Andy Avery is a self-described Supply chain generalist with experience in Sales, Marketing, Demand Management, Inventory Management, and Master Data. He is APICS and IBF certified, and teaches classes that lead to certification by APICS, the association of operations management.
Bill: What do we mean when we talk about Supply Chain Management?
Andy: Well Bill, the supply chain is that integration of process steps and activities that exists to convert raw materials to usable products available for end consumption. It’s sourcing and buying raw materials. It’s planning to have those raw materials available for production at the right time to serve the customer’s requirements. It’s moving and storing the raw materials and finished goods. It’s matching the customer’s demands with capacity and production, and it’s distributing the finished goods out to where the customer has told you they will take possession. The business components of the supply chain are procurement, logistics, warehousing, operations planning, inventory deployment, customer service, and demand management. Some systems support functions may also be located within an organization’s supply chain.
So as you can see, it’s a complex and extended set of functions that have to integrate seamlessly to delight our customers
Bill: How does one plan a supply chain?
Andy: In its simplest form, an organization plans only its own supply chain. Only those things it can control. In more complex models, we integrate the supply chains of supplier(s), manufacturer, and customer(s).
Take Bobby’s lemonade stand as an example of a simple non-integrated supply chain. In an unplanned supply chain environment Bobby would set up on the sidewalk. Jimmy would ride up on his bike with fifty cents and a powerful thirst. This demand would surprise Bobby, so he’d run into his house and ask his mother to go to the store and buy him a lemon, a few sugar packets, a bottle of water, a pitcher, a cup, and a spoon. Mom would run out expending time and gas, and get enough materials to service Jimmy’s requirements. Jimmy is long gone down the block to Jennifer’s lemonade stand when mom gets home.
This is a dysfunctional supply chain, but it illustrates the tradeoffs. If Bobby had inventory of his raw materials, he would have capital tied up, but he would have been able to get the sale. Additionally, if Bobby sent mom to the grocery store every time he had a customer, this would be some VERY expensive lemonade.
So we predict demand through forecasting. We schedule the procurement of our materials so they’re all there when the next customer needs their lemonade. We might choose to “make to order” by squeezing a lemon (in stock) into water and add sugar each time a customer came to the stand. Or we might choose to “assemble to order” by having a pitcher of lemon and water available, and sugaring to taste. This would be quicker. Or we might choose to have lemonade in glasses stored on the table. This would be “make to stock” and the quickest delivery of the finished product. This is a simple supply chain.
Bill: What are some of the complexities we need to know about?
Andy: In the world of manufacturing, we usually have options. We aren’t selling just a single refreshing beverage in one size to one block of customers. We are selling different sizes and shapes of widgets all over the world. Perhaps we’ve expanded into doo-dads as well. So our limited resources need to be appropriately allocated.
It is rare when the functions of an organization all agree independently to the proper allocation of resources. Sales probably wants a lot of inventory so products are readily available for sale. Lots of widgets. Finance probably wants enough widgets to meet demand so we don’t lose profitable sales, but no “insurance widgets” for that “what if” order that sales desires. Manufacturing wants to make widgets for weeks at a time because longer runs means fewer changeovers and setups of their work stations, so the system is more efficient. More widgets made per hour. And on it goes. Each function has very valid reasons to want a different plan of action to serve the customer. Resolving these often competing valid strategy choices is complex.
In addition to those operational strategies, there are complexities involved in sourcing the raw materials needed to produce widgets and doo-dads. Do we want a single source of supply where we can get volume discounts? Or would we rather have multiple sources competing for their share of our business? On the flip side, once we’ve sourced the raw materials and built our widgets and doo-dads, how do we want to go to market? Do we want to distribute through local warehouses selling to local widget stores, or do we want to distribute over the internet served from a large central widget warehouse? There are costs and benefits to all of these decisions that need to be analyzed.
Bill: How do companies wrap their arms around this complex management process?
Often companies will use a process called “Sales and Operations Planning” (S&OP), or sometimes called “Sales, Inventory, and Operations Planning” (SIOP). We’ll use S&OP for brevity. In its simplest form it starts with a demand forecast created by a consensus of opinion from sales and marketing within our own organization.
This is handed to the Operations Planning team who will run a simulation of this demand through the various process steps in the factory considering their rates of production. They will determine whether the 100 widgets we’re planning to sell this month can in fact be made given our capacity and the alternative competing plans we have to make doo-dads as well. The result may be that the sales plan IS valid, and can be completed. The result may be several different options to complete that sales plan, each of which have benefits and costs associated with them. Or it may be that the sale plan cannot be supported due to insufficient capacity.
