Supply Chain APICS

APICS
March/April 2012
APICS MAGAZINE
Mapping your successful supply chain

Positive supplier relationships
STRATEGIC SUPPLIER RELATIONSHIPS/SUPPLY CHAIN MAPPING
Tips for increasing capacity

Achieving improvements through conflict
Volume 22 | Number 2
MARCH/APRIL 2012
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APICS magazine
March/April 2012
Volume 22 | Number 2
26
26
30
Features
Cover story
Success! Now What?
34
By George F. Brown Jr.

Learn how to maintain the
designation of strategic supplier.
30
On the Map
By Darren Pitts, CPIM, CSCP
Discover how geographical visual
tools can improve your supply chain.
Send the Right Signals

By Rajan Suri
Read about a brand-new approach
to managing your products.
2 March/April 2012 | APICS magazine
38
Out of Stock
By Janet Hessler
Improve communication and
work together for better inventory
management.
34
38
Getting recognized as a strategic supplier is a challengeas is sustaining that position.

page 26
Departments
4
From the CEO
From the Editor
APICS Report
Membership Matters
Industry Watch
10 Ask APICS
11 Building Blocks
12 Lean Culture
14 Working Green
17 Management Perspective
18 Software Review
21 Relevant Research
44 Lessons Learned
Resources
42 Production and Inventory

Management Directory
42 Index
43 Product Showcase
15 Sales and Operations

Planning
16 Enterprise Insights
APICS
magazine (ISSN 1056-0017) is published bimonthly by APICS The Association for Operations Management, 8430 West Bryn
Mawr Ave., Suite 1000, Chicago, IL 60631-3439. Phone: (773) 867-1777. Canada Post International Publications Mail (Canadian Distribution)
Sales Agreement No. 571423. Periodicals postage paid at Chicago, IL, and additional mailing offices. Subscriptions: $65 per year U.S., $77
Canada/Mexico, $93 elsewhere. Copyright 2012 by APICS. All rights reserved. Printed in the United States of America. POSTMASTER:
Send address changes to: APICS, 8430 West Bryn Mawr Ave., Suite 1000, Chicago, IL 60631-3439.
APICS magazine | March/April 2012 3
From the
CEO
Making the Drug Supply

Chain Safe
If you have been up on the news
lately, you may have noticed a rise in
the number of articles discussing the
pharmaceutical supply chain. Several
high-profile incidents have made headlines recently, including discoveries of
adulterated contaminated batches of
the drug thinner heparin from Chinese
suppliers; severe shortages of childrens
cancer treatment methotrexate; and
counterfeit versions of scores of different drugs, such as Avastin, Neupogen,
and Viagra, to name only a few. And
these are but a small fraction of the
challenges faced by the pharmaceutical
supply chain. Other prevalent issues
include traceability, global sourcing,
manufacturing efficiency, capacity, storage, and transportation.
In other words, the pharmaceutical
supply chain closely resembles those
of the automotive, electronics, and
construction industries. The striking
difference is that, in the pharmaceutical industry, when there is a supply
disruption or contaminated product,
peoples health is at risk. Browsing
through the articles in this issue of
APICS magazine, I can see clearly that
each topic has strong relevance to the
pharmaceutical industry. Supply chain
mapping, building strong supplier
relationships, enhancing operational
efficiencythese are issues that matter to anyone in the supply chain and
operations management profession,
regardless of industry.
with the Drug Information Association

(DIA), a global organization dedicated to
advancement in the development and life
cycle management of pharmaceuticals and
medical products. Present were government officials, manufacturers, distributors,
and representatives from pharmaceutical
associations, who shared their perspectives
on what actions must be taken to ensure a
stable supply of high-quality medicines.
Thousands of individuals who have
attained APICS Certified in Production
and Inventory Management and Certified
Supply Chain Professional designations are
part of the manufacturing and distribution
of pharmaceuticals and health care devices.
This means APICS is in a unique position
to work with the DIA and other organizations to better educate the health care
community on issues affecting the supply
of life-saving drugs.
The pharmaceutical industry will
continue to rely on APICS members to
navigate the complexities of its operations. The APICS body of knowledge will
likewise play an important role in making
these supply chains run smoothly. APICS
publications, including APICS magazine,
will continue to highlight emerging and
critical topics affecting the pharmaceutical
supply chain.
We are paying close attention to how
these issues progress and change, and we
will keep you informed on all the latest
developments.
APICS The Association for

Operations Management
8430 West Bryn Mawr Avenue
Suite 1000
Chicago, IL 60631-3439
Phone: (800) 444-2742 or (773) 867-1777
Fax: (773) 409-5576
Email: editorial@apics.org
apics.org
Sharon L. Rice
Publisher
Editorial
Jennifer Proctor
Editor in Chief
Elizabeth Rennie
Managing Editor
Christopher Jablonski
Staff Editor
Design
Emma Castaeda
Art Director
Hwa Kim
Designer
Lara Kocab
Designer
Advertising
Tom Lasch
tlasch@larichadv.com
(440) 247-1060
Editorial Advisory Board

Richard E. Crandall, PhD, CFPIM,
CIRM, CSCP
Appalachian State University
Philip E. Quigley, CFPIM, PMP
Computer Science Corporation
Randall Schaefer, CPIM
Randall Schaefer Consulting
Publication in APICS magazine does not constitute
an endorsement of any product, service, or material
referred to, nor does publication of an advertisement
represent an endorsement by APICS or the magazine.
All articles represent the viewpoints of the authors
and are not necessarily those of the magazine or the
publisher. Letters to the editor will be published at the
discretion of the editor.
Canada Post International Publications Mail Product
(Canadian Distribution) Sales Agreement No. 1220055.
APICS resources matter
Last month, some key APICS staff

members and I attended a meeting in
Washington, DC, to discuss the critical
issues affecting the pharmaceutical supply
chain. APICS co-sponsored the meeting
APICS magazine is published by
Abe Eshkenazi, CSCP, CPA, CAE

Chief Executive Officer
Subscriptions: APICS magazine is circulated to all

members of APICS as part of their membership fee.
For all others, the subscription rate is $65 annually ($77
in Canada and Mexico, $93 for other international or
overseas delivery). To subscribe, call APICS customer
service at (800) 444-2742 or (773) 867-1777.
Single copies within the US are $8, outside the US,
$12 (payable in U.S. currency). Contact APICS
Customer Service, (800) 444-2742 or (773) 867-1777.
Printed in the United States of America.
From the
Editor
The Freedom to Achieve

APICS Board of Directors
Chair of the Board
Marc Harris, CPIM, CSCP
Chair-Elect
Robert Boyle, CFPIM, CIRM, CSCP
Secretary-Treasurer
Mondher Ben-Hamida, CPIM, CSCP
Directors
Luis Barcon, CPIM, CIRM, CSCP
District Director, Terra Grande District
William Bickert
Director-at-Large
Norman Carmichael, CPIM, CSCP
Director Southwest District
Bintong Chen, Ph.D.
Director-at-Large
Rick Donahoue, CPIM, CSCP
District Director, Mid-Atlantic District
Paul Howatt
District Director, Canadian District
Vadim Kapustin
Director-at-Large
Jerry Kilty, CFPIM, CIRM, CSCP
District Director, Southeast District
Al Kuebler
Director-at-Large
Merri Rich, CPIM
District Director, Pacific Western District
Dana Riess, CPIM
Director-at-Large
David Rivers, CFPIM, CIRM, CSCP
District Director, Northeast District
Jason Wheeler, CPIM, CSCP
District Director, Great Lakes District
Tammy Williams, CPIM, CIRM, CSCP
District Director, Heartland District
APICS Corporate
Chief Executive Officer
Abe Eshkenazi, CSCP, CPA, CAE
Magazine Contact
Jennifer Proctor
APICS The Association for

Operations Management
8430 West Bryn Mawr Avenue
Suite 1000
Chicago, IL 60631-3439
Phone: (800) 444-2742 or (773) 867-1777
Fax: (773) 409-5576
Email: editorial@apics.org
apics.org
and commitment are enhanced by the

I recently read about the life of Robert
autonomy to work in the way they like.
Owen. A prominent social reformer,
[People will] more often exceed expectaOwen worked to improve the health,
tions than under-deliver, Heffernan says.
education, and rights of the working
In addition, a recent survey by global
class. His beliefs about wages, working
workplace solutions company Regus
conditions, child labor, and women in
found that 85 percent of US companies
the workplace were progressive for the
offer employees flexible work schedules,
time, so its no wonder that he experiwith respondents citing reduced overhead,
enced considerable criticism and resisgreater productivity, and improved work-life
tance. In fact, in 1818, Owen presented
balance as benefits.
a petition to the five leading European
Of course, just as with working flexible
powers asking for the establishment of
basic working hours restrictions. His ap- hours, being a remote worker does require
me to be aware of how my schedule affects
peal was rejected as lunatic.
my colleagues and to work thoughtfully
Things certainly have changed since
and collaboratively. Being at the same place
1818. Today we have the 40-hour week,
at the same time once in a while also is
the 37.5-hour week, the 35-hour week,
imperative. Personally, over my eight years
part-time, flex-time, seasonal work, and
at APICSfive of which have been as a
more. As a telecommuter working for a
Chicago-based organization from here in Charlotte,
North Carolina, I often find
I have always welcomed the
myself thinking about my
opportunity to connect with
own work hours. In fact, as I
write this, its 7:15 a.m. on a
my coworkers in person.
Saturday. Ive always been an
early riser, and I love taking
remote workerI have always welcomed the
advantage of blissful moments like these
when the phone isnt ringing, emails arent opportunity to connect with my coworkers
dinging, the kids are asleep, the house is in person, whether through a trip to Chicago
quiet, and I can really focus and get things or the week I spend each year at the APICS
International Conference & Expo.
done.
Flexible hours are just one way to inspire
With my own system in mind, I just
employee performance. What it really
read the Inc. magazine article Why
comes down to is having confidence in
Flexible Hours Inspire Performance.
your employees. Management Perspective
Author Margaret Heffernan says insisting
author Phil Quigley, CFPIM, PMP, sums it
on specific work hours, micromanaging
up nicely on page 17: Being fast and agile
how employees spend their time, and
means listening, trusting, and enabling
exactingly tracking schedules actually
meaningful action. Free your people.
impede peoples ability to get things done.
Treating employees like grown-ups makes
it more likely that they behave the same
way, she writes, adding that knowing your
superiors trust you to achieve your objectivesand having that same confidence in
Elizabeth Rennie
your coworkersresult in more devoted,
enthusiastic employees whose energy
Managing Editor
APICS
Report
Learn and Connect

with APICS
Your affiliation with APICS is about more
than just membership. It means access to
certification programs recognized worldwide as the standard for professional
excellence in supply chain and operations
management. It gives you opportunities
to learn from member-only data that can
enhance the practices and productivity of
your organization. And it instantly connects you to a vast, worldwide network of
supply chain and operations management
professionals with new tools such as the
APICS Supply Chain Channel.
Discover everything your APICS affiliation has to offer at the new apics.org.
Introducing the new apics.org

The new apics.org is here! The site has
been enhanced to improve your experience and make it easier to take advantage
of valuable APICS resourcesbut before
you visit, please read the important information that follows.
accessing apics.org: You must reset
your password on the APICS website
to reactivate your apics.org profile and
to access valuable resources. This is
a simple, three-step process that will
connect you to member-only research
reports, online events, publications,
critical concepts and terminology, and
more.
Visit apics.org to benefit from new features, including the following:
Shop APICS (formerly APICS
Bookstore)find the APICS products
you need to achieve your professional
goals. Visit apics.org/shop.
My APICS (formerly My Info)ensure
your information is up-to-date and
access your APICS member benefits.
Visit apics.org and log in.
APICS Partner and Event Finder
(formerly Chapter Locator)tap the
resources of your local supply chain
and operations management community. Its located in the community

section of apics.org.
Connect with the new APICS

Supply Chain Channel
We all want to find out whats happening at this exact moment. Now you can
connect to your professional community
in real time through the APICS Supply
Chain Channel. As a part of the APICS
community, you are connected to a variety
of supply chain and operations management resourcesand the most skilled and
talented professionals in the field.
Whether you want to connect to a
specific APICS community, participate in
an industry discussion, or network with
key professionals to share best practices
and innovations in your field, the APICS
Supply Chain Channel is the place.
Available communities for discussion
include global supply chain management,
sustainability, APICS CPIM and CSCP,
and location-specific groups.
Important note about this new
member benefit: All APICS members
are included in the membership directory in the APICS Supply Chain Channel.
Limited information, including your
name, city, state, country, and job title are
visible to other APICS members. Be sure
to populate your profile, connect to your
friends and colleagues, and manage your
privacy settings as soon as possible.
You must be an APICS member to
access all features of the APICS Supply
Chain Channel. See what its all about at
supplychainchannel.org.
Access the APICS CPIM and

CSCP programs
Discover the APICS Certified in
Production and Inventory Management
(CPIM) and Certified Supply Chain
Professional (CSCP) programs. Achieve

either of these respected designations to
attain in-depth understanding of industry
processes and leverage the best practices,
techniques, and technologies that maximize your organizations efficiency and
improve the bottom line. Learn more at
apics.org/certification.
Enhance your learning with

member-only research
Trends in supply chain and operations
management act as a bellwether for
trends in the larger global economy.
APICS member-only research reports
are a great way to understand new data,
trends, and information that can strategically direct your organization toward
cost- and time-effective solutions.
APICS members can access reports such
as 2011 S&OP Practices and Challenges
to enhance productivity and improve their
companies bottom lines. Access APICS
research reports at apics.org/research.
2012 APICS conference

schedule
2012 apICs asia supply Chain &
operations conference
April 56, 2012
Shanghai, China
Best of the Best s&op Conference,
presented by apICs and IBF
May 1011, 2012
London, England
June 1415, 2012
Chicago, Illinois, USA
2012 apICs International Conference
& expo
October 1416, 2012
Denver, Colorado, USA
To learn more or to register for these

educational and networking events,
visit apics.org/events.
Membership
Matters
We encourage you to share your APICS stories.

