 I need to start this post with the admission that I am a mechanical engineer and I’ve been as guilty of this as most. I’ve had a good career that has included a fair amount of component and system design and I have learned my lesson; I just wish that I could have learned the lesson sooner.
Designing a new product takes a great amount of creativity and ingenuity. A designer, or team of designers, will develop great new product ideas, often under very short time frames, using what is quick and convenient. And these first samples can be amazing. But making a small number of units is not production. Taking that prototype into production requires a significant amount of additional input. The problem often is that we designers (this is where I’m guilty as well) are smart people and believe we can solve all the problems. If we don’t know something, of course we can learn it. I’ve heard many designers say that they want to have the journey, to learn as they develop the product. There’s a personal pride in being able to deliver a final working product. BUT, there’s no way that any one person, or team, can have all the experience or current knowledge to adequately plan and design for all of the factors that go into successful production. When planning for production, every aspect of the design has to be questioned and weighed against producing in the required volumes, at that right time, and at the right price. It has been my experience that one of the major considerations that gets ignored is that, in production, manufacturing won’t be done by the design team. Everything must be available and go together as simply as possible, the same way every time. The end product can’t need to be ‘tweaked’. There will be long list of stakeholders in production, and they all need to have a say to make the product a success. The design team needs to understand:
And the list goes on. To successfully plan and execute taking a product into production any team is going to have solicit information from elsewhere. There is nothing wrong with asking what will be required, or for bringing in outside resources to provide all of the specialty functions that are only required during NPI. The right time to start asking for help is from the start. The earlier you get input, the quicker you have a viable production plan. The team that developed the product are going to be smart people and could likely learn everything required (given enough time and resources). However, that is very rarely the right answer for a company trying to launch a new product and make a profit.  New Product Introduction (NPI), bringing a new idea to market, is often a much more complex process than expected. In previous blogs, I’ve talked about aspects of taking a product into production like writing a business plan, design for supply chain and design for assembly. The common thread is that this is a multi-disciplinary process. There are lots of stakeholders and to have a successful product, all of the stakeholders must be considered throughout.
The ultimate stakeholder of course, is the customer. This is something that many of us will forget, it’s natural that the engineers, designers, and craftsmen who developed an idea will take pride in their work. But, if customers aren’t willing to buy your product, you don’t have a product. Taking your product into production can often be the first point where the project becomes truly multi-disciplinary. And I don’t mean different types of engineering. NPI is the first time that all the groups in a company must be involved. It’s good practice to include all the stakeholders during ideation and design, that will allow a company to develop better products quicker. But when taking an idea into production, involving everyone in the company is critical. There are a lot of different stakeholders that have a wide array of skill sets (and opinions) and they all need to effectively contribute. finance, sales and marketing, purchasing, logistics, assembly, service, QA/QC all have input to a successful product and must be part of the development process. Managing all of the stakeholders means that the one key role in the NPI process will be the project manager. They may not have that title, but someone needs to consider the entire cross-functional scope of the project while balancing budget, timeline, as well as the needs and capabilities of all of the stakeholders. This is not a skill set that everyone has and randomly assigning the role to part of the team, or worse, dividing the project management responsibilities across the team, can severely jeopardize the project. Early stage companies may not have the multi-disciplinary staff or experience required for a NPI project. Engineers will rarely be good at sourcing, there may not be a purchasing department yet, or they may not have experience with negotiating longer term volume-based supply contracts. The list goes on. NPI is one point where a company should not try to learn by trying. NPI is time sensitive and expensive. It is also not a core function, most companies don’t continually develop products, NPI will be an occasional activity and not something that requires full time staff (and the associated long term cost). Finding external support for missing experience is not a failing, but often the best way to effectively get to the company’s real goal, to get that new product into production. An external firm may be the best option for project management where experienced NPI people can provide support just for the duration of the project. Providing guidance on requirements and timing they can also assist in building internal teams and processes to support production shortening the overall development time and helping to set the company up for success. NPI is all about getting your concept to market as quickly and effectively as possible. For most companies, NPI will be a periodic necessity, and not a core function. Therefore, it is important to consider the current team and establish if there is already a team member who can take on the critical role of project manager for this new product. If not, finding budget to bring on an external firm who can manage the NPI process and allow the team to focus on what they know best – the product and its potential customer – can save money, time, and get that product into production much more efficiently.  