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Please take a look at my latest video blog if you have some time. I’ve been reading a book called The New Supply Chain Agenda which talks about the 5 key steps that help to drive value in your supply chain. Then earlier today, I found this article about a 90,000 square foot house that was built in Florida and I couldn’t help but think about the 5th step from the book.

The article details how the house was being built by David Siegel and is the largest house in America. At first, it seemed like a fluff piece talking about the extravagance of the owners but then the piece takes an interesting turn. Siegel is in the real estate business and was in the middle of building the house in 2008 when everything collapsed. Now, the house sits unfinished as Siegel’s company is pretty much run by the banks he had loans with.

The most interesting part to me was Siegel’s reason for building the house – “because we could”. If ever there was a philosophy to avoid in the supply chain that would be it. I mentioned the 5 steps from the book and they are:

1) Hire the right talent

2) Select the appropriate technology

3) Collaborate internally

4) Collaborate externally

5) Manage change in the supply chain

You may notice that each step builds on the one before it. You can’t hope to manage change if you haven’t done the first four steps successfully. Siegel is a perfect example of this. You simply cannot manage your supply chain as if the inherent risks do not exist simply because they aren’t effecting your business right now.

In fact, I would argue that when things are going the smoothest is when you need to be the most alert for potential problems. The one thing you don’t want is to assume that current conditions are going to continue forever and make plans based on that assumption. That is how you end up with a 90,000 square foot unfinished house with $4 million of marble sitting in the garage.

All businesses should realize that there are peaks and valleys that are constantly emerging as time passes. The key to successfully navigating your supply chain through the valleys is planning for them while you are enjoying the view from the top.

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Please check out my video blog above. In it I talk about a very interesting idea that I heard about from a classmate. The issue revolved around the shipping containers the company used which were made of styrofoam. Now, unless you’ve been living under a rock for the last 20 years you’ve probably heard that styrofoam isn’t exactly biodegradable.

Unfortunately, this company doesn’t have a current viable alternative to shipping using styrofoam. What they did come up with was a very interesting and inventive alternative. The business made a decision that they were not comfortable allowing customers to simply throw away the packaging after each order. However, asking a customer to spend time and money to send back an empty container or to have them locate proper recycling locations was not working.

The business took the initiative, and cost, to print and pay for return shipping labels so that the customers could simply attach the label and have their UPS or Fed Ex pick up the package free of charge. The labels were all pre-paid and addressed to a recycling plant in Reno that was equipped to properly dispose of styrofoam.

I thought this was a perfect example of a company performing a product life cycle review and determining that the impact was too high. I can assure you that doing nothing would have been much more cost-effective, and completely legal, but sustainability was important enough  that something was done about it.

Oh yea, I mentioned some good blogs about sustainable supply chains in the video so here they are (at least the ones I read regularly). Check them out when you get a chance, they are worth a read:

valuechaingroup.com

blog.taigacompany.com

sustainability.com

greenbiz.com

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Over the past two months I have found myself feeling a little overwhelmed with my academic calendar for the summer. I am trying to wrap up my MBA while also studying for my CPA exam. I spent a couple of hours today reworking a schedule that I set up to keep track of all of my assignments and expected test dates.

It got me thinking about how important planning is to logistics and supply chain management. I actually incorporated both kinds of planning – forward and backwards – when I created my summer schedule. Forward planning is basically getting an order and starting on it right away while backwards planning is knowing the deadline and setting up goals to get production done by the required due date.

My goals have a set deadline – a graduation date from the University of Nevada in December and taking the CPA exam in August. However, they also involve enrolling in classes without knowing the exact schedule of due dates for the assignments. For that reason, I used a combination of both to establish a plan that would get me to my needed “production deadlines” without actually knowing all of the due dates along the way. Here’s an example:

At first, I had a less detailed schedule that focused more on monthly goals. After following it for about a month I decided this weekend to rework it into a more detailed daily routine that I could check off each day.

One of the most important things to remember when you set up a schedule is that you have to be flexible. When you think about a global supply chain there are always going to be interruptions to your business that will throw off your schedule. You need to be able to adapt your schedule to these problems and not let them delay your final goal. The best schedule is one that is detailed enough to allow you to manage your production while also being flexible enough to mitigate the inherent risks involved in supply chain management.

Please let me know how you company plans and how interruptions are dealt with.

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I was recently thinking about Levy Restaurants after a trip to Aces Ball Park here in Reno. A lot of people may not realize it but many sports arenas don’t actually run their own concessions. There are lots of reasons why but whatever the reason may be, many decide to use Levy to run their food and beverage operations. This is no small task even for a minor league team as the expectations are high as is the demand from customers.

I have had the pleasure of working with Levy during my time with the Aces as well using them as consultants up at Squaw. They’ve got some really intelligent people working there and it is no surprise they are at the top of the food services industry.

Please check out my latest video blog below to hear more about how we utilized Levy at Squaw to better our food and beverage offerings. There are a variety of ways they helped us out but two in particular are easy to implement and show quick and measurable returns on your investment. Thanks for stopping by and let me know what you think or if you’ve ever worked with Levy before and your experience with them.