Visit apics.org/membershipmatters today.
By Elizabeth Rennie
Getting Where You

Want to Be
APICS affiliation aids goal achievement
For Rich Pugh, CPIM, CSCP, the benefits of his APICS membership have
everything to do with making the most of his affiliation. The opportunity
to earn college credits for my APICS certifications has energized me to
complete my bachelors degree, he says. What a great incentive for other
folks who, like me, are working to complete their degree requirements and
also want to pursue APICS certification. It is no longer a choice of one or
the otherbut the opportunity to do both.
And the benefits for Pugh dont end
there. He also credits the APICS body of
knowledge with giving him both a macro
and micro view of the supply chain, how
it functions, and what makes it successful. He says the concepts he learned
during his APICS Certified Supply
Chain Professional (CSCP) and APICS
Certified in Production and Inventory
Management (CPIM) courses have been
relevant to his everyday work life.
Specifically, as planning manager at
Dr. Pepper Snapple Group in Aspers,
Pennsylvania, he participated in a kaizen
event and pull replenishment project
with one of the major brands at his
company. He explains, The knowledge
I gained from the APICS certifications

has enabled me to embrace the changes
and make a substantial contribution to
the kaizen event and to the inventory
reduction project, which represented a
significant cost savings for the company.
Pugh has worked at the Dr. Pepper
Snapple Group for about three years.
The company produces 46 million cases
annually across a brand portfolio that
includes Hawaiian Punch, Snapple,
Yoo-Hoo, and Motts. As the planning
manager, his team plans the manufacture
and associated material and packaging
for seven production lines.
I joined APICS one year ago, Pugh
says. I decided to join in order to stay in
Rich Pugh, CPIM, CSCP

Planning Manager
Dr. Pepper Snapple Group
tune with what is happening locally and

globally across the supply chain industry I enjoy having the opportunity to
meet, interact, and network with other
professionals in the supply chain industry
who share a passion for supply chain and
operations management and who understand the challenges involved.
About his APICS CPIM and CSCP
designations, Pugh says, I chose to pursue APICS certifications because they are
highly valued and widely recognized by
employees and employers throughout the
supply chain industry.
Elizabeth Rennie is managing editor for
APICS magazine. She may be contacted at
editorial@apics.org.
Renew Your APICS Membership

APICS members receive exclusive benefits. Be sure you dont miss
any of the education, local connections, events, and more, including
Valuable savings on APICS certification preparation and exams
Industry news, information, and best practices
APICS Membership
Connections to your community through your local APICS affiliate
Exclusive benefits
Opportunities to maintain your APICS certification
Certification savings
Career resources and job searches
Career resources
and more
and more
Log in to apics.org to ensure your information is up-to-date and you know when your APICS membership expires.
Industry
Watch
Enterprise
Crown equipment introduces V-Force V-HFM, a

high-frequency modular
battery charger for electric forklifts, which is 15
percent more efficient and
occupies 67 percent less
space than typical chargers.
Features include charging
to full within eight hours,
ability to reduce current
rates to lower energy costs,
and compatibility with 24-,
36-, and 48-volt batteries.
Justenough software, Columbus, and Keyora have

jointly released E2E Retail, an end-to-end retail
software suite powered by Microsofts Dynamics
AX enterprise resources planning system. The suite
includes functionality for e-commerce, financial
planning, merchandise and assortment planning,
allocation and replenishment, business intelligence,
store operations, point-of-sale, and more. The
solution is designed to eliminate reliance on disparate
and disconnected retail systems.
Label printing
sato announces the release of ECONANO labels,

which absorb and reduce atmospheric carbon
dioxide (CO) levels by 20 percent over conventional
labels when incinerated. This technology is based on
a CO absorbent on the label adhesives. Additionally,
by combining ECONANO technology with SATOs
NONSEPA linerless labels, a 50 percent reduction in
CO emissions over conventional labels is possible.
Material handling
aeroGo unveils the LoadRunner, a material handling

system that uses on-board compressed air to
reduce friction and decrease operator effort to
move a load. The device can enhance or replace
traditional material handling equipment,
including hand trucks, pallet jacks, and
forklifts. Features include low-profile
deck design, throttlestyle fingertip
controls,
low volume,
and zero
emissions.
panacea aftermarket, an international supplier

of forklift parts and accessories, introduces the
Hyperion line of light-emitting diode headlights for
forklifts. The work lamps feature both 12 and 24-volt
compatibility, black rubber housing, and stainless
steel mounting brackets.
tiffin metal products offers

the SST Gravity Chute, a
material handling solution and an alternative
to standard steel and
fiberglass chutes. The
chute can be engineered
to accommodate specific
package sizes and weights
and has almost no restrictions
on width, guard height, and
pitch. It is manufactured with a
low-friction, silicone-treated,
abrasion- and corrosionresistant material that
eliminates the requirement for
lubrication or waxing.
Mobile computing
Glacier Computer has launched the T510K portable tablet

computer for field service professionals. Features include a
10-inch resistive touchscreen, 23-key interface, Wi-Fi and
Bluetooth networking, camera, two-dimensional scanner, and
radio frequency
identification
reader. As a rugged computer,
the T510K also
includes grip-andgo handles and
both desktop and
vehicle mounts.
In addition, it is
vibration- and
shock-tested.
News items may be submitted to editorial@apics.org.

High-resolution, color photographs are encouraged.
Shop floor
aps resource
releases the E-Saver
LED Replacement
Lamp, an energy
saving, light-emitting
diode lamp for
warehouses, loading
docks, food, pharmaceutical, and other
industrial uses. The
lamp fits into most
existing dock light housings, and its 27 watts can save
up to 80 percent in energy costs over 150-watt incandescent bulbs. The lamp also features 50,000-hour life
and durable construction.
Bea offers electric strikes for secure doors, which
replace traditional, fixed-strike faceplates. Each of
the strikesrim exit, no cut, and universal cylindricalenable remote operation of a doors locking
mechanism and can be configured to either lock or
unlock the door when activated. The devices include
all-in-one kits with the three most commonly used
face plates for hollow metal, aluminum, and wooden
door frames.
rockwell automation introduces RSLogix 5000,

an integrated control system for manufacturers and
machine builders. Features of the software suite
include scalability from 200 to 10,000 input/output
points; integration with simple, text-based electronic
data sheets; and 100-millisecond start-up time. The
software is used to design and configure Rockwells
integrated architecture system, which addresses
control and information needs for discrete, process,
batch, motion, drive, and safety applications.
Transportation and logistics
Datalogic has acquired accu-sort systems, a designer and

producer of automatic identification systems. The move will
double Datalogics market share in the industrial automation
market to 31 percent. Accu-Sort executives say the companys
strengths include continuous product innovation with about
57 registered patents in the United States, long-term relationships with primary retailers, strong competitive positioning,
and high brand awareness in its key market of transportation
and logistics.
onasset Intelligence offers Sentry, a device for tracking highvalue assets with any method of freight transport across the
globe. The tool monitors a number of cargo aspects, including location, temperature, pressure, humidity, light, motion,
and shock and vibration. Sentry communicates via the Sprint
wireless network in a dual-mode capacity, supporting both
the code division multiple access and global system for mobile
communications wireless formats.
Warehousing
Dematic has released PickDirector 3.6, a warehouse control

software suite. The tool assists in managing order fulfillment
in piece or case-picking situations using radio frequency, light
display, or voice-based automation. The software is capable of
performing functions including order tracking, zone balancing, label printing, replenishment and cycle counting, realtime produtivity reporting,
statistics tracking, and more.
Columbus mcKinnon
announces availability of the
CM Lodestar electric chain
hoist, a material handling
solution for efficiently and
ergonomically moving, lifting, positioning, and securing resources in diverse
commercial and industrial
applications. Features include
finger-safe wiring, plug-andplay connectors, a lifetime
grease-lubricated gearbox, a
five-pocket lift wheel for minimal chain wear, and an easily
accessible control panel for
quick voltage change, access
to terminal strips, and simple
fuse installation.
Ask
APICS
Send APICS your supply chain or operations

management questions at askapics@apics.org.
By Jonathan Thatcher, CSCP
The Right Pricing

Strategy
Find the optimal balance between margin and volume
Reader P.T. writes, My team is tasked with reevaluating our pricing strategy.
What happens when the balance between profit margin and volume is shifted?
Trading margin for volume (or vice
versa) presents a potential disruption
to supply chain equilibrium, risk and
reward mechanisms, and trust and
brand image. In any such endeavor, the
goal of the supply chain and operations
management professional is to minimize
the disruption and ensure nothing is
overlooked. Carefully modeling all factors, creating process visibility, and sharing proposed solutions with stakeholders help increase the odds of success.
Trading margin for volume
A number of circumstances might lead

an organization toward trading margin
for volume. When a new product or
service is launched, for example, reducing prices may be a temporary measure
to gain market acceptance and drive
post-sale revenues from services.
Reducing margin also may work
when new technologies and manufacturing techniques lead to more
competition (for example, home air
conditioners in the 1950s)
when creating commodities out of
old, obsolete, or close-to-abandonment designs, where depreciated
assets and optimized costs no longer
necessitate high profit margins
(for example, in older models of
microprocessors)
for ensuring short-term survival at the
expense of the long term (an extreme
example is found in channel stuffing).
When reducing margin, customers
who care about brand, service, quality, and trust may vanish. Successfully
entering a new market segment may

mean positioning your companys past
experiences and high standards as competitive advantages.
Trading volume for margin
Alternately, an organization might consider decreasing volumes and raising

prices to
ensure long-term survival, making a
major change to the overall business
strategy and mission statement, including moving from a high-competition
environment to a low-competition
market, or up-positioning
market certain products or services not
as commodities but as something of
greater value or something unique (for
example, Nokia designing both basic
feature phones and smartphones)
adjust for constraints on supply from
shortages (for instance, when crops
experience poor growing conditions)
counteract tariffs or trade barriers, particularly in import-heavy businesses.
When margins are increased, pricesensitive consumers may seek out
substitutes. Consumers who value brand,
service, and quality may remain, but they
will expect justification for the higher
margins, depending on their level of trust
in the organization and the organizations reputation. You must convince
your customers that your company offers
greater value, higher efficiency, and better
customer service than your competitors.
Supply chain partners also must be
satisfiedthey will demand a desirable risk-reward balance and profitable
supply and demand equilibrium in

exchange for delivering lower volumes.
The risks of expensive excess capacity
and fixed costs hopefully are covered by
the promise of higher margins.
Considerations
No matter the direction in which your

pricing strategy shifts, it will require
major performance changes and requirements on a number of departments in the
organization, including, but not limited to,
production, supply chain, design, service
and support, forecasting, sales and marketing, and sales and operations planning.
Consider the following questions when
modifying pricing strategy:
How will it influence the supply and
demand equilibrium?
Does it align with the company mission
statement and business strategy?
What is the impact on supply chain and
operations management risk?
Will it affect sustainability efforts or
global positioning?
What happened when companies in the
past attempted a similar strategy?
What did they do right or wrong?
The answers to these questions may
be found using methods such as modeling the changes in enterprise resources
planning software; mapping out bottlenecks, constraints, and weaknesses;
highlighting the pressures and risks
for supply chain partners; determining
inventory carrying costs, safety stock,
service levels, and the like; identifying required resources and internal
changes; and researching historical data
and case studies of similar attempts.
In the end, find the strongest answers
to these questions and determine if there
is buy-in within the organization to
make the shift. With careful research and
consideration, the goal may be within
your reach.
Jonathan Thatcher, CSCP, is director
of research for the APICS professional
development division. He may be
contacted at askapics@apics.org.
Building
Blocks
To comment on this article, send

a message to feedback@apics.org.
By John P. Collins, CFPIM, CSCP, and Eric P. Jack, PhD, CFPIM, CSCP
Details, Details
Dealing with the devil during organizational change
Supply chain and operations management professionals are painfully aware
that, for successful organizational change, the devil is in the implementation
details. Joan Magretta of the Harvard Business School recently wrote,
Strategy is about making choices that lead to sustainably superior
performance, adding that fit and continuity are key tests of good strategy
and that it is possible to change too much, and in the wrong ways.
The Strategic Management of
Resources module for the APICS
Certified in Production and Inventory
Management designation summarizes
corporate strategy as survival. Radiating
from this corporate focus are the steps
required to define what survival looks
like. These systematic, process-based
steps are adopted to be efficient and
comprehensive. Done correctly, they all
fit together.
Operationally, having good fit means
lower costs, better responsiveness, and
ultimately greater profitability over the
long term. Then comes the persistent
challenge of strategic continuity, especially when circumstances change. (Hello,
devil!) Yet, doing it correctlymeaning,
making coherent strategic choices by considering organizational change tolerance
and resistance levelsrequires everyone
to share a constancy of purpose.
What does constancy of purpose
really mean in strategic and operational
contexts? For example, if you make a New
Years resolution to lose weight (strategic
goal), it would be meaningless if you
dont also choose to exercise or reduce
your food intake. As time progresses, you
may choose different diets and various
exercise routines (operational decisions).
But note that, realistically, losing weight
is a lifelong journey (strategic continuity) that requires constancy of purpose
(discipline).
There are countless operational
examples where processes were developed
on the fly. For instance, a special situation arises, and a fix is made that doesnt
take into consideration some existing
processes. The resulting workarounds
reduce efficiency because they are trying
to control two processes instead of one.
Say decision makers at a company,
when examining how products moved
through the operation, discover 59
different ways production flowed. After
streamlining, flow paths are reduced
to 10. Consequently, production cycle
time is cut from three weeks down to
three days, with a resultant reduction
in work in process. And productivity
increases more than 11 percent in the
first three months, with the added benefit of faster customer response time.
However, within 18 months, the plant
has almost completely reverted back
to its former self. Why? Management
never really achieved constancy of
purpose because introducing structure and process discipline was never
accepted throughout the organization.
In retrospect, an assessment of the
strategic continuity might have pointed
out that the disconnect was the operational steps versus senior managements
expectations, which were to continue
old practices but just do them better.
Another example involves a poorly
performing foundry with rudimentary
flow processes executed by a highly
motivated workforce. In this instance,
getting constancy of purpose, rather
than process flow redefinition, was the
initial focus. The end results were better

