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Chapter 1
Chapter 1
Chain
Optimizing the Supply
Chain
Jay E. Fortenberry
Optimizing the Supply Chain
Copyright © Business Expert Press, LLC, 2019.
10 9 8 7 6 5 4 3 2 1
People
Supply Chain
Risk Management
Planning
The demand plan is a realistic view of future sales based on all known
activities and trends. Its purpose is to focus on the commercial direction
of the business as well as to provide a formal request for the supply chain
to schedule capacity for anticipated customer requirements. The demand
plan is also the financial commitment made by the business for top-line
revenue and bottom-line margin.
Tools
By walking our way through the supply chain from supplier to cus-
tomer, you are able to uncover where value is added and where it is lost.
Mapping how a business operates cost relatively little but yields huge
benefits.
Keywords
balance sheet; business strategy; cash flow; cycle Time; inventory; leader-
ship; lean; order fulfillment; organizational effectiveness; planning; P&L;
portfolio management; risk; shareholder value; technology; trade; value
streams
Author’s Note
From a Global Supply Chain
Foot Soldier
Over the past 40 years, I was transformed from being a U.S.-focused man-
ager into a foot soldier in the whole globalization phenomenon. As I started
my career in 1979, operating a teletype machine at Union Pacific Railroad,
I would never have dreamed that today I would be writing a book about
operating a global supply chain. I was lucky enough to have been taught by
some of the true masters of industry and got to experience, firsthand, many
of the events over the past four decades. So what did I learn from all this?
At Union Pacific, I learned how to literally run the railroad. My lessons
revolved around safety, labor, and how to operate in a very time-defined
environment.
At Toyota, my senseis taught me how to think. I learned how to be
world class, keep cars moving, maintain factory-fresh quality, and pro-
mote efficiency. Here too, I discovered such skills as being a servant leader,
running with zero defects and Kaizen or continuous improvement. This
was a great personal growth experience for me.
At Deere, I discovered how a corporate culture really works. Older de-
centralized American companies operate in a completely different fashion
than a centralized Japanese structure, so change management became part
of my vocabulary. I was given tremendous responsibilities, but I was also
very naïve at this point. Here too, I learned from another master, Dave
Nelson, about the mechanics of sourcing.
Honeywell was a completely different culture to work in. I used to
laugh:
Jay E. Fortenberry
Contents
Foreword..............................................................................................xiii
Acknowledgments................................................................................... xv
Introduction........................................................................................xvii
Chapter 1 Keeping “People” Front and Center in People,
Process, Tools.....................................................................1
Chapter 2 How Does a Business Plan the Supply Chain?..................13
Section 1 Running the Business.................................................... 33
Chapter 3 The Business Planning Process.........................................35
Chapter 4 Portfolio Management: New Product Introductions
through End of Life.........................................................43
Chapter 5 Planning Demand and Cash............................................53
Chapter 6 Supply Planning and Cash...............................................63
Chapter 7 Reconciliation and Executive SIOP..................................77
Section 2 Functional Expertise...................................................... 79
Chapter 8 Toyota Production System and Lean................................81
Chapter 9 Sourcing...........................................................................89
Chapter 10 Logistics...........................................................................97
Chapter 11 Trade and Compliance...................................................103
Chapter 12 Quality—The Essential Element for Success...................117
Chapter 13 Business Continuity and Supply Chain Security.............123
Chapter 14 E-commerce across the Globe........................................133
Section 3 Tools........................................................................... 139
Chapter 15 Tools, Technologies, and Cash........................................141
Chapter 16 Building a Productivity Machine....................................153
Glossary..............................................................................................165
About the Author.................................................................................169
Index..................................................................................................171
Foreword
As a supply chain management practitioner and an academic program
director managing both the undergraduate and graduate supply chain
management program at Portland State University, I am often asked to
recommend one or two books that every supply chain graduate should
invest in. I often struggle to come up with even a single book to recom-
mend. It is difficult to find a supply chain management reference book
that combines the building blocks of managing a business, leadership,
and developing a supply chain strategy that enables a company to com-
pete successfully in a global and complex environment.
Jay Fortenberry, a colleague of mine who coleads our Global Sup-
ply Chain Study Abroad program, has 40 years of world-class experience
from working at Toyota and Honeywell. He’s poured all of these experi-
ences into his book and offers the best practices, necessary wisdom, and
learned skills in running global supply chains. I am very excited for our
future supply chain professionals because they now can have Jay’s refer-
ence book to take with them as they enter into this exciting field.
No doubt, the pace of technological change and the rate of new in-
novations in business models and the competitive landscape will disrupt
almost every business. It is imperative that we prepare our young supply
chain professionals to adapt a “Kaizen” mindset not only in their pro-
fessional life but also in their personal life. Living in a sea of surging
megatrends and figuring out the right piece of the puzzle to solve without
getting overwhelmed by the situation is the type of insight that you will
learn from Jay’s book.
