A Dichotomy of Perspectives: A Discussion on Forrest Breyfogle’s New Book on Integrated Enterprise Excellence

Recently, I had the opportunity to exchange ideas on the veracity of the various models that organizations rely upon as the framework for building a successful enterprise.

 

What prompted this open and productive exchange of ideas was a question that was recently posed regarding the merits of Forrest Breyfogle’s latest book on Integrated Enterprise Excellence (or for those of you that have a penchant for acronyms, IEE).

 

In the following paragraphs I will share a few of the more meaningful discussion streams starting with the original question. 

 

Original Question:

 

I recently read one of Forrest Breyfogle’s new books in his 4 book-volume series on the Integrated Enterprise Excellence (IEE) System; i.e., “The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning, and Business Improvement.”  The subtitle to this book describes what is covered in varying details in the other three volumes.  My sense is that Breyfogle has pushed his (and our) thinking to the next level and addressed issues that many of us struggle with regarding Continuous Improvement efforts.  His “Integrated Enterprise” thinking makes sense to me, what are your thoughts or feedback?

 

Bill

Operations, Supply Chain & Continuous Improvement Executive

 

My Response:

 

The fruit of the poisonous tree!

 

A telling statement regarding IEE is as follows:

 

“IEE is a system of checks and balances that will stay in place regardless of management continuity, changes in competitive conditions, or the economic climate.”

 

This is textbook equation-based modeling whether in the form of Six Sigma or SCOR or for that matter any model which attempts to establish an absolute standard in which success is based on the organization adapting to the model versus the model adapting to the organization.

 

It doesn’t work as the standards by which these checks and balances are based, specifically their sustainable veracity, begins to degenerate from the very moment they are first established as the static attributes of a sound process.

 

I have provided a link to a recent article I wrote titled Similarity Heuristics, Iterative Methodologies and the Emergence of the Modern Supply Chain (http://procureinsights.wordpress.com/2008/04/08/similarity-hueristics-iterative-methodologies-and-the-emergence-of-the-modern-supply-chain/).

 

This should serve as a solid starting point for drilling down into the specifics of why the IEE theory is inherently flawed.

 

I have also provided two additional links of corresponding articles that I am sure you will find interesting given the nature of your question.

 

Links:

 

Why Six Sigma Initiatives Fail (A PI Q and A): http://procureinsights.wordpress.com/2008/03/24/why-six-sigma-initiatives-fail-a-pi-q-and-a/

 

Is Ford’s auto-xchange the “Real Deal”: http://procureinsights.wordpress.com/2008/04/11/is-fords-auto-xchange-the-real-deal/

 

Response from Andy P. (Independent Professional Training and Coaching):

 

I tend to agree with Issa Boss’ remarks.  I, to, have read Forrest Breyfogle’s books.  And in the spirit of full disclosure, I provided pre-publication review.

 

Furthermore, I think Hansen makes some interesting points.  I am confident we would all agree that no model is sufficiently robust to accommodate all situations. I think it is appropriate in this respect to remember the (paraphrased) remarks from Box, “. . . all models are wrong; some are useful.”  (Note: George Box is considered to be one of the most influential statistician’s of the 20^th century.  My theory of strand commonality is based on a variation of his time series analysis model which seeks to determine why and how data points come into being.  The distinct difference is that Box attempted to forecast versus adapt to future events based on what he referred to as “known past events.”  My article on Similarity Heuristics and Iterative Modeling introduces the existence of multiple stakeholder streams which are comprised of indigenous attributes which are to varying degrees dynamic versus being static in nature.  Hence the continuing challenges associated with the veracity of single stream models.)

 

I believe Forrest presents his IEE model as a useful model for decision-makers and implementers to enable their organization to attain its goals – strategic as well as tactical goals.  Indeed, in my opinion, his model has considerable flexibility.  Maybe, some answering the questions got confused by the detail?  Some answers, like Mr. Greene’s, criticize inappropriately without offering any positive alternative.

 

I find that Forrest’s IEE model does an excellent job of integrating past models (Deming, Juran, Crosby, Goldratt, etc.).  I intend to use his teachings in mine.  Finally, I recommend the “System” volume as an excellent overview for leaders and decision-makers in an organization.

 

My Response:

 

To begin, the passion demonstrated by everyone’s comments is terrific because it is the basis for honest dialogue.

 

As I tell my audiences at every conference in which I am speaking, to be considered successful I have to inspire you to think outside of the framework of that with which you are most familiar and most comfortable.

 

This means that you do not take what I have to say for granted or accept it as being gospel.  Instead, and with the tools that are readily available (i.e. Google), you should challenge everything as no one individual has all the answers.

 

Even Jim Collins who wrote what I consider to be breakthrough books on business (Built to Last and Good to Great), has his detractors.

 

The fact is that any research and its resultant findings must be constantly challenged.  If the outcomes are right, they will stand the sustainable light of scrutiny (note my reference to the word sustainable).

 

A good portion of my research has been funded by the Government of Canada’s Scientific Research and Experimental Development (SR&ED) Program.  During the years of testing and retesting the veracity of a number of theories including strand commonality and the existence of commodity characteristics, a healthy balance between scepticism and enthusiasm has served me well.

 

Here are two additional articles that I am certain will also inspire debate.  Let’s keep the embers of both passion and progress burning brightly!

 

Links:

 

Is there a Poor “Herbie” Anywhere in the Oracle SCM Area?: http://procureinsights.wordpress.com/2008/04/01/is-there-a-poor-%e2%80%9cherbie%e2%80%9d-anywhere-in-the-oracle-scm-area/

 

How Does the Complexity Theory Apply to Business?: http://www.edocr.com/doc/664/how-does-complexity-theory-apply-business-brief-dialogue

 

Response from Frank F. (Business Futurist):

 

I appreciate the value offered by IEE, because I have used it successfully.  But there has to be balance.

