Author Archives: Caspar Hunsche

Caspar Hunsche

About Caspar Hunsche

Caspar Hunsche is a Managing Director at PCG with over 20 years of experience in Supply Chain Management. He served as Research Director of Supply Chain Council and is co-designer of OpenReference's emerging global standard in supply chain strategic business management.

Leading or Lagging?

Are your company’s supply chains leading or lagging?

Don’t have the cost or asset efficiency answers to this question? Then you are probably not truly in control of your company’s supply chain performance. At the highest level managing supply chains starts with understanding how well you perform and developing strategic initiatives to improve or maintain supply chain performance.

Many executives ask us how to start the process of making strategic investments in supply chain. One answer is to show how you perform in comparison to your competitors and peers, and your trends versus industry trends. Benchmarking your financials is not difficult and PCG Benchmarks can provide you you with the first insights. Continue reading

Manufacturing or Supply Chain

When I recently had to explain to my aunt (she is in her 70s) what I do she struggled with the word(s) supply chain – ‘during her work life supply chains did not exist’. I tried to explain how supply chain looks at the total flow of goods in a company – from suppliers to customers and everything in-between. After we parted I thought about how many of the companies I work with or have worked with have the same problem.

Occurrence of supply chain terms in literature 1800-2000

Occurrence of supply chain terms in literature 1800-2000

Today, 2015, there are still companies that have no concept or limited understanding of supply chain – even though the majority of the money they spend is directly controlled by supply chain processes. Over the last 20 years I learned that the difference is whether a company considers their supply chains as a strategic asset. Many companies that struggle or are merely median do not. They tend to focus on their manufacturing capabilities.

A company that considers its production capabilities strategic will be focused on optimizing factory operations. The emphasis will be on key drivers such as Cost of Goods Sold (COGS) for cost, Capacity utilization for asset efficiency and forecast accuracy for pretty much anything. Customer centric metrics are often translated to metrics like: Schedule adherence or manufacturing cycle time. This was common practice in the early nineties and resulted in the formation of supply chain special interest organizations back then. Continue reading

Planning or Scheduling?

On a recent customer engagement the project team experienced issues getting acceptance from manufacturing teams for the proposed new planning processes. The reason: “The plan should be done in the factory”; “we have full visibility of current inventories, orders, production output” and so on. This however was primarily a language issue: Are we talking planning or scheduling? Once we explained the difference both teams calmed and agreement was reached. So, what’s the difference, you ask?

One way to differentiate is looking at an example. The daughter of a friend in Europe and her friend graduated from high school and were planning a multi-month USA road trip. She did her planning extensively: Continue reading

Planning Then and Now

This month it’s exactly 20 years ago that I first traveled to the corporate headquarters in Houston to participate in a worldwide project to redefine the global planning process for Compaq Computer Corporation. At the time we did not call it S&OP, we called it supply chain planning. Our challenges then? We had 8 levels of judgment by sales, product managers, planners and procurement between the forecast in the sales offices and what we communicated to our suppliers as ‘the plan’. As you can imagine, with so many people making changes to the plan, the outcome was probably less reliable than rolling dice.  When we started our journey towards a global S&OP process our suppliers awarded us the title of “least reliable in the industry”. Continue reading

Relax; It’s Just a Plan (2)

In my years as Research Director at SCC it was pointed out many times to me that we (accidentally?) omitted “one of the most important metrics in supply chain: Forecast Accuracy”. Many people believe this “It’s all about forecast accuracy” to be true. In practice it is not however.

I agree that garbage-in, garbage-out does apply to S&OP just like every other process. Continue reading

Relax; It’s Just a Plan

Here’s the deal: You know your supply chain is special and using a one-size-fits-all approach like Sales & Operations Planning (“S&OP”) is not for you. Or you operate a process that is too complex. Or maybe it doesn’t require such a complex approach. And then when you tried it; the statistical forecast was inaccurate and executing the plan resulted in shortages and excess at the same time. You know you are right: S&OP is not for you. Or is it? Continue reading

The Zero Inventory Supply Chain

At a recent training I was asked the question whether the Supply Chain Cost metric applies to a return operations.