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One of the biggest influences on customer service is how your customers perceive their time spent interacting with your business. The most basic economic theory of trade revolves around one simple idea. In order for trade to occur, two parties must mutually benefit from a transaction in which both give up something in order to obtain something else.

For many people, money might be the first thing that comes to mind. You give up a few dollars and you get a cup of coffee. However, there are other items of value that customers must weigh in order for them to determine the full cost of the transaction. If I have to wait for 15 minutes for that coffee chances are my perception of value is going to decrease compared to if the transaction had only taken 30 seconds. I gave up the same amount of money but with my schedule, I’ll typically value 15 minutes wasted in line more than $2 spent on coffee. Actually, even if the manager recognized my long wait and gave me the drink for free, I would still feel as though I lost on the transaction. The lesson? Never underestimate the value of your customers’ time.

I think this is one of the biggest complaints I have about Costco because despite everything they do well, their check out lines are always a mess. In fact, I wrote about how good Costco is at pretty much everything but for some reason they refuse to address the line issue. I really find it odd because you never see these long lines at a normal grocery store and a full cart at Costco doesn’t have nearly as many items as a full cart at the average grocery chain because of the size of the items. On top of that, Costco isn’t bagging – they are “boxing” – which is much less time-consuming especially when you consider many of the items don’t even get packed, they simply go right back in the cart (or never even leave the cart depending on the size).

If you want to get super technical there are different ways you can determine how long a customer will wait in queue depending on how many employees you have working. There’s a pretty straight forward explanation here and the overall goal is to find an equilibrium where customers aren’t spending too long in line but you aren’t having to have 3 people staffed when 2 would do. The key is to maximize the benefit for both you and your customer so that they leave satisfied and you can still make a profit on your product.

The easy solution is to always have every register open with enough staff on hand to service the highest level of demand at all times. Unfortunately, unless your staff is willing to work for free that probably isn’t going to work out very well for you. In the end, it is all about balance but if it were up to me I would always err on the side of caution. It is much better to have that extra person and not need them for part of their shift than it is to have customers get frustrated and leave. In those cases, you not only lost a sale that day, you more than likely lost a returning client who could bring repeat business to you.

How much emphasis do you put on the queue in your business and what are some ways you combat long wait times?

 

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I spent this last weekend in San Francisco and the one thing I noticed relating to supply chain and logistics issues was the parking. It’s no surprise that parking in a big city can be difficult but there are lots of little logistics items that actually go into it if you think about it.

 At the hotel we stayed at there was a parking garage located under the hotel with a small drop-off area for customers to unload or pack up their cars. At first appearance, the space was too cramped and the entrance to the garage was in the wrong spot relative to where the cars were being dropped off. However, the valets had it down and there was never any congestion in the small space regardless of the demand being put on the system.

I think this shows one critical aspect of logistics that people sometimes forget about – experience. Sometimes, we rely too much on technology and figures to configure our operations and forget that the workers on the floor can have incredibly valuable knowledge.

This is similar to a kaizen approach which allows production workers to stop the line when they see an issue that is hurting production levels. Previously, this type of behavior was unheard of in the operations industry because operations decisions were supposed to be made by management and not those on the floor.

The people who see the day-to-day operations know what works and what doesn’t because they see it in action. Good planning can be a great tool but seeing the steps in action affords you additional knowledge that only becomes available once those plans are put into place and tested.

One of the best ways to learn about how your business operates is to actively seek the opinions and experiences of those who help run it. The valets running the operations probably aren’t logistics experts but they know what works best for the business because they experience what works and what causes problems.

What ways do you listen to your front line employees and use those suggestions to better your business?

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I just saw that global sugar prices dropped due to a surplus and it made me think about the basic rules of supply and demand. I thought I would give just a quick refresher for those of you who may not be up on your economic theories. We hear about supply and demand almost everyday and I think a lot of it just goes in one ear and out the other. Really understanding how supply and demand influence the price you can charge for your product is key to long-term success in your industry. The basic idea is that as supply increases the price customers are willing to pay will decrease.

 The opposite is also true – as consumers start to see a good become more difficult to obtain, as supply into the market decreases, the price can be raised because they are willing to pay a higher price. This is why most goods fluctuate in pricing throughout the year.

The relationship is self-correcting however so with any normal good you should see it fluctuate evenly over a given time period. As demand increases and the available quantity decreases, the price will rise until the demand starts to decrease again.

This is true because people operate on a fixed income so as they are forced to spend more on certain items they must choose other items to cut back on. Eventually, the shortage will create a price high enough that demand drops and slowly the price will move back down towards the equilibrium where demand is equal to supply.

As this happens, people notice the price dropping and once again the demand picks up and the cycle starts again. You can plan for a lot of different things in your business but the supply of materials coming in and demand for your product is one of the most difficult. There are so many factors that go into the demand levels that it is very hard to predict with any certainty.

I hope this helped (in case your economics was just a little rusty) and maybe you can provide some insights on how your company deals with market flucuations for your product line.

