Several weeks ago, the National Chicken Council issued a warning that production was down this year due primarily to rising feed prices. Rumors of a Super Bowl weekend chicken wing shortage spread like wildfire. Well, it turns out that, although production is down, so is demand due in large part to the NHL lockout. U.S. and Canadian hockey fans eat a lot of chicken wings, you see, and it appears that they don’t eat the same number of wings while watching curling or golf or whatever else they watched instead during the strike.

So there was no shortage on Super Bowl weekend despite the fact that the day of the big game ranks second only to Thanksgiving for U.S. food consumption in the and chicken wings are the preferred food for people watching sports.

Supply chain participants — from producers and their suppliers to processors, transportation providers, warehouses, restaurants and retailers were all affected by these shifts in demand. Do you think they could have anticipated the effect of the NHL lockout on demand? If they were watching their supply chain carefully, and using analytics to keep a close eye on demand and its correlations with external events such as sports schedules, then they could have made the proper adjustments to control inventory, realigned warehousing and shipping, and kept the supply of wings in control. Seems like they probably did all right.

How does ethanol affect the price of chicken wings?

No, chicken ranchers are not having all-night keg parties in the coops. Two-thirds of chicken feed is corn and there is less of that available because the U.S. government requires 40 percent of all corn be converted into biofuel (ethanol). High demand for a limited supply means higher prices. Higher prices for corn means fewer chickens as producers cut back, leading to higher prices for chickens and chicken wings. There is a common phenomenon called price elasticity of demand that says that demand shrinks as prices rise (and vice versa). In this case, rising prices have not limited demand in part because chicken wings are increasing in popularity globally. An explosion of chicken wing restaurants in Brazil have made that country the world’s leading importer of chicken, for example, and demand is also rising in China and Russia.

Do you think that the senators and representatives who voted for the ethanol set-aside realized it would make their Super Bowl wings more expensive? More importantly for this discussion, how do you think the chicken wing supply chain dealt with this dynamic?

The supply chain is a lot more complex than most people imagine. Often times, an action or condition far removed from the product and its market will have effects that are a bit hard to believe. Modern analytical tools operating on an ever increasing volume of data are helping producers, retailers and supply chain managers ferret out these relationships and operate more efficiently to control costs and make sure those wings will be there for you on Super Sunday.

Reprinted from Portsmouth Herald / Seacoastonline.com  –  February 11, 2013

I really enjoyed the following article and thought you might too . . . 

During the summer months, we spend as much time as we can enjoying our screened in porch. We eat our meals, read and play board games without worrying about mosquitoes. Without question, it is our favorite part of the house.

All that changed a couple of weeks ago when we noticed a strange odor coming from our beloved porch. Over the next couple of days, it grew from a mild annoyance to one of the most toxic, disgusting smells we have ever experienced. It became impossible to approach the porch without gagging. Flies were everywhere. We assumed that the smell was coming from a dead animal that was hidden somewhere beneath the porch. We never thought about it, but the 4-inch gap between the ground and the porch floor was big enough to allow an animal to get trapped.

I got as close as I could with my flashlight, but I couldn’t see anything (not that I looked all that closely).

My mother in law, having lived in New Jersey, considers herself an odor expert. She investigated the situation and was convinced that the porch needed to be torn down in order to remove the animal.
My family panicked over the prospect of an unexpected construction project. “How to save the Barons’ porch” became a neighborhood topic of conversation. On the advice of my wise neighbor, Dana Wilson, we conducted a Google search and reached out to our local pest control company.

NW Pest Control told me that they could come the next morning. If they removed the animal, the cost would be $125. If they couldn’t remove the animal, there would be no charge.

Bob from NW Pest Control showed up the next day exactly when he said he would. From about 50 feet away, he confirmed that we had a dead animal on the premises.

He grabbed his flashlight (which was much more suited to finding a dead animal than mine) and immediately told me that the problem was a dead squirrel in a hard-to-find spot beneath the stairs. With his special animal removal tools, the squirrel was gone within 5 minutes.

Our porch was saved and life could return to normal. We were overjoyed. I told my wife it was the best $125 we ever spent. For everyone but the squirrel, this story has a happy ending.

There are a number of pricing lessons that B2B companies can take from this story. Bob spent only 5 minutes with us. So the $125 we paid for Bob’s expertise was equivalent to $1500 per hour! Now, there are very few situations where I would willingly pay someone $1500 per hour. Yet I was delighted to pay in this situation. What was going on?

