Wholesale & Distribution International - Spring 2016 - 19


Supply chain is complex. Like most enterprises,
yours is probably moving material across time zones,
jurisdictions, suppliers and vendors. You must meet
time and cost commitments, or are trying to get to
JIT. You're dealing with bullwhip effects, where a
minor blunder in Jakarta creates serious delays in
Khartoum and furious end users in St. Louis.
Bullwhip effects are a part of "closely
coupled" systems without "cushioning:"
when one element is out of place, the
others follow suit in unpredictable, outof-scale ways. Complexity as the result
of a hidden waste is often the cause, and
must be rooted out. We need simplicity,
not only in chain design, but also in information and inventory management, and
perhaps even pricing.
Why is this so important? Unfortunately, in a global supply chain, complex
solutions can quickly and frequently degrade or fail from seemingly trivial delays
and confusion. Also, the longer and more
complex the chain, the less likely a participant is to understand the up- and downstream environment. Where is this thing
going - and why? When participants
don't understand their place in the chain,
they can't make "on-the-fly" judgments
to save closely coupled systems from
crashing. Such supply chains are at special risk of long-lasting failure because of
physical or political disruption including
from natural disasters, long-term port
strikes, revolutions, etc.
Complexity also comes with opportunity costs. Companies with long, closely
coupled supply chains with many touch
points struggle to scale the model - risks
do not remain steady at amplified shipping levels, they increase (sometimes in
a non-linear way). This can impact labor,
vendor and customer relations at critical
growth points. Even worse is the possible
ensuing "fog of war," where good decisions are based on luck.
Clearly then, we must reduce unnecessary complexity and achieve simplic-

ity where possible - but "simple" and
"easy" are not always the same.

A CLOSER LOOK
Start with a birds-eye view. How many
vendors and ports are you using? Travel with a product. Where do you change
hands? Why? Does that hand-off add value the customer will pay for? When do
you sit around?
If possible, visit touch points. Observe
processes as workers perform them.
Where do they get confused? Where does
confusing IT or paperwork create snagpoints? A prime culprit is reconciliation
processes.
Look at your ERP honestly. Is it really being used? We find a widespread use
of workarounds - the front-line lacks
training, time and incentives to engage
with the ERP suite; instead, they use
spreadsheets and enter data later. Rather
than blaming participants, consider that
behavior follows incentives. Ask yourself: Is this ERP too complex? How can
we make it a powerful tool for the user?
We should also consider recent research about fatigue in people's decision-making abilities over time. The
more decisions you ask of them, the
poorer the decision quality is by the end
of the day. Complexity demands more
decisions be made at the tactical level.
As we move to a more tactical view,
we come to the question of optimization. We advocate balancing it with
flexibility, perhaps through buffers.
These can be established with simple
kanban techniques, using cards until
the ERP can catch up; such techniques

mitigate the aforementioned bullwhip
effect. Also consider a demand-based
model, which offers simplicity and can
be rebalanced over time to eliminate
stock-outs and reduce inventory. This
might take an uncomfortable level of
transparency with vendors.
Besides chain design, inventory and
information flows, looking at pricing
can also work wonders for simplifying
the supply chain. If this seems backwards, bear in mind the impact of supply chain costs on margins. Even more
importantly, just as simplification in
inventory and information supports
your decision-making, a simplified
pricing model can make it more likely
your customers decide on you.
The proliferation of cheap sensors
and the big data they provide, coupled
with exciting new technologies like
machine learning, promise optimization levels not currently possible in
supply chains. That said, the history
of algorithm-based trading in the financial markets should give us pause
- 100-year events tend to occur about
every seven or eight years. Several
times, trading models with excellent
track records could not operate in extraordinary market conditions: they
turned on their owners and destroyed
more wealth than they created. As we
embrace algorithmic optimization, we
shouldn't forget that people are still
very involved in supply chains - people who, just like you and I, thrive on
the clarity only simplicity can bring. q
Tony Donofrio, principal and head of
Argo's supply chain practice, has more than
30 years of supply chain experience. He
has a reputation for taking on tough challenges, creating growth opportunities and
outperforming the competition. Stephen
Francis, a senior consultant, co-created the
"Argo Integrated Management System"
that facilitates sustainment of recommendations by drawing on the best of continuous improvement and robust behaviorist
and coaching techniques. For more information, visit www.argoconsulting.com.

Spring 2016 www.wdimagazine.com

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Table of Contents for the Digital Edition of Wholesale & Distribution International - Spring 2016

Contents
Wholesale & Distribution International - Spring 2016 - Cover1
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Wholesale & Distribution International - Spring 2016 - Cover3
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