performance improvements that lasted
for 10 years. Here, constancy of purpose
helped everyone accept the reason
why process discipline was necessary.
Because financial survival was in question, almost anything would have met
the requirements for continuity.
But supply chain and operations
management professionals know that
its never quite this simple to achieve
constancy of purpose. So, a final
example involves ongoing efforts to
blend constancy of purpose and process
fit in a formerly family-owned, custom
product manufacturing environment.
Here, there is a struggle for agreement
on the value of disciplined processes in
an environment where specialized skill
and craftsmanship are highly valued. It
is often unclear which needs to come
firstdisciplined or ad-hoc processes
because employees lack clear understanding of how disciplined processes
will affect them, and this can cause the
workforce, supervisors, and managers
alike to resist these efforts.
Everyone wants the company to be
successful. But getting everyone to
agree on how to achieve this success
(continuity) while maintaining the discipline to achieve the goal (constancy of
purpose) is a devil of a challenge.
Does this devil visit your company? What
do you think should be done to achieve
constancy of purpose? We encourage your
feedback.
John P. Collins, CFPIM, CSCP, is president of
Sustainable Solutions. He may be contacted
at jcollins@ssi-spm.com.
Eric P. Jack, PhD, CFPIM, CSCP, is associate
dean at the University of Alabama
Birmingham. He may be contacted at ejack@
uab.edu.
Lean
Culture
By Ron Crabtree, CIRM, CSCP, MLSSBB
The Change
Management Matrix
Where does your company fit?
Why do most lean and other change initiatives fail to provide much
value, even on the second or third try? One reason is that many business
leaders simply fail to understand the dynamics of organizational change.
Another is the fact that strategies that seem to work at one organization
fail in another.
There are no silver bullets to change
management, but we can always discover
secrets that help tip the balance. A
student shared with me a 2006 article
from the Harvard Business Review called
The Tools of Cooperation and Change,
which offers some insightful concepts
and ideas. It begins with the accurate
assertion that managers have diverse
tools to drive organizational change,
which can be divided into two categoriescarrots and sticks.
Carrots are attractive motivators for
change, such as monetary rewards. Sticks
are punitive or directly manipulative.
The article goes on to tell the story of
how, in 1999, the new chief executive
officer at Procter and Gamble got shipwrecked trying to implement a major
restructuring initiative. The authors
diagnosis of this failure was inability to
induce employees to cooperate, which
the authors deem a requirement for all
change campaigns.
The article explains that, before
embarking on a major change effort, one
first needs to assess the level of agreement in the organization across two
dimensions, as in the x- and -y axes of a
graph. The first dimension is the extent
that people agree on what should be
changed in the organization. In a graph
with four quadrants, this would be represented by the vertical, with low agreement at the bottom and high agreement
at the top. The second dimension is the

level of agreement on which actions will
lead to the desired outcomethe question of How we will get there? This
aspect runs from left to right, with low
agreement on the left and high agreement on the right.
Its easy to think about different groups
fitting in the resulting four quadrants.
(See Figure 1.) At the bottom left, the
authors suggest the example of the
Balkan Peninsula. For thousands of years,
this part of the world has contained perpetually fighting tribal groups in constant
conflicthence the term balkanized,
which connotes a situation where parties
have become divided and fractious.
In the upper-left quadrant is
Microsoft in 1995, which, at the time,
Figure 1: Agreement matrix
had high agreement about what was

desired, but low agreement on how to
get it. In the lower right are companies
that employ independent contractors,
with low agreement on what they want
(an everyone-for-themselves mentality),
but high agreement on the methods for
getting things done. And finally, there is
Apple in the upper-right quadrant, with
high agreement on what people want
and how it can be achieved. I recently
heard a quote about Apples corporate
state of mind: If we have to tell you
what to do, you cant work here.
The matrix raises a few questions: For
one, to what degree do people across
your organization match up with what
they want? And how much is this uniformity valued? The answer may vary
depending on what facet of the company is being examined. Take General
Motors, for example: Do you suppose
the union workers have the same objectives as management or the marketing
and sales departments? On the flipside,
I had the good fortune to work for
Disney in 1979 and 1980. Then, as well
as now, the company instills in every
employee that its mission is just two
words: good show. Each persons job
is to take part in making Disney the
number one family entertainment experience throughout every aspect of the
organization. Disney is a great example
of a company with a purposea place
where everyone is of the same mind
about the ultimate goal.
Also consider how well people agree
on how to achieve objectives at your
company. If yours is an organization
that lives and dies on its daily sales,
chances are good that everyone will
see eye to eye on the methods and
behaviors needed to succeed. This
pushes your company to the right of
the matrix. If, however, your organization consists of silos accustomed to
throwing things over the wall between
departments with little accountability
for the customer experience, your firm
may reside on the left.

Choosing the right tool
The most important feature, of

course, is the question of what change
management tools to use depending on your organizations quadrant.
The Harvard Business Review articles
authors offer the following suggestionsalthough I advise a measure of
caution before plunging into any given
strategy.
Power tools are most effective in the
bottom-left quadrant, including coercion, threats, fiat, role definition, and
hard-nosed negotiation. Its easy to see
why culture-based tools such as rituals
would get eaten alive in a divisive, balkanized, lower-left quadrant firm.
Leadership tools relate to the upperleft quadrant and include charisma,
salesmanship, and role-modeling.
This makes sense, as its agreed what
is wanted and it requires a success-
ful leader to appeal to the workforces

interests.
Management tools can be found in the
lower right, including financial incentives,
hiring and promotion, training, standard
operating procedures, control systems, and
measurement systems. These methods are
the core underpinnings of lean approaches
to improving results. People in manufacturing companieswhich likely includes most
APICS memberswill correctly recognize
how these tools can be effective. However, if
your organization is highly dependent on processes that dont lend themselves to lean tools
(such as government and financial services or
companies based on creativity and commitment), you may find that your efforts fall flat.
Or worse: They could blow up in your face.
Lastly, the upper-right quadrant contains
culture tools such as religion, folklore, rituals,
tradition, apprenticeship, and democracy.
Organizations operating in this area tend
to be high performers over the long run.

The authors have placed Apple in this
quadrant, and I would argue that Disney,
General Electric, and IBM also live in this
neighborhood.
So, which type of organizational culture
is most difficult to change? The authors
suggest that the upper-right quadrant is
toughest. But why is that the case? Actually,
the answer is pretty simple: When a company has a high level of agreement on what
it wants and how it will be achieved, why
would anyone change anything?
Ron Crabtree, CIRM CSCP, MLSSBB, is
president of MetaOps and coauthor of
four books on operational excellence. He
also writes an online magazine; runs an
online radio show; and teaches, presents,
and consults. He may be contacted at
rcrabtree@metaops.com.
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Working
Green

By Antonio Galvao, CSCP
Reduce Waste Now
pounds of wastenot even including

agriculture or construction. The average
American produces 1,500 pounds of
waste per year, the average Europeans
Reexamining top priorities in supply chain
annual total is 1,300 pounds, and the
sustainability
average Africans is 400 pounds.
The consequences are likewise
extraordinary. According to the
When we launched this department nearly four years ago, our primary obWorld Wildlife Funds Living Planet
jective was to ensure that supply chain and operations management profesreport, were turning resources into
sionals understand what sustainability is and how they can apply its princiwaste faster than we can turn waste
ples to improving operations. I believe that we have achieved the established
back into resources. The net result
objectivesand that APICS magazine readers have a good grasp on what
is that the amount of waste were
sustainability entailsas evidenced by the dramatic evolution in knowledge
producing is 150 percent of what the
about sustainability, much of which is reflected in the feedback we receive.
earth can sustain. We are depleting
the resources on which human life
Now, I think APICS members want
Last year, the global consultancy
and biodiversity depend. For that reato know more about how to effectively
McKinsey & Company published the
son, we simply must find new models
impart that knowledge throughout their
results of a survey of more than 3,200
to fuel growth, and the richwhether
supply chains and how to best apply
business executives, which asked them
they be corporations or countries
principles in their day-to-day activities.
to rank their reasons for addressing
have to lead the way.
So lets begin by reaffirming our working
sustainability. Topping the list was the
In this context, its important to
definition of sustainability, which was
desire to improve operational efficienremember that carbon emissions are
first expressed in a 1987 report from
cies and lower costs (33 percent);
waste, which accounts for the increasthe Bruntland Commission, an intermaintaining their companys reputation
ing focus on clean energy. China, with
national body whose mission is to unite
finished second (32 percent).
its growing population and emerging
countries in the pursuit of sustainable
middle class, is the 800-pound
development. The commission defined
gorilla in this discussion.
sustainability as meeting the needs of
While the country has passed
Identifying and eliminating
the present without compromising the
the United States as the leading
waste are the most
ability of future generations to meet
emitter of greenhouse gasses,
powerful sustainability
their own needs. Its a definition that
it also continues to increase
evokes the human, environmental, and
its investment in clean energy
tools for supply chains.
financial balance that sustainability
and already ranks as the leadrequires. For an enterprise to be sustaining producer of wind turbines
able, this triple bottom line has to be in
In short, more and more business
and solar panels. China also accounts
harmony. Each component is inextricaleaders have come to the conclusion
for more than 20 percent of the $243
bly linked to the other two.
that sustainability makes good business
billion that has been invested globally
Current thinking on sustainability
sense and have made sustainability a
in low-carbon technologies over the
focuses on the so-called integrated
strategic objective. To be sure, the pripast two years, according to Bloomberg
bottom line, which equates to the
vate sector has replaced the public secNew Energy Finance.
sum of enhanced top-line growth
tor as the vanguard in the war on waste.
While the war on waste continues,
and reduced operational costs. It is a
Thats particularly encouraging when
there are signs of progress. Clearly, supformula that recognizes the importance
we consider that, of the worlds 100
ply chains have a critically important
of increasing brand value, improvlargest economic entities, nearly tworole to play. The battle wont be won
ing relationships with customers, and
thirds are corporations, not countries.
without us.
retaining top talentall while reducing
So, identifying and eliminating
Antonio Galvao, CSCP, is vice president
consumption and the costs associated
waste are the most powerful sustainvalue chain Europe at Diversey, now part
with compliance, health, labor, and
ability tools for supply chains. And the
of Sealed Air. He may be contacted at
liability exposures. It is about purging
opportunities are huge. Every day, the
antonio.galvao@diversey.com.
waste everywhere it exists.
world generates more than 22 billion
Sales and
Operations Planning
By Bradley McCollum
The Beauty of Simple
over time. In my situation, we had to

understand what portion of demand was
provided by each supply group. Once
we laid out the historical data showing
the percentages supplied each month,
we could see that, typically, 70 percent
of the demandno matter what the volume in totalwas for items produced
internally. The remaining 30 percent was
for items sourced externally.
This dynamic was relatively consistent; so, instead of requiring greater
detail (perhaps by rolling up a more
detailed forecast over a long horizon),
we use this as our ongoing assumption to translate projected demand into
supply-specific capacity requirements.
A strategy for making S&OP less complex

I have always been fascinated by technology. One thing Ive come to
appreciate over the years is that successful technology applications have
at least one thing in common: They take something complex and make it
very simple.
A successfully designed sales and
operations planning (S&OP) process
must do the same thing while keeping that simplified design as relevant
as possible. That sounds easy enough,
butjust as with technologyit can be
quite difficult.
Why its challenging
Within the design phase, maintaining

a focus on simplicity is probably the
most challenging change. I say change
because, in most cases, thats what its
going to be for your supply side team
members. These resources typically
operate in the detail every day. On the
surface, everyone can understand the
need for simplicity. But when it comes
time to design the model, people often
hit the brakes.
know, demand drivers typically have

very little to do with how we actually
supply our productsand, as a result,
we are left to translate the connections
between two different languages.
For instance, in my businessconsumer packaged goodswe often
have similar items that are both
manufactured internally and procured
from outside vendors. These supply
paths have very different lead times,
constraints, costs, and so on. It is of
course necessary to understand and
model what requirements are going
to the plants versus those of vendors.
From a demand perspective, however,
where and how these items are made
is irrelevant. I have a single marketfacing family on the demand side, with
multiple and very different supply
Applying run charts
Simplifying assumptions must be based on and

supported by an analysis of history and then
tested and monitored over time.
How can we represent something at
that level and have it be of any value?
Consider the simplifying assumption, a
model that links those important details
of the bottom-up perspective your team
is accustomed to with the ease and
clarity that can come only from a topdown perspective. An example of one of
these assumptions is the split between
market-facing families (demand) and
capacity groupings (supply). As we
groupings on the supply side. Instead of

requiring more detail to solve this issue,
the simple answer is to build a simplifying assumption.
This may sound confusing at first
and its partly because of the word
assumption. It sounds like something
casual or even haphazard; however,
simplifying assumptions must be based
on and supported by an analysis of
history and then tested and monitored
While history suggests we have a model

we can count on going forward, we all
know things change. Thus, its critical
that these assumptions be monitored
and maintained over time. Run charts
are the best tool for this because they
make it possible to monitor assumptions
easily each month and their variations
over time. Understanding those normal
discrepancies (model error) and taking
note of bias or abnormal error as it
occurs also are important.
While the previous example is rather
basic, it clearly illustrates why using
assumption models is the key to successful S&OP. They enable your team
to cross what often is a challenging
hump in the S&OP design process and
remain data-driven. Most importantly,
they keep things simple. As Leonardo
da Vinci said, Simplicity is the ultimate
sophistication.
Bradley McCollum is the sales and
operations planning manager for Jarden
Corporations Leisure and Entertainment
Group, which manufactures, markets,
and distributes a broad line of consumer
products. He may be contacted at
bmccollum@jardenbc.com.
Enterprise
Insights