• NW Pest offered a guarantee that was appropriate for their business and customers. If they could not solve the problem, then we did not have to pay.
• We were in pain. The stench from the dead animal was impacting our quality of life.
• There was a huge financial risk if we did nothing. If my mother in law was correct, tearing down and rebuilding the porch would have cost at least $20,000.
• The emotional aspect of this problem was real. We were anxious about the situation and angry that we could not use the porch.

The value to us of fixing this situation far outweighed the $1500/hour cost.

Unlike how many B2B companies sell and market their offerings, NW Pest did not overwhelm us with the details of their animal removal equipment, their process for animal removal or the credentials of their technicians. They focused on our problem, guaranteed it would be solved or no charge and made it clear how they would make our lives better. Through their hiring practices, training, and equipment, they clearly invested in optimizing specific services that offer maximum value to their customers.

Many B2B companies worry about the commoditization of their offerings and their inability to justify premium pricing. They could probably learn a lot from thinking about NW Pest’s pricing model for dead squirrels.

The Takeaway: Just because you’re B2B, doesn’t mean premium pricing is out of reach–if you emphasize exemplary customer service.

Appeared in Fast Company magazine
Written by Neil Baron    Email: nbaron@baronstrategic.com

Wired magazine recently published a 20 year anniversary edition and it’s gotten me thinking about the changes we’ve seen in technology over the last two decades. In 1993 the PC was becoming commonplace for office tasks like word processing and spreadsheets. PCs were also being used as access devices for client-server architected systems, which were the current vogue at the time. The Internet existed but was about 4 or 5 years away from the explosive growth that changed the way we communicate, collaborate and exchange information.

Graphical user interfaces were still pretty new in the enterprise application space as Windows 3.0 (released in 1990) was gaining acceptance as the go-to desktop environment.  Windows NT, the first functional networked version of Windows, the one that would be able to host small enterprise apps, was still 2 years away. Most of us were still living with green-screen (character-based) MRPII on either UNIX networks or proprietary mini-computers like IBM AS/400, DEC VAX, and HP3000. The term ERP was coined in 1993 and, in fact, specified client-server architecture and a relational database as required infrastructure elements. The leading suppliers of ERP software in 1993 were Baan, ASK, QAD, Symix and Avalon / Oracle (tied for 5^th place). This data is from “Next Generation MRP”, a report I wrote for The Yankee Group in 1994.

While most of 1993’s leading ERP products have been swallowed up through acquisitions, many ending up as part of Infor, a surprising number of them are still in widespread use including MAPICS, BPCS, Symix, Baan (all Infor products now) and QAD (still independent).

I doubt that anyone would suggest that a company would be able to compete and thrive using 20 year old information technology and I’m not saying that any of these companies are doing that. Each of the ERP products mentioned (as well as any others that survive today) has gone through a continuous upgrade and enhancement process that brings in new technologies and new application capabilities every year. Arguably, these “legacy” ERP systems can be more functionally rich than newer products simply because they have been in existence, and in continuous development, longer. But they might also lag some of the newer systems in the use of that new technology, simply because it is more difficult to integrate new things into a large, existing code base and user community.

We have certainly come a long way in the last 20 years, with new technologies changing the way we communicate, integrate, collaborate, as well as ‘plan, source, make, and deliver’ products to ever-changing markets. We in manufacturing and ERP have a solid history of continuing to use the best of the ‘old’ while taking advantage of the ‘new’. Now big data, the cloud, social, and mobile are once again tilting the playing field in new directions and we can count on our ERP developers and suppliers to incorporate evolving technologies into both old and new ERP products to keep manufacturers competitive and profitable.

While it may seem crude, it was in fact a reasonable, effective approach — and it has seen success at many facilities around the world. Nevertheless, when computing power evolved in the early 1990s, a new class of scheduler emerged, one that was sensitive to capacity constraints. Known as finite schedulers, these tools adjust the load and capacity according to rules and priorities set by the user to generate a balanced plan – a production schedule that does not exceed capacity.

Tempering expectations

Some companies use finite schedulers with success, but others find them to be no better or even less useful than traditional, “infinite” schedulers. Part of the problem lies in expectations.  If you expect a software program to mimic human logic and schedule the plant as effectively as a veteran manager, you are bound for disappointment.  An experienced manager considers many factors when making scheduling decisions, some of which cannot be codified into hard-and- fast rules. Situational factors will lead to certain scheduling decisions that are not easy to quantify. The finite-scheduling program usually develops a plan that is achievable, but one that needs to be adjusted before it is executed.

No matter what type, scheduling software aims to provide decision makers with a simulation of what is likely to occur. In the case of infinite-loading schedulers, the simulation reflects a raw schedule that simply displays the situation without any further manipulation to accommodate capacity limits. The more advanced finite schedulers manipulate that initial schedule to optimize certain attributes — least delays, highest use, and the like-taking directions from the rules set by users and the internal structure of the code itself.