In it, you will learn that inventory is a not a bad word but is actually
needed to help reduce lead time and increase customer service levels by
placing the right amount of inventory at the right place. For an industrial
product manufacturer, the cost of goods sold is typically about 60 to 70
percent of the revenue. A 5 percent savings derived from the cost of goods
sold will ultimately show up in the bottom line, and setting the right
kind of key performance indicators will certainly drive the right kind of
xiv FOREWORD
1
The asterisk (*) indicates throughout that the term is defined in the Supply Chain
Glossary.
xviii INTRODUCTION
Before we get started, let’s make sure we are on the same page on a few
terms and concepts about running a business, including inventory, cycle
time, and what the supply chain actually does.
The Business
Management’s principal focus for a business should be on growing prof-
its and cash flow, as these are primary elements in creating shareholder
value. Quite often entrepreneurs only focus on their core competencies
of designing, marketing, and selling their products. In some cases, they
understand manufacturing but fail to grasp the rest of the supply chain
as the company grows. Therefore, many companies end up lacking the
flexibility and agility to maintain profits through tougher economic
times.
Inventory
Inventory is much more than property, goods in stock, and building con-
tents—it’s cash. The purpose of holding inventory is to maximize service
and maintain manufacturing efficiency while minimizing the cost of deliv-
ering a product. Contrary to popular myth, inventory is located through-
out the entire business, not just in a manufacturing or a distribution center.
xx INTRODUCTION
Cycle Time
Cycle time is the end-to-end total time from when a customer creates
demand until a product is delivered and cash collected. This includes all
capital, information, and material flows, as well as any processing and
queuing time. By managing cycle time, a business can manage its cash
flow. Managing cycle time brings together all of a business’s processes—
from customer service to delivery—in order to direct how cash is con-
sumed or the cash-to-cash cycle.*
The first step in managing cycle time is to locate the value stream of
a process. Value streams are where value is added to a product or service.
INTRODUCTION
xxi
Conversely, Muda (or waste)2 takes value away and must be removed from
the process. Mapping a process shows how work is completed, how money
is spent, and how communications are achieved. Reducing cycle time is
not always easy, but understanding the value streams of a business allows
you to understand the fundamental ways in which the company is run.
2
Muda is a Japanese word meaning “futility; uselessness; wastefulness” and is a key
concept in lean process thinking, like the Toyota Production System (TPS) as one
of the three types of deviation from optimal allocation of resources (the others being
mura and muri).
xxii INTRODUCTION
Closing Thoughts
Earlier in my career I used to say, “There’s no rule book on how to be a manager.”
Forty years and 42 countries ago, I set out to learn this field, which very few
knew about at the time. Now I’m writing this book to provide a basic primer
for others who choose this path. I hope you find it a valuable reference book
on how to become world class, from the wisdom earned at Union Pacific
Railroad, John Deere, Toyota, Honeywell, and other great experiences. As I
write, teach, and consult these days, I always start with these simple questions:
Over my career, I’ve seen the gamut of ways that companies administer
their human resources. As a new hire at Toyota I was required to read 35
books on subjects ranging from the Toyota Production System* to how
cultivating a rice paddy symbolized Japanese culture, and I was tested on
my comprehension of these books. Later I was sent to Japan for further
training, all to make sure that I understood the company’s culture.
I’ve seen a wide array of boss types, including the smooth and con-
summate gentleman; the pure politician; a couple of tyrants who compli-
mented the people above them and punished those below them; a servant
leader; and a genius who was probably insane. Managing people is like
parenting. You have role models who you try to emulate, and you have
jerks with whom you never want to be associated, ever again.
People, Process, and Tools is the foundation of the formula for suc-
cess, and it relies on the theory that people are 60 percent of the solution
to any problem. When we look at cash management, properly managing
human resources can help create a productivity machine and make a busi-
ness wildly successful. By contrast, when this vital resource is improperly
handled, the entire organization can end up drained of time, money, and
manpower. It’s truly bizarre that businesses so often fail to protect their
most precious asset—their people.
As managers, we are driven by the numbers, the bell-shaped curve,
and getting our bosses to approve the department’s compensation plan.
We’re required to manage up, and often simply forget to thank the people
below who’ve spent a year of their lives helping the business run.
2 OPTIMIZING THE SUPPLY CHAIN
• Alignment: All functional areas are clearly aligned with the goals of
the business.
• Precision: Assures a disciplined management process that integrates
the business’s objectives and that annual goals are developed, commu-
nicated, and measured through all levels of the organization.
• Accountability: Ensures that the responsible functions drive account-
ability for achieving the objectives and annual goals. The focus is to
integrate all functions into moving in one direction.
Through all the years in the companies I’ve worked for, I’ve learned
that there are three best practices for ensuring that a business strategy,
results, and desired outcome are achieved. They are as follows:
The old saying, “What gets measured gets done,” is absolutely applicable
in setting and measuring goals for employees. When executing a business
strategy, it is imperative that goals are set and quantified from the outset
as seen in the goal and objectives figure (Figure 1.4). This keeps a proper
focus and prevents conflicting objectives from encroaching and compet-
ing for resources.