 

I constantly use the satellite view of organizational leadership and ongoing operational management.  I am a futurist who envisions the macro future intuitively, but being an ex-banker I appreciate the need to zero-in on micro controls and metrics.  You need a balance of both.

 

I thus also understand the diversity of opinion revealed by answers thus far.  This dichotomy, which must be overcome if IEE is to succeed, is widespread, due to two innately-human reasons:

 

1. While few executives can prove their mission statement with concrete data, they intuitively “know” how those initiatives drive supporting operational improvements.

 

1. Other executives need metrics.  Measuring results with micro-data, they meticulously orchestrate asset allocation so as to achieve optimal micro yields for greatest bottom line impact.

 

Which approach works best?  I believe you need both.

 

You need IEE to identify flawed processes, as well as to re-invent rather than replicate old or outmoded processes.  But you also need a “map” for the future in order to continually boost growth and profits.

 

CEOs that used a balanced approach need substantiated metrics that both measure and drive business dynamics.  By seeing the future, they use IEE as a preventive tool to evaluate projects beforehand, thus avoiding those that have marginal benefit or may become negative, thus killing them early.

 

Indeed, the balance of “future vision + daily IEE” provides for innovation, re-invention, continuous improvement, and goal achievement.

 

This balanced approach is effective, regardless of changes in management succession, and it allows for faster and more nimble decisions in a digital economy – where it is essential to be digitally competitive.

 

IEE can also be used for process improvement and goal attainment in every corporate function, from R&D to sales, including HR and IT itself.  It can make the entire organization hum.  (Personal Observation: while many of the points that Frank has raised have merit, it is the “broad, enterprise-wide” application of any model or standard which has led to the majority of supply chain initiative failures such as Vendor Rationalization.  Refer to my November 27, 2007 post titled The Continuing Dangers of Vendor Rationalization: http://procureinsights.wordpress.com/2007/11/27/the-continuing-dangers-of-vendor-rationalization/).

 

But this still is no simple panacea.  Effective implementation needs careful forethought and planning.

 

To succeed, you need a clear view of the metrics.  (This will annoy the data-phobic right-brain visionary, but will delight the left-brain manager who loves numbers – regardless of their value.)  But you need both macro and micro.  And there is the rub, and the dichotomy.

 

• You need the “big picture” satellite view.  You need the Balance Sheet, P&L, and Cash Flow statements, not the bookkeeping ledgers.

 

• You need to be able to spotlight non-conforming processes or trouble spots, in order to identify their cause and swiftly implement a remedy.

 

A clear, balanced, macro-micro view ensures smooth operations.  It not only identifies what is (or is not) working, it helps you to anticipate and overcome internal resistance to change.  (Note: I have written many articles and papers as well as given lectures on what I refer to as the Change Management Myth.  Any initiative or program upon which its success is based on a change management strategy almost always fails.  Exceptions to these results are found in situations where the organization in question is going through a major restructuring exercise usually predicated by serious financial distress.  Some would refer to these as turnaround undertakings.  Given the voluminous nature of the reference material available, if you would like to obtain copies of said articles etc, please send me an e-mail at procureinsights@rogers.com with “Change” in the subject line.)

 

I have used this approach successfully in several turn-around operations, and understand the dichotomies that surface.  But those who do not understand or appreciate its benefits need to get onboard – or out of the way.

 

Using this whole-brained view is the only way forward (those familiar with the Government of Canada’s initiative of the same name re “Way Forward” will find particular interest in this post), regardless of whether you are using IEE or any other tool.

 

My Response:

 

The dichotomy in responses to which Frank referred in his answer is one of the most critical elements in defining the success or failure of any model.

 

I wrote an article titled “Bridging the Communications Gap between Finance and Purchasing which was then followed by a supplemental piece which provided specific references to several points of disconnection between finance and purchasing.  (Note: I refer to purchasing/supply chain as 85% of all ERP/eProcurement initiatives world-wide fail to deliver the expected results.)

 

The question is why?  And a statistic which stands out as one of the key reasons can be found in the following excerpt from my article:

 

A May 4^th, 2006 article titled How to Speak Like a CFO stressed that “Too often, finance executives in Corporate America simply don’t believe that purchasing departments are really bringing in the savings they claim.  That may be because finance and purchasing don’t speak the same language.”

 

For example, the finance department isn’t interested in cost avoidance.  They are interested in hard cost savings.  This is perhaps one of the main reasons why a recent study revealed that of the 11.9% of average identified savings presented by the purchasing department, only 3.2% actually gets booked by the finance department – a difference of 73% from identification to realization.

 

A 73% difference!  The problem with most models that are offered as the framework for “best practices” is that they attempt to standardize on a single stakeholder stream of attributes.  This then creates stakeholder conflicts at the operational level that has historically been at the root of organizational vacillation between a focus on top line and bottom line results.

 

Therefore, and given the increasing importance and influence of supply chain practice, until the 85% rate of failure has been reversed can any model claim to be truly successful or effective from a collective outcome perspective?

 

 

(Note: If you would like to read all of the responses to the original question, send me an e-mail at procureinsights@rogers.com, and I will forward the coordinates to you.)

 

Link to Latest White Papers: http://procureinsights.wordpress.com/category/white-papers/

 

 

The Number 1 Question . . . How Can You Help Us?

Over the past few weeks I have received a spate of questions regarding Procurement Insights, and in particular the services offered through Hansen Consulting and Seminars.  In short what do I do, and how can I help an organization.

 

To begin, one does not have to be in the throes of a disaster to benefit from my area of practice.  While demanding situations in which bridging the chasm between an expected outcome and the reality of unrealized results is certainly something for which I am known, it is often my ability to see a problem on the distant horizon and structure the appropriate response that has generated the greatest level of client satisfaction.

 

What makes what I do unique is that I am unencumbered by a commitment to promote a particular methodology such as SCOR or Six Sigma because it is either trendy or has been recommended by the latest expert.

