There is great confusion among managers about the operations science governing their supply chains. On one hand, there is no question of the premium placed on analytics and data, today. At the same time, productive and effective person-to-person relationships are crucial to any successful operation, including supply chains.
“When optimizing a supply chain, companies need to successfully combine the two (data and people),” says Edward Pound, a leading global authority in operations science. He is also the Chief Operating Officer of Factory Physics, a management consulting company. “You need a structured process for coordinating demand planning and supply planning. Additionally, define your performance envelope and then base decisions on the practical science that explains the relationships between variability, demand and cost.”
When it comes to analyzing, interpreting and using data in supply chain operations, Pound also points to the importance of personnel training (from C-Suite down to the manufacturing line) so a proper understanding is gained of what “is supposed to be done. Then, give people the data they need, not all the data that can be generated, so as to make decisions and execute as productively as possible.” Additionally, he recommends “establishing measures that connect desired behaviors with desired results. These are system control measures, not punitive measures.”
Pound, co-author of Factory Physics for Managers, will provide attendees of his OMTEC® 2018 session with knowledge of basic approaches to operations science in order to enhance their world, with all its variability in product mix, demand, people and processes. Pound also will provide applications of the science that attendees can apply immediately upon their return to the office or facility.
In preparation for the discussion, we spoke with Pound about how a portfolio of buffers is defined, a sampling of the supply chain-related challenges he has been hearing recently and how leaders can leverage (or not leverage) the principles of Lean manufacturing and Six Sigma to run better, more efficient operations.
Can you explain what the “portfolio of buffers” is and how it relates to optimizing a supply chain?
Pound: This refers to inventory, response time and capacity—a basic description of the behavior of nature. It’s the way nature works. When you are setting up your supply chain, your job as a manager is to figure out the best combination of variability and buffers to make the most money for your company. When it comes to these three things, we find people often don’t understand the interplay between them and how variability affects them. You can be responsive by keeping a stock of inventory, or you can have extra capacity to handle demand fluctuations or you can give up on responsiveness and make the customer wait a longer time. The only way to reduce the need for buffers is to reduce variability. However, it may benefit you to increase variability, e.g. introduce new products or technology, if you can increase profitability by doing so. In solving your management challenges, it is imperative that you determine and implement an optimal portfolio of buffers and variability to get the solution that works best for you and your company.
What are some of supply-chain related challenges you’ve been hearing from folks recently?
Pound: One would be the idea that more data and more data faster does not provide you better control. People have all of this technology at their fingertips and they assume it will get them better control. Our point is that if you do not understand the underlying behavior of your system, putting more technology on top of what you already have will not get you better control. You are whistling past the graveyard at that point. Technology in and of itself is not a solution. A lot of companies do not understand what we call the operation science; they get more technology and just end up making bad decisions faster.
How do you recommend overcoming this challenge?
Pound: The physics component is that, no matter how much technology you have, you cannot predict the future. Past results do not indicate future performance. Some people might think, “More data and more data faster means that I can be completely agile. I’m going to get so much data and I’ll be so tuned in to the market that I’ll be able to manufacture products and have them ready whenever the customer needs it.” This is the same as saying, “I know what to make next Tuesday at 5 p.m. and I know what to make the following month on Wednesday at 3 p.m.” You are trying to predict the future and you just cannot do it. Our approach is telling people to forget about that and to use a performance envelope, which is a range of variability you’re going to respond to in terms of both demand and supply. Then, you can be very predictable about what it’s going to take in terms of inventory investment, capacity, time and working capital you require to address variability. Unfortunately, variability and risk are facts of life and cannot be wished away. Our approach explicitly considers variability and risk. The idea is to determine the best possible portfolio of buffers and variability reduction for your company’s unique market position and your company’s objectives.
When seeking to improve performance, can some leaders be too reliant on using concepts like Lean and Six Sigma?
Pound: Don’t do something just because someone else did it. Look, we are not implying Lean and Six-Sigma are going away. The idea is that companies adopt these programs and do what Toyota and Motorola have done, because it worked so well for those companies. So the thought is, “If we do what they did, we will be great, too.” Our point is that does not necessarily make sense. If you are a machine shop and you are manufacturing products to order, there might be some things that work well for you that worked for Toyota, but doing exactly what they did does not make sense. How is it a strategy to copy someone else? It doesn’t seem particularly innovative from an operations science perspective. Companies need to understand relationships between inventory, time, capacity and variability. Once you understand those, you can build the portfolio of these aspects that works best for your business. You might use some aspects of Lean manufacturing or Six Sigma, but you also want to ask yourself, “What do our customers want? What resources do we have? How can we configure these resources to crush our competition and satisfy our customers?” Create a solution that works for your business—that is where competitive advantage originates.