Like most manufacturers in our industry (landscape and building-maintenance vehicles), and probably every industry, Vrashtt Vehicles deals with many suppliers. Our supply base is always changing as vendors emerge and others go away (or are sent away). And the day-to-day details of our supply chain are always in flux as we develop new products, suppliers sell new components, parts and part numbers change, and the marketplace changes. I get all that, and Vrashtt does a decent job of managing a fluid supply chain to ensure customer satisfaction (i.e., good quality, on-time delivery). But here's what keeps me up at night.
Are we — day in and day out — satisfying customers in the most efficient manner given circumstances at that moment? For example, could we ship product early to clear inventory without burdening our distribution centers or retail and wholesale customers? If a supplier offers lower pricing, higher volumes, and longer lead times, will that affect our cash flow, timely delivery of products, and storeroom of outdated parts? If we're strapped for capacity and tap an outsourcing opportunity, will that impact our product costs, quality, and customer satisfaction?
I doubt my staff can give me the answer, because, at the moment, they can't tell me what order will be late or what is causing them to be late, without spending a lot of time extracting data from our ERP and pouring over a ton of Excel worksheets (which may or may not have the data they need). By the time they have finished the analysis, other issues have come up (and some original issues have turned into a fire storm).
I also wonder if we could be giving our customers more value and winning more of their business. For example, if we offered extended warranties on products and components, will that boost sales but not affect what we pay out in warranties (i.e., can our products and components withstand longer warranty periods)? If we offered service agreements, will the up-sell be worth the effort (and what products could we service)?
I could ask such "what if" questions all day, and my staff will tell you that I do. We're constantly facing such options, and so my staff makes their best guess based upon limited information. I'd like more than a best guess. I'd like more than a good guess. I'd like to know sound answers to these scenarios and see alternatives on the fly. Am I expecting too much?
* The Challenge incorporates hypothetical persons, companies, and products and does not portray the actions of any actual persons, companies, or products.
By Bob Ferrari
The questions you ask about Vrashtt Vehicles are not unlike those being asked by many small- and medium-type manufacturers and distributors today. Like it or not, the business environments in many industry settings have dramatically changed, especially if your business includes continuous product cycles and a volatile supply base.
Customers and suppliers are increasingly global-based, and business can be conducted literally around the clock. Markets are incredibly more volatile, and a new trend today could dramatically change in just a few months. The business effects of the past months of unprecedented global recession also have provided important lessons on the effects of such volatility and the importance of insuring that customer needs are always addressed. Most important of all, businesses must be able to anticipate and proactively respond to the needs of key customers.
You are, indeed, asking the right questions, but Vrashtt needs a different and more streamlined approach toward gathering timely answers to these questions. Understanding the differences between "what-is" and "what-if" information analysis is the key to understanding what needs to change. Information relative to what is occurring or what has occurred (e.g., current or past product sales) is a basis of a what-is perspective. Many applications that gather this type of information were functionally based (i.e., planning, logistics, order fulfillment, etc.). In the context of decision-making, what-is helps determine when there might be a problem: Information might focus on a planned supplier shortage based on existing or past sales forecasts. It also could be the monitoring of a key customer's replenishment process that triggers an automatic reorder based on established forecasts.
As pointed out, what-is information can come from different software applications, spreadsheets, or individual knowledge. Analysis of all of this information is often unwieldy, lacks consistency, and, more importantly, can be too time-consuming for the business' ability to respond in a timely way. Hence, faced with what-is situations, the need is often for a "best guess."
The notion of what-if is different and can take the guesswork out of what-is. It involves the ability to analyze past, current, and future trending information in a singular information repository that includes more sophisticated analysis tools. These tools provide the capability to analyze what options or impacts there may be to certain business scenarios. In essence, they provide analysis of ways to resolve an anticipated problem or effectively respond to an opportunity presented in the market. The challenges you cited are the ability to determine the impact of an opportunistic inventory purchase from a key supplier or the impact on distribution centers if certain shipments are made early.
The important good news for Vrashtt and other small- and medium-type firms is that the technology that can enable what-if decision-making was previously too expensive and unwieldy to implement. A lot of this software was limited to large-scale ERP or highly specialized vendors. Most of this has changed. The advent of software-as-a-service (SaaS) or hosted software offerings has provided more cost-affordable and simpler implementation methodologies. The effects of the global recession and the intense competition in the software industry for gaining more small and medium business have shifted buying power to companies like Vrashtt.