 

While I have a great deal of respect for both the insight and determination it takes to develop a “standard,” I realized a long time ago that true expertise is directly related to an ability to recognize, understand and successfully adapt to the changing variables of a dynamic world.  In short, what is popular is not always right, and what is right is not always popular.  And I firmly believe that an attempt to consign and confine a real-world practice to a set of “universal” standards that fail to recognize the disparate requirements of diverse stakeholders has proven to be folly.  An 85% rate of ERP/e-Procurement initiative failure gives testimony to this fact.

 

It is through this lens of objective assessment in which a pre-ordained outcome has not already been determined that my clients have realized the most significant gains.  (Note: In providing me with a reference, a senior industry executive demonstrated my willingness to challenge the veracity of mainstream thinking when he said, “Jon is one of the few professionals who understand what really happens and he will tell you the truth about the process . . . the good, the bad and especially the ugly.”  For this as well as other references see my LinkedIn profile at http://www.linkedin.com/in/jwhansen.)

 

Please do not misinterpret what I am saying.  I am not adverse to a particular idea or standard for the mere sake of being disagreeable.  What I am saying is that left unchecked or unchallenged, even the best intentioned concept can and usually does lose touch with the evolving reality of a given situation.  Or as Colin Powell put it in one of his better known speeches (and I paraphrase), “one should always seek the advice of experts, but remember that they too may have reached their peak in terms of relevant knowledge.”

 

And this of course illustrates the inherent dangers of attempting to create a universal standard of operation and broadly applying it across a specific enterprise, let alone an entire industry sector or sectors.   One such example of popular thought gone awry is the persistent belief in the merits of vendor rationalization strategies.  (Note: refer to my November 27, 2007 article titled The Continuing Dangers of Vendor Rationalization – http://procureinsights.wordpress.com/2007/11/27/the-continuing-dangers-of-vendor-rationalization/).

 

A New Lens

 

“Jon Hansen is very knowledgeable and articulate on this topic we affectionately call eProcurement, and I believe that he is really one of the few who have been able to truly visualize the multi-faceted aspects of what can make it work.” 

 

Director, eProcurement Bureau of the Commonwealth of Virginia

 

This as well as other, similar comments mean a great deal to me because they demonstrate my passion for supply chain practice and validate my commitment to provide my clients with a new and unique lens through which they can truly see the dynamics that define and influence their organization’s operations.

 

From Warehousing and Distribution Planning to the effects of Double Marginalization within a Decentralized Supply Chain and Sustainable Procurement Policy Development, I am both eager and determined to serve you and your organization’s best interests.

 

The following is just one of the many examples or case references in which my methodologies have produced tangible results sooner and at a significantly lower price than that of a more traditional or contemporary approach.  (Note: If you would like a copy of this or any other Case Study in their entirety, send me an e-mail at procureinsights@rogers.com with “Case Study” in the subject line.)

 

Client Challenge

 

A major metropolitan transit authority contract established a target Service Level Agreement (SLA) for service call resolution of 90% same day (on-site 3-hours) to support their critical IT infrastructure.

 

Solution Methodology

 

Utilizing a consumption forecast model developed internally (Part Requirement Rate Formula or PRRF) my analyses was able to accurately forecast the frequency of consumption of specific parts for a particular device type based on the current install base.

 

Once consumption rates were established by device type, a Product Compression Function (PCF), a model which was also developed internally, was employed to substantially reduce the number of inventoried part numbers or SKU’s by approximately 85% without negatively impacting contract performance.  (Note: often time inventory levels grow as a result of inefficient sourcing practices versus increased service demand.  Instead of focusing on the implementation of a WMS, a great many organizations would benefit from challenging the logic behind the maintenance of current inventory levels.)

 

This ability to intelligently reduce inventory levels generated significant and unexpected savings for the client as they were able to a) lower their investment in inventory, b) reduce warehousing and associated costs, c) eliminate product variables for their field technicians, d) establish a more proficient life cycle management process, and e) capitalize on volume discount contracts when such a strategy made the most sense.

 

Once inventory levels were reduced to reflect the realistic requirements of the contract, the remaining product was systematically dispersed utilizing Strategic Stocking Locations (SSL).  Through a central application known as the Interactive Parts Ordering System (IPOS), an advanced time zone algorithm was employed to ensure prompt and easy access to the right inventory, from the right location at the right time.  This was accomplished through the development of a real-time polling mechanism which, within a matter of seconds, ascertained the SSL site that was best suited to meet the delivery requirements for a specific service call.  This same methodology was also used on a national basis to effectively manage the delivery of military-related service products to 35 geographically dispersed bases across Canada.

 

While the establishment of the SSL sites and the corresponding introduction of the IPOS application enabled the transit authority to surpass the 90% SLA requirement of the contract, challenges with service calls for which the required product had not previously been requested or, for which historic requirements were sporadic remained.  In response to this problem, a process was incorporated to both establish and utilize Strategic Geographic Suppliers (SGS).  The SGS is a variation of the cluster concept that has historically been employed by manufacturers.

 

SGS Overview

 

Here is an actual example from a separate case study of how the SGS process was utilized for procuring products that were not available from inventory.

 

The end-user client stipulated a 3-hour response time to support a centralized server farm or network located in the heart of New York City.  Critical to their day-to-day operations, strict adherence to the 3-hour SLA was contractually required, with corresponding penalties instituted when said levels were not achieved.  

 

When an essential cooling device failed an attempt was made to obtain the product through normally established channels (i.e. channels of distribution in which a traditional model had been referenced).  The estimated time of delivery was 2 to 3 days.  (Note: see the Model References links at the conclusion of this post to learn more about the differences between traditional models and the emerging models that are redefining supply chain practice.)

 

While the client had established “company-wide” sources throughout the United States, they had neglected to establish strategic sources within designated “hot zones,” or areas in which the SLA requirement called for a same day or better response/resolution time.  (Note: this oversight is usually a by-product of a centrally established, broadly applied vendor rationalization strategy.)