By Dave Turbide, CFPIM, CIRM, CSCP, CMfgE
Testing the Waters

Why you should take a close look at exports
The largest companies are global, and they rely on doing business in
multiple geographies to support their operations and growth. Smaller
businesses, however, often will limit themselves to their local regions
because exporting seems daunting. Certainly there are hurdles to
exporting, but a great deal of help also is available.
In the current economy, developed
areas such as the United States and
Europe are in the middle of an extended
recession, and markets are flat or worse.
Developing economies are still growing, however; in fact, they are building
a large industrial market and a middle
class hungry for Western goods. While
the United States still is the worlds leading economy, other regions are catching up, collectively offering a growing
opportunity for companies ready to
consider exporting their products.
Overall, exports are up. The US
Department of Commerce reported
a 12.3 percent increase from October
2010 to October 2011a total of $19.7
billion. Smaller companies already
are participating in this growth:
According to the US Small Business
Administration, 70 percent of US
exporters have fewer than 20 employees.
back to the US dollar as a safe investment, raising its value relative to the
euro and other currencies. US products
might be more expensive, but it doesnt
mean they lose their attractiveness
to other markets. Manufacturers in
the United States maintain a strong
reputation for quality goods, as well
as innovative designs and technology.
Exporters will tell you that US products
can compete effectivelyeven if currency fluctuations dont favor US goods
as much as they have in recent times.
Where to get help
There are a number of resources available to small- and medium-sized businesses that want to explore the possibilities of exporting. The US Department
of Commerce runs an export assistance
center in conjunction with other
government departments, including
state, agriculture, energy,
and treasury. The website
export.gov, managed by
US products might be more
the International Trade
expensive, but it doesnt mean
Administration, is a clearthey lose their attractiveness
inghouse of information
regarding exporting. It
to other markets.
should be the first stop for
anyone who wants to learn
more about exporting and might need a
While in recent years the weak dollittle assistance getting started.
lar provided a boost to exporting by
Numerous states have export
making US products less expensive in
sometimes referred to as international
other areas, current global trends are
tradeassistance resources, many of
taking away some of that advantage.
which are affiliated with state universiAs Europes financial troubles become
ties. The export assistance center in my
more evident, investors are coming
own state of New Hampshire promises

to help identify and evaluate international partners, navigate international
documentation challenges, create market entry strategies, and [provide] other
export-related guidance. The US Small
Business Administration also manages
export assistance centers located in
several metropolitan areas in the United
States. Locations, contact information,
and more can be found at sba.gov under
the heading Counseling and Training.
The US Export-Import Bank provides financial assistance specifically
to encourage small businesses in their
efforts to market products overseas.
The banks chair, Fred Hochberg, has
stated that more than $6 billion of the
$32 billion the bank provided in export
financing last year through September
2011 went to small businesses. The bank
intends to continue to increase working capital guarantees, export-import
insurance, and supply chain financing
to small businesses.
Follow the money
For those individuals running small

businesses and looking to expand their
markets, there should be few reasons not to consider exporting goods
overseas. Help is readily available if you
know where to look. And the incentive
to do so is simple and straightforward.
According to legend, when asked
why he robbed banks, renowned criminal Willie Sutton responded, Because
thats where the money is. Why look
into exporting? Because thats where the
customers are.
Dave Turbide, CFPIM, CIRM, CSCP, CMfgE
is a New Hampshire-based independent
consultant and freelance writer, and
president of the APICS Granite State
chapter. He can be reached at dave@
daveturbide.com.
Management
Perspective

a message to feedback@apics.org..
By Philip E. Quigley, CFPIM, PMP
Enabling Employees
to Achieve Speed and
Agility
What trusting your people really means
Many years ago, I worked at an oil tool business in Southern California.
Company leaders there claimed they only hired the best people, paid in the
top percentile for them, and expected a lot from them. I led the material
requirements planning group, which performed master scheduling,
production, and material planning; bill of material maintenance; and shop
floor follow-up and troubleshooting.
Planners were organized around
product lines and were responsible for
coordinating them with the master
schedule. I had people on my team
who had been shop floor supervisors,
buyers, engineers, and more. The group
was designed to take people from other
groups, train and develop them, and
put them back in their departments. My
boss asked for superior performance
and, more importantly, required us to
make things happen and take action as
necessary.
One of my planners once came to me
to discuss poor manufacturing performance with a particular product line.
After analysis, it was discovered that we
needed more capacity and better flow.
Within a week, we had identified space
in the factory that could be dedicated to
the product and found some old equipment that could be put to use. Within
three weeks, we had the department
running. We coordinated manufacturing, facilities, and manufacturing engineering. The work was done entirely by
people at the manager level and lower.
All I did to facilitate these improvements was inform my boss and the
manufacturing director what we were
doing. We never asked permission.
We never did an analysis on return on
investment. We just got it done. Within

weeks, we were shipping to the plan.
Another time, a client of ours
requested a new product. I remember
it being drawn on a napkin over lunch,
evolving into a workable design, and
leading to a handshake between our
CEO and leaders from the client company. In less than 90 days, we delivered.
To say the least, it was challenging and
fun. The team met once a day, pounded
The team met once a day,

pounded out the details,
and took action.
out the details, and took action.
Toward the end of the project, I
received a phone call from my planner,
who was at the delivery sitean oil rig
in the middle of the Texas panhandle.
He informed me that he had used the
companys American Express Card to rent
a DC-3 airliner that could deliver parts
by landing next to the oil rig. He didnt
ask for an OK; he just did it because,
in his mind, it was the only way to get
the equipment to the site quickly. I then
informed the vice president of manufac-
turing about this purchase, who praised

my planner for his decisiveness.
Now consider an aerospace manufacturer for which I worked during
the total quality management (TQM)
revolution. I was the senior manager
of production control at one site. My
peopleunion dispatchers and expediterswere working to improve flow and
reduce inventory. We had taken Justin-Time principles, modified them, and
put them into work.
A new deputy director came out to
the floor on his initial walk through,
saw the changes we were making, and
promptly told us to stop our efforts and
go back to what we had been doing in
the past. My people passionately argued
for their approach, but he said he was
the deputy director and told them to do
what they were told. Within an hour,
the TQM model was dead.
Keeping it moving
How committed is your organization

to speed and flexibility? To find out,
look at your organization chart and see
how many management levels exist. If
there are more than four to six, there
is trouble. Too many levels of approval
shows paralysis by analysis.
I hear executive after executive talking about the need for
speed and flexibility, but few
are willing to take the action
necessary to achieve these
goals. Being fast and agile
means listening, trusting, and
enabling meaningful action. Free your
people. It takes a self-confident leader
to really make it workbut its well
worth it.
Philip E. Quigley, CFPIM, PMP, is a
senior application portfolio manager
for Computer Sciences Corporation. He
teaches at Chapman Universitys Argyros
School of Business and Economics and
California State University at Fullerton. He
may be contacted at pquigley2@csc.com.
Software
Review
By Monty Peterson
Designed for the

Long Haul
Aerospace manufacturer finds a lasting solution
Aerospace Dynamics International (ADI), based in the Santa Clarita Valley
of Southern California, supplies complex components and mechanical
assemblies to the global aeronautics and aerospace industries. Our
corporate goal is to be an industry benchmark and offer our customers
the latest engineering and manufacturing technologies. At ADI, we are
confident that our focus on continuous improvement and advanced
technologies will enable the success of all of our customers programs.
For more than 20 years, we have been
using a software program called Rapid
Response Manufacturing (RRM) to
serve our enterprise resources planning
(ERP) needs. Developed by ProfitKey
International, the software is used
throughout our manufacturing processes. We begin with a production plan
that details each operation required to
make and deliver to our customers. We
use the softwares capacity management
feature for resource planning and its

variance analysis functions to evaluate our performance between planned
and actual hours and report the costs
incurred. As ADI is in the aerospace
field, we are held to the highest standards in quality management; thus, we
record and process all of our inspection
demands using RRM.
ADI employs a large sub-tier base to
support our manufacturing processes,
Product summary
product name
Rapid Response Manufacturing
type of program
Enterprise resources planning suite
vendor
ProfitKey International
50 Stiles Road
Salem, NH 03079
1-800-331-2754
profitkey.com
and this group generates its orders and

tracks all costs through the ProfitKey
system. Additionally, our supplier base is
managed through requirements generated by the software. We perform all
of our accounts payable and accounts
receivable within our ERP system, with
the exception of payroll. (While payroll
originally was performed through RRM,
it now is handled through ABRA, a partner of ProfitKey.)
Vendor comments
For more than 30 years, ProfitKey International has been a leader in providing manufacturing enterprise resources planning software for small to mid-sized companies looking to increase efficiency in the areas of shop floor
scheduling, communications, inventory management, labor reporting, cost tracking, and more. ProfitKeys Rapid
Response Manufacturing (RRM) solution is the industrys only fully integrated product suite that provides realtime, all-the-time capability from the front office to the shop floor.
By listening to our customers such as Aerospace Dynamics International (ADI), we have enhanced RRM with the
features and functions that users really need. Its scheduler is seamlessly integrated into our user-friendly manufacturing execution system, providing two-way, real-time communication of dispatching and labor data. This gives users the
confidence to know they are working on the right job at the right time.
ProfitKeys quality management system was designed with the input of several customers over many months
of intense discussion. ADI was heavily involved in this process and, as a result, was able to meet customer-first
article documentation requirements right out of the box. The solution is an easy-to-use module that works from
the first article through final inspection with complete vendor performance ratings. With the cause and corrective
action component, users can set their own defect listings and track where a problem occurred and what was done
to keep it from happening again. Using RRMs quality module, ADI reduced first-article audit for a large aerospace customer from five days to one.
ProfitKey continues to expand and enhance its product, and the company is creating additional partnerships in other areas of manufacturing. We are currently
reviewing third-party software through ProfitKey partners for functions including preventive maintenance,
better estimation capacity, and enhanced reporting
through dashboard delivery.
Figure 1: Setup screen
Program installation
RRM is loaded on a Microsoft Windows server and

individual clients, and all communications occur
through ADIs internal network. Although we have
at times struggled with the reliability of our network
infrastructure, the ProfitKey server has remained a reliable system throughout the organizations 20-plus-year
history.
The original installation occurred prior to my time
with ADI, but all subsequent upgrades and implementations were done by in-house personnel, with the assistance of ProfitKey technicians when needed. During
our last major upgrade, we purchased on-site assistance
from ProfitKey, but ended up using less than half the
time projected. We experienced few interruptions or
incidents.
Users can quickly look up work orders

and view images of parts.
Figure 2: Inspection report form
Usability
RRM uses a Windows-based interface and provides
users with immediate access to information and simple
reporting. (See Figures 1 and 2.) An online help and
tutorial system is available, which facilitates users
becoming familiar with the programs functions. For
issues that cannot be resolved through the help system,
an incident can be created and resolved with a ProfitKey
technician (provided that a current maintenance plan is
in place). In non-emergency situations, these incidents
are responded to within 24 hoursbut if we have noted
the system is down, an immediate response has always
been received. Additionally, there are online groups and
forums where users can further enhance their knowledge of the system and view other users thoughts on
how the software can better serve its clientele.
The systems visual interface provides key information on a single screen.
Figure 3: Customer management screen
Customization
The system employs user-defined fields throughout.
This means ADI has been able to customize standard,
off-the-shelf software without paying for the customization. ProfitKeys user-defined fields are searchable
and reportable, and they are tied to the proper records.
They even have enabled us to migrate some functions
previously kept outside the ERP system into the system,
which has been valuable to us.
Screens are well designed and provide easy input and visibility of data.

Best features
One of the strongest points of RRM is the ease of viewing and
exporting data. (See Figure 3.) Users can export data to any
other program through a CSV (comma-separated values) file,
which otherwise might require a special report generated by
the database administrator. This assists in getting our employees timely access to information.
The security functions of the system also are easy to manage
and use. A users access restrictions may be as simple or as
complicated as the database administrator wishes. Not only
can a user be limited by application, but access also can be
limited by form or even by fields on forms on a read-only or
a hidden basis. Through this system, ADI can remove unnecessary information from certain users to facilitate more
focused interactions with data. It also lets us hide sensitive
information from some users but allow other critical data in
the same location.
Shortcomings
integrated in the same package, this might substantially

deteriorate the product itself or increase the cost.
Another shortcoming is that the current standard reports
are bulky and not elegant in delivery. This issue does not greatly
affect ADI, as the reports are easily modified.
Overall, the solution in RRM delivers the information
we need in a clear and concise package. It is a cost-effective
product that addresses complex processes, and it is continually
improving and engaging its users to be part of the evolutionary
process. Our relationship with ProfitKey has been more than
20 years in the making. It has benefited both organizations and
hopefully will remain strong as we continue to grow within our
respective industries.
Monty Peterson is contracts manager at Aerospace Dynamics
International. He has worked in aerospace manufacturing in the
Santa Clarita Valley for more than 14 years. He may be contacted
at montyp@adi-aero.com.
One shortcoming of RRM is the use of third-party systems

that require additional tasks to integrate certain data. While
it would benefit users to have these applications completely
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o o m a s pp y ch in o m ke and d s ib te a et of ro uc s dyn m c
ban An a er a ive se of k nb n me ho o ogy to re te n ut mat c
ch ng of a pu c ase o d r o a su pl er Dy amic k nb n s u ed as an
nt of he m nu ac u ing e e ut on sy em o a ow or J st n Time
v r es o pr du t on demand p a ni g Us ng f re a ts nd ex er e ce
t mat dema d fo va i us t m at ar o s po n s in a up ly ha n Se er l
c s in te hn qu s may b us d du ing he l nn ng p oc ss Often ami es
ems a e gg e a ed in do ng his l nn ng A gr ga on a so may oc ur
eo ra h ca re i n r by l e cy le t ge Fo ec st emand s c m ar d to
al emand n o der o mea u e and nc e se o ec st c ur cy Se : d mand
ag m nt inb und l g s ics The g oup n ha ge f m v ng ma er a s
m su p i rs or end rs nto p od c ion p oc s es or t ra e f c l t e ; or
a tu l mo emen of s ch ma e i l
ey pe f rman e i di a or (KP ) a
n i l or no fin nc al me s re e th r t c i al or t a e ic t at s l nk d to
ifi s ra e ic oa s nd ob e t v s ma er a and g The mo emen of
s f om one p i t to no he in i e a f c l y or b tw en f c l i s s ra eg c
ab es The mos impo t nt ar a l s th t e ect he b s ne s e vi onm nt
us n ss t a egy Th se a e t pi a ly h e on
s a io po
on
og ap i s ha ges n t ch o ogy a d g e m
l e tr p e
t m
(TBL) M a ur ng he e onom c so l an n r nm n a
es
a rms ac v t es
v s b l y The a i i y to v ew im or ant n o m t on
ugh ut a ac i y or upp y ch in no m t er wh re n the a i i y or upp y
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p es nd p ac ces o r du e co t hr ugh he e en l ss emo al f wa te nd
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By Richard E. Crandall, PhD, CFPIM, CIRM, CSCP
Perceptions of Peril
Evaluating risk management in supply chains
Supply chain risk management has become a concern for all types of
organizations. As businesses move to loosely coupled networks of customers
and suppliers spread over wide geographic areas and diverse business
environments, the likelihood of potential disruptions increases.
Organization leaders have a responsibility to manage these risks and
minimize the negative effects. However,
as reported in a recent APICS study,
Supply chain risk management is still at
an early stage of maturity and there
are gaps at the organizational management level and the supply chain and
operations management level (APICS
2011). The study found that 72 percent
of organizations do not have a risk
management role or position, and almost
one-third have practiced risk management for no more than five years.
Another survey found that 85 percent
of surveyed companies suffered at least
one supply chain disruption during
2011, with the following being the major
causes: adverse weather (51 percent),
unplanned information technology or
telecommunications outage (41 percent), transport network disruption (21
percent), and earthquake or tsunami (21
percent) (Veysey 2011).
General categories of risk