In part 3 of this series, I discussed the planning hierarchy and how it can be adapted and used to create both a model through which to structure a supply chain (from both a strategic and executional perspective) as well as how it can be used as a lens to prioritize supply chain activities. Its critically important to have a set of rules or standards around which to compare and contrast strategy and execution. It is the Bill of Materials (or BOM as it is commonly referred to) that sets these standards. Many early-stage companies believe that supply chain begins once the BOM has been established, but this is a critical error. This is because the BOM doesn’t exist on its own. While the BOM informs supply chain of required materials and specifications, it is the supply chain that informs the BOM itself about what it can viably include. Therefore the BOM serves as the bonding point between two iterative functions: supply chain and product design. However, it is important to remember that the BOM as a completed data set is merely the result, and a snapshot in the evolution of that data. It will continue to evolve with the product. The journey to get to a completed BOM is at least as important, if not more important, as the BOM itself. Avoiding unobtanium Throughout my career I have seen failed product launches due entirely to designs that have not been informed by critical factors such as: supply availability of specific parts, international trade considerations (logistics, regulations, customs, etc.), and even social/political/economic factors of either the regions of the materials supplied or the regions where the product is being shipped. That’s because a BOM can only represent what goes into something, it cannot represent why or how. It is in fact the journey of iterative exploration of different materials, parts, suppliers, manufacturing methods and supply regions that informs as to the viability of any design consideration, and invariably will influence design towards the lowest risk options while maintaining the overall functional requirements of the design. Sometimes functional requirements cannot be supported after supply chain research, and this is better to discover early on (as opposed to pre-production). Baking-in materials or processes into a design that are impossible to buy or support reliably (humorously referred to as “unobtanium”) is a recipe for failure. Often however, the design viability can be improved drastically with early iterative interactions between design and supply chain. Part specifications Perhaps the most important part of the process is the creation of specifications for each and every item which will eventually be included in a BOM. This is as equally important to supply chains as they are to product design. In Design, all the components must act together as a system, ultimately focused on the form, fit, and functional requirements of the end product as dictated by the business case. For every item in the BOM, specific requirements must be spelled out including not just dimensions, and tolerances, but also (for commercially available components) approved brands, models, and manufacturer specifications. Even more important still, is the understanding of why all those specifications are required, relative to the greater system in which they are to become a part of. It goes farther to support strategic management of materials and supply strategies, also referred to as “Plan for Every Part”. These specifications are always arrived at through continual trial and error, testing and refinement. In supply chain, its impossible to source products, evaluate potential suppliers, or manage inventories or demands, without specifications. It is those specifications which will measure what will be acceptable, and what will not. For this reason, sourcing is often executed after much or all the BOM has been established. However, this is far too late and ensures delays, and risks failure in the development process. Instead, supply chain must work hand-in-hand with engineering through the design process, considering possible sources, and manufacturers in concert with the engineering effort. Supply chain also needs to engage possible suppliers for advice (particularly for any item made to specification – but not exclusively since “off the shelf” products must also be fully specified and understood) to understand manufacturing limitations and opportunities for efficiency. All of this must be gathered and relayed back to engineering as meaningful data, and engineering can then reciprocate with design iterations that are viable from a supply chain point of view. The importance of revision control Of course, as the design is evolving a tremendous amount of time and effort will be lost if there is no mechanism in place to track the evolution as well as documenting every change and the specific reasons for the change. For engineering, this is the process where all the learning and intelligence (IP) around the product is developed and retained. So it is also true with supply chain, as supplier and component strategies depend on understanding the intimate details (and challenges) of every specific part. Supply chain is sometimes affected by revisions, and other times is the cause of revisions (supply problems OR possibilities of better items/technologies become available) but a complete knowledge of the evolution is required to strategize and optimize the supply chain as well as manage day-to-day operations once in production. Shared ownership is no ownership While the BOM is the connective tissue between engineering and supply chain, responsibility for the BOM, its revisions and specifications lie squarely with engineering. Why? Because the BOM is the stated design intent of all components relative to the end product (or in other words, relative to the system they must work together in). Design intent cannot be shared jointly by supply chain and engineering, nor should it ever be. Likewise, responsibility for supplier relationships, strategies and sourcing methods lie squarely with supply chain and cannot be shared with engineering. These are, in effect the “design intent” elements of the supply chain system and production execution that must produce those specifications dictated by engineering. While both design intent and supply/execution strategy inform and influence each other, anything less than a clear delineation of ownership will make everything run amuck in short order. When creating a supply chain from scratch, the finished BOM is only a snapshot in time. The knowledge generation, supply strategies, and overall viability of the supply chain is made or broken by the journey to the BOM, not the BOM itself. Want to read more in the Creating a Supply Chain from Scratch Series? Click the links below:
Part 1 - Understanding What a Supply Chain is and When to Start Establishing Your Product's Supply Chain Part 2 - Understanding Chaos and How to Work With It Part 3 - The Planning Hierarchy: Unlocking the Path Forward Part 5 - Supplier Management  You’ve created a working design, the next step is to start production, right? The simple answer is unfortunately, no.