 

By establishing a regionalized SGS program, the very next time a requirement for a critical component arose, the needed product was located and delivered within the designated 3-hour time period.  And at a much lower price than that of the centrally negotiated volume discount contract.

 

Results

 

Collectively, these innovative approaches generated tangible results at multiple levels which in turn was reflected in increased end-user satisfaction and quantifiable bottom line savings.  Savings it is important to note that were commensurate with finance department standards.  (Note: refer to my January 31, 2008 article titled Bridging the Communications Gap between Finance and Purchasing, to understand why the majority of savings claimed by purchasing departments are rarely reflected in company financials – http://procureinsights.wordpress.com/2008/01/31/bridging-the-communications-gap-between-finance-and-purchasing/)   

 

A Passion for Service

 

Once again, the above case reference is indicative of the thought process and methodologies that I employ to identify the unique characteristics of a given situation and then prescribe a course of action that usually exceeds my clients’ expectations.  To do this on a consistent basis however, requires a willingness to eschew “standard” or popular theory in favor of creative ideas that are based on sound business principles.  To be succinct, thinking outside of the box does not mean taking unnecessary risks.  It means having an open mind that is capable of recognizing and adapting to dynamic real-world changes as they occur.

 

Regarding my consulting fees, they are structured on a sliding scale that is based on the type of project and size of the company that seeks to use my services.  Satisfaction is not just guaranteed, it is promised!

 

“Jon provided a detailed assessment of a proposed business process in a matter of days.  His perspective was insightful on a number of levels and I appreciated the depth of his experience and knowledge of best practices.”

 

Chief Procurement Officer, Multnomah County

 

Contact me at jhansen@procureinsights.com, or via telephone at 613-231-7116 to make me a member of your team.

 

 

Model References:

 

Optimization Modeling and the Modern Supply Chain (A PI Q and A): http://procureinsights.wordpress.com/2008/03/18/optimization-modeling-and-the-modern-supply-chain-a-pi-q-and-a/

 

Similarity Heuristics, Iterative Methodologies and the Emergence of the Modern Supply Chain: http://procureinsights.wordpress.com/2008/04/08/similarity-hueristics-iterative-methodologies-and-the-emergence-of-the-modern-supply-chain/

 

Is Ford’s auto-xchange the “Real Deal”: http://procureinsights.wordpress.com/2008/04/11/is-fords-auto-xchange-the-real-deal/

 

 

Lead Facilitator for KM Value Network (Ontario Knowledge Cluster): http://procureinsights.wordpress.com/2008/03/27/km-value-network-ontario-knowledge-cluster-launched/

 

The Greening of Procurement: How Social Consciousness is Re-Shaping Procurement Practices (White Paper)

Who Can Benefit from this Paper?

Anyone and everyone who has an interest in the issues organizations as well as individuals face in terms of implementing a sustainable purchasing program within their company.

White Paper Excerpt from The Greening of Procurement

Cannibals with Forks?

“In our rapidly evolving capitalist economies, where it is in the natural order of things for corporations to devour competing corporations, for industries to carve up and digest other industries, one emerging form of capitalism with a fork – sustainable capitalism – would certainly constitute real progress.”

From Cannibals With Forks – The Triple Bottom Line of 21^st Century Business, By John Elkington (Capstone Publishing, Oxford, 1997)

Do Cannibals With Forks Constitute Progress?

Taking his cue from Polish poet and aphorist Stanislaw Jerzy Lec, John Elkington’s book titled Cannibals With Forks: The Triple Bottom Line of 21^st Century Business, attempts to answer the question, is it progress if a cannibal uses a fork?”

I am certain that the aphoristic character of Lec’s writings were not lost on Elkington when he decided to use the “cannibals” analaogy as in many ways it symbolizes the at times vague certainty of the importance of sustainability. Or to be more precise doing something because it is supposedly good for you without really quantifying what the “good” actually is.

This is an important distinction as the substantive elements that drive corporate decision-making can and in fact does change based upon financial imperatives and the realities that drive them.

In a recent exchange I had with a well-informed environmental advocate, he made the following statement regarding the benefactors of change, which I believe strikes at the very heart of the sustainability issue. And I quote, “of course, the gains based on sustainability will not be enjoyed by the same companies as today, which profit from carbon extraction and emission. Industries like wind power, nuclear, solar etc. will benefit from a “carbon constrained” world. Others will lose. The latter are spending millions on disinformation campaigns and lobbying, just as the tobacco companies did for decades, to preserve their profits and to discourage competing technologies.

This is a true statement to be certain, and one that can be applied to any situation in which the demise of an incumbent is required to pave the way to a new future. If you were the incumbent in this case, the reality of your situation, and therefore the interpretation of the so called facts may be somewhat different.

Document Outline: 47 Pages, (incl. Appendices)

Main Sections: Do Cannibals With Forks Constitute Progress?, A Tale of Missed Opportunitiy (Kodak), A Different Type of Cannibal, The Environmental Connection?, A Final Word About Kodak, A Three Pronged Fork, A Preliminary Scorecard?, The Customer is Always Right!, Government Influence – The Fuel for Change?, The Innovator’s Dilemma, Other Industries, Greenwashing, Financial Disconnect

Payment Options: Major Credit Cards, PayPal

Use the following button to purchase The Greening of Procurement white paper for $25 US.

Is Ford’s auto-xchange the “Real Deal?”

In an excerpt from my March 18, 2008 post titled Optimization Modeling and the Modern Supply Chain I made the following statement:

“The key starting point is to recognize that the term supply chain is a misnomer in that it implies a sequential order of events (in the spirit of your question, a non-deterministic set of algorithms which aligns with the equation-based modeling used by most software vendors).

In reality however we operate in a world in which synchronization between diverse (and now global) stakeholders have to exchange and quantify disparate data on a real-time basis, and therefore the term supply practice would be a more appropriate description.

Once again, when you recognize this elemental difference you will then take the first steps towards building an effective optimization model.”

