The Infosys global supply chain management blog enables leaner supply chains through process and IT related interventions. Discuss the latest trends and solutions across the supply chain management landscape.

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September 23, 2010

Convergence of IT & OT - an intelligent Asset Management

Gartner & many other analysts have written about "convergence of IT (Information Technology) & OT (Operational Technology)" in past. Here i would try to explain how this convergence would result into intelligent assets, considering some recent industry developments in asset management space like (i) maximo being integral part of IBM's smarter planet theory and, (ii) ABB's Ventyx acquisition. 

5-7 years ago EAM packages were kind of standalone packages where the assets in focus were primarily the heavy production machines or transport assets. Though EAM packages & SIs implementing them had capabilities of integrating these packages with SCADA, Distributed Control Systems (DCS) etc to get the maximum out of the implementations, but not many clients were able to truly leverage the benefits emerging from these integrations; mainly due to lack of maturity towards softwares, packages & IT systems within the operations & maintenance (O&M) departments. Before someone starts building opinion about maturity of O&M departments, let's also understand that O&M departments have to be managed with utmost precision and a slightest mistake could be a matter of life & death, as against the jobs done by white collar folks where they easily get a chance to correct their mistakes without critical losses. Hence, the O&M folks really needed compelling reasons to go for a flawless integrated system, hence the reluctance. 

Another reason for not fully leveraging the integration benefits was unavailability of a single package managing both heavy assets & operation assets (sensors, servers, network switches etc).  Now IBM's efforts of brining all sort of assets in maximo seems to have taken care of this issue. IBM's recent relationship with Drawbase is another step in making maximo to handle facility management effectively & efficiently. I will write more on facility management in my next blog. 

Asset intensive companies can reap immense benefits by integrating asset management systems with their distributed control systems. The signals as generated by control systems can be utilized by EAM solutions and prevent the machine failure thus saving lives, time & money. Some of the simple examples could be increase in room temperature automatically & systematically notifying the users and shutting down the servers; dispatching & scheduling of transport assets based on telematics. I very fondly remember the demonstration during Pulse 2010 event where Tivoli team made an interesting demo showing how potential service interruptions could be prevented using smart sensors & GIS systems integrated with maximo. 

In last 3-4 years, things have changed quite a lot which have paved the way for a successful convergence of IT & OT in asset management space. Many new developments have taken place resulting into renewed focus & awareness about it, mainly:

(i)            IBM's Smarter planet PoV which goes by the fact that by end of year 2010 there would be a billion transistors per human on the earth; The technology is being embedded into billions of devices & machines; making them smart & they can speak about themselves. This means that almost every machine on the earth can indicate the problem, it has or going to have in future, in a readable or traceable way. Though certainly, it would take time, efforts & money to enable them fully but the results would be far reaching & beneficial to all. 

(ii)          Ventyx's acquisition in May-2010 by ABB should result into a closely integrated automation system. ABB will merge Ventyx's Asset Management system Indus Passport along with other Ventyx's solutions into its Power Systems division to deliver an integrated asset management solution to strengthen its smart grid solution. Indus passport has continuously been in top three best of breed EAM packages and has a sizable user base; predominantly in power generation sector. This combined smart grid solution would open the doors for newer synergies between the IT & OT. The impact of this acquisition would just not be restricted to ABB's or its client's benefits but would be also beneficial to a larger community, generating interest in these kind of solutions. It would be interesting to see how ABB combines & delivers this solution which makes assets intelligent.

These developments along with increased awareness & technology advances would result into intelligent Asset Management systems which would further increase the reliability & availability of assets. A speaking machine may look like a dream now but the days are not far when maintenance teams would be able to maintain no-downtime machines and operations teams would use those machines 24X7 to the maximum possible capacity with utmost precision & safety.

September 16, 2010

Managing procurement for Projects

With variety of projects going all around, it is becoming very difficult to track procurement activities. Projects with varied nature like Investments, Marketing, Customer Projects, Services and IT Projects have different tasks and their tracking of procurement tasks is different . Procurement experts view:
"Project procurement management begins at the point when the new project is initiated and detailed decisions are starting to be made as to what portion of the project will be performed with one's own staff, and what portion will be sent to another company for performance."

On deciding what the project will procure: "You do not procure a complex new item without having a precise technical definition, and that job will
be assigned to the technical staff, not to the buying staff."
There is perhaps no single issue more critical to successful project procurements than the early assignment of technical responsibilities without adequate knowledge many engineers write a procurement specification which leads to strained relationship between an engineer and buyer. So the major challenges for procurement professionals are reducing project cost, schedule, and quality risks.
The approach to acquire all these is acquisition management and contract management. In a typical complex project, numerous and large acquisitions; multiple subcontractors; diverse requirements and administration are required to cater to all these stringent area of definition should be defined to consolidate the requirement of complex project.

