Sunday, November 25, 2012

Isn't it time to use some Practical S(AP)cience?


"Management is in transition from an art, based only on experience, to a profession, based on an underlying structure of principles and science", wrote Jay W. Forrester in 1961 in his groundbreaking book Industrial Dynamics."... "any worthwhile human endeavor emerges first as an art. We succeed before we understand why" he continues. Then..."the development of the underlying sciences was motivated by the need to understand better the foundation on which the art rested."

Isn't it time to improve the art of SAP supply chain optimization with some science and underlying Laws and Principles to get a foundation and common understanding that we all can reference to? Most optimizers and advisers still just use their experience only and guide the user with intuition (that comes from various degrees of experience and runs the gamut from great to miserable judgement).

Other disciplines like Engineering or practicing Law would not nearly be as advanced would they still rest on the same descriptive transmittal of experience. And advancement in the art of SAP supply chain optimization we need! Wouldn't you agree? "...but without an underlying science, advancement of an art eventually reaches a plateau", Forrester claimed in 1961 and I believe his insights still hold water. He also states: "...companies believe their problems are unique. Because of the lack of a suitable fundamental point of view we fail to see how industrial experiences all deal with the same material, financial  and human factors - all representing variations on the same underlying system." And... "to unify the separate facets of management, selected experiences have been recorded as 'cases' to provide a vehicle to discuss management as an interrelated system. This has been the best method available for integrating management knowledge, although it has been far from adequate."

This still holds true in 2012. Far too often people discredit ideas because they think the solution does not apply in their environment.

Forrester talked about management as a discipline that needed a scientific basis and reference framework. I am talking about managing the SAP supply chain and my perceived opinion to bring some practical science to the table that helps us to better evaluate and fine tune the supply chain and how it is run by SAP settings and functionality. Such a base of practical science would permit experiences to be translated into a common frame of reference from which they could be transferred from the past to the present or from one place to another.

Forrester has succeded in his vision to develop a science for the discipline of management. The topic has been evolving from Forrester through Donella Meadows with 'Thinking In Systems' and more recently John Sterman with his book: 'Business Dynamics: Systems Thinking and Modeling for a Complex World' (both from the MIT Sloan Faculty where Forrester also lectured). Also worth mentioning: 'The Fifth Discipline: The Art and Practice of the Learning Organization' (Senge 1990) is a book by Peter Senge (also a senior lecturer at MIT). His premise is that the fifth discipline, system thinking, combines the other four (personal mastery, mental models, building a shared vision and team learning) to manage and transform companies into learning organizations. Besides Systems and Business Dynamics Thinking (supported by causal loop and stock & flow diagrams) another science has been developed: 'Factory Physics' by Wallace Hopp and Mark Spearman is a book on scientific management of manufacturing dynamics. But the Principles, Laws and Corollaries explained in Factory Physics can easily be applied to the entire supply chain. Wallace Hopp has also written a paper - 'Supply Chain Science' - that translates the Factory Physics principles to a more broad application throughout the entire supply chain.

So its time to use these valuable insights to build a practical science framework for the art of SAP supply chain optimization. Systems Thinking will allow us to pinpoint inefficiencies, foresee the effects of a specific policy and supports good decision making (MTS or MTO? reduce inventory or increase availability? when to order and how much?). Through Systems Thinking the bullwhip effect can be avoided and we're enabled to see the forest again, in spite of all the trees. Factory Physics then strives to apply practical science to help with the definition of various policies. Using Little's Law, Kingman's equation (or VUT formula) and the Variability of Lead Time Demand, we can optimize the combination of buffer usage (time, inventory, capacity), fight variability and optimize our inventory levels for lowest stock with utmost service level performance. We now know where to place WIP buffers to execute the Theory of Constraints for better flow and we can reduce waste, for a lean supply chain, and increase flexibility, for an agile supply chain. A KPI framework can be developed which is based on meaningful and effective measures. This should move us much closer to SAP supply chain excellence than intuition and experience alone.

Everywhere I look, I see the more SAP-experienced person (usually consultants who get around many SAP installations) help the user with a new transaction here and a better lot sizing indicator there. Some consultancies develop methodologies for SAP supply chain optimization and come up with isolated goals (like an inventory reduction or a service level increase or more automation in purchasing). This is all good and experienced advisers are needed to help making the supply chain better. But it is only a small step to the ultimate goal of supply chain excellence. How many optimization projects fail to produce the promised results? We have reached that plateau. Lets improve on the 'art' with the application of practical science and engage in optimization projects that have a solid basis for measurable, positive results as we deal with the complexity of a modern supply chain using an integrated, holistic and factual approach.

John Sterman's Business Dynamics is an excellent reference for the building of models. Business Dynamics By Sterman, John (Google Affiliate Ad)