What I am talking about of course is the Metaprise platform or centralized private hub, where there is a real-time synchronization of key stakeholder interactions both within and external to the main or central enterprise.

Using an agent-based model, in which the unique operating attributes of individual stakeholders are first identified and then understood, the emphasis of my research in 1998 focused on bringing together the seemingly disparate streams of unique stakeholder attributes to produce a “collective” best result or best value outcome.  This formed the basis for my development of the theory I call strand commonality.

Referring once again to another of my more recent posts titled Similarity Heuristics, Iterative Methodologies and the Emergence of the Modern Supply Chain I also indicated that “The subject or attributes in a supply (chain) practice are in a state of constant motion and change.”

 I went on to say that to “effectively capture the dynamic elements within this kind of environment, a different methodology such as strand commonality . . . must be employed to ensure that an accurate picture is captured on an ongoing basis, thereby bridging or synchronizing the chasms between multiple transactional (stakeholder) streams.”

The video that you are about to review was released by The Ford Motor Company.  As you pay close attention, your will hear statements made by Ford’s Vice President and Chief Information Officer, Jim Yost indicating that the company has to “share information in real-time” and therefore can no longer use “the sequential processes” in which there were many “handoffs” and “transfers of information.”

You will also note Yost’s emphasis on the fact that Ford needs to “integrate much more closely with their customers, supply base and even internally,”  as well as stressing the importance of making information available to multiple levels of their supply base “simultaneously,” thereby eschewing the current “cascade processes that might take days, weeks and even months” to disseminate.

When Alice Miles (Ford’s President, B2B Consumer Connect) talks about auto-xchange in the context of Ford’s creation of ”a hub, or “central marketplace” where everyone could “come to that marketplace for these solutions,” she is also talking about a Metaprise platform.

These are all really good signs of the paradigm shift that began with the strand commonality theory in 1998 and was later introduced into the general market through a variety of white papers and reports starting with the release of my paper Acres of Diamonds in 2005. 

In the Acres paper I made the following observation that “a true centralization of procurement objectives requires a decentralized architecture that is based on the real-world operating attributes of all transactional stakeholders . . . in other words, your organization gains control of it’s spend environment by relinquishing centralized functional control in favor of operational efficiencies originating on the front lines.  This is the cornerstone of agent-based modeling.”  (Note: The Metaprise or centralized private hub is the intelligent conduit that manages and connects the seemingly disparate attributes associated with individual stakeholder interaction on a real-time, real-world basis to achieve the desired collective “best value” outcome at that particular point in time.)

While the Acres paper focused on Indirect MRO Materials, which are the most dynamic and therefore can be the most demanding commodities to purchase (refer to my research on commodity characteristics and the differences between dynamic flux and historic flat line products), the same principles can be applied, to varying degrees, to all areas of organizational spend.

Using the above as a point of reference, I would encourage you to view the following video from Ford and begin to formulate your own opinions on whether the foundation for their “transformation from a manufacturing company to a consumer company,” have been properly laid.  In the meantime, I am going to drill down further into the specifics of the Ford strategy and provide you with an update on my findings within the next week to ten days. 

(Note: to obtain copies of the papers and research material to which I have referred send me an e-mail at procureinsights@rogers.com with “Ford’s Transformation” in the subject line.

Ford Video (auto-xchange)

Reference Posts:

Optimization Modeling and the Modern Supply Chain (A PI Q and A) – http://procureinsights.wordpress.com/2008/03/18/optimization-modeling-and-the-modern-supply-chain-a-pi-q-and-a/ 

Similarity Heuristics, Iterative Methodologies and the Emergence of the Modern Supply Chain – http://procureinsights.wordpress.com/2008/04/08/similarity-hueristics-iterative-methodologies-and-the-emergence-of-the-modern-supply-chain/  

What is the Value in your Supply Chain? (A PI Q and A)

 

Member Question:

What is the difference between Supply Chain and Value Chain?

My Response:

To begin, the reference to supply or “value” chain is a misnomer in that it implies a sequential architecture.  This is a term that is on its way out as an organization’s supply “practice” is actually centered on the synchronization of diverse stakeholders sometimes spanning multiple supply networks.  This is an important distinction given the impact that real-world synchronization has on theories such as value chains.

That said the concept of the value chain was first introduced by Michael Porter in 1985 in his book, Competitive Advantage: Creating and Sustaining Superior Performance.

Congruent with the supply chain, the premise behind the value chain concept according to Porter is that as products pass through each point of the chain (he refers to these individual points as activities), the products gain “added value.”  This is why the structure or architecture of the chain is so critical re sequential versus synchronized.

As demonstrated by the analogy of a diamond cutter, whose costs associated with cutting the diamond may be low, but the service he provides in cutting the diamond increases its collective value as a finished product over that of an uncut diamond, Porter stressed that it is important to differentiate the value from the actual cost of the related activity.

The assignment of “added value” takes on greater importance in the emerging global marketplace, especially in key areas such as the development of viable supply clusters both domestically as well as internationally.  (Note: I have included a link to an article I wrote last year on this subject.)

Porter’s theory also needs to be examined much closer in the context of double marginalization and the broad application of a vendor rationalization strategy (the practice of which has been largely discredited).  (Note: I have also included a link to a corresponding article on double marginalization.)

So even though Porter’s theory at the conceptual level has merit, its “value” in terms of applicability in a real-world supply practice is now proving to be inconclusive.  Especially since supply practice models such as SCOR, in which the framework was based on Porter’s theory, are undergoing close scrutinization in terms of sustainable effectiveness.

I have included a link to an article I wrote on Supply Chain Optimization which should provide additional insight into the thought process behind the above answer.