In all cases, it is the manager or supervisor’s responsibility to start with a scheduler’s recommendations and make adjustments to fit the current situation. Factors to consider include the relative priorities of customers and jobs, tooling condition and availability, minimizing setups and changeovers, unexpected equipment breakdowns or employee absences, and anything not included in the data used by the scheduler. Finally, one always must consider the possibility of the surprise phone call that changes tasking or priorities with little notice.

Reprinted from APICS Magazine:  Enterprise Insights. March/April 2013

The assumption that bigger is better has been with us for many years and is built into many of our management systems and assumptions. When we ask for a price for a quantity of goods, we naturally expect that the unit price will be smaller the larger the quantity: $10 for one; $9 each if you buy 20; $8 if you buy 100.

That “volume price” scheme is based on the assumption that fixed costs for making, selling, shipping the product, are spread over whatever quantity is purchased and shipped. That is a valid assumption, to a certain extent, but is not necessarily the whole story. Other factors might make that volume / price relationship misleading.

Because of the volume discount, many companies purchase supplies and materials in larger quantities than they really need – six months’ worth of a component, for example, to get a lower unit cost and to save on shipping. Then, they have to hold and manage (store, secure, insure, count) that inventory for the six months they own it, tying up cash and warehouse space. What if the product becomes obsolete, the design changes to eliminate that component, or the forecast turns out to be wrong?

Large quantity orders are not always optimal for the supplier, either. A large production run could tie up plant equipment for an extended time, delaying the production of other products for other customers. The price break will lower revenue, perhaps more than the savings that volume production generates. There could also be issues with raw materials, storage space, or shipping and receiving the large quantities.

Many companies have moved toward smaller quantity – more frequent delivery as part of Lean operations programs. One of the things that Lean focuses on is the reduction of inventory and one of the easiest ways to reduce inventory is to work with smaller quantities and just-in-time production and delivery. This also greatly increases flexibility (agility). But companies don’t have to be on a Lean campaign to reduce lot sizes. It just makes sense on its own merits.

Smaller production quantities become economically attractive when fixed costs are reduced. More flexible production equipment, shorter change-over times, reduced administrative requirements, and simplified processes all contribute to this goal.

For purchased components and materials, talk to the suppliers (I mean REALLY talk to them, collaborate on a schedule and terms). You may be surprised to learn that quantity price breaks are not always the best thing for them either. Other savings like reduced inventory or increased flexibility might be enough to overcome increased shipping costs or a slightly higher unit cost so both buyer and supplier benefit.

Robotic insects can be mass produced by the sheet. Printed circuit microelectromechanical systems use advanced materials and one-piece construction to create tiny machines of less than a millimeter in size.

Insect-scale unmanned aerial vehicles are one application, but PC-MEMS could also be used to create a wide variety of machines and mechanisms.

Superhydrophobic Coatings, inspired by lotus leafs and the namib beetle, use surface roughness and chemistry to repel water. Like the lotus leaf, the coatings are also self-cleaning and can be used for medical devices, preserving monuments and stone buildings, and for protecting furniture.

A new welding process, called Multi-ring Domed Electrode, makes for greater strength and less deformation in aluminum sheets, extrusions, castings and combinations. The process provides a less costly, as well as a stronger joint, and is especially important in support of increased use of aluminum in cars and trucks to reduce weight thereby saving fuel and reducing emissions for the life of the vehicle.

Stronger, lighter and cheaper carbon nanotubes (CNTs) are approximately 50,000 times thinner than a human hair. With a strength-to-weight ratio 117 times greater than steel, CNTs are the strongest and stiffest materials yet discovered. Applications in development include artificial muscles for robots and prosthetic limbs, oil-spill cleanup processes, printable electronics, and sensors that can detect chemical vapors or bacteria in drinking water.

Rainbow Polymer reduces the cost of multi-spectral sensors from $250 to $10 per unit and could form the basis of handheld imaging devices for anti-counterfeiting and remote sensing for military and defense applications.

In addition to the winners just listed, the committee also mentioned technologies that show great promise including aerovoltaic wind technology with no moving parts, 3D printing of silicon nanostructures, an ultrafast camera that sees around corners, new memory technologies, among others.

Innovative research continues to bring new materials, products and processes that promise to change the world in many ways. The tools, devices and articles we use every day will continue to do more, cost less and be gentler on the environment as a result.

Reprinted from Portsmouth Herald / Seacoastonline.com  –  March 11, 2013

Marketing in 2013 is, unsurprisingly, a different environment than it was in 2000, or even 2010. Companies still using old assumptions are likely to be left behind – and may not even notice until the competition has zoomed ahead.

