we be faster and still produce a high quality product at a lower cost? The right part in the right place at the right time at the lowest possible cost requires speed, so agility is about being fast, flexible, highly responsive. Lean focuses on eliminating waste – it’s related but not the same.

© 2012 – Rick Pay – All Rights Reserved

Last-minute Customization: The Theory of Postponement for Highly Variable Items

If a product has high variability and low importance you can manage it with inventory, but using Kanban or VMI to allow for a quick response to a spike in demand. For these items you could build subassemblies or stock them in adherence with the theory of postponement.

The Trouble with High Variability

The theory of postponement was developed at Hewlett Packard in Vancouver, Washington and simply means that you finish the customization of the product at the last possible moment. When HP was shipping printers to Europe each printer was the same, but required a user manual in a specific language and a power plug that met regional standards. HP would build printers for France and others for Germany, ship them off, and find that they always shipped the wrong number. The product was highly important for the company but highly variable.

Last-minute Customization

HP learned to customize the product at the last moment by shipping printers without user manuals or power cords. The manuals and cords were added at a facility in Europe, so HP could cut inventory – and the costs associated with holding it – while increasing customer service levels. Engineers or designers can come up with solutions to make manufacturing flexible, enabling you to work around high variability.

© 2012 – Rick Pay – All Rights Reserved

Creating a Forecast

The July heat wave in the Northeast was a challenge for everyone, but perhaps most of all for the people in charge of regulating the region’s electrical supply. According to a July 30, 2011 article in the Boston Globe, ISO New England (Independent System Operator) oversees the power grid for the six New England states, connecting power suppliers, local utility companies, and demand response companies, “which pay customers to reduce their energy use during peak demand periods, then sell that extra capacity back to the grid” to manage consumer demand, which was sky-high during the recent heat wave.

But how high is high, and how can an ISO predict demand accurately enough to avoid black-outs but also avoid overcharging utility customers? By creating an accurate forecast. Now in this case, the ISO forecast was based largely on the weather forecast, but it didn’t end there. ISO took an approach to creating an accurate demand forecast that other companies – whether they are manufacturers, distributors, retail or service organizations – can use as a model. Here is what they did:

  1. They looked at the weather forecast and took into account the various conditions that affect power consumption, like humidity, cloud cover and temperature.
  2. They examined the historical record to find out how much energy customers used in similar situations in the past.
  3. They communicated regularly with their network of suppliers about the current state of supply and demand.
  4. They relied on flexibility in their supply chain, which enabled them to switch power from one line to another, reach out to power suppliers in other states and Canadian provinces, and manage demand through demand response companies.

While some aspects of business are unpredictable, we can create a good forecast if we look at conditions, examine demand history, and establish flexibility. When the lights stay on and the air conditioner keeps running, we have accurate forecasts to thank.

© 2011 – Rick Pay – All Rights Reserved

Authors: Paige McKinney, Rick Pay

Are Your Operations Truly Agile and Flexible?

Many Operations organizations seem to plateau after several years of implementing continuous improvement, Lean or Six Sigma. I believe that the next step is to become truly agile and flexible. But what does that mean?

Agility is the ability to think quickly and make quick and well coordinated movements. The key here is quick. I see many organizations take forever to solve problems and develop new innovations. One client I have is struggling to improve shipped on time, with many meetings, excuses and delays. Being agile would suggest that we should see initial significant results in 90 days or less. There is a Japanese term for this – Kaikaku – which means quick, revolutionary change. Agile thinking helps.

Flexibility includes the ability to bend without breaking, susceptibility to modification, and willingness to yield. Two key words there are susceptibility and willingness, because the great measure of flexibility is in your head. Organizations need to be willing to make the necessary changes to get where they want to go. So many companies struggle with change initiatives simply because they aren’t really willing to change, don’t believe they can, or are locked into the old ways of doing things.

To truly move to the next level, organizations need to be agile and flexible.

© 2011 – Rick Pay – All Rights Reserved

Keeping Operations Out of the Critical Path

I remember in college, which was longer ago than I care to admit, studying a technique called PERT. PERT stands for Program Evaluation and Review Technique. It is a method for controlling and analyzing a system or project using critical path analysis. Usually there are multiple paths through a project, with each step of each path requiring a certain amount of time and money.

Think of building a house. There is framing, plumbing, electrical, finishing etc. One of the paths takes the longest and is thus known as the critical path. Unless you shorten that specific path, you don’t change the completion date of the overall project. Managing the critical path is the key to improving the results of the process or project.

To me, a key objective of Operations is to not be in the critical path. Operations should not be the element that delays performance for customers. By creating and maintaining a flexible, Lean, effective Operation and Supply Chain, some other area of the organization becomes the critical path. Ideally, it should be Sales. That way, revenue and profitability can be maximized. So, a key objective for Operations is to be as flexible and effective as possible thus keeping Sales in the critical path.

© 2011 – Rick Pay – All Rights Reserved