The key areas that should be looked upon when dealing with project procurement are:
1) Procurement Planning - This is one of the most important activity where identification of all contract actions should be clearly defined, understanding business requirements and objectives, estimating fluctuations of currency, lead times, realization of upfront issues, and risk management actions; obtain approvals from the stakeholder with a complete plan for better supplier negotiations and use peer review to verify realism and identify
additional risks.
2) Procurement Process - Using knowledge of project management for analysis to budget and schedule for procurement tasks will help to define requirements, establish contract types, write SOWs, generating sourcing base to develop selection criteria enabling you to create a contract from an RFx, auction, or master agreement and establish contract administration between a purchasing enterprise and a supplier, by dictating buying, payment and delivery terms over time. Clauses containing variables that are automatically replaced with terms and other detailed information taken directly from a sourcing like RFx or auction or from a specific agreement. These features enable streamlined contract creation that saves time and eliminates repetitive tasks
3) Procurement Liaison - The key for establishing a connection is by having a dedicated procurement official integral to project team who will review and approve procurement plans and assumptions.
4) Contract Administration - Managing and administrating this contract is the key by establishing project office function to track contract modifications, deliverables (receipt, review, comments, and acceptance), and contract correspondence; establish subcontract management role. This will help to track cost and resources for a specific project activity
5) After the contract has been closed the quality and quantity of the supply of products and services require close monitoring to support its clients in order to realize the most important success of the procurement process: supply in accordance with contract conditions, both on time as well as technical aspects.
6) Aftercare - Reliable aftercare and administrative follow-up are important for the success of the procurement process too, employing experts from the financial and legal settlement of purchases. Moreover the performance of the suppliers is evaluated and, where necessary, adjustments are accomplished. offers these services, taking responsibility for either one or more parts of the scope, both in a managing, guiding, coaching and supporting
role, depending on the requirements of the client.

With all these prominent areas, procurement management success is gauged by its savings, and delivery acceptance

September 9, 2010

How to set your Safety Stock Policies?

Every distribution warehouse in supply chain network holds inventory and has some safety stock maintained. How much safety stock or inventory should be kept at each warehouse is the topic I am going to address in this blog. In fact my focus will be on one common mistake that is made in the process of setting inventory and safety stock norms.

Products stored in the warehouse are categorized using some logic and inventory / safety stock policies are based on this categorization. Multiplicity of factors are considered before arriving at product categorization. Some of the commonly considered factors are mentioned below.

1) Average Sales per month - Referred as Fast / Medium / Slow moving categorization

2) Business Importance / Profit Margin - Refered as A, B, C categorization

3) Product Life Cycle - New / Emerging / Mature / Phase Out product

4) Sales Pattern - Seasonal / Non Seasonal

Above list can be increased using lots of situational factors suitable for a particular business scenario but ultimate theme will always revolve around above factors. After product categorization is complete demand and supply uncertainty is assesed before arriving at inventory and safety stock norms. Some of the commonly occuring demand side uncertainty factors are as follows - Forecast Accuracy, Lumpy demand flow because of lot size and truckload considerations, uncertain time and quantum of seasonality etc. Some of the supply side uncertainty factors are as follows - Uncertain inbound logistics leading to lead time variations, breakdown in factory, unreliable suppliers and so on. To counter both demand and supply side uncertainty a safety stock or buffer inevntory is maintained at warehouse under consideration. How much safety stock inventory is maintained and for which category of product is called Inventory Policy.

In this blog I am not going to elaborate on each and every factor mentioned above for product categorization or uncertainty and how each of them should be mapped to arrive at an Inventory Policy, rather I want to focus my attention on one commonly made mistake regarding one of the factor mentioned above namely Average Monthly Sales. It is very common for the company to say that we always maintain safety stock worth 3 times avergae monthly sales. Fundamental assumption in such policy is that average monthly sales is a constant number. Some companies adjust rules to accommodate for seasonality by norms like safety stock equals 3 times average monthly sales during the peak season and 2 times average monthly sales during off season. Still fundamental assumption of sales being constant is same. Also average sales number is calculated based on long term average of 3 or 5 years sales. My conetntion is as follows. Lot many things would have happened in these 3 to 5 years. Product could even have changed its life cycle phase. There could be few big one time sales order vitiated the average monthly sales picture. How fair is to calculate avergae sales number based on these long term trends and use it to decide Inventory Policy for future?