Building more than one of anything effectively and efficiently is completely different than building just one. That’s a sweeping statement, but there’s a lot to consider in planning your production. By assuming that you can simply duplicate your initial builds can lead to costly delays, significantly higher manufacturing costs, more frequent redesign, and often considerable post sale costs due to warranty and service issues. Building one or two units of a new product to prove out a concept is a necessary step in new product development. These first builds, or proof of concepts, help to prove that the idea is viable, can theoretically meet the business goals , and should be developed further. They allow for testing the concepts before spending any significant time and resources on engineering and manufacturing. However, those first units are typically hand crafted, often by the engineers/designers themselves, using whatever parts can be found quickly. Taking great care to make and fit parts, they test out functionality and tweak the design to work and hence, these first builds require a great deal of time and skilled labour to build and commission. Once the first builds are complete, there is a lot more work to do before the product is ready to be built in any volume. There are a host of considerations that go into a production ready design based around being able to provide a consistent, high-quality product at volume. The business plan will help identify the quantity of units that need to be produced and when. It should also outline the expected cost (profit) goals that will help determine what can and cannot be considered in production. Custom and Fabricated Parts Most products are going to be a mix of custom fabricated and purchased parts. If you don’t consider how the custom parts are made, you can design parts that are difficult, expensive, or even impossible to make. You need to select your fabricators and work with them to ensure the designs work for their equipment, tooling, and processes. You can craft a lot of things by hand that can not be made cost effectively in production. Ramping up production over time may also require a series of different designs to suit different manufacturing methods. Machining vs. injection moulding a plastic part is a prime example, you have to consider when does the extra capital cost for moulds make budgetary sense for your unique product. Additive manufacturing allows designers to get hands-on examples quickly and can be a great development tool. However, 3D printing is currently not a cost-effective process for volume parts and often produces a part that is significantly weaker with poorer surface finishes than other lower cost production options. 3D printing also allows you to create features that aren’t practical, or impossible, to make with other fabrication techniques which will lead to part redesign. Building Supply Chain Simultaneously with Product Design Supply chain frequently gets overlooked in the early development. However, sourcing the correct parts from reliable vendors that can be supplied at a reasonable price and in the quantities required throughout the lifetime of a product is critical. Not being able to secure a single chip for example, can mean a PCB can’t be assembled which can delay the entire build and a purchased part that gets discontinued can mean a lot of part redesign to accommodate an alternative. Logistics and regional requirements can greatly affect your design. If your product contains batteries for instance, there will be special considerations on how you package and ship your product. There are some jurisdictions that will require information on where all of the parts were made and assembled, and that can affect shipping and sales. It’s crucial that you develop your supply chain as part of the design process (not as a separate activity). Developing your supply chain in collaboration with your product design rather than one after the other not only improves your product design and delivery, but speeds up your time to market. This is a huge topic and we will dive into it further in a future post. Assembly Probably the highest cost of most products will be the assembly. It can also be where the most variability is added to the final product. At the end of the day, every finished product should be as close to identical to the rest as possible, consistency is paramount. Assembly must be as simple and as quick as possible to insure the lowest cost with the fewest quality issues. The first builds take a great deal of time, skilled labour can do anything with enough time and money, but that’s not the goal behind production. Production has to be the repeated building at the lowest cost to meet the sales requirements (business case). To optimize assembly, you have to look at each assembly step and ensure that it can be done as simply, safely and as quickly as possible. Parts need to align well without extra effort, tooling should be easy to use and fastening should be common throughout whenever possible. The entire process must be well documented allowing consistent training and the development of quality control standards. DFx When you have a product idea that can go to production you need to go through the entire DFx process - design for manufacturing, design for assembly, design for test, design for supply chain, design for service before it is truly ready to be made in any volume. Moving from a prototype into production is not a simple journey to navigate and it takes skill sets that are specific to new production introduction. Most companies will need some external support to do it well and efficiently and it’s well worth seeking input early in the process.  There’s nothing more exciting than that aha moment – when the light bulb goes off for a great new product. It’s very tempting to dive in right away and start building. But it’s all too easy to get carried away creating, and forget to consider what a new product must do to be successful.