Links:

    

Double Marginalization and the Decentralized Supply Chain – http://procureinsights.wordpress.com/2007/08/09/double-marginalization-and-the-decentralized-supply-chain/

Public Sector Procurement Practice and the Principles of External Economies, Clustering and the Global Value Chain – http://procureinsights.wordpress.com/2007/08/28/public-sector-procurement-practice-and-the-prinicples-of-external-economies-clustering-and-the-global-value-chain/ 

Optimization Modeling and the Modern Supply Chain (A PI Q and A) – http://procureinsights.wordpress.com/2008/03/18/optimization-modeling-and-the-modern-supply-chain-a-pi-q-and-a/ 

 

 

Similarity Heuristics, Iterative Methodologies and the Emergence of the Modern Supply Chain

Some professions, such as software developers, regularly utilize the similarity heuristic. For software developers, the similarity heuristic is utilized when performing debugging tasks. A software bug exhibits a set of symptoms indicating the existence of a problem. In general, similar symptoms are caused by similar types of programming errors. By comparing these symptoms with those of previously corrected software flaws, a developer is able to determine the most probable cause and take an effective course of action. Over time, a developer’s past experiences will allow their use of the similarity heuristic to be highly effective, quickly choosing the debugging approach that will likely reveal the problem’s source.

Definition from Wikipedia, the free encyclopedia

 

In the somewhat hermetically sealed world of programming, the simularity heuristic model as it is described above makes a great deal of sense as one is usually dealing with what are commonly referred to as single stream, “static elements or attributes.”  However, the operational attributes of the real-world are vastly different in that they are dynamic in nature, consisting of multiple transactional streams. Therefore when you take this same historic baseline reference approach, and confine the understanding of the problem to a single transactional stream (in this case historic attributes) you end up with a somewhat myopic view of the process.  This of course is indicative of the equation-based models that are employed by the majority of ERP software vendors, and is one of the main reasons why the resulting applications have been largely ineffective.

The key differentiator with the methodology as it is outlined, and those that are emerging is the recognition that while past experience can be one of many important indicators of future performance, a single stream point of reference can quickly become irrelevant especially when it lacks an adaptive capacity through which real-world variables are identified, captured and applied to produce a sustainable reference model.

Like the similarity heuristic method, other approaches are also limited by the same capture once – use many, sequential thought process.  The iterative or successive approximation methodology for example, estimates the value for an unknown quantity by repeatedly comparing it to a sequence of known quantities (note the word sequence).  Once again, and at least on the surface, this approach also seems reasonable.  But as is the case with the simularity heuristic method, the same problems occur when the known quantities or declarative values are not dynamically monitored and updated to reflect real-world circumstances.  Nor broad enough that they include all of the multiple attribute streams that influence a collective outcome.  This means that the reliability of a declarative value of a “known” quantity diminishes over time as it becomes either too narrow in scope or completely ineffective as the assumptive elements or sequence become outdated.  My research has shown that the rate of “reliability” degeneration is further accelerated in those instances in which the known elements are not properly understood due to a lack of collaboration at the formulation stage.

Applying the above principles to a supply chain practice, demonstrates that the iterative model is reflective of a sequential architecture or thought process in that it  predominantly relies upon attributes that have been previously defined in the static “chain” such as purchasing (including indigenous sub-attributes like price, historic quality and delivery performance, etc), tracking and order fulfillment, as well as financial reconciliation (internal, multiple streams).  While the attribute tags themselves can remain constant, their assigned weighted value (re level of importance) including those of the corresponding sub-attributes can and do change dynamical at the transactional level.  Depending on the weighted importance that is given to each attribute and sub-attribute, combined with the impact of external attribute streams (which are often subject to unanticipated or previously unexpected changes), means that the collective effect will likely and dramatically alter the “known values” upon which the model was originally built.  This means that neither the attributes (upon which the comparative approximations are based) including external variables are static in nature, thus making a reliable comparative model somewhat unreliable as time progresses.  Therefore the traditional application of the iterative methodology in which either a declarative or imperative programming method is used to define a single attribute stream of practice is largely ineffective relative to quantifying and managing the supply chain process.

The utilization of equation-based methodologies in which an attempt is made to establish a reference baseline that in reality is not static in nature, but is instead in a state of constant evolution, has contributed to the 85% rate of initiative failure.

In fact, by attempting to establish a single stream, non-adaptive reference baseline, organizations are forced to institute a change management strategy in an effort to align the operational realities of their business with a model that is not reflective of how they or their transactional partners actually function in the real world.

We need to Build Camcorders, Not Improve Canvases

In a paper I wrote in early 2005, I made reference to the fact that software developers needed to build camcorders versus improving canvases.  It was an interesting paper to write on many levels as the concepts of agent-based versus equation-based modeling was not widely known in the general market.

The interest in their significant differences was even less at that time as the rate of initiative failures had just started to enter public consciousness.

And while the analogy may be somewhat “dated” so to speak, its message has taken on even greater meaning with the emergence of Web 2.0 (through to Web 4.0) as well as new business models such as Software as a Service (SaaS) and even Free and Open Source Software (FOSS).

Here is the excerpt from that paper.  (Please note that I have removed the name of the original vendor and have replaced it with the ABC Company moniker.)

Traditional solutions such as those developed by ABC Company are built around what is referred to as an equation-based model.  Equation-based models utilize interactive assumptions, and therefore focus primarily on the somewhat static interaction between independent entities.  (The key words here are static interactions and assumptions.)

Recall for a moment the example of the artist attempting to paint a portrait of a subject who is in perpetual motion.  While the artist may capture for a brief moment a portion of the image on canvas, the reality is that the effort will always be a work in progress.  (It is important to note once again, that most e-procurement initiatives take 1, 2 or more years to implement, only to meet customer expectations a mere 25% of the time.)

While you can improve the quality of the paint the artist is using, add more advanced lighting, and even improve brush stroke speed and techniques, the fact remains that the end result is unlikely to change in any significant way.  The only way to achieve the desired result is to create an environment where the subject is stationary at all times.  To be specific, you have to restrict the subject from moving, from doing what is natural.  (Reference change management.)