I think all of you will agree with above premise but then obvious next question will be regarding alternative number to be used. Average sales number is easy to calculate, maintain, understand and interprete. In fact this is the reason it is used so predominantly in deciding inventory policy. I propose following approach. Answer below questions for each of your product before deciding Inventory Policy.

  • Does this Product feature amongst top 20% products based on its Monthly Sales number in all of the last 12 months?
  • Does this Product feature amongst top 20% products based on its Monthly Sales number in at least 3 to 6 of the last 12 months?

Please read above statements very carefully. Answer will be "Yes" for first question if the product's monthly sales in month of January will put it in top 20% products in January, monthly sales in February will put it in in top 20% in February and so on. We are not using cumlative average sales here instead we are using individual monthly sales numbers and then ranking the products. I have following terminology based on answers to above questions.

If answer to first question is "Yes" then I call it a "Regular" product. If the answer is "No" to first question but "Yes" to second one then it is a "Repeater" product and if answer is "No" to both the above questions then I call it a "Rarity" product. Let us call this categorization as 3R categorization. My proposal is as follows.

It is safe to use conventional Average Monthly Sales based Inventory Policy for "Regulars" but would be a disaster if we use them for "Repeaters" or "Rarity" products. "Repeater" and "Rarity" should be better produced in campaigns rather than making them available as regular of the shelf. It is better to set customer expectation for delay in delivery rather than holding tons of inventory for them. If possible "Rarity" products should be phased out or they should be produced only against confirmed orders. No point in holding any safety stock inventory for them as whatever logic you will use to arrive at their inventory norms will essentially turn out to be wrong.

My another proposal is to invest heavily in supply chains for "Repeaters" to make their supply chains flexible. These products have potential to become "Regulars" if nurtured properly. Concepts like "Just in Time" should be applied to them to make logistics fast. Manufaturing flexibility concepts like SMED should be applied to them to make their manufacturing nimble and on-demand. Clear roadmap should be put in place for their supply chains.

However I have seen companies doing exactly opposite of this. They focus all their attentions and initiatives on "Regulars" as their sales number make them center of all attractions and justify any initiative for them. Supply chains for "Regulars" can be managed very easily by just holding some inventory. Invensting in their inventory is not at all risky. On the contrary "Repeaters" and "Rarirty" need more support with initiatives to make their supply chains flexible. This is because holding inventory for them is very risky.

Just a thought you should apply before taking your next supply chain initiative.

 

September 1, 2010

The most important Phase in Supply Chain Planning Implementations

I believe that the most important phase in supply chain planning implementations is actually post implementation support. Many customers after having spent a lot of money on implementing planning systems are not able to leverage the systems to the fullest extent and the usage of the planning system dwindles down. This can be avoided with much needed management focus on post implementation support.

Unlike ERP system which becomes an integral and critical part of the daily activity of a user, Planning systems are not critical in short term and planner always has ability to use manually generated plans or previously generated plans in case the system is down. ERP systems constitute the lifeline of an enterprise and, in case of issues get high visibility & attention. While planning systems issues are not so visible but in the long run can have equally significant impact. Planning systems can produce excellent results during testing and go live but they can be completely inaccurate post implementation, if the business environment changes. Hence it is very important to track key metrics and fine tune the planning models based on business changes. Planning users need to have a certain degree of systems knowledge and there is a need to continuously coach users, after implementation, to use the solution and exploit additional features. Additional requirements need to be captured and modifications done to system to better aid the planning processes.

There is a need for the Planning support team to have deep planning process and planning best practice knowledge combined with in depth Planning systems skills. Typical IT teams look at support from a perspective of resolving & closing tickets and maintaining the system uptime related SLAs. While this is important, in case of planning systems, this does not ensure long term success of planning implementations. At one of my customers, I noticed that the planning systems were being neglected by users. There were discussions of shutting down the application as the plans were not adding value to the business community and it running them was an overhead. On further probing, I realized that the support team constituted of technical team members without a lot of experience in Supply Chain Planning implementations. The team members had not seen any other best practice processes. Also there was no concept of Super Users who could align the Technical support team with business users. Coaching the users, auditing the plans, enhancing the applications was not part of support team's activities and hence planning solution was not updated with changing business environment. This was pointed out to the customer and subsequent changes were suggested to the support model. Hence the post implementation support Phase is the most important phase to ensure the success & growing use of planning systems and adequate focus is needed to create the correct support model.

I would welcome your thoughts on this and your approach to planning systems support.

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