 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  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  With COVID-19 restrictions closing most offices, many of us had a few months trying to navigate working from home. By now, some of you may have returned to your place of business, and while I am sure it has changed quite a bit to the way things were prior to COVID-19, it is different than working from home.
I am not going to talk about the technical challenges or the furniture and space required of setting up a home office. There have been many great articles written about this and chances are you read them when you first started working from home. I want to discuss how working from home has been for you, what challenges it has brought up, and possible ways of creating a better experience for you now and in the future. Let’s start with one of the obvious differences: Distractions. I am home. My wife or partner is working on his/her own project and occasionally needs my input or wants to share his/her thoughts. What is the BIG deal, right? What about having your kids run around? They are likely home as well and expect to be entertained. Throw in a dog or a cat, and calls from friends and family since they are not working and seek your attention. And of course, one of the biggest distractions – ME. When I’m at home in my own space, “I get to make tea or coffee whenever I feel like it, have a snack here and there, make lunch, watch a bit of TV (just one Netflix episode…), or listen to music or the radio. Oh yes, then there are all these other chores I have on my to-do-list. Why not do some of them since I feel like it and taking care of the garbage only takes a few minutes anyway, right?” In other words, working from home can create the perfect storm when it comes to distractions. It can be difficult to get any work done. Are you someone that is getting easily distracted and pulled away to other tasks and opportunities? Or maybe it is the other way around for you? Let’s take a look at that. While you are typically focused and disciplined at work, meetings and interruptions are frequent. Perhaps working from home is a blessing in disguise. “Finally, I can concentrate on my work without anything or anyone getting in my way. Hey, I might even work 10-hour days. My plate is so full that I could use that extra time to clean up my backlog.” Speaking for myself I can get so focused that all of a sudden, I missed a meal or two, being far away in la-la land and hardly approachable. Being in the zone and deeply concentrating can provide a great amount of satisfaction, however, over a period of time there is a good chance that fatigue and tiredness sets in, if not even burnout. Finding Balance Working from home can be a wonderful thing for both, you and your employer If you can find a way to balance both work and your personal life. Getting sufficient work done to keep your project moving forward, to show good performance, and taking time for yourself, your family, and your friends. Here some ideas you can think about. Answer these questions for yourself. Make a plan, and do your best to stick to it. Present your plan to your loved ones and/or negotiate with them to create a win-win for everyone.
What are your biggest challenges around working from home and how you have been able to make this work for you? I’d love to hear your thoughts or questions, feel free to reach out through the Contact form.  Knowledge Transformation and Digitalization of Supply Chains More and more these days we’re seeing a call for digitalization and AI adoption in supply chains. COVID-19 revealed the weaknesses inherent in global supply chains, and the call has gotten louder. With that, the onslaught of folks pushing their wares has begun…everything from small apps to large enterprise level solutions promising to revolutionize your business and make your supply chain “resilient” or “risk proof”. It all sounds alluring, and awesome. I can’t think of anyone who wouldn’t want to take advantage of anything that will help get their operations back up and running. But as we get caught up in the excitement, we may not spend the time to properly consider options, and consequences. When the excitement wears off, the realities may seem far less appealing over the long term. Why – is it a mistake to look to technological solutions? Did our selected provider lie? Are many of these solutions just gimmicks? The answer is a firm “No” to all these questions. Caveat Emptor Caveat Emptor is the most ancient supply chain principle. It’s Latin for “Let the buyer beware”. It means that ultimately, responsibility rests on the purchaser to check something out thoroughly, perform diligence and investigate all data before acting on a purchase, and if any of this is omitted, then the buyer will likely end up unhappy with the results. Perhaps this concept has become more relevant than ever. At a macro level, our supply chains didn’t fail the COVID-19 stress test because of any lack of digitalization or AI. They failed because of a lack of sufficient knowledge to build strategic and resilient supply chains in the first place. Moving from a macro to a micro level, this translates into operational problems at firms: costs that are hard to manage, expedites and late shipments, shortages in supplies and materials, lowest unit-cost decisions, inability to determine total costs including process costs, and many more. The lack of knowledge, not a lack of technology, places supply chains in a purely reactive state (always too late) instead of it being a strategic asset (always ahead of the challenges). And this is what needs to change before firms will get ahead of the curve - regardless of technology. The good news is that it can change, with leaders emerging everywhere to help guide the knowledge transformation. These are my four steps for firms that are considering digitalization: 1) Get your house in order first Well-built technology tools are absolutely accelerators. However, it’s up to firms to make sure their operations and supply chains are up to the task BEFORE implementation. This is not a new concept. ERP, which has been around for decades, typically requires anywhere from 9 months to a year of whole-company organization before it ever goes live for this very reason. And every failed ERP implementation I’ve ever seen or been asked to correct, has been a direct result of firms short-cutting or skipping this portion entirely. It’s far more economical to get your firm in order first and not expect digitalization to do it for you, that’s not its function. Reputable providers of digital and AI solutions geared for supply chains actually don’t want you to buy their products until you’ve sorted out what you supply chain needs to look like thoroughly and accurately, according to your specific business requirements. Why? As one of them explained to me, “Our solution is a Ferrari. It will accelerate what the user applies it to exponentially. If the user applies knowledge and experience it will do incredible things. If it’s applied to a bad set-up it will become exponentially bad, exponentially quickly, and with a lot of cost. If we sell a Ferrari to someone who doesn’t know how to drive…it will look great and maybe even go really fast for a short while, but it will end up in disaster and our customer will blame the software. We’d rather see the customer be successful and our tools be a part of that success.” 2) Use external parties to give you an unbiased view If you’ve read this so far and said “we’re in great shape, we don’t need to sort anything”, then it’s time to get another firm to do a detailed analysis of your firm to validate what’s real and what’s perceived. Preferably, not the same firm that you will buy your digitalization solutions from to avoid product bias. All firms have built-in internal bias due to departmental metrics, goals, and targets which often may support the individual departments (and even contradict other departments) instead of the business as a whole. The only way to overcome this is to use an external party not bound by any of those metrics (or compensated on meeting those metrics) who can apply an integrated system thinking approach to the business and guide re-alignments where needed without any internal bias. 3) Allow only validated data to guide the technology solution selection If you’ve done 1 and 2 above you’re now in a position to take the validated data and really understand what the core needs of the business are, without distraction of “symptoms” and “fires”. You can now look at solutions that will, when applied appropriately to your specific business needs, reduce or eliminate your pain points and allow you to increase your capacity or bandwidth (depending on the nature of the technology tool in question). Technology cannot ever be a replacement for knowledge in any business. It can however be an accelerator, freeing up resources to allow redeployment of those resources on higher-value functions to support the business case. Expecting technology to help manage your business is a great approach. Expecting it to do it for you leads to trouble. 4) Be mindful of your technology landscape and develop a strategy I once knew of a firm that had 17 different software solutions for different aspects of their business. It was a nightmare. The firm began to hire folks to keep up with the double and triple data entry these separate tools required, and it snowballed from what started as a way to minimize costs, to something that increased their costs 10-fold and nearly eliminated their capacity to actually deliver to their customers. All the while, there was no consistency or accuracy in the data provided by these separate tools. Though this sounds extreme, it can happen more easily than you think, especially among separate departments. The best practice is to develop a technology strategy from the outset. Your technology strategy should work to centralize your data and make sure all areas of the organization are getting the same numbers. Well-tuned enterprise systems are good for this, and they are accepting more “plug-ins” that allow you to add functionality from different providers without decentralizing your data (or access to it). We are truly beginning to see an integrated, system thinking approach where technology solutions are concerned. But we humans still need to do the hard work of selection, implementation, evaluation, management, and adaptation of technology wisely, as we still possess the most advanced technology in the known universe - that which lies between our ears. Technology is neither good nor evil, it is only what we make of it. If we have a bad experience with an implementation or a specific piece of software, we really need to take an unbiased look at the underlying business conditions before we blame the tool. Caveat Emptor.  We’re living in interesting times. Presently, companies of all types and sizes are scrambling to figure out how to survive, and how to successfully restart their operations thanks to COVID-19. Social media platforms have been inundated with information. Some helpful, some, well…not so much.