At the end of the day, a product is going to have to be sellable, someone is going to have to want to buy it. It will also have to make the company a profit and it cannot expose the company to any undue risks. That sounds simple enough, but there’s a lot there to consider and it can drastically affect how a product is designed and built. That first inspiration needs to be weighed against a few very important business decisions to understand if the product is viable, and if so, what are the conditions it will have to meet to be successful. Initially, those decisions will likely be based around market size, time to market and a predicted sales price (potential profit). Those 3 basic criteria are already more than enough to shape the conceptual design. Building a business case to define the expectations for a new product helps to direct the development and avoid costly unusable labour and purchases. It also lets everyone in the company understand what the goals are for the new concept. A new product that doesn’t meet the business goals is not going to be successful. The new product idea may come from anyone in the company. It may be from sales filling a customer need, engineering implementing some new tech, or really anyone in the company. A good idea can come from anywhere, but it’s very likely that no one person will fully understand everything that goes into making a successful product. The more input you get from throughout your company will allow you to build a more comprehensive business case. Typically, when you start to look at the new concept with respect to selling, the idea will change. External input may prove some ideas incorrect or point out missing features. Looking at the end sales volumes and pricing may dictate the eventual manufacturing methods and change the materials, interface, feature set etc. That doesn’t mean the idea wasn’t a good one to start with, it’s just going to help that idea be successful. As the product ideas are developed, the business case will be refined as well. Like every other design document, it will be a living document. There will be more detail around use cases, regional differences, shipping, manufacturing, industrial design, etc. that affect the company goals for the product. Take the time to build a business case for every new product idea. They don’t need to be complicated, start with the basics. With a business case in hand, you can begin to develop the new idea in a direction that has much a higher chance of success. Creating a Supply Chain from Scratch: Part 3 – The Planning Hierarchy: unlocking the path forward7/27/2021
 In part 2 of this series, I talked about the chaos of the very early stages of any company, or product and how to approach that chaos as both infinite complexity but also infinite opportunity. Since its neither practical nor productive to try to create a product or supply chain system that is all things, to all customers, all at once, we’ve got to apply some boundaries to the complexity and opportunity. We need to focus – on the data, activities and risk/reward opportunities that will best bring us toward our goals. Preferably with the least amount of time, effort, and cost wasted as possible. The planning hierarchy is the structure and the lens through which to achieve this. And, as a structure it allows you to apply a System Thinking approach to planning your product and your supply chain. The structure is applicable to any company that produces a physical product, regardless of if they are a start-up, or a well established multi-national giant. The key however, is in how to apply it. To understand that you have to have a relentless focus on your customer, and your business case to provide value to that customer as well as to the business (if the business cannot generate value, it won’t be a business for very long!) The hierarchy is the roadmap, how you decide to get there will determine your operations strategy and the overall success, profitability, and sustainability of your company. The further we go down the planning hierarchy, the more detailed and short term our decisions (and repercussions) become. But each level needs to be aligned to supporting the business case above all else. A typical planning hierarchy (applicable to any manufacturing company) appears as follows:  Applying this framework to a start-up In a start-up (as with any company) things need to be considered from two views simultaneously from day one: how will decisions impact the project/company today, and how decisions impact the project/company tomorrow and beyond. Building a brand-new supply chain from scratch is no different, since project or business decisions made today can have implications and costs that the company will have to bear for weeks, months or possibly for the entire product life-cycle including cost, risk, effort to produce, and agility to react quickly to changing market conditions. For start-ups it can be difficult, if not impossible, to know all that you need to know for success. This is the complexity or chaos I’ve mentioned previously. In order to overcome this, most start-ups will forgo any consideration of supply chain and focus on marketing and product engineering while leaving supply chain to a later date when there aren’t so many variables. In most cases, these firms will invest time and money into developing a product, only to have to do much or all of it a second time to produce a product that can actually be viable for manufacturing and supply chain, that will actually generate a profit, and will deliver measurable value to the customer. This time lag can be deadly to early-stage companies, who will either run out of funding or simply be beaten to market by a better organized competitor. Instead, I argue that the planning hierarchy can be adopted to meet and overcome these complexities during development, not after. And the process will result in a purpose-designed supply chain that develops concurrently with the product. Let’s walk though some ways to apply this.  Business Level Considerations (Annual Outlook/Consideration) At the top of the planning hierarchy, your supply chain must consider the business case. The business case is the anchor. If this isn’t solid, anything tied to it will be no better. At the top of the planning hierarchy are the long-term and broad concerns to be responded to. Long term considerations:
While nobody can expect to understand these elements fully (especially sales forecasts) for a new product or for an early-stage firm, it’s worth mentioning that they need to be understood as well as they can be and be constantly challenged when new information is available. The business case grows and matures in this way, and the complexity of the supporting planning hierarchy will grow and mature accordingly to support it. In the planning hierarchy, these are usually annual considerations since to change direction in any of these elements requires a major reworking of all supporting systems. It is also important to note that this is why supporting systems should be no more complex then necessary, for maximum agility in times of crisis.  Operations Considerations (Shorter term, typically monthly) Once the business case is identified, vetted and validated, product development can begin in earnest. There may already be some napkin sketches or even conceptual models, but now all that must be tempered with the requirements of the business case. The development will look up to the business case and also any available feedback from potential customers or markets as a guide. Operational considerations:
Inputs and outputs here can, and will, change more frequently than the business case, especially in product development because new information is learned as the development cycle progresses. In a production environment, this is a monthly exercise. But in a start-up, it should be considered at any decision affecting the product development and design. A criticism I have often heard is “why spend that time for things that are only conceptual, isn’t that waste?” The answer is a firm no. All of this work, if documented, becomes your supply chain knowledge base specific to your product and it will inform both your design and your supply chain strategies as you go. It will orient your products and your operations towards viability at first, and competitive advantage over the long haul by steering you clear of pitfalls and avoidable challenges.  Detailed Production Considerations (Weekly) In production, this level of detail is a weekly review cycle, but in a start-up, it becomes something completely different. Start-ups that are just developing their products aren’t engaged in capacity planning or master scheduling of production. Instead, consideration needs to be given to how, at a detailed level, your product will be produced based on the development done to date. Detailed production considerations:
Figuring these out post-development is far too late, and will force a re-do of much (or all) of the development cycle to re-align with the realities of supply and resources, before any real production can happen. The opportunity here for a start-up, is to really research what resources are available and weigh cost against value. This is where you can build your database of who is out there, and what they can offer and share that with the development team. Its also a good opportunity to build relationships and vet ideas with potential manufacturing or supply partners who are subject matter experts. This is where the heart of your new supply chain – data guided by knowledge, will start to grow.  Daily Execution Considerations At the bottom of the hierarchy is all the detailed day-to-day considerations of producing your product. In production, this would include daily activities around the shop floor – scheduling machines and people, daily material consumption and replenishment, as well as shipping and receiving (both your finished goods to customers, but also incoming supply of materials) to name just a few things. Ultimately, the details at this level will determine your profit margin, your quality, and your ability to satisfy the customer. In many ways the work done at higher levels will frame how effective work at this level can be. For a start-up, this can be applied as additional detail to the elements already described when considering specific aspects of the design and how it will be produced in scale. Considerations for daily operations:
Bringing it All Together This is just the beginning. There is more that can be done to apply this hierarchy to a start-up, in order to streamline development and build a viable supply chain concurrently. Much more in fact than I can touch on in a short blog. But hopefully this illustrates how this framework can serve to cut through complexity and unlimited variability inherent in start-ups with a repeatable, scalable supply chain structure that can grow with the firm and guide the product development towards successful execution, by designing and developing with the end in mind the whole time. The effectiveness of the end result be governed by your supply chain, for better or worse. They key to remember is that it is never too early to start this process. Want to read more in the Creating a Supply Chain from Scratch Series? Click the links below:
Part 1 - Understanding What a Supply Chain is and When to Start Establishing Your Product's Supply Chain Part 2 - Understanding Chaos and How to Work With It Part 3 - The Planning Hierarchy: Unlocking the Path Forward Part 4 - The Bill of Materials - The Journey is At Least As Important as the Destination Part 5 - Supplier Management  Prototype seems to be one of the most misused words in manufacturing. An early working example of a concept is often referred to as a prototype; however, a prototype is actually the final design on which the manufacturing is patterned, the last design before you start to manufacture in volume. From Webster’s dictionary “a first full-scale and usually functional form of a new type or design of a construction”.