The number of articles on risk management has increased rapidly over the past
decade, which is typical of new programs. The literature provides a variety
of discussions about risk management in
supply chains. Writers present specific,
but somewhat limited, snapshots of the
total supply chain risk management
mosaic. Spekman and Davis (2004)
looked at the dimensions of risk, which
included
flow of goods and services
flow of information
flow of money
security of internal information
systems
risks with relationships forged among
supply chain partners
corporate social responsibility and the
extent to which supply chain members reputations and images can be
tainted by actions of another member
engaging in improper activities.
At about the same time, Cavinato
(2004) identified risks and uncertainties
in supply chains as
physicalthe actual movements and
flows within and between firms
financialthe flows of cash between
organizations
informationalthe processes and
electronic systems, data movement,
access to key information, and capture
and use of data
relationalthe appropriate relation-
ships between a supplier, the organization, and its customers for maximum
benefit
innovativethe processes and linkages across the firm, its customers,
and its suppliers, as well as resource
parties for discovering and bringing to
market product, service, and process
opportunities.
Supply risks. George A. Zsidisin
(2003) organized risks in supply chains
in a classification scheme that considers elements along the supply chain:
the internal product, the market, and
suppliers. He included three types of
supply risksitem, market, and supplier
characteristicsand compared how
they are affected by higher- and lowerperceived risk.
Hunter et al. (2004) examined the
importance and probability of risk. They
extracted strategies as shown in Table 1.
New product development risks.
While creating new products is usually
viewed as an opportunity to enhance
a companys competitive position, it
also carries with it a number of risks, as
shown in Table 2 (Khan, Christopher,
and Burnes 2008).
Outsourcing risks. Kremic (2006)
compiled a list of risks that could result
from outsourcing activities, which
include
unrealized savings or hidden costs
Table 1: Risk strategies and characteristics

Strategy
Result
Characteristics
Low risk
importance
and low risk
probability
Disintermediation
Nonessential substitutable products

Many potential suppliers with little variation in
capabilities
Product specifications that are easy to develop
Low risk
importance
and high risk
probability
Re-intermediation
Nonessential substitutable products

Many potential suppliers with difference in capabilities
Product specifications that are moderately easy to
develop
High risk
importance
and low risk
probability
Strategic
diversification
Essential differentiated products

Many potential suppliers with similar capabilities
Product specifications easy to develop
High risk
importance
and high risk
probability
Relationship
development
Essential differentiated products

Many potential suppliers with variation in capabilities
Supplier capabilities that are difficult to assess
Product specifications that are difficult to develop
Table 2. Potential risks in new product development

Level of risk
Types of risks
Critical
Product proposition does not meet customer needs

Space planning fails to drive profit
High
Quality fails to meet standards

Supply base strategy is inappropriate
New product results in loss of leadership
Poor availability due to internal planning
Medium
Store environment fails to attract new customers

Unsuccessful at attracting and retaining the right employees
Poor acceptance of corporate brand
Communication efforts do not attract target customers
Supplier cost savings not achieved
Poor supplier performance
Inappropriate and inadequate training for sales teams
Low
Competitors copy products and sell at a lower price

Market doesnt accept target price
Very low
Information technology system doesnt provide adequate management information

New selling channels not attaining anticipated reach
less flexibility
poor contract or poor selection of
partner
loss of knowledge, skills, or corporate
memory
loss of control of core competencies
power shifts to suppliers
supplier problems (poor performance
or bad relations, opportunistic behavior, not giving access to best talent or
technology, and so on)
loss of customers, opportunities, or
reputation
uncertainty or changing environment
poor morale or other employee issues.
Turbulent environments risks. In an
expanded perspective of supply chain
risks, Trkman and McCormack (2009)
developed the following classification
scheme. Supplier attributes include
financial performance, human resource
factors, operational factors, culture,
and relationship factors. Supply chain
strategy and structure involves supply chain type (lean, agile, or hybrid),
supplier types, business structure, and
geographic location. Endogenous uncertainty encompasses market turbulence,
new products, price sensitivity, level
of competition, demand swings, new
customers versus repeat, and technology
turbulence. And exogenous uncertainty
deals with continuous items (interest
rates, gross domestic product, commodity prices, and the like) and discrete
events (such as terrorism, disasters, and
strikes).
Risk management paradigms

That risk management is becoming more
important in most organizations is exemplified in an article in Strategic Finance, the
journal for management accounting. The
author summarized the difference between
traditional financial risks and contemporary business risks. (See Table 3.)
Table 3. Evolution of risk management

Old paradigms of risk
New paradigms of risk
Ad hoc activity
Treasury, audit, and controllership functions
Risks hidden in silos
Risk management prevents bad things
Enterprise resource management is a consultants program
No return on investment in risk
management
Continuous activity imbued in culture

All management, especially accountants
Risk discussed cross-functionally
Risk management creates opportunities
Enterprise resource management is a business
imperative
Positive return on investment in risk
management
The involvement of management

accountants in risk management should
help integrate the allocation of the necessary resources to prevent or mitigate
risks, with operations management
formulating their identification and
strategy. The variety of risk categories
described shows the wide range of risks
in supply chains.
Actions to mitigate or prevent

risk disruptions
There are also myriad actions to mitigate
or prevent risk disruptions.
Matching mitigation strategies with
category of risk. In addition to identifying types of risks, it is important
to develop some actions to prevent or
mitigate the extent of the risk effect.
Chopra and Sodhi (2004) explained this
as follows:
Disruptionsdriven by natural disaster, labor dispute, supplier bankruptcy,
war, terrorism, or dependency on a
single source of supply
Delaysresulting from high capacity use at the supplier, inflexibility of
supply source, poor quality or yield,
excessive handling at border crossings,
or change in transportation modes
Systemscaused by breakdown of
information infrastructure, system
integration or extensive systems networking, or e-commerce
Forecastdue to inaccurate forecasts
as a result of long lead times, seasonality, product variety, short life cycles,
small customer base, or information
distortion
Intellectual propertydriven by vertical
integration of supply chain and global
outsourcing and markets
Procurementthe result of exchange rate
risk, percentage of a key component from
a single source, industry-wide capacity
constraint, and length of contracts
Receivablesaffected by the number
of customers and financial strength of
customers
Inventorybecause of the rate of

product obsolescence, inventory
holding cost, product value, and
demand and supply uncertainty
Capacityresulting from cost of
capacity and capacity flexibility.
The authors recommend that companies use stress testing to understand
and prioritize supply chain risks. This
involves what-if scenarios that enable
people to focus on the supply chain
one link at a time and identify possible
disruptions. As a result of the analysis,
companies will be better able to design
mitigation responses should the disruption occur.
Chopra and Sodhi also identified a
number of strategies to mitigate the
effects of risks:
Increase capacity. Focus on low-cost,
decentralized capacity for predictable demand; build centralized
capacity for unpredictable demand;
increase decentralization as cost of
capacity drops.
Acquire redundant suppliers. Favor
more redundant supply for highvolume products and less redundancy
for low-volume products, and centralize redundancy for low-volume
product in a few flexible suppliers.

Increase responsiveness. Choose cost
over responsiveness for commodity
products and responsiveness over cost
for short life cycle products.
Increase inventory. Decentralize
inventory of predictable, lower-value
products and centralize inventory
of less predictable, highest-value
products.
Increase flexibility. Support cost over
flexibility for predictable, highvolume products and flexibility for
low-volume, unpredictable products;
centralize flexibility in a few locations
if it is expensive.
Pool or aggregate demand. Increase
aggregation as unpredictability grows.
Capability. Select capability over cost
for high-volume, high-risk products
and cost over capability for lowvalue commodity products; centralize high capability in flexible sources
if possible.
The need for strategy

In one of the early articles about the need
to develop stronger supply management,
Peter Kraljic (1983) outlined an approach
to shaping the supply strategy.
Medium
Mitigate with preplanned action or with a

rapidly devised action based on previous
experiences and flexible processes.
Absorb in normal
operations or mitigate
with preplanned action.
Mitigate with agile response

that may require innovation
and originality.
Low
Magnitude of frequency or impact
High
Figure
Frequency
igure 1 1:
F equenc
andand
im impact
act of of
p supply
l chai chain
risks risks
Internal
External
Natural
Source of supply chain disruption

Frequency
Impact
Phase 1. Classification of purchased

items:
Strategic (high profit impact, high
supply risk)
Bottleneck (low profit impact, high
supply risk)
Leverage (high profit impact, low supply risk)
Noncritical (low profit impact, low
supply risk)
Phase 2. Market analysis:
The company compares its own
bargaining power with that of its suppliers by assessing the supply market,
the availability of strategic materials,
and the relative strengths of existing
suppliers.
Phase 3. Strategic positioning:
Consider the areas of strengths and vulnerability, using the following strategies:
- Where the company is stronger than
its suppliers, exploit that strength.
- Where the suppliers are stronger than
the company, diversify supplier base.
- Where the company is equal to its
suppliers, balance the relationship.
Phase 4. Action plan:
Based on the foregoing analysis, a
company should develop strategies for
dealing with volume, price, contractual
coverage, new suppliers, inventories,
production, substitution, value engineering, and logistics.
Kraljic cautions: Few companies today
can allow purchasing to be managed in
isolation from the other elements of their
overall business systems. Greater integration, stronger cross-functional relations,
and more top-management involvement
are all necessary. While he was writing before the surge of interest in supply
chains, it is apparent that he anticipated
the evolution from an internally focused
procurement to an external dependence
on widespread supply partners.
Building confidence through

collaboration
Spekman and Davis (2004) stressed
the need for trust building among
supply chain partners to reduce risk.
Table 4. Number of natural disasters occurrences by type

Type of Disaster
Average 20002008
Year 2009
Flood
Storm
Mass movement, wet (avalanches)
Earthquake (including tsunami)
Extreme temperature
Drought
Wildfire
Volcano
Mass movement, dry (landslides)
178
108
18
30
22
17
15
6
1
147
84
30
22
22
10
9
2
1
392
327
Total
Christopher and Lee (2004) echo

this theme and point out that lack of
confidence can lead companies into
a risk spiral, where the risk increases
and confidence erodes. With increased
confidence, companies are able to
substitute information for inventory,
thereby reducing costs and creating a
positive reduced risk spiral.
Perception versus reality

Zsidisin and Wagner (2010) ask: Do
perceptions become reality? They
believe operations managers have a
good understanding of risks and their
potential impact on the business. If
managers perceive risks exist, they
are likely to take actions to prevent
or minimize the impact if those risks
actually occur. If they take appropriate
action, the negative impact of the risks
will be reduced.
The authors write: Understanding
the source of risk is important for
creating a tailored strategy for reducing the occurrence of supply disruptions, such as the use of flexibility in
order to create resiliency from risk
that originates from extended supply
chains. When risk stems from forces
outside the control of supply chain
participants, it is imperative to insulate
themselves, at least in the short-term,
from the effects of a disruption occurrence by using practices that create
redundancy in the supply chain
(Zsidisin and Wagner 2010).
Figure 1 provides an overview of a
proposed model. The horizontal axis
shows a progression from internal

causes on the left to external causes in
the center to natural disasters on the
right. The vertical axis shows a progression from low impact at the bottom to medium impact in the center to
high impact at the top. Internal risks
of disruption carry a high frequency
of occurrence but a low potential
impact. Natural disasters have a very
low frequency of occurrence but a very
high potential impact. Disruptions
from external sources fall somewhere
between internal and natural disaster
disruptions in both frequency and
impact.
Internal risks can be described as
follows.
Low-impact, high-frequency,
expected, minor disruptions. In
normal operations, more closely linked
supply chains are designed to minimize
disruptions. However, they may also
be the most adversely affected should
a disruption occur. If lean production
practices are used throughout, there
is little buffering with inventory or
excess capacity. Therefore, a disruption
will have a greater negative impact.
Disruptions during normal operations
can be identified and planned for;
therefore, they should have limited
effect on the supply chains operation.
Medium-impact, moderatefrequency, anticipated, moderate
disruptions. The introduction of new
projects or major events can introduce
greater risk. The mandate by Walmart
to use radio frequency identification
by suppliers introduced disruptions

that probably could have been anticipated, but which represented more
deliberate planning to accommodate.
High-impact, low-frequency, lowpredictability, major disruptions.
A final category of risk in supply
chains occurs when participants opt
to remove themselves from the supply
chain. A customer may find another
supplier or a supplier may go out of
business. Product recalls or noncompliance with government regulations
also can represent unanticipated, major
disruptions.
Operating in an open system
environment also presents an array
of external supply chain disruptions.
While some of these changes can be
anticipated, their timing and magnitude often cannot. Their disruptive
impact can range from minimal to
major. While they represent uncertainty, a firm must consider their
potential impact and develop flexible
processes in order to cope with their
eventuality.
Competitors. Competitors introduce new products, change prices,
launch major advertising initiatives,
and buy suppliers. Operations management professionals should identify the
most likely moves by a competitor and
plan an appropriate response.
Economy. Recent fluctuations in the
United States and global economies
caused many companies to rethink
their strategies about outsourcing, new
product launches, investment in added
capacity, and other resource-intensive
decisions. These are new normal
times; decisions that worked well during growth periods no longer do.
Technology. Technology continues
to be a source of progress; unfortunately, it also introduces disruptions
in normal supply chain operations.
Information technology can be especially disruptive when it introduces
major changes in processes and interorganizational communications, such

as electronic data interchange on the

internet or cloud computing.
Government. Federal governments can change tax incentives for
environmentally friendly investment;
strengthen the enforcement of product
tracking; or require health care insurance for all employees. State or local
governments can change the sales tax
rate, restrict waste disposal, heighten
recycling requirements, or increase
incentives for new business startups.
Governments move slowly and in
somewhat uncertain paths, but their
impact can be significant.
Environment. The direction and
timing of the environmental sustainability movement are uncertain.
However, it appears that its impact will
be a major opportunity or threat to
many establishments.
Society. Cultural and generational
differences abound. Buying habits,
especially in the e-business age, are
changing rapidly. Decisions about
investments in brick-and-mortar retail
stores and malls are brain-twisting in
their variations. Executives know the
future will not be like the past, but are
struggling to determine how to use that
knowledge.
Conclusions
Designing and implementing an effective supply chain is difficult, even
without the threat of disruptive risks.
However, good risk management is a
requirement in this age of extended
and complex supply chains.
References
1.
2.
3.
4.
5.
6.
Natural disasters
Yuva (2010) provides a summary of
natural disasters occurring throughout
the world during the last decade, using
data from the Center for Research on
Epidemiology of Disasters, as shown in
Table 4.
The total indicates some type of
natural disaster occurs on the average daily. While some have greater
impact, any could be disruptive to a
supply chain. The recent earthquake
in Japan and flooding in Thailand and
the Philippines are dramatic evidence
that these kinds of natural disasters
can have a significant effect on supply
chains. Firms must be agile enough to
quickly adapt to these unpredictable,
yet not unexpected, occurrences.
7.
8.
9.
APICS 2011 Supply Chain Risk

Challenges and Practices. 2011. APICS
The Association for Operations
Management, Chicago, IL.
Cavinato, Joseph L. 2004. Supply chain
logistics risks: From the back room to
the board room, International Journal
of Physical Distribution & Logistics
Management 34 (5), 383.
Chopra, Sunil and ManMohan S.
Sodhi. 2004. Managing risk to avoid
supply chain breakdown, MIT Sloan
Management Review 46 (1), 53.
Christopher, Martin and Hau Lee. 2004.
Mitigating supply chain risk through
improved confidence, International
Journal of Physical Distribution &
Logistics Management 34 (5), 388.
Hillman, Mark (2006). Strategies for
managing supply chain risk, Supply Chain
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G. Celuch, and Kathryn A. Curry. 2004.
A classification of business-to-business
buying decisions: Risk importance and
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benefits, Industrial Marketing Management
33 (2), 145.
Khan, Omera, Martin Christopher, and
Bernard Burnes. 2008. The impact of
product design on supply chain risk: A case
study, International Journal of Physical
Distribution & Logistics Management 38
(5), 412.
Kraljic, Peter. 1983. Purchasing must
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10. Spekman, Robert E., and Edward W.