Just before the pandemic, these same sources were filled with starkly different messaging: You need to go faster, cheaper. You need to buy this software package. Lists of things you need to buy, types of people and consultants you must hire, otherwise there will be world-ending consequences for your business. Then my all-time favourite myth – manufacturing is dead. Well, we all just realized at once, that manufacturing and supply chain are critically important to our nation’s well being and must be viewed strategically, not transactionally. Our economy, our health and our safety depend on it. Recently, I’ve enjoyed the shift in topics to discussions about how business may reinvent itself. I’ve been excited to hear and read about firms taking exceptional leaps, and even how competitors have become stronger collaboratively without giving up their respective competitive advantages. Effectively doing away with symptomatic solutions and focusing on the bigger picture for every business. Over the past 20 years I’ve worked with hundreds of suppliers from mined raw materials to electronics to food to massive capital equipment and everything in between. Yet, one supplier relationship stands out for me as I look back, as having been the most trusted, most reliable supplier I had ever worked with. They achieved this with such a simple approach that required nothing other than effort, and which any company anywhere, could implement immediately without outside assistance. This particular supplier was based in South Korea, and their business provided a technology that was not produced here in North America. There was a bit of a language barrier, but almost immediately from the first contact something became obvious – this supplier demonstrated an unwavering focus on listening to their customers. The first 6 discussions with this supplier around technical requirements and capabilities specific to the project I was involved in at the time, whether by phone or email, resulted in the same answer: “I don’t know.” We don’t ever want our suppliers to say “I don’t know”, right? Isn’t that why we contact them, because we expect them to have the answers and then once they provide them, we’ll decide for ourselves if we agree and move on to the first supplier who seems to have the right information at the right price. Or do we? In business, people feel compelled to give an immediate answer rather than make their colleague wait, or due to fear of not appearing knowledgeable. When we call suppliers, we expect them to have all the answers, even if we haven’t properly articulated our needs, or even if we don’t yet fully understand our needs. These expectations, on both sides of the conversation, set the stage for problems because we aren’t creating dialogue. Instead it becomes a transactional approach, which ultimately won’t satisfy the true needs for supplier or customer as gaps always present themselves down the road. Yet firms of all kinds will do this dance day in, and day out. As it turns out, my favourite supplier of all time almost never had the answers when first asked, and most certainly was not the cheapest. However, they were the most reliable, most honest, and had the best quality by miles. “I don’t know” was immediately followed up with “but here’s what I’m going to do to find out for you,” which was then followed up with action. He would tell me when he would respond with the information and did exactly that - on time, every time. If the question was about deliveries, he would respond on time with specific information, and goods would ship and move exactly when he said they would. If the answer was ever bad news such as “we can’t provide it to you that fast” or “we can’t meet that technical requirement”, there was no sugar coating, no excuses. Just factual information, and then suggestions for alternatives and an openness to seek creative solutions. If the answer ever required talking with someone else, he would set that up and facilitate it. That blunt honesty, followed up with demonstrated commitment to action, still remains (to me) as the most powerful value any supplier has ever offered me. And yet it's challenging to quantify at all if the measure is unit cost alone. However, in this instance I could extrapolate how much time I was saving through clear communication, virtually zero quality problems, and only one late shipment due to a labour strike at a North American port. I could also estimate the savings of avoided late penalties from our own customers, avoided lost time and delayed production, because I was able to accurately plan my own business, manage my own costs and subsequently deliver the same commitment of information to my customers. This supplier absolutely didn’t have the lowest price, and cost accounting and unit cost metrics would have insisted I dump them for cheaper options. But I estimate (with the values I can calculate) that their strict adherence to honest responses, and equally strict commitment to do what they said they would when they said they would, saved my firm 10.5 times over the cost of buying the “cheaper” alternative from other suppliers over the same time period. Today more than ever, companies could find space to survive or even scale in a cost margin that big. And that was just one supplier, imagine how much it could impact your entire supply chain. COVID-19 has caused our world to change daily. While it has been forced upon us, more and more we are becoming comfortable with saying “I don’t know”, and that opens the door for a real exchange of ideas. It sets the stage to build solid supplier relationships that are based on listening and data and not on saying what we think the customer wants to hear which sooner or later ends up costing time and money for both supplier and customer alike. I love the power of “I don’t know” for all the opportunity to collaborate and deliver real customer-focused value that follows that statement. |
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