These results and options are passed to finance who will be charged with telling the organization how profitable each option is.
This whole process happens for many months out in advance. I’ve seen S&OP processes that look two and three years out into the future. I’ve seen them that look at the next 6 months. Normally they fall somewhere in the middle, at around a year or a year and a half.
Then every month the executives of the organization representing sales, marketing, finance, operations, manufacturing, R&D, and any other relevant department will meet and evaluate the options and choose the path forward which they believe by consensus will best serve the organization. This is a rolling process, involving continual replanning.
Bill: You teach supply chain. Specifically who are your students and what do you impart to them?
Andy: I teach a body of knowledge created by APICS, the association of operations management. APICS is a highly regarded supply chain professional society that offers two certifications for supply chain professionals and practitioners.
CPIM is a five module course of study that includes the basics of operations management (the part of the supply chain that is chiefly internal to the company) and production scheduling which is figuring out when and where to build widgets and doo-dads to effectively meet the sales plan. Once a student knows the basics, and master scheduling at the level of widgets and doo-dads, they need to be able to know how to schedule the components that make widgets and doo-dads. This is detailed scheduling, the next module of CPIM. Once we know the detailed schedule at the raw material and component level, we need to be able to prioritize orders going through the factory. Are we planning the right orders at the right time? Are we executing to plan? Are we planning in such a way that stresses the capacity of specific work centers? This all used to be called “shop floor control”. It’s now called “production activity control”, and I teach those skills in a module called Execution and Control of Operations. And finally we finish with a module that ties it all up in a bow. The first four concentrate on “what to do”. The last concentrates on “Why are we doing this? What is our overarching strategy?” It’s called Strategic Management of Resources. The combined five modules of CPIM is by far the most popular course of study. In general it takes about two years for a student to complete.
I am branching out into other courses of study as well. Certified Supply Chain Professional is a certification course which expands the supply chain outside the organization, and gets more involved in choosing supply chain options, integrating supply chains with your customer’s supply chains in order to realize efficiencies and cost savings, and also integrating your supply chains with your suppliers supply chains to achieve the same sort of benefits. Information Technology issues are also discussed in this course of study as integrated computer programs are becoming more and more common in order to manage the complexity of supply chains. It’s important to know enough about how they work to speak intelligently to the technical people and consultants who will often set them up to support your business.
I also teach a “mix and match” course of study called “Principles of Operations Management” where organizations can hire me to do a deep dive into problem areas they’d like to improve. For instance if an organization feels they are inefficient in the inventory plan they have to support their business, we might look to a ten week course in “Principles of Inventory Management” to get their team into a deep look at the options and processes available to best match their inventory deployment with their customer’s requirements.
My students are primarily working professionals in supply chain at all levels of seniority, who are looking for either certification or depth of knowledge and subject matter expertise. Having said that, I do teach the occasional academic (non-professional) student who is trying to augment what they’re getting in college with what they’d be faced with out in the planning departments of the real world. A great idea and I applaud those young men and women for that kind of proactive career management.
Bill: Very interesting. Do you consult?
I am available for consultation on a short term basis, so long as it features a strong learning component. It’s of very little value for me or to the organization for us to apply my experience and subject matter expertise to fix a known short term issue, then have me walk away if the people who are going to be hands on don’t know what I did or why I did it. The best kind of consultation is for me to get into the planning offices and onto the shop floor, to work with the people who make the product or plan the product or ship the product directly, and to see if we can surface the root causes of the issues they need resolved. Once we’ve done that, we’ll use the “mix and match” body of knowledge and develop a training program around that particular issue. I’ll also work with the management team to develop written processes in support of our solutions, and key performance indicators and metrics to measure the results once the fixes are implemented.
Bill:What is the “state of the nation” for supply chain today?
Andy: Supply chain has never been more critical to the success of business. In today’s consumer savvy marketplace, “quality” might be job one (Ford), but it’s a given. You no longer win the order on quality. Consumers don’t let you even play in their sandbox if you don’t have a minimum level of quality.
So many companies now are faced with competing in the market supply chain versus supply chain. Nearly all competitors have a high quality product. Who can get it to me fastest, cheapest, and with more flexibly? And these are all in “the wheelhouse” of supply chain management. I believe it was Bill Gates who said “The large don’t eat the small. The fast eat the slow.” Dead on, and why supply chains matter. Velocity makes money.