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Success!
Now What?
Building a strategic supplier
relationship for the long term
By George F. Brown Jr.
WHEN A COMPANY FINALLY IS RECOGNIZED AS A

strategic supplier, it is a cause to celebrate. But the businesses
involved must take proactive steps to ensure the value is sustained over time. The partners must reach a clear understanding about key performance metrics that will define success;
identify the highest-priority, future-oriented themes on which
they can collaborate; and put in place an explicit relationship
management plan that guides assignments, resource allocation,
and interactions. When these goals are achieved, the companies will have established the foundations of an ongoing stream
of shared successes.
26 March/April
012 | APICS
PICS magazine
March/April 2012
magazine
Rewarding relationships
A Fortune 500 customer recently chose Company X as one of

only a few dozen strategic suppliers. It was a red-letter day for
the business. The customer is not only one of Company Xs
largest, but also one that is respected as a leader in its industry.
It was gratifying to the business to be formally recognized for
its contributions and included on a very short list of firms in
the strategic supplier category.
However, as Company X celebrated its success, executives
started to wonder what would be necessary to ensure the relationship continued to be a strong one. Obviously, the business
had been doing a lot of things rightand the team working
with the customer had always known that the bar was set high
and that their top priority was to clear it with room to spare. But
would that be enough to be viewed as a truly great supplier?
This question is an excellent and important one. Getting recognized as a strategic supplier is a challengeas is sustaining
that position. Far too many firms find success to be transitory.
Whereas sometimes the reasons for the collapse of a business
relationship are outside the control of the companies themselves, in many instances, it is the failure of those organizations
to do whats necessary to prolong success. The following steps
should be taken as businesses work to create the foundations of
rewarding strategic relationships.
Clear performance metrics and goals
Begin by establishing a dashboard that defines the performance

metrics important to both businesses in the relationship, along
with explicit (largely quantitative) goals for each metric. It is
astonishing how many significant business relationships operate without an explicit statement of important performance
goals. And it is even more remarkable that, in the study of
relationships gone sour, the vast majority either had never
defined goals or had done so in only a vague way.
It is useful to think of two categories of performance
metrics. The first involves basic blocking and tackling
assessments that are important to the relationship. These may
include fundamental metrics such as those relating to quality, on-time delivery, and support levels. Basic measurements
include customer goals with respect to Just-in-Time sourcing,
targets for cycle-time reduction, the increasingly high standards of consumers in most markets, and the challenges of new
global markets, among others. Understanding these goals and
expectations about them is an obvious first step in building the
basis for successful management of a strategic relationship.
The second category is metrics that are unique to a strategic
relationship. After all, rarely does a customer choose strategic
suppliers on the basis of the size of the buy. Far more often,
the choice is made because the customer believes the supplier
can contribute to shared successes. Across strong suppliercustomer relationships, the focus of such contributions varies
widely. Case examples involve strategic relationships designed
to reach new global markets, to achieve a breakout offering involving some new technology, and to take costs out of
the system by a cross-company reengineering of roles and
responsibilities.
Strategic relationships almost always involve a belief that
some shared success is possible, going far beyond the many
day-to-day transactions that occur. Identifying and agreeing
upon these possibilities, as well as establishing goals for them,
are the next critical factors to include in the design of the
dashboard.
Obviously, developing this dashboard is purposeful, and the
purpose is to give both firms total clarity as to what is expected
from the other party. The presumptionand its typically a good
one in strong firmsis that, as long as the metrics and goals are
known, management actions can be taken to achieve them.
A focus on the future
A characteristic of best-in-class business relationships is that there

is a constant focus on the future. This stands in sharp contrast to
the situation that exists in weak or troubled relationships, where
almost all discussions are either about past problems or near-term
transactions. Therefore, a priority in creating foundations for
long-term strategic relationships is defining the future-oriented
topics on which the partners should collaborate. This discussion
of future-oriented priorities is very closely related to the identification of the performance metricnamely, those associated with
the strategic, rather than transactional, nature of the relationship.
The potential roster of such topics includes a new product
release, the need to meet a new regulatory standard, and the like.
But many other options exist beyond the obviousand the more
effectively the two organizations can engage in creative discussion,

the more likely they are to identify ones that have a real potential
to create value.
One executive described a meeting involving individuals from
his company and from a strategic supplier determined to identify
future-oriented action plans. He said, I know a number of people
went into this meeting thinking it was somewhat a make-work
assignment conjured up by the two relationship champions, but
it turned out to be anything but that. A part of the reason for this
was the pre-work that had been done, as it served as the catalyst
for a very productive discussion.
During the day, we had two reports from outside experts
that were brought in for the session. One of these people
gave his perspectives on the key challenges our industry
would face during the next five years. Some were in the
category of old news, but a few werent on our active radar.
The second and far more valuable presentation involved a
summary of what our own customers had to say about the
future. That was eye-opening, as they were thinking about
some things we arent ready for. There are a few of these
were still trying to digest and think through in terms of
implications for us.
Another exercise during this meeting was asking each of
the two firms to be very open and tell the other what they
were doing that didnt make sense. I know we had a few
examples that we communicated to the supplier involved in
the meeting. And they had a few examples to tell us about.
The goal established when we started the session was to come

up with three action plans on which we would collaborate. By the
time we got to the final part of the day, the challenge was cutting the
list down to three. We got there, but we have a starter list for the next
time we go through this exercise that includes some pretty interesting ideas.
While it may be easy to identify some typical future-oriented
areas for collaboration, the payoff for going beyond the obvious can
be substantial. And the effort almost always also pays dividends in
building trust and understanding between supplier and customer.
A relationship management plan
Defining a formal plan through which the relationship should

be managed also is essential. Just like the failure to define performance metrics, relying on informal processes and interactions to
manage customer-supplier relationships can be fatal.
APICS
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March/ ril 201
7
meetings will involve point people, executive sponsors, and key participants from
the two organizations who are involved
in an ongoing basis in the relationship or
are central to the topics on the meeting
agenda.
One of the imperatives at such meetings
is that there is full and explicit discussion.
Ask questions to ensure expectations and
priorities havent shifted and that everyone
is on the same page. Another often-asked
question is who should take the lead in advocating and managing partner interactions. The data suggest that it is most often
the supplier organization that does so. This probably reflects the
traditional model, in which suppliers court customers. In the
end, however, what matters is that at least one company takes the
responsibility to implement key actionsafter all, the ultimate
success will be welcomed by both companies.
Relying on informal processes and

interactions to manage customersupplier relationships can be fatal.
A relationship management plan has what, who, and when
dimensions. The who should include individuals who are the
point people in managing the relationship, a pair of executivelevel champions, and a roster of people across functional and
geographic segments of the companies who are relevant to the
transitions and priorities that define the relationship. The point
person from the supplier company typically is the individual with
the role of managing the strategic account relationship. The point
person from the customer organization frequently is the individual from the supply chain management group with responsibility
for that supplier relationship.
The responsibilities of these point people are extensive, and
sustaining contributions often is challenging, as the point people
can easily be consumed by details associated with the numerous
everyday transactions that take place. For that reason, it is critical
that the individuals in these roles come up with a time management strategy. One way is by creating
strong touch points between the partners
and avoiding situations in which they serve
as funnels connecting the two organizations. As the performance dashboard and
future-oriented priorities are definedand
in consideration of the products, functions,
and geographies associated with everyday
transactionsthe point people in strong
relationships quickly involve others from
their organizations and make sure they
are fully engaged and have a clear sense of
priority.
The executive sponsors are the champions of the point people, sometimes taking action to make sure these individuals
can focus on the right topics. They must
problem-solve when that is called for. And
they must ensure that their organization
puts into place the processes, systems, and
skills necessary to sustain successful strategic relationships.
The what and the when elements of
the relationship management plan will be
driven by the performance management
dashboard and the defined future-oriented
priorities. In virtually all strong suppliercustomer relationships, there are quarterly
meetings with a formal agenda and an
explicit review of progress. Ideally, such
28
012 |APICS
28 March/April
March/April 2012
APICSmagazine
magazine
George F. Brown Jr. is the chief executive ofcer and cofounder of

Blue Canyon Partners, a strategy consulting rm working with leading
business suppliers on growth strategy. He also is coauthor of CoDestiny:
Overcome Your Growth Challenges by Helping Your Customers
Overcome Theirs. He may be contacted at bluecanyonpartners.com.
To comment on this article, send a message to feedback@apics.org.
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The ability to mass customize individualized products is incredibly

important for many businesses today. These companies offer a rich
combination of options, resulting in tens of thousands of possible end
products. Managing the flow of such a huge variety of products can
be extremely difficult, and factories that make large numbers of items
have a reputation for long lead times and late deliveries. Although
kanban systems have helped improve flows, kanban is ineffective for
low-volume production. The good news is there are some emerging
techniques available to support varying factory environments.
Ten years ago, Tom Schabel, president of Alexandria Extrusion
Company (AEC) in Alexandria, Minnesota, was looking for ways to
improve his operation. AEC specializes in small-batch and custom
aluminum extrusions. While the company had an excellent reputation
for quality, it suffered from long lead times and poor on-time delivery
performance. Around the same time, P&H Mining Equipment in
Milwaukee, Wisconsinwhich makes large custom equipment such
as mining shovelswas facing similar issues. Both businesses had
looked into kanban and decided it did not fit their operations.
AEC, P&H, and other companies with similar goals partnered
with the University of Wisconsin-Madison to prove out a competitive
strategy called quick response manufacturing (QRM). As part of this
effort, they pioneered the implementation of paired-cell overlapping
loops of cards (POLCA), an alternative to kanban.
Developed at the Center for Quick Response Manufacturing along
with industry partners over the last 18 years, QRM is a strategy for
reducing lead times by 80 percent or more, heightening quality, and
cutting costs at businesses that manufacture low-volume and custom
products. While QRM is applied enterprise-wideincluding in the
office and the supply chaina key part is reorganizing
the shop floor into QRM cells, which are highly
flexible and perform a variety of operations. For instance, a company could
have sev-eral types of fabrication cells
feeding multiple subassembly cells,
in turn feeding final assembly cells.
The next step is to route jobs through the right combination of

cells to make the needed end items. Material requirements planning
(MRP) is used to map out this routing and to create the initial schedule. Then, as jobs are launched, POLCA helps keep them flowing and
on target with delivery dates.
Kanban systems have been successful at controlling jobs, so why not

use this methodology? In short, kanban is a pull system: Parts are
pulled through the factory as they are used in downstream operations. Starting from finished goods, when a container is shipped, a
signal is sent to the previous operation to restock it. That previous
operation has partially completed material waiting in its stock. When
it draws a container to work on, it sends a signal to its previous operation to resupply that material. These signals are in the form of kanban
cards, and each specifies a part number and quantity. Thus, kanban
requires partially completed products stocked in containers at each
stage of the manufacturing system and supply chain.
B/GLoop
A/BLoop
CellB
CellG
CellA
CellD
CellK
Figure 1: POLCA loops between pairs of cells
If you make parts with high demand, material keeps moving,

and kanban works well. However, consider what happens when you
make products with low demand. Suppose a company makes axles
for non-automotive applications such as construction equipment.
Lets say this company stocks a container with six axles of a certain
type, and it gets an order from a distribution center about once a
year for one of these containers. When this order arrives, the container is shipped, and a kanban signal is sent to the previous operation. Within a couple of days, the previous operation completes
the six axles and restocks the warehouse. These axles will sit in the
warehouse for a year before another order is received.
So the business would have an inventory turn rate of only once
a year for this productin an era when management expects
to achieve turns of 20 or more. Not only are axles sitting in the
warehouse, but there also are partially completed products sitting
throughout the whole flow path. In fact, kanban systems have a
name for these intermediate stocks: supermarkets. When volume

is high, items move through the supermarkets quickly. But in lowvolume environments, instead of reducing inventory, this approach
actually adds inventory.
Now suppose this company receives an order for two customengineered axles for a prototype vehicle. Kanban wont work at all
because it is a replenishment system. You ship finished goods, and
then send a signal to replenish them. But you cant have something in finished goods if it has never been made before; it hasnt
even been engineered yet.
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Figure 2: POLCA card
Kanban was not intended to operate in environments of low