 

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I am going to diverge a bit off my normal topics but I was thinking today about the different categories that people are put into and how that influences the way they interact with people. This seems to be particularly true in the business world where most people are put into three categories: marketing/sales, finance and operations.

How many times have you heard someone referred to as a “sales guy” or “oh, he’s more of an operations guy”. It’s weird how one tag can really frame perception of us. What are you really saying if you refer to a co-worker as a sales guy? In some references that might be a positive connotation and in others it may be intended as a dig at that person.

I think in the larger picture when you think about these labels you are actually thinking about much more than selling or financials. When you refer to someone as having a marketing frame of mind you may be saying she knows how to relate to people and how to get people to follow her. This certainly makes for a good leader because they usually won’t have a problem working with others to help overcome any short comings they themselves have as a leader. I think it also gives them a good perception of how consumers view the company and how employees in department A view those in department B. Their background could very easily lend itself to better teamwork and improved customer service levels.

If you are a finance person then this lends itself very well to leadership as well because you are able to understand the entire business and how each department works together towards the larger goal of the company as a whole. You are probably able to spot trends and ways to improve individual lines of business that can help cut costs or increase market share. You can help other people in the company understand how each department is much like a spoke in the wheel and how their inputs relate to the bigger picture.

Having a background in operations also doesn’t preclude you from being a strong leader because you know all the ins and outs of the business and have probably worked on the front lines with many of the employees. Over the years you most likely have learned to work with people under pressure as well as determine how to deal with fires as they arise. People will inherently trust your opinion because they know you’ve “been there”.

Really, there are strong upsides to each type of personality and in the end no one person can be everything. The best thing to do is know your strengths and allow others to fill in the gaps for you. The biggest problems most people face is when they try to be “the guy” in every situation. There is no shame in asking for help when something falls outside your comfort zone. So, what type of “guy” are you?

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In the past month I have seen two very good television shows about how leading companies maintain their competitive edge. The first was on Costco and was entitled The Costco Craze. The second was on NBC and detailed how Millard Drexler turned J. Crew around in under a decade.

It is always interesting to see inside a company’s success to learn what drives them and how those at the top get there and work to stay there. One thing that I noticed from the two shows was that getting to the top was the easy part – staying at the top is actually the hard part. Once you become the favorite two things tend to happen. First, expectations get higher and meeting them gets harder and harder. You can’t just plan to rely on your previous success to ensure that your customers will continue to come back. Second, competition learns very quickly what you do right and how they can capitalize on it to grab part of your market. Millard says “you have to keep separating yourself from everyone else” in order to maintain success.

I couldn’t agree more. There tends to be the belief that many people will continue to come back to your business because they know what they will get regardless of whether or not it is the best option. Proving this is pretty simple, just look at McDonald’s. Do they provide the best burger you can get for the price? Not even close, but a Big Mac in Florida will taste exactly like a Big Mac in China so there is very little risk on the consumer’s part. They are willing to trade quality for consistency since very few things are worse than walking away dissatisfied.

I would argue that Millard’s belief reflects a more modern and evolving view of consumers as they start to be more demanding of a company and customer service in general. This idea is reflected in the Costco documentary as well. You’ll notice that the CEO spends the entire year flying from store to store to see what is selling, what isn’t and comparing prices to other retailers. The focus is always on what Costco is doing now and whether they should be doing it the same way tomorrow. I was really surprised how much emphasis is put on absolutely every aspect of Costco’s supply chain.

They go so far as to measure the peanut butter to chocolate ratio in their candy as well as a surprising dedication to hot dog sales and wine procurement. I think what these two documentaries really showed was that the best are the best for a reason. They are constantly working to make themselves better and refuse to be satisfied with themselves. What things have you borrowed from the bigger businesses in your industry to better your supply chain?

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No matter what the size of your business, you are always keeping an eye on the expenses that are being incurred by your company. The better you are at managing those expenses the more opportunity you have to earn more revenue (that’s a good thing). It’s pretty simple when it comes down to it.

 There are two basic types of costs: fixed and variable. Fixed costs are those that do not change regardless of how many units you are producing. Your rent or lease payment is probably the most basic example of a fixed cost; of course this is true unless you run a business that has a percentage based rent that increases along with your sales (which many restaurants have).

The other expenses are considered variable in that if you produce 5 units and your costs are Y when you produce 10 units your costs will be X+Y because it takes more time and material to produce extra product.

When you add those two costs together you get your total costs for operating your business. One thing to note is that fixed costs are only fixed for a certain period of time and eventually all costs are actually variable. If you take a loan out on your building, once it is paid off you no longer have that fixed cost.

So what does this mean for your supply chain? It means there are optimal points along the total cost line for your business depending on what your variable costs are and what the demand is for your product. If you are able to find your average fixed costs and your average variable costs you can determine you average cost which means you also know where you need to price your product to make a profit.

Your goal should be to drive down fixed costs because as you produce more your variable costs are going to increase. At some point the two will cross and it is at that point at which  you need to operate. This is your optimal operating level where you are producing the highest quantity at the lowest possible price.

Looking at your business, what is the most difficult cost to control and what techniques do you use to track and control it?