The 2013 and beyond marketplace is complicated. With a raft of new outlets and platforms emerging all the time, it is imperative to have an eye out for what is coming into popularity rather than what has worked in the past. The following are a few of the more important areas of marketing to focus on as we move deeper into the twenty first century.

The Brand: The company logo and overall “look” is probably more important than you think. In our current marketplace people care about the image of the brands they buy from. The sense of quality, reliability and value is influenced by the company image. If a brand image doesn’t convey a sense of popularity and value, it can be perceived as just another brand.

Cross marketing:  A company can make a huge impact with half the budget if they partner up with a compatible company. Presenting two brands together leverages all media and makes the message even more powerful. Companies should tap into their network and see if there is another company that will co-brand. Many brands can gain leverage and reach by collaborating with companies whose products  complement each other, increasing sales for each company.

Redevelop the company image:  What was popular and eye-catching last year will likely just look old and worn-out sooner than you know.  A brand must reflect certain visual trends to be clumped into the category of visually relevant and appealing to customers.  If a company has a product or service that is timeless and really doesn’t change, they shouldn’t feel that this phenomenon doesn’t apply to them, it does! Usually all they need to do is put their product in a new light. Spiff up the graphics and clean up the overall look. It may be frosting on the cake – but the frosting is what the shopper first sees, after all.

Show them you care:  As you have undoubtedly noticed, companies have embraced sustainability and all things eco – because customers recognize it and respond; even those people that are not eco-zealots appreciate concern for the future of the planet. Every company should stake out a piece of the eco trend in 2013. Whether or not you are on board with the movement, many customers and prospects are.

REFERENCE:  “What companies Need to Know to be Noticed in Our Fast Paced and Cut-Throat Marketing Battlefield” by San Diego based Ad Agency Santora Media Group Inc. 

WHERE:  Plex Systems-sponsored webinar

EVENT DETAILS

Have you ever run out of raw materials?  Don’t let it happen again.

Industry expert David Turbide will discuss when a supply chain may be too lean and how to mitigate risks while maintaining efficiency.

• Learn how improved communication drives supply chain agility and the ability to respond quickly to unforeseen challenges.
• Hear strategies for “looking at the whole, not just the part” to protect yourself against supplier operation shutdowns.
• Understand how to mitigate risks of supplier failure, transportation disruption, and natural disasters by integrating them into sourcing and supply chain decisions.

Join us if you want to know how to better manage inventory across your supply chain.

I’ve been teaching the APICS Certified Supply Chain Professional (CSCP) course here locally and discussions recently centered on the sales and operations planning (S&OP) process. One key aspect of S&OP is that it is the mechanism for connecting the demand side (forecasting and demand management) with the supply side (production).

The intersection of supply and demand takes place in finished goods inventory. Supply commits to quantities and dates for receipt of finished goods into inventory and demand commits to a sales rate for consuming those finished goods and shipping them out. This is true for make-to-stock as well as make-to-order; only the timing is different.

This presents a unique opportunity for accountability. Once the S&OP plan is approved (by both sides) it becomes, in effect, a contract. We can now measure each against that commitment. Production is responsible for producing the goods per the schedule in the plan, and sales/marketing is responsible for selling the goods. If at any given time there is more or less inventory than the plan anticipated, it should be clear whether it is because production did not meet their schedule or whether sales was above or below forecast. This should eliminate a lot of finger-pointing and “he said; she said” arguments so the management team can focus on the real issues.

Of course this is just the starting point for measurement and management. More detailed readings are needed to “drill down” to the ultimate source of the problem. Nevertheless, each of these more detailed measurements must be tied directly to the top-level objectives as expressed in the S&OP. You can look at production departments, for example, to see if each has met its objectives, which are in fact subsets of the overall production plan. Maybe the next step is to look at individual work centers within a department. The important point is that the overall S&OP objectives are distributed to the departments which, in turn, distribute them to the work centers. It all has to add up back through departments to the overall production plan.

People respond to the way they’re measured (that’s what the measurements are for, after all) and individual measurements must be in line with higher level strategies and goals. Any mismatch is likely to drive behavior that doesn’t support the company’s efficiency, customer service and profitability – the classic definition of waste (not adding value).

Take a look at how a typical employee is measured through bonuses, incentive pay, evaluations, or simply the instructions he or she gets from supervisors. Is the employee being driven in the right direction? Are his or her priorities in line with top-level company strategy? If you are using and MRP/ERP system to develop priorities, are they tied to the right master schedule and S&OP plan and, just as importantly, is the employee’s incentives tied to those system-generated priorities?