volume or custom products. However, POLCA is designed specifically to meet these needs.
When material flows between any two cells, they are connected by
a POLCA loop, which contains a number of circulating POLCA
cards. (See Figure 1.) These cards are specific to this loop and called
A/B cards. When Cell A is scheduled to start a job destined for Cell
B, it needs to have an A/B card in order to launch the job into Cell
A. If a card is available, the job is started and the card is kept with
the job. When Cell A completes the job, it is sent along with the A/B
card to Cell B. Cell Bs operation will be discussed later on in this
articlebut, for now, note that when Cell B finishes working on this
job, it sends the job to the next cell and sends the A/B card back to
Cell A. Thus, a card coming back from Cell B conveys the message
we finished an A/B job; you can send another.
This highlights a distinction between kanban and POLCA.
Kanban is an inventory signal (when a quantity of parts is used up, it
tells the previous operation to restock that inventory). On the other
hand, POLCA is a capacity signal (returning POLCA cards signify
availability of capacity in downstream cells).
This means that, unlike kanban cards, POLCA cards do not list
a part number and quantity, only the names of the two cells. To
enhance visual management, cells are assigned colors, and each
POLCA card has two colors. The left half has the name and color of
the originating cell, and the right half has the name and color of the
destination cell. (See Figure 2.)
How does Cell A decide which job to start next? Based on ship dates of
end items, the MRP system back-schedules requirements in the normal
way and calculates start dates for jobs at each cell. With POLCA, these
are called authorization dates because cells need to follow additional
rules before starting jobs.
For each cell, the MRP system compiles the usual dispatch list (say,
once a day or once a shift), which shows all the jobs that have yet to be
started. This list is ordered by authorization date, with the earliest at the
top. Only jobs with start dates of today or earlier are authorized. The cell
team takes the first authorized job on the list and checks the next cell
for this job (provided in the dispatch list). Suppose the job is going to
Cell D next. The Cell A team checks if it has an A/D POLCA card. Each
team has a bulletin board where it organizes its available POLCA cards.
(See Figure 3.) If an A/D card is available, the job is launched into the
cell along with this card. If no A/D card is available, then the team must
skip this job and go to the next one on the list.
Why is this rule beneficial? Lets say there are five A/D POLCA cards.
If the dispatch list for Cell A has a job destined for Cell D, but no A/D
cards are available, this means all five cards are in use with other jobs.
Either Cell D is backed up or enough work is on its way to Cell D, so
sending another job means it will just add to work in process (WIP).
On the other hand, other cells may be waiting for work from Cell A. If
the next job on the list is for Cell B and an A/B POLCA card is available,
this implies Cell B could use the work. Skipping the job for Cell D and
working on the job for Cell B is a good idea. Thus, POLCA makes effective use of capacity by ensuring that upstream cells work on jobs that go
somewhereinstead of jobs that end up in bottlenecks.
It may sound radical, but if no cards are available for any authorized jobs, the cell cannot start any jobs. Typically, if people dont have
work, a supervisor will look ahead in the schedule and start jobs even
if they get made earlier than needed. In POLCA, jobs with dates in
the future cannot be started even if the appropriate cards are available.
Figure 3: Bulletin board displaying all POLCA cards
At first, this makes management uneasy. Yet there are good reasons
why these rules have resulted in better operations. Whenever you
put capacity into an unnecessary job, you steal capacity from another
job that might have needed itplus, you create WIP. Say you start a
job ahead of schedule, and then a POLCA card arrives for a job thats
behind. For instance, if you have already set up your machine, you
want to finish the job you started. This job adds to WIP, while the late
job has to wait even longer.
Lets return to the job that went from Cell A to Cell B. Suppose
the next cell for this job after Cell B is Cell G, so there is a B/G
POLCA loop as well. (See Figure 1.) Each cell implements the
same scheduling logic, so, when the job arrives at Cell B, the team
must wait for the job to be authorized and all other jobs above it
on the dispatch list begunor be waiting for POLCA cards. Then,
it must check if a B/G card is available. If both conditions are met,
the B/G card is allotted to the job, and it is started. However, the
job also arrived carrying an A/B card, and that card will not be
sent back to Cell A until the job is completed at Cell B.
With kanban, you send a card back as soon as you collect the
material. But because POLCA is a capacity signal designed to work
with jobs having varying work content, you dont want a cell to send
a signal until it actually finishes the job. So the job that was launched
into Cell B still carries the A/B card with it. In addition, it now has
the B/G card. While it is being worked on in Cell B, the job will thus
have two POLCA cards. (See Figure 4.) Hence, POLCA loops overlap
throughout the routingexcept at the first and last cell.
During the past 10 years, POLCA has been implemented in

many types of factories, including machining and fabrication,
electromechanical assembly, and equipment manufacturing.
Here are some benefits that these factories realized:
Companies dont need to replace their MRP system. POLCA
builds on the existing system and improves its performance.
POLCA ensures effective use of capacity and reduces congestion. For example, P&H Mining connected 12 shop floor cells
and other facilities. During the first year, WIP was reduced by
$3 million.
Frequently occurring bottlenecks are flagged by POLCA. When
upstream cells are held up by the same cell, teams point this out
and work with management to find a solution.
POLCA continually re-sequences jobs during their flow. Jobs that
are behind bubble up to the top of the dispatch listbut, at the
same time, areas that are bottlenecked are avoided and work is
sent to other areas that can use it. After implementing QRM and
POLCA, Alexandria Extrusion achieved near-perfect service levels, while quoting shorter lead times and carrying less inventory.
Companies have seen the
elimination of hot jobs.
Bosch Hinges, which
makes specialty hinges
in small batches, was
constantly struggling to
meet delivery dates. The
owner attended a QRM
workshop and pioneered
the first implementation of POLCA in the
Netherlands. Today, the
company makes even
Figure 4: Job in process in
smaller batches and has
Cell
K and two POLCA cards
more work orders in processplus, it has no rush
jobs, has no late deliveries, and is more profitable.
Providing customized products with short lead times is a
powerful strategy. QRM and POLCA provide companies with an
effective strategy and tools to achieve this objective and to retain
and even grow jobs.
Rajan Suri is emeritus professor and founding director of the
Center for Quick Response Manufacturing at the University of
Wisconsin-Madison. He is the author of two books on QRM,
including Its About Time, The Competitive Advantage of Quick
Response Manufacturing. Suri may be contacted through his
website at rajansuri.com.
ICS magazine
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Mapping supply chains is a very revealing process. Maps

quickly can become complex visuals when fully populated.
Insightful maps often depict the geographical location of
suppliers, lead times, manufacturing plants, transportation
routes, intermediate warehouses, distribution centers, and
major markets. (See Figure 1.)
It is important that maps are structured to allow for filtering or layering. Complex networks require a greater degree
of map deconstruction to help separate causes from effects.
In the presence of large numbers of stockkeeping units
(SKUs) or categories, mapping must attempt to provide the
clearest picture of the materials origin, movement, and ultimate destination.
More intelligent models include shipment frequencies,

product mix and volumes, the location and quantity of pipeline
inventory, supplier delivery performance, and total landed cost
across primary value streams. Sharing this information often
leads to good questions: Why are we still buying material from
suppliers in Arizona and converting it in New Jersey? What is
causing us to need three warehouses for outside storage near
our Mexico plant? Which suppliers in this cluster provide the
lowest landed costs?
Mapping improvements
The mechanics of building a supply chain map is not the
central focus of this article. Suffice it to say that there are
numerous means of accomplishing this task, such as physical
wall maps or digital versions using applications that leverage
Google technology. The most important aspect of the maps
to increase the synchronized velocity of

value streams. Second, use six sigma
(or any effective methodology) to reduce
variation within existing flows.
Figure 3 illustrates one approach to
leveraging insight from visual supply
chain maps, especially when integrated
with value stream mapping. The illustration relies on lean six sigma to identify
the non-value-added activities from
supplier to customer. Projects then are
required to actually improve the processes. Continuous improvement across
the three main supply areas is based on
the organizations capability to execute a
series of parallel but interrelated projects.
It is also imperative that management is
open to temporary realignment of process ownership for the duration of these
specific projects.
FIGURE 1. Supply chain map
is that the information is current and accurate. It cannot be overemphasized that the
underlying purpose of the map must be understood ahead of its development. Will its
primary objective be to support network redesign or simply to identify where supply
sources should be located? Is the goal to optimize inbound materials or outbound finished goods?
As one might imagine, mapping logistics relationships between entities can quickly
overwhelm any diagram. This endeavor does not work well with spreadsheets. However,
maps that offer geographical perspectives are intuitive and more easily interpreted. The
use of color-coding can help distinguish categorical information. Logistical data are best
presented as direct point-to-point lines or by using overlays of actual highway or railway
information. The graphic representation of the network itself can reveal hidden patterns.
Following are steps for creating and leveraging the insight of these maps:
1. Understand the primary audience and focus of your specific map.
2. Identify major activities and flows that depict the most accurate representation of the
current state.
3. Populate with supplier and process data, including metrics, volumes, freight, and the
like.
4. Create a lean value stream map (VSM) for each primary supply stream.
5. Launch improvement projects to eliminate non-value-added activities.
Making the plan
Identifying opportunities
Building the map is easy; determining what to do next is what brings value. One tool for
identifying opportunities across supply chain activities is the extended VSM. (See Figure
2.) Value stream mapping enables you to assess the worth of process segments. It is
unnecessary to develop VSMs for all supply relationshipsinstead, focus on the key
ones. Much can be learned by comparing value streams that are known to be great to
those with a reputation for being unsatisfactory.
Taking action
At this point, the engagement area has been defined, constraints identified, and critical paths revealed. Now comes the heavy lifting. But first, it is imperative that potential
improvement actions align with corporate and business strategy. The application of
tools within the lean world implies that the leadership team has stated that corporate
objectives include reduced lead times and significantly less inventory.
To improve value streams, the idea is to focus on operational measures versus financial metrics, which are prevalent in most organizations. First, the overriding objective is
FIGURE 2. Generic value stream mapping template

GP
Cycle Time 40 min

VA CT
20 m
NWA CT
20 min
40 min
20 min
Hospital
Registration
Triage
Sort/Appointment
11 days
4 days
30 days
7 days
5 days
11 days
4 days
30 days
7 days
5 days
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The toughest piece of supply mapping

is creating projects that are designed to
improve operational performance. The
inbound side of value streams is where
companies can begin their efforts to
improve end-to-end operations. These
following project ideas are based on
insights gleaned from supply chain mapping and lean six sigma.
Supply map area 1planning.
Improvements in planning require leaders to fully understand the delta between
forecast, order management, supplier
scheduling, manufacturing, and inventory levels (in both the pipeline and finished goods). Furthermore, the planning
parameters relating to system-maintained
lead times, safety stock, and the like
should be reviewed and updated frequently. It is important to remember that
the people who initially configured materials planning systems likely are no longer
in those roles. Therefore, knowledge
sharing is a good idea.
Projects created within the planning
function should focus on inventory and
activities that create inventory. For starters, consider
improving finished goods forecast
accuracy from X to Y percent of historical demand
reducing ahead-ofuse inventory from
X to Y percent of
weekly consumption.
Improvements in planTreatment
ning can immediately
affect the amount of
inventory purchased,
warehouse requirements, and transportation expense incurred.
It is imperative that
improvement projects focus on this area

first. If your organization has an inventory problem, consider asking a seasoned practitioner of lean to develop a
detailed process map that documents
the inputs, outputs, and root causes
from end to end.
Supply map area 2sourcing.
Improvements in sourcing include challenging the geographical location of
suppliers, order lead times, up-side
and down-side flexibility, transportation
expense, pipeline inventory, and delivery
performance of suppliers relative to the
manufacturing centers they support.
Landed costs that can be directly associated with specific suppliers typically blur
once material is received. Cost traceability beyond this point requires aggregation
and allocation across all goods produced
by manufacturing.
Improvement projects in the procurement space typically require negotiation
and should begin with
reducing delivery lead time from X to
Y days without increasing inventory
increasing supplier on-time delivery
performance to original promise date
from X to Y percent.
The primary aim is to identify those
policies, practices, constraints, and
paradigms that limit operational performanceand to help management
address issues. Collaborating with suppliers is the most critical factor in finding
the greatest opportunities. Suppliers
must be charged with helping reduce the
total landed costs associated with getting
components to the point of manufacture.
Supply map area 3manufacturing. Significant improvements in
manufacturing processes are possible,
especially where projects are structured
to increase synchronization between
suppliers and manufacturing. Inventory
buffering typically is highest just ahead
of the conversion process. This often
is driven by the loose control of supplier deliveries. Whenever suppliers are
delivering to static warehouses and not
direct to production, freight, storage,
and material handling are far from ideal.
However, manufacturing capabilities can
be strengthened and more synchronous
value streams achieved by
extending firm production schedules
from X to Y days for category Z
products
increasing direct-to-production deliveries from X to Y percent for category Z products.
Bringing it to bear
Enterprise supply chains are indeed complex. Improving segments of numerous
FIGURE 3. High-level value stream with three supply areas
Storage
Storage
Warehouse
Manufacturing
Distribution
Storage
value streams requires a holistic, integrated approach that acknowledges this complexity. Simplifying the complexity by virtue of illustration can be an extremely worthwhile
endeavor. This, combined with the geographical intelligence of supply chain maps, can
help organizations visualize opportunities well beyond the fog and fear of complexity.
Supply chain mapping, lean six sigma, or something else? When it comes to improving supply chains, no single tool works best. Supply chain and operations
managers would be wise to consider making the most of them.
Darren Pitts, CPIM, CSCP is a lean six sigma master black belt for Kraft Foods. He has
taught at Purdue University and is an APICS instructor in Chicago. He may be contacted at
darren@supplychainarchitect.org.
APICS
extra
APICS Extra Live: Strategic Imperatives for

Improving Supply Networks
Presented by:
Darren Pitts, CPIM, CSCP
Lean Six Sigma Master Black Belt
Kraft Foods
Date: April 19, 2012

Time: 1:00 p.m. 2:00 p.m. CT
Attend APICS Extra Live to gain deeper insight into

the March/April APICS magazine article On the Map.
Author Darren Pitts, CPIM, CSCP, will discuss tactics
for developing superior supply chains through
effective mapping, strategic change management,
and appropriate education and training.
In this APICS Extra Live, you will learn to
embrace the reality of transformation as
a business imperative
recognize the value in visually mapping your
supply network
understand why operations savvy talent
must be developed.
REGISTER ONLINE AT APICS.ORG/EXTRA.
PICS magazine
gaz n | March/April
arch/Apri 2012
2012 29
APICS
37
OUT OF STOCK
Discovering innovative solutions to inventory problems