Your management expectations are unlike other small- and medium-type businesses, and the good news is that the technology to enable what-if decision capabilities is within reach.
Bob Ferrari is the Managing Director of
the Ferrari
Consulting Group LLC, a
supply chain consulting and media
organization offering assistance to clients in global supply chain business
processes and information technology. Bob also is the Executive Editor and
founder of the
Supply Chain Matters Internet blog. He can be contacted at
bob.ferrari@theferrarigroup.com
By Trevor Miles
Vrashtt Vehicles is faced with a fairly common phenomenon: too much data and too little information. Actually, let me rephrase that. One can never have too much data, but having a lot of data can get in the way of making sense of the data. This is not unusual because most transaction systems, such as ERP, are designed to capture data and to make a record of a transaction, principally for accounting purposes. It sounds like this is the situation at Vrashtt Vehicles.
My recommendation is to start with "what-is" before going to "what-if." Find a way to wade through all the data available to Vrashtt Vehicles to focus on what is important. After all, knowing what to work on is as important as knowing what to do about it. Grasping your current situation and what is likely to happen is of incredible value. There is little value in knowing about a problem after it has occurred or just before it occurs, as you do not have time to react — as Vrashtt Vehicles is starting to find out. Use the what-is phase to determine future risks and opportunities and identify the causes of the risks.
For example, there may be several orders (or a forecast to satisfy anticipated orders) that will be delayed because of shortage on one component supply. This component could be a fairly small part of your overall spend, so the shortage could be overlooked. But its impact on future product availability, and therefore revenue, may be quite large. Note that I am using the future tense. Of course, Vrashtt Vehicles also should focus attention on orders that are currently late. But a breakthrough in performance will only come from knowing that the order will probably be late before it is late and knowing about this risk early enough so that you can affect change. Lastly, you need to be able to identify the cause of the delay to the order, which, in the example above, is the component shortage. It could be a capacity shortage or quality problem. Until you know the cause, you can't fix the problem.
So knowing that you will have a problem — before it occurs — will bring tremendous value. Knowing what will cause the problem is the first step to correct the problem.
Once you have what-is in place, you can start to use this information to do what-if. You seem to have a good understanding of the levers you would like to pull if you had what-if capabilities. What strikes me in your examples is that the what-if questions you would like to have answered can be separated out into operational and tactical questions:
-
Operational questions: These explore how to satisfy demand effectively and efficiently using your existing policies and procedures rather than projecting the impact of new products or components. These are day-in and day-out questions.
- Tactical questions: These explore the impact of changing your policies and procedures, your ability to win additional business from your customers, or your ability to win new customers.
Start with the operational what-ifs. These will have an almost immediate impact on your profitability and customer service. An operational what-if capability is a natural extension of the what-is capability. Once you know what future risks are faced by Vrashtt Vehicles, what-if is the way of testing the effect or impact of choosing one course of action over another. For example, you may face a demand spike from a customer that represents a large portion of your revenue but brings in a lower margin because of that customer's purchasing power. Does it make both long-term and short-term sense to satisfy this demand? What other customers will be impacted? Will your suppliers be able to provide you the components on time and in sufficient quantity? Where else could you get the components, and what would be the impact on your margin?
Without a doubt, you should progress from operational what-if to the tactical what-if questions, but I would recommend waiting until you have the what-is and operational what-if capabilities. These will provide you the luxury of time and effectiveness to shift your focus from firefighting to directing.
Lastly, you are not expecting too much. These capabilities are available. I am suggesting a phased approach of crawl, walk, and then run. And each of these stages will provide a great deal of benefit.
Trevor Miles is director of industry and applications marketing at (www.kinaxis.com), and is responsible for identifying market trends and translating these into high-level functional requirements for the company, and opportunities for value capture by Kinaxis customers and prospects. Prior to joining Kinaxis, Trevor worked for i2 Technologies, where he held a number of sales and marketing roles and worked with global industry leaders such as Continental, Volkswagen, Nokia, and Thomson. Previous to i2, Trevor worked for Coopers & Lybrand performing several studies in supply chain reengineering for companies such a Levi's, Burmah Oil, TNT Logistics, AGA Gas, and Schneider Electric. Trevor has degrees in Chemical Engineering and Industrial Engineering. He can be reached at tmiles@kinaxis.com
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