This early conceptual design is a proof of concept and is a totally necessary step to show that an idea is valid, determine if there is sales interest, and to test engineering ideas. Too often though, we see companies come up with a conceptual design, build a proof of concept and believe that the design is done and that they are ready to take the idea to production. Conceptual design is very much a creative activity and creativity cannot always be rushed. However, if the requirements of the product are well understood, knowing who the stakeholders are and what constraints must be met, conceptual design can avoid many issues. Creativity, however, does not negate good planning. Lean principles can still be used to plan and efficiently execute conceptual design. A good proof of concept needs to test if the potential product merits development. It will likely help determine how the final product will look, what features are required, and how they all fit together. It’s a learning step to help specify the product. There could many iterations, and it will focus on defining and confirming the requirements, but not on how it will be built. The final proof of concept should define the product requirements. The next step is to understand how to turn it into a product, something that can be built in volume repeatedly. Prototype design will take that conceptual design and figure out: how best to fabricate custom parts; what purchased components are suitable, available and at what cost; and how to assemble, package, ship and service the product. The necessities of cost and schedule will often dictate how much of the proof of concept design has to be modified. The final product will likely be a set of compromises from what was envisioned to what is practical. Both steps are essential. Both steps require different skill sets and input from different stakeholders. They both take time to do properly. So, it’s natural to want to skip some or all of the process, especially in a young company where budgets are tight. Every idea needs to be fully defined and vetted to ensure it meets the business needs. It’s the prototype that defines the final configuration and how that idea can be built and sold - and how profitable it will be.  In part 1 of this series I discussed some fundamental ideas and approaches required to start from scratch and build a supply chain system. If you take those to heart, you will find that you are immediately confronted with incredible, unlimited complexity and variability around what to do next. I call this chaos, that which is unknown, impossible to know, and virtually impossible to plan for. In an early-stage company, or at the earliest stages of any product development, chaos is all that exists. Chaos can present itself to organizations as:
We are told that we need to plan, set rules, buy technology, and invest capital with the promise that we will eliminate chaos. But how do you eliminate that which is unknown and impossible to know? Embrace the chaos We are taught to view chaos as a bad thing. I argue that creativity in its purist form is chaos, and no innovation or leap of progress can be made without it. A music composer takes infinite complexity, the unlimited chaos of sounds, colours, and emotions and blends them into a masterpiece. Successful businesses don’t spend much time trying to avoid chaos, instead they manage those things that are within their control and build processes that can respond ever quicker to changing complexities and those things they can’t control. Life is chaos, to attempt to live life chaos free is futile. If you are at an early-stage and building a supply chain from scratch, then you owe your very existence to chaos. Your new firm or product idea was born because existing companies or products failed to respond to some changing need, some complexity, some type of chaos. It is up to us to embrace and harness the power of chaos. A balance between order and chaos In part 1, I mentioned that you need to focus on those things which you can control. Those controls are required to ensure that your firm operates consistently, predictably, with known costs, benefits, and measurable progress for any given activity. In supply chain, this means that there is a hierarchy or universal organization of elements which must exist (and must exist as an interactive system) before any of those elements can function well. Back in the day, we referred to it as “the planning hierarchy”. My former professor and mentor, the late Lloyd M. Clive (co-author of the seminal book “Introduction to Materials Management”) used to tell me “tattoo that hierarchy onto your brain, and you will be able to navigate any conceivable supply chain challenge". After 20 years of testing that assertion, I can confirm that he was exactly right. However, and this is critical, this structured approach should not be applied to prevent chaos. Instead, consider that it is required to bring your focus where it needs to be to consistently and predictably manage what is known while also harnessing chaos by providing a system flexible enough to learn and adapt on a dime. Processes for process’s sake – an unmeasurable waste I have seen countless firms build process upon process, implement technology upon technology, in order to “improve performance” without consideration of the overall business case, or without a system thinking approach. This approach is flawed. The inevitable outcome is a strict, inflexible set of policies and processes which do the opposite of perform, they absorb capital and time (an unrenewable resource) and most often end up existing for the sake of existence. We’ve all just witnessed a great example in real life with young start-ups pivoting to fill PPE needs faster than the well-established firms could react, and go on to prevail in delivering value to their customers. Start-ups are full of chaos (unlimited complexity), while mature firms are full of order (constraints applied to reduce complexity). But its chaos that demands order to constantly evolve. The planning hierarchy need not be complicated, in fact its better if it's not. It should be continuously measured and reviewed against the business case, to ensure that it is controlling that which can be controlled, predictably and reliably. And the business case should be continually measured against performance to the customer needs. Anything beyond that is waste. Early-stage firms will require only basic elements in their planning hierarchy, and if any of them become more effort to manage than the benefit they provide, you have to consider that it may be going too far. Consider Continuous improvement, a well-known (and important) part of effectively managing process. But if there is a shift in the business case, or processes are no longer supporting the business case (ex. dominant focus on local-level performance metrics instead of system-level) firms are at risk of creating more waste in continuous improvement instead of improving performance. Dr Russel L. Ackoff, a pioneer in System Thinking once said “Continuous improvement isn’t nearly as important as discontinuous improvement.” And indeed, he was right. Discontinuous improvement is chaos. It is step-function change, as opposed to gradual ongoing improvement. It’s also the ability to pivot and adapt quickly when conditions or requirements change unpredictably, or when the customer demands it. For early-stage companies, the adoption of process controls and best practices is not nearly as important as adaptation of principles to the specific situation of the firm or the product. Putting it together I usually tell those who are building a supply chain from scratch, to embrace the chaos but keep that seatbelt on. Process and a hierarchy are required to reduce the chaos to manageable terms, but the key is to adapt these to the firm's needs, not to adapt the firm to the process needs. If viewed with a system thinking mindset, the task of balancing chaos with order will be dictated by how well the firm understands and delivers to its customer. Chaos allows the firm to be creative, and well-developed order allows the firm to quickly adapt to changing conditions with greater speed, ease, and repeatability However, it’s critical to remember that the customer is the most important part and process must never consume more than the value it delivers. In my next post, I’ll explore the planning hierarchy in detail and how it becomes the foundation for any firm’s supply chain (and operations), and how it can be adapted to early-stage firms. Want to read more in the Creating a Supply Chain from Scratch Series? Click the links below:
Part 1 - Understanding What a Supply Chain is and When to Start Establishing Your Product's Supply Chain Part 2 - Understanding Chaos and How to Work With It Part 3 - The Planning Hierarchy: Unlocking the Path Forward Part 4 - The Bill of Materials - The Journey is At Least As Important as the Destination Part 5 - Supplier Management   As applied to organizational improvement, system thinking is grounded in the following fundamental principles:
System thinking takes a birds-eye view of how the firm is employing the resources it has invested in in delivering value to its customers. System thinking posits that a firm’s resources do not operate independently, but work together in an interconnected and interdependent fashion, not unlike the musicians in a world class symphony. System thinking focuses on aligning and synchronizing the flow of activities among and between each resource as they collaboratively work together to create and deliver ever-increasing customer value. When should we use a system thinking approach? Any organization interested in improving its operational and financial performance should employ system thinking. System thinking is a different way of viewing and thinking about how your organization creates value for the customers that buy your products and/or services. In a business environment, system thinking focuses on delighting the customer by significantly improving flow in the value creation stream in your firm. The focus on customer value creation distinguishes system thinking from conventional cost-driven management approach. Simply stated, cost-driven management breaks down the organization into its individual resources, products and services, then focuses on driving down or optimizing the cost of each resource in isolation. Unfortunately, this approach not only results in sub-optimal system performance but also ignores the only part of the system which generates cash inflows and future growth, the customer. System thinking as a best practice focuses on aligning and synchronizing the activities of all resources in a system. In the process, waste is eliminated, lead times are shortened, labour is freed up, capacity is released, costs are reduced, operational and financial performance is improved, and the firm becomes increasingly competitive. This approach will also effectively reduce a firm’s carbon footprint by reducing the production of greenhouse gases through the elimination of wasteful non-value adding practices. Organizations are constantly facing new challenges, and the future is unknowable. The current pandemic adds additional layers of complexity and volatility into an already challenging hypercompetitive marketplace. As a manager or business owner it can be overwhelmingly difficult to determine what the next step should be for your business in this increasingly complex environment. System thinking helps clarify and simplify the way forward. If your organization is struggling with any of the following issues, system thinking can help.
BKW’s Business Alignment Program BKW can help you resolve the challenges you are facing, and help you insulate your firm from the myriad of complex challenges you are faced with every day. Our Business Alignment Program based in system thinking is a proven approach. It will help you to identify hidden opportunities, release untapped capacity, and improve your business’ resiliency. If you are a small to medium sized manufacturing firm and anything you’ve read above resonates with you, we can help and would like to hear from you. Please click the link below to provide us with some preliminary information and BKW team member will contact you to discuss how we can help. Click here to contact the BKW team.  “How do I establish a supply chain? What are the most important elements of a supply chain for a start-up or early stage company? How can I build supply partners when I don’t have any volume yet?” These are the most common questions that I hear from start-ups and early stage companies, and they are excellent questions! How do you create a supply chain when you have very few people, minimal resources, low volume, and next to no budget? In Canada more than 90% of our manufacturing firms are Small and Medium Enterprises (SMEs), and that number is growing rapidly. Unfortunately, most supply chain discussions and methodology are focused on improving already existing operations for larger firms, often with more capital and higher volumes of production than the majority of SMEs. As an entrepreneur, this is incredibly frustrating. From a supply chain perspective, a business that bases its revenue on producing tens and hundreds of something can be harder to manage than continuously improving an established supply chain that has scaled to mass-production due to the extreme variables in cost, time, customer and supplier terms, etc. Although, with the onset of COVID-19, even the well-established methods being put to the test. Shifting consumer values and economic conditions are changing the way companies produce - high-volume, low mix/value production is giving way to low volume high mix/customization/value products and services. Here in Canada, we are well positioned to be global masters of low volume, high value products. Products in this category include items such as mission critical medical devices, scientific equipment, and consumer goods designed for a market where longevity, quality, and sustainability are prioritized over cheap and disposable products. However, this model is infinitely more complex with far more variability than traditional high-volume manufacturing. Building a supply chain from nothing is an entirely different science than anything that applies to the mass-manufacturing world. Today I’ll give you my 4 best tips for establishing your supply chain. 