“We receive consumer goods from retailers and .com customers and inspect these goods and then determine disposition; some products we repack, some we repair, some we scrap and the rest we return to the OEM.”

It sounded to me like a typical return supply chain. You have costs to operate these facilities, staff and materials used, right? All these are part of Total Cost to Serve.

“Yes, but we never own the materials. They belong to our customer, we are just the service provider, why should we report the cost of goods? Similarly, as we never own the materials why would we care about inventory in asset management?”

Ah, the question behind the question. A service supply chain may manage goods but not own them.

To address the question about the Total Cost to Serve calculation first: Yes, the cost to acquire materials is part of Supply Chain Costs. And this is accurate even for the service supply chain above. The cost for packaging materials acquired (sourced) for the repacking for example should be included in the Supply Chain Costs calculation. (That is assuming you acquire them and not your customer). But the cost of the returned good is not yours, which matches financial transactions as you do not buy the returned goods from your customer.

By the way, there are costs in Supply Chain Costs that may be zero or near zero in a traditional* supply chain. Disposition costs would be low for such a supply chain, unless the (Make) process has significant waste for example. Total Cost to Serve has a place holder for all relevant costs, the way the supply chain operates determines how much each a level-2 or a level-3 metric contributes to the level-1 metric.

The real question here though is whether all metrics at all levels apply to every supply chain. In my experience: Yes for level-1 metrics, not always for level-2 and level-3 metrics.

Level-1 metrics capture multiple indicators over the complete supply chain. For example Cash Conversion Cycle (‘CCC’) – Even if you do not have inventory you still buy and sell services. You need to pay your suppliers and collect from your customers. CCC is still relevant as it tells you how many days of business you need to float (to float = borrow money to pay your suppliers until you receive from your customers).

At level-2 and level-3 some metrics may not be needed as I may not have inventory to report. One could argue though that if you report material costs associated with the repacking process there will likely also be inventory to report. But service supply chains can be without any traditional inventory, in which case those metrics can report zero.

And then there is of course the zero inventory supply chain..
..taking ownership of the sourced goods at the same moment ownership transfers to the customer.. Perfectly free of inventory, or is it? Think about it.

Inventory Days

Recently I received questions from multiple people about the inventory days of supply metric. This metric has been part of SCOR since — I guess — the beginning, but some of our practitioners/trainees confuse the days for lead-time.

Question: If I have 5 days worth of inventory does this mean it would take five days to get to zero inventory (assuming I do not buy or make more?)

Answer: No. In the ideal world, IF you have the right mix of goods, materials, lead times and capacity the answer would be yes, but the realities of mix issues, inventory aging and lead times will mean that it takes substantially longer to deplete all inventory.

Question: If I have 5 days worth of inventory in WIP does this mean that it takes five days to make the product?

Answer: No, there is no correlation between Make lead-time and inventory days of supply in WIP. For example: if it takes 10 days to make the product but I book the raw material issuance, consumption and the finished goods increase all at the same time, then I would not report any material in WIP – this is known as backflush costing. But even environments where materials are issued pre-production, materials may remain in WIP well beyond the typical duration of the physical make process. For example: material rejected for quality reasons that may remain in WIP until the material is reworked. Or consider the impact of creating sub-assemblies as part of a postponement strategy.

Question: Does 5 days inventory days of supply mean I have 5 inventory turns per day?

Answer: No. Inventory turns is like the multiplicative inverse of inventory days of supply. If inventory days of supply is 5 days the your will have 365/5 = 73 turns per year (or 1/5 turns per day).

So why do we use this days of supply to express inventory? Two reasons. First because inventory is part of the bigger cash-to-cash cycle time which is expressed in days. And secondly because an absolute inventory number does not tell the whole story. I always ask the training attendees: I have 2 gallons of milk in the fridge — is that a lot or not? The answer is: it depends. If I use it only to cream my daily cup of coffee; it will last me well beyond the expiry date. If however you have a couple of teenage kids, it may last less than a week.

This blog entry was originally published by the author on the now demised SCC website.