Now picture if you will, the same “moving” subject being captured on film with a camcorder.  Regardless of the time of day or changing locations, the subject is always captured in real time.  In essence, you are now able to adapt and even interact with the subject’s environment.  Unlike a painting, when you finish one shot, you can quickly and easily move onto the next, without losing what you have already captured.  When required, you have the ability to playback the previous images within seconds.

In this example, you are not asking the subject to change the way he or she operates.  Nor are you trying to restrict his or her natural movements.  This is at the heart of agent-based modeling.  It is the reason that traditional equation-based applications such as the one offered by ABC Company will never achieve the maximum results in the shortest period of time.

The fact remains that it is imperative to simultaneously engage all parties to a transaction on a real time basis, with an ability to meet an evolving set of demands as required.  Intelligent, strategic sourcing and procurement, through to tracking and fulfillment and finally financial reconciliation with a “true cost” auditing capability is the earmark of a solution which truly leverages the power of the Internet.  To effectively develop this type of solution, one needs to abandon equation-based modeling which is driven by the aforementioned interactive assumptions, and replace it with agent-based modeling which is driven by the ability to understand the unique operating attributes of all trading partners on a continuous real-time basis. This leads to a synchronization of independent capabilities, which in turn creates an environment of adaptive responsiveness, producing immediate results in the area of supply chain efficiencies.

This paper, which interestingly enough experiences periods of renaissance as a result of a growing international readership, indicates that the problem-solving methodologies that are commonly employed by most organizations is represented by the artist attempting to paint a still life subject (attribute).

In reality however, the “subjects” or attributes in a supply (chain) practice are in a state of constant motion and change.  This means that the artist, no matter how skilled or advanced is always limited by the tools (or methodologies) he or she is using.

To effectively capture the dynamic elements within this kind of environment, a different methodology such as strand commonality (re camcorder) must be employed to ensure that an accurate picture is captured on an ongoing basis, thereby bridging or synchronizing the chasms between multiple transactional streams.

While this example is an illustrative, 10,000 foot level introduction to the differences between the traditional methodologies that are still in use, and those that are now emerging, it will hopefully create a starting point of reference that will widen the lens through which supply chain practice is understood and ultimately improved.

 

Popular SpeedQuest™ Service Now Available to PI Blog Readers – http://procureinsights.wordpress.com/2008/03/19/popular-speedquest%e2%84%a2-service-now-available-to-pi-blog-readers/

 

Anne Julia Cahoon (In Memoriam)

April 2, 1918 - March 26, 2008 

http://rememberinganne.wordpress.com/

 

Is having a website a requirement in the RFQ & RFP process today?

Member Question:

I have a question, for those actively participating in the RFQ & RFP process today.

We had a client request we put up one page of his newly developed site, even though it was in the production phase and not close to finalization.  He requested we upload one page, disconnect the links, and post.  In further discussion he explained, having a website was part of a RFQ submission requirement.  Both concerned are privately held corporations and both in the US.

Has this become a standard requirement in the RFQ/RFPprocess?  If so, in what cases and industries is it required?

My Response:

The statement that “having a website was part of RFQ submission requirement,” demonstrates that the “myths” surrounding discredited supply chain practices continue to persist.

Do not misunderstand me, with the advent of the Metaprise platform which itself has been enhanced by the emergence of Web 2.0, the Internet does have a role to play to be certain.  But as was the case with the broadly applied vendor rationalization strategies, touting web-based RFx programs as an absolute, all-encompassing necessity is both irresponsible and inaccurate.  This is especially problematic from the supplier perspective.

I have provided you with links to part 6 of my 7 Part Dangerous SUpply CHain Myths series (which has been widely published in both Canada and the U.S.), as well as a recent article titled the Bands of Public Sector Supplier Engagement.

While I am certain that you will find the entire series informative, these two articles represent a good starting point relative to the RFx question.

Dangerous Supply Chain Myths (Part 2): http://procureinsights.wordpress.com/2007/05/29/dangerous-supply-chain-myths-part-2/

The Bands of Publice Sector Supplier Engagement: http://procureinsights.wordpress.com/2007/12/13/the-bands-of-public-sector-supplier-engagement/

Popular SpeedQuest Service Now Available: http://procureinsights.wordpress.com/2008/03/19/popular-speedquest%e2%84%a2-service-now-available-to-pi-blog-readers/

 

Do you practice “Business @ The Speed of Thought?” Does your enterprise have a “Digital Nervous System?” If not, why?

Member Question:

Almost 10 years ago, Bill Gates of Microsoft wrote a book titled “Business @ The Speed of Thought” where he laid out his vision for how organizations should utilize technology to become more responsive, adaptive, agile, etc. Specifically he drew an analogy between an organization’s IT infrastructure and living beings Autonomic Nervous System. Now, reading this book over again, I’m struck by a perception that even now most organizations still do not have the level of IT integration that Gates speaks of. So my question(s) to you is this: Does your enterprise / organization have real-time reporting and notification of all important data? Are you able to react and adapt in a very agile way, thanks to your IT systems? Or are you actually constrained in your ability to adapt, by those very systems? Would you say your organization really has a “digital nervous system?”  I’m curious to see if my perception – that there will be a lot of “NO” answers here, is really valid.  Additionally, where answers are “no,” I’d be interested to hear about the reasons why.

My Response:

I recently answered a question regarding the “future of enterprise software modeling” which relates to the core elements of your question.

Here is an excerpt from that answer.

What you are really talking about are the differences between agent-based and equation-based modeling. The latter has been the traditional model used by software developers because it attempts to quantify and therefore confine multiple strands (re attributes) of diverse stakeholders into a single, definable “static” stream or process . . . outside of finance, equation-based modeling does not translate to other more dynamic areas of an enterprise such as an organization’s procurement or supply chain practice.

Agent-based modeling, which has been around for approximately 15 years, first seeks to understand the unique operating attributes of diverse stakeholders.  Once understood, it then attempts to link these seemingly disparate attributes through the utilization of advanced algorithms to produce a reliable, real-world “collaborative” outcome that results in a tangible benefit on a real-time basis.