1) Focus on What You Can Control If you find yourself in a company that’s establishing a supply chain for the first time, then odds are that you have some sort of business education or career experience. You may have formal supply chain training, as I do. If that experience has been focused on well-established supply chains, you may find starting from zero to be an overwhelming proposition. Worse, if you are rigid in “how it should be done”, you may find that it’s almost easier to forget what you know than to try to determine how to apply it to completely different circumstances. Traditional standards and best practices from large or well-established firms and/or mass manufacturers are often just not practical for early stage or low volume/high value producers. Today with COVID-19, business conditions can change hourly (forget daily) and that level of variability can’t be met with incomparable past experience. So, the first step is to shift to a mindset that doesn’t try to control variables that we can’t (with incomparable experience) and instead focus only on that which we can control. We do this through system thinking and evidence-based decision making. 2) Understand that Supply Chain is not a thing or a standard, it’s a result that is dynamic and constantly changing. Supply Chain is a result, not an independent function or activity. It is the result of several cross-functional business processes and how well (or not) they work together. You can’t build or refine a supply chain as an individual entity; you must build better business processes and integrate them with a system view (focused on the business case and delivering customer value - or not producing anything customers aren't willing to pay for) which will result in better supply chain performance including resilience and agility. That’s not to say that supply chain will “build itself”, but rather what you do build as supply chain can only be as good as the business processes to which its connected, and all of it only as good as the whole-system view and value chain. This is why Supply Chain is a strategic function, despite common ideas that it’s a transactional or administrative function. Supply Chain is the ultimate measure of your overall business system in real time, and your focus on delivering value to your customer. 3) Supply chain begins long before you have a physical product. I’ve often seen firms get a working prototype and announce that they are now ready to consider supply chain and manufacturing, only to find out that much of the work they have done must be undone and redone (at the expense of time and cost) because what they developed is not manufacturable or able to be supported with supply in the volumes, costs or quality required. The resulting delay to market or unplanned capital requirements can be deadly. In reality, your supply chain considerations begin sometime after someone has a product idea but before its first iteration is scribbled on a napkin. You need to have input from professionals within the various disciplines that are collectively called “supply chain”. As a new product idea iterates from vision, to napkin, to proof of concepts to pre-production prototypes, the supply chain iterates also and in parallel. To me, it can’t be anything other than a fully integrated development cycle. While the product designers, engineers, product managers, marketers and sales team are working to create a product that a customer is willing to pay for, supply chain folks (sourcing, purchasing, logistics, materials/inventory/production management) as well as potential suppliers (for individual products, or contract manufacturers) must weigh-in to advise what is possible to produce within the constraints of cost, materials availability (short and long term) lead time, as well as international trade concerns, shipping regulations, quality standards, etc. The supply chain begins as an evolution of an idea, grown by the acquisition and validation of information and resources that are ultimately tuned to the business case and customer demands. It identifies areas of risk, and often facilitates negotiation and trade-offs between different areas/interests in a firm to arrive at the best and most viable outcome from an execution point of view. If all the functions involved have done their due diligence along the way and validated customer needs against identified constraints of delivering those needs, the end result will a manufacturable product that provides value the customer is willing to pay for. It is important to note that there are two customers to consider - the external customer who buys, and the internal customer who depends on information. Access to these professional skill sets can be tricky for early firms, in many cases it can be far more economical to hire professionals on an as-needed basis so long as you understand how to properly integrate those resources within a system thinking framework that supports your business case. 4) Remember Everything You’ve Learned but Keep an Open Mind While in step 1 above it may have felt like it would be better to forget everything you know, in this step you may realize that you have the opportunity to apply portions of your past experience that (with testing, modification, or improvement) may be adaptable to this new product or business case. And other portions may be completely inappropriate to the specific business case and should be left behind. But until you are ready and willing to throw it all out in favour of a wide-open mind, then you are subject to the same old enemies of progress: “I’ve always done it this way”, and you cannot see the opportunities that lie hidden in the knowledge gaps that everyone has, which are uncovered through collaboration. This shift in mindset is the single biggest factor that will make or break a young company or product, because it limits one’s ability to adapt old knowledge with the present conditions, and create new knowledge and experience that is highly relevant to the firm right now and down the road. While it sounds trivial, its actually harder than one may think. In a future blog, I’ll discuss the most important functional elements required to establish a supply chain system from scratch, in any firm. Want to read more in the Creating a Supply Chain from Scratch Series? Click the links below:
Part 1 - Understanding What a Supply Chain is and When to Start Establishing Your Product's Supply Chain Part 2 - Understanding Chaos and How to Work With It Part 3 - The Planning Hierarchy: Unlocking the Path Forward Part 4 - The Bill of Materials - The Journey is At Least As Important as the Destination Part 5 - Supplier Management |
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