Performance Evaluations
Organizational Effectiveness
Recruit
You can’t play the game if there’s no team on the field, so recruiting a team
should be a manager’s first priority. When executing the business strategy,
a diverse mix of both seasoned veterans and youth from college campuses
Keeping “People” Front and Center in People, Process, Tools 7
Train
In order to execute the business strategy with speed and agility, a business
must nurture its talent. There must be a keen focus on organizing the
best people in the right way and giving them opportunities to grow and
develop. Strong leaders understand that actively developing their people
should be part of their daily routine.
The most effective development process is to learn the job at the
worksite through the instruction of the employees who understand the
job best. Development by on-the-job training raises everyone’s abilities
and produces better quality and greater efficiency. This creates a commit-
ment from one to another to execute properly.
Retain
Part of the reason that cash-strapped businesses often hesitate to hire new
employees is the actual cost of hiring. It’s easy to forget that an employee’s
cost is more than just their salary.
The average cost of recruiting, hiring, and training a new employee is
estimated to be $4,000. Therefore, preventing employee churn* and strength-
ening employee retention is imperative to managing cash.
Providing clarity of roles and responsibilities is essential to employee
retention and drives business performance. Goal alignment enables em-
ployees to focus on their objectives for achieving results. In addition, it
drives the development of appropriate skills and removes ambiguity. It
provides a clear understanding of the expectations for both the associate
and the organization.
8 OPTIMIZING THE SUPPLY CHAIN
Leadership
A leader drives changes in the way people think, work, and act. They
create and set the expectations that ultimately shape the culture. Leaders
step up in times of crisis and think or act creatively in tough situations.
Servant leadership is an ancient philosophy and set of principles that
is still practiced today. Traditional management revolves around the ac-
cumulation of power at the top. Conversely, a servant leader shares power,
puts the needs of the organization first, and assists in developing their
teams’ skill sets in order to perform at the highest possible capability. They
are comfortable in their own skins and recruit a team that is smarter than
themselves.
A leader is not a bully or a coward and does not act passive aggres-
sively toward their team. They make people better by building a safe
workplace, nurturing the team’s growth, and taking responsibility for
their actions. They are fully engaged in the activities they are responsible
Keeping “People” Front and Center in People, Process, Tools 9
On a recent trip to London I had the chance to meet up with an old friend
who I’ve always thought of as the best human resources leader I’ve ever
known. Steve Foster is currently Director of People and Organization at
St John Ambulance. Prior to working there, he was the human resources
leader for a multinational firm where we worked together, attempting to
do the right thing with an organization that literally had tentacles all over
the world. We were required to design programs to fit different cultures,
geographies, and circumstances.
The case study is from the nonprofit where Steve now works in the
U.K. Its roots literally date back a 1,000 years; that’s a long time for a
company culture to evolve! I thought it especially pertinent, as he is fac-
ing the very real challenge of blending an organization made up of both
volunteers and paid staff.
Background
1
St John Ambulance is a trade name used by a number of affiliated organizations in
different countries, counties, states, or provinces dedicated to the teaching and prac-
tice of medical first aid and the provision of ambulance and community volunteer
services, all of which derive their origins from the St John Ambulance Association
founded in 1877 in the U.K. See https://en.wikipedia.org/wiki/St_John_Ambulance
10 OPTIMIZING THE SUPPLY CHAIN
efficient and effective first aid training to local communities and at public
events, such as the London Marathon, pop festivals, and sporting events.
St John Ambulance’s vision is: Everyone who needs it should receive
first aid from those around them. No one should suffer for the lack of
trained first aiders.
Their values guide their thinking and actions, and they set out the “way
we do things” as:
Their corporate values spell HEART, as people are at the heart of St John
Ambulance.
Although St John Ambulance has roots that date back a millen-
nium, they have been able to transform themselves into a vibrant
twenty-first-century organization. So how exactly does St John Ambu-
lance deliver this vision—with its set of core values—to over 30,000
people annually, with only a small paid staff and a large number of vol-
unteers? As one might expect, managing and supervising first respond-
ers is far more challenging than building an automobile, thermostat, or
security system. This is literally a life-or-death scenario every day, where
Six Sigma* is totally unacceptable.
It started by establishing leadership competencies for each layer of the
organization based on their corporate values of HEART. These competen-
cies are defined for everyone—from the CEO to a manager, including
first-responder volunteers. This set of required skills describe the behav-
iors that should be displayed, as well as those that should not be dis-
played, at each level of the business. These competencies are presented
in combination with each position’s description in order to provide a full
picture of how each individual is meeting the requirements of their role.
They go on to affirm that the incumbent in each role should be able
to demonstrate the ability, not only for their own level but also for the
people who work for them.
Next, St John Ambulance developed a performance and development
review process based on managing this process. This starts with under-
standing the following from the employee:
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