To a degree, Web 2.0 represents the natural evolution of the agent-based model (development efforts are well under way in terms of defining a viable Web 4.0 model).

However, because the majority of vendors such as Oracle, SAP and Ariba have made a substantial investment in their equation-based models, their efforts are more focused on confining what you refer to as the digital nervous system to bridging the synchronization chasm through the introduction of the somewhat passive SOA architectures.

Even Oracle’s Larry Ellison admits that the best they can hope to achieve is a “near real-time” capability through this strategy.  And near real-time is not indicative of the true synchronized architectural requirements of a dynamic, agile enterprise.

For this reason many organizations that have themselves made an equally substantial investment in their current ERP platforms are “stuck” in terms of working within what is quickly becoming an antiquated framework.  And for this reason more organizations than not would unfortunately have to answer no to your question.

I have included links to a number of articles I have written on this subject that I think you will find useful.

Links:

• http://procureinsights.wordpress.com/2008/03/18/optimization-modeling-and-t…
• http://procureinsights.wordpress.com/2008/04/01/is-there-a-poor-%e2%80%9che…
• http://procureinsights.wordpress.com/2007/07/04/dangerous-supply-chain-myth…

Is There a Poor “Herbie” Anywhere in the Oracle SCM Area?

Member Question

From the “Theory of Constraints” there is poor Herbie, the infamous bottleneck in the supply chain pipeline.  For any of you who use the Oracle Supply Chain 11.5.9 (or above) platform, is there any built-in “Herbie” that you’ve noticed, or has it been custom code wrapped around vanilla, that effected you most?

New York City, U.S.

My Response:

After reading your question, I could not help but think of my Dad at Christmas time when he painstakingly had to test each bulb to find the one that did not work and replace it before the entire string would light up.  (Note: for those of you born within the last 25 to 30 years, this will make absolutely no sense beyond the analogy itself.)

Introduced by Eliyahu M. Glodratt in his 1984 book titled “The Goal,” the inherent flaw in the Theory of Constraints (TOC) philosophy is similar to that of the old “chain” of Christmas lights in which one bulb could bring down the entire string.  In short, and in accordance with the TOC’s five steps of focus that are supposedly designed to stimulate ongoing process improvement, the theory confines or limits you to work within the framework of a flawed architecture.

This means that after identifying the constraint, the champion is then supposed to find a way to exploit, subordinate and elevate it.  The TOC philosophy then makes the assumption that when one constraint has been removed another constraint will likely arise thereby requiring a fifth step, in which ongoing vigilance is recommended.  It is reminiscent of the days of dBASE II coding.

With the latter, when you repaired one bug in a line of code, there was a strong possibility that another line which had previously worked without problems would fail.  What this meant is that you were in perpetual debugging mode where the system (and its ongoing challenges) became the focal point rather than the business itself.  Or as one senior purchasing official from South Dakota lamented, “are we in the software business or the procurement business” after having to dedicate 2 full time resources to making their PeopleSoft application work.

I have commonly referred to this as being a linear or sequential architecture in which an equation-based model has been used as a framework for application development.

What is interesting is that the basic principles of TOC, which are centered on a Convergency-Consistency-Respect axiom, actually touch on the periphery of the foundational elements of an agent-based model in which the synchronization of seemingly disparate elements are a reflection of the real-world processes that defines the organization.  The reverse if you will of the TOC’s five step “program.”

Using the Christmas lights analogy once again, with the strings that are sold today one bulb’s failure (think bottleneck) does not bring the entire string down.  Nor does it require a perpetual state of vigilance in terms of having to seek or “identify” an obfuscated malfunctioning bulb.

While I am not necessarily sold completely on the veracity of Object Oriented Programming (which is a discussion for another day), its very modularity reflects the independently connected light string that is represented in the analogy.

Given the above, under which scenario would you prefer to operate; a) in an environment where the architecture is sequentially connected and therefore requires you to monitor all lights in the “chain,” or b) an environment which is based upon a synchronized (or Metaprise) architecture where a bottleneck in one area of the operation does not have a degradative effect on the entire network.

Now while the above examples are indicative of an all or nothing proposition (re the lights either work or don’t work), in the real-world supply chain practice there are varying degrees of “performance greys” as I call them.  However, this hopefully illustrates my point relative to your question.

What is also worth noting is that the problems with sequential architectures are well known to vendors such as Oracle, SAP and Ariba to name just a few.  With 85% of all initiatives failing to achieve the expected results, it would be hard to miss.

However, and similar to TOC, these vendors are confining their client base to work within the limited framework of a flawed architecture as demonstrated by the introduction of Service Oriented Architectures (SOA).  Oracle is of course championing Project Fusion, while SAP’s response to bridging the synchronized connectivity gap is called Safe Passage.   At best, these are little more than static “band-aide” solutions in which an attempt is being made to make current sequential-centric ERP platforms interact more effectively at an operational level.  And like Object Oriented Programming is a topic for discussion in and of itself, so to is the subject of Service Oriented Architectures.

As a point of reference I am pleased to provide you with the links to a number of articles I have written that will help to shed some additional light on your question surrounding TOC.

Dangerous Supply Chain Myths (Part 6) http://procureinsights.wordpress.com/2007/06/28/dangerous-supply-chain-myths-part-6/ 

Double Marginalization and the Decentralized Supply Chain  http://procureinsights.wordpress.com/2007/08/09/double-marginalization-and-the-decentralized-supply-chain/ 

Optimization Modeling and the Modern Supply Chain (A PI Q and A)http://procureinsights.wordpress.com/2008/03/18/optimization-modeling-and-the-modern-supply-chain-a-pi-q-and-a/ 

Popular SpeedQuest™ Service Now Available  http://procureinsights.wordpress.com/2008/03/19/popular-speedquest%e2%84%a2-service-now-available-to-pi-blog-readers/