B
ssl r
By Jan
Janett H
Hessler
My company manufactures data networking solutions and

accessories, including items such as connectors, plugs, and
cables. Recently, we experienced an unexpected opportunity,
which led to significant operational enhancements in our accessory handling processes. The opportunity arose from a traditionally unlikely source: conflictthe sort of conflict that exists
between departments at nearly every organization.
It began on a day like any other, but then the unthinkable
happened: The stock of a particular connector became fully
depleted. This meant that a critical customer shipment was
delayed until we could expedite a supplier delivery. After
probing into the root causes, we eventually realized the failure
was caused by a lack of communication between the marketing and
engineering departments.
Marketing staff would identify shippable accessories (which
are bundled and included with a
base product) in shipping notes.
Meanwhile, engineering controlled
the product design and documentation. The two groups initially
agreed on what accessories should
be provided to the customer; but,
over time, product notes expanded
to include accessory items that
lacked documentation, which brought about hidden costs
and understated system demands.
Clearly, something needed to be done. Company leaders
created a cross-functional team tasked with finding a solution to reconnect the planning and end use of accessories. I
contributed to these efforts as the representative for materials. The following actions occurred based on the teams
decisions:
Marketing relinquished control of the text notes for
accessories and coordinated those items needs with
engineering.
Information systems improved the sales order system and
shipping documents to receive accessory requirements
from the parent products bill of material (BOM) instead
of text notes.
Engineering updated product BOMs and assigned a
unique prefix to each accessory item, including all accessories deemed applicable by marketing.
In materials, finished goods stock clerks picked and prepared products and their accessories using the improved
shipping forms.
Figure 1 illustrates our accessory process flow at this

time. Accessories were received at the dock, inspected, and
transferred to the raw materials stockroom located on the
other side of the building for release with production kits.
Although accessories were now bypassing manufacturing,
why not deliver them directly to finished goods?
After inspection, accessories were moved to the raw
materials stockroom, then transported to finished goods
(and restocked) when kits were released to manufacturing.
When a product was ready to ship, the accessories once
again were picked and packaged to match the shipment
quantities. The duplication of effort involved was obvious.
We eventually realized the

failure was caused by a lack
of communication between
the marketing and engineering
departments.
A chance for change
The first wave of improvements eliminated marketings data

entry and manufacturings handling of accessory items.
Correcting those highly visible process failures ultimately
fixed accessory demand and usage, and managers were
pleased with the results and ready to move on to other
priorities. But I wanted to take our handling processes to
the next level. Further, the handling of accessories begged to
become even more streamlined.
My personal goal became to cut in half the handling of

accessoriesthus streamlining the process to stock, pick,
and package only once.
Following are the lessons I learned while making this happen, as well as the steps it took to get where we are today.
Consider point of use. After accessories were brought to
the raw materials stockroom, they just sat there until they
were needed by finished goods. The logical solution is to
bring them directly to finished goods after inspection. The
material flow for accessories now differs from that of components needed for production, but it puts accessories where
they are needed. A separate path to finished goods reduces
the transportation route within the building and eliminates
the waste of duplicating stocking, picking, and packaging.
Coordinate material requirements planning (MRP)
practices. Supply and demand for accessories will vary
based on a companys shipping methods. We configured our
MRP system to use BOMs to link accessories to their parent
products, which also simplifies the customer order process.
This setup is valuable to marketingthey liken it to purchasing a laptop computer with an included power adapter. The
planning improvements inherent in the consolidation of the
accessory stocking locations keep our inventory lean. They
also provide better visibility into shipping dates, instead of
relying on the kit release dates that used to drive demand.
Get smarter about inventory. Accessories were not kept
in a perpetual stock location, as they were considered part
of the parent products inventory value and count. Thus,
finished goods needed ample accessory quantities on hand
to accommodate the shipments of parent products. Now,
accessories are physically and continuously stocked as raw
A ICS
a
Ap 2 12 27
materials. The stocking duplication, while cumbersome, lets us

separate accessories available for kits from accessories assigned
to work in process and finished goods.
This setup does demand a detailed analysis of the quantities
of accessory items available. Finished goods stock clerks could
manage the calculations manually; but, adding a new task of
this magnitude to the groups responsibilities offsets the eciency improvements. Instead, stock clerks correct differences
between physical and perpetual counts, identify root causes
of discrepancies, and verify inventory accuracy through cycle
counting. With improved documentation, planning, and inventory reporting, we maintain a much leaner accessory inventory
level while reducing the risk of stockouts.
START
All parts received

and inspected
All parts stocked

in raw materials
stockroom
Remainder of kit
released to manufacturing
I considered three approaches for lot control. The first

was to remove lot control flags from accessory items
and replace them with floor stock flags. Work in process
would be removed from inventory reporting requirements, simplifying the calculation to determine the
physical count in the stockroom, which merely would
be quantities assigned to finished goods combined with
the perpetual stock quantity. This would automate work
orders and reduce stockroom data entry responsibilities.
Unfortunately, removing the lot control flag removes an
accessory items inspection requirement upon receipt. As
all accessories need to be inspected, we could not eliminate
the lot control flag.
Work order kit

issued/accepted,
picked, and packed
Parent product
assembled and
tested
Accessory brought
to finished goods
stockroom
Parent product
completed to
finished goods
Accessory stocked
in finished goods
stockroom
Parent product
and accessory
picked, packed,
and shipped
END
Parent product
held in finished
goods until
shipment
Figure 1: Initial accessory process flow
Accessory stocked
in finished goods
stockroom
START
Accessories issued
to work order
Parent product
and accessory held
in finished goods
until shipment
Parent product
and accessory
picked, packed,
and shipped
END
END
All parts received

and inspected
Other components
stocked in raw
materials
stockroom
Work order kit

issued/accepted,
picked, and packed
Parent product
completed to
finished goods
Figure 2: Final accessory process flow
Update approaches to lot control. The most complex, and

possibly the most important, aspect of changing our accessory
process was addressing our commitment to component field
traceability. Previously, we recorded a manufacturers production
lot upon receipt. All components then were issued to work orders
by lot. This should require knowing exactly the manufacturers lot
of accessories shipped; but, often, it was not known because the
finished goods stock clerk couldnt see what accessory lot shipped
with a particular product. The accessories were separated from
the production work order and shipped on a first-in-first-out
basis, regardless of the parent products work order.
28
ch Ap i 2012
01 | A
S magaz
n
40 Ma
March/April
APICS
magazine
The second approach I considered was the other

extremeimposing full lot control. This would limit
our exposure in the event of product failures in the field.
Finished goods personnel would issue accessory items
when parent products were completed to stock. Related
accessory items would be stored with appropriate parent
products, and the general stock physical quantity would
match the perpetual quantity. This would simplify inventory reporting requirements even further by eliminating
the additional reporting needs. However, this method
would require significant resources to stock accessories
After accessories
were brought to the
raw materials stockroom, they just
sat there until they
were needed by
finished goods.
Maintaining lot control via receipt drives our inspection requirements and provides assurance that the received item meets our
inspection criteria. By eliminating lot control through lot level
at the back end of the process, we can treat accessories as floor
stock. Thus, accessory issue transactions automatically record
upon completion of the parent product to finished goods. The
implementation of this method is in progress.
The failures we discovered in our marketing and engineering product documentation practices shined a spotlight on a
handling process that was in dire need of attention. Our ultimate
solution, which can be seen in Figure 2, eliminates duplications
by stocking all accessories in finished goods. The original process
dictated we treat accessories as we do all production requirements. In reality, they warrant special care and attention and are
a key factor in customer satisfaction. The lessons we have learned
that stemmed from conflict have streamlined our handling processes, boosted our quality, and improved our overall organizational effectiveness.
with corresponding finished units and record transactions

that were previously automated, making it rather inefficient. Moreover, it is unlikely that accessories actually
caused product failures in the field.
I discovered a third approach to lot control in the system
software literature. Lot levela subcategory of lot control
we had not previously usedenables us to define the stocking point where lot control is no longer required. Lot-level
functionality combines the best of both worlds for accessories.
Janet Hessler is materials manager for a manufacturing company

in Long Island, New York, and a student at St. Josephs College in
Patchogue, New York. She may be contacted at jhessler@student.
sjcny.edu.
DO YOU HAVE WHAT IT TAKES?

Be an APICS Magazine Author
As an APICS magazine reader, you value the highquality information, case studies, and best practices
you access in these pages. Now is the time to share
your knowledge and industry expertise by taking
your involvement with APICS a step further and
becoming an APICS magazine author.
The editors of APICS magazine and APICS Extra
encourage you to submit an article for publication.
Visit apics.org/magazine to learn more about
APICS authors guidelines, feature article
specifications, and editorial procedures.
A ICS
a
Ap 2 12 29
P+IM Directory
MARCH/APRIL 2012
Product: AIM Vision

AIM Vision, the ERP software package for repetitive automotive suppliers and contract fabricators, is a
proven solution that focuses on lean manufacturing initiatives.
Implemented by our APICS certified resources, AIM Vision features EDI integration into production
scheduling complete with demand smoothing. Demands are used to generate MRP/CRP reports, fully
synchronized for supply chain planning. In addition, AIM Vision meets MMOG/TS16949 requirements.
Some capabilities include outside processing, lot control, finite scheduling, barcode label generation and
significant use of operator friendly edit and validation aids.
AIM Computer Solutions, Inc.

34673 Bennett Drive
Fraser, MI 48026
PH: (586) 439-0300
Email: sales@aimcom.com
aimcom.com
The MES application provides for barcode-based material and container tracking of raw material, semi
finished goods, and finished goods inventory, as work in process travels inside and outside of the plant
creating the framework for barcode-based production entry, and a selection of inventory auditing and
accounting selections. Specialized modules include plant floor capture of scrap and labor efficiency and a
range of reports that provide visibility into man, material and machine movement and utilization. Call us
today to schedule on online demonstration.
Product: RapidTrak
RapidTrak the low-priced, web enabled, wireless material tracking system designed to provide basic
warehousing, inventory tracking and logistics functionalities; a valuable tool for tracking MRO Items,
tooling and die sets, and perishable materials consumed in manufacturing.
AIM Computer Solutions, Inc.
34673 Bennett Drive
Fraser, MI 48026
PH: (586) 439-0300
Email: sales@aimcom.com
aimcom.com/RapidTrak.htm
Highlights:
RF portable data collection or PC-based
data entry
Mobile application for fleet inventory
Economical barcode labels to reduce errors
Hosted solution on dedicated and managed servers that are PCI Compliant, and SAS 70 certified
Multi-language capable
User-defined Email Alerts
Multilingual Email messages for alert
User-definable fields with validation
Integrates with Microsoft Dynamics GP
Company Index
AeroGo
Aerospace Dynamics International
AIM Computer Solutions
Alexandria Extrusion Company
Apple
APS Resource
Arkieva
BEA
Columbus
Columbus McKinnon
Crown Equipment
Datalogic
Demand Works
Dematic
Disney
Dr Pepper Snapple Group
General Electric
General Motors
Glacier Computer
IBM
IFS
aimcom.com
arkieva.com
demandworks.com
IFSworld.com/us
Features:
Track inventory moves and transfers
Manage consumable inventory
Track and verify additional
product characteristics via user-defined fields
Find inventory by Warehouse, Location, Item
Number, TrakID or UPC
Trace inventory audit transactions
Convert multiple units of measure
Putaway by HAZMAT or other grouping
Verify TrakIDs at Warehouse/Location
The following companies appear in this issue of APICS magazine either as part of
the editorial content or as a paid advertisement. Note: Advertisers appear in bold.
8
1820
42
3032
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43
9
8
9
8
9
28, 43
9
1213
7
13
12
8
13
43
JustEnough Software
Keyora
McKinsey & Company
Microsoft
OnAsset Intelligence
P&H Mining Equipment
Panacea Aftermarket
Procter & Gamble
ProfitKey International
Rockwell Automation
SATO
Tiffin Metal Products
WAM Supply Chain
APICS CPIM
APICS CSCP
APICS International Conference & Expo
APICS OMBOK Framework
APICS Supply Chain Channel
APICS Website
Best of the Best S&OP Conference
wamsupplychain.com
apics.org
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Arkieva software (formerly Zemeter) enhances the timeliness and effectiveness of the supply chain by enabling
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wamsupplychain.com
Lessons
Learned

By Gary Kerslake
Are You Playing Guessing Games?

Oftentimes, supply chain and operations
management professionals find that aligning supply chain management with other
strategic objectives is hampered by the
unavailability of timely and accurate data.
The problem goes back to the beginning
of the industrial revolution, and, in too
many companies, it is still an issue.
I once consulted with a business at
which parts shortages were so common
that achieving production schedules was
the exception, not the rule. The supply
chain managers claimed their inventory
accuracy was 98 percent, but experience
suggested that doubtful. The enterprise
resources planning (ERP) system was
blamed for the chaos, so my assignment
was to help them select a new one. I
determined that 98 percent inventory
accuracy referred only to A items in the
ABC classification model. And, because
A items typically represent only about 5
percent of a factorys part numbers, the
shortages were suddenly quite understandable. I convinced the plant manager
to allow me to sample the accuracy of all
the part numbers before he committed
money to a new ERP system.
I conducted sample audits and discovered the real inventory accuracy to
be slightly less than 60 percent. I then
interviewed key personnel to ask why
they thought the inventory was so out
of control. Their responses were typical
of people at companies suffering from
inaccurate inventory: failure to report
scrap, uncounted material delivered to
and from the stockroom, ignored error
reports, misidentified material, and the
like. Basically, it came down to inaccurate or untimely transactions due to
lack of accountability and trainingthe
same as every company suffering the
same problem.
However, unlike some

other companies, executives
here decided that the problem
deserved more than lip service
and engaged my firm to guide
them on the path to improved
inventory accuracy. Managers
began emphasizing inventory
accuracy as vital to the organizations overall success, and this
made the project much easier.
We first reviewed and
updated procedures for all
inventory transactionsproduction reporting, scrap
reporting, receiving, and
stockroom counting procedures
everything that affected inventory. We
then retrained the people responsible
for those transactions and established
a cycle counting program to catch any
accuracy killers of which we were still
unaware. We assigned employee groups
to synchronize floor locations with
computer locations, audit bills of material, determine and dispose of obsolete
inventory, find ways to keep the shop
packet from getting separated from the
material, find better ways of identifying
material, and so on. Any problem affecting inventory accuracy was aggressively
attacked, no matter how small. Team
leaders were assigned and expected to
report their progress in weekly meetings.
We maintained charts on key projects
and educated personnel on the basics of
root cause analysis.
It was a hectic time for all concerned,
but company leaders kept the heat on
and expectations high. In just three
months, the business improved its inventory accuracy from 60 percent to 92
percent. When we completed our assignment, the organization was still improv-
Illustration by Terry Colon
The value of checking your assumptions
ing and finding that the resulting reduction in operational chaos made further
progress easier. The plant manager also
noticed that the existing ERP system
performed much better when populated
with accurate data, and he saved the cost
of a new system.
When a company gets serious about
inventory accuracy and spends more
time resolving problems than making excuses, maintaining inventory
accuracy is much less intimidating. But
always start the project by checking your
assumptions 98 percent inventory
accuracy, indeed.
Gary Kerslake is a supply chain consultant
with SVA Manufacturing Services for SVA
Certified Public Accountants. He may be
contacted at kerslakeg@sva.com.
Do you have an anecdote that teaches,
enlightens, or amuses? Consider sharing
it with the readers of APICS magazine.
Stories should be approximately 700
words. Email submissions to Lessons
Learned editor Randall Schaefer at
randallschaefer@att.net.
Enhance Your Value with Supply

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APICS Supply Chain Strategy, Design, and Compliance
APICS Implementation and Operations.
According to the Operations Management Employment Outlook, APICS CSCP designees earn an
average 11 percent more than their uncertified counterparts.

Source: apics.org/research.
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Send the Right Signals

2 March/April 2012 | APICS magazine

Getting recognized as a strategic supplier is a challengeas is sustaining that position.

From the CEO

From the Editor

42 Production and Inventory

15 Sales and Operations

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Opportunities to maintain your APICS certification

Career resources and job searches

APICS magazine | March/April 2012 7

Crown equipment introduces V-Force V-HFM, a

Justenough software, Columbus, and Keyora have

sato announces the release of ECONANO labels,

aeroGo unveils the LoadRunner, a material handling

panacea aftermarket, an international supplier

8 March/April 2012 | APICS magazine

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