Sunday, December 30, 2012

Der Vogt auf Muehlstein

As I am just coming back from Germany, I can't deny that a book, given by my good friend Ulli Nagel has made a very profound impact on me. No wonder... The book was written by Heinrich Hansjakob, a fellow who lived over 100 years ago in the same area of the Black Forest where I was growing up. And 'Der Vogt auf Muehlstein' takes place just uphill from the house I was born; some 200 years removed.

The Muehlstein is a farmer's house overseeing the valleys of Nordrach and Harmersbach and looks all the way out to Strasbourg in France on a good day. It houses a Wirtsstube where many hikers and locals visit and have delicious Speck, sausages and Schnaps in the old 'Stub' (the living room) of the last inhabitant Josef Erdrich. Sadly the "Erdrich Sepp" died two month ago.
the Vogtsbauernhof 'Muehlstein' today

a typical Bauernvesper including Schnaps and Most

Everybody in my hometown and the surrounding villages was shaken by the news. What will happen to one of the most traditional estates the Black Forest ever had? Its history is long and rich and author Heinrich Hansjakob (a pastor in the days of the late 19th century) captured its essence beautifully by retelling the true story of Anna Maria Magdalena Muser, the only daughter of the Bailiff of Muehlstein.

All characters had actually lived and as tragic and sad the story is, as beautifully Heinrich Hansjakob stays true to giving us a wonderful insight into the characters and lives of my ancestors in the last three decades of the 18th century.
Heinrich Hansjakob around 1900

For those of you who speak German,  I urge you to order the book on It's a story that will move you. To those who don't understand us, you will have to be content with my recap... but only until I find someone in New York who will make a movie out of this!

And here the story (very short version) goes as much as I can retell it in English...

Magdalene is the fifth child and only daughter of the bailiff of Muehlstein and grows up happy and protected in the 1770s and '80s. She is the most beautiful girl of all the valleys and hills around. Singing was as common in those days in the Black Forest as watching television is today. And Magdalene could sing like a nightingale. Every Sunday the folk would come down to the valley for mass and during spring, summer and fall there were fairs, weddings and festivities all around. In Nordrach, Zell and Entersbach there were many occasions where young folk would meet and sing together. And Magdalene was the best. Especially with the Oelerjok's Hans. When the two performed together, it was like heaven came to earth.

As it turned out the two were also developing a liking for each other but because Hans was the 'middle' son and therefore would never inherit a property, it was clear that there was no future for the two. In those days in the Black Forest you would not marry for love but for protection and support. And every father wanted to marry his daughter into a protected livelihood.

And so it turned out that the 'Hermesbur' Faisst lost his second wife and was on the lookout for another. 53 years of age (Magdalene was 19) and the wealthiest farmer around, he asked the bailiff for the hand of his daughter. Everybody knew of Magdalenes love to Hans but the rules were also very clear: you don't marry for attraction and you do what your father considers best for you..

So it was a no brainer for the Muser Toni to promise his daughter to the old, fat man. But Magdalene refused at first. She just could not give herself up to someone she did not like. Her struggle, however, was impossible to succeed and on January 17, 1785 she was married to the Hermesbur. The wedding celebrations were a last, desperate but hopeless attempt, as Hans showed up singing an ode to his beloved Magdalene. The sad bride herself returned the treat with her own love song to Hans, which she had sung to herself over the past 6 months in despair and desperation. Even her cold hear-ted father and the somewhat simple Hermesbur couldn't hide their emotions. But that night, Magdalene moved in with her new husband and Hans packed his few possessions and left his hometown to never return.
After a few days of stoic reluctance by Magdalene, the Hermesbur threatened to take his wife by force. But Magdalene stood up to the overbearing figure and told him that... "I will be your working mate for the rest of my life, but I will never be your wife." Her willpower was countered with a beating, first by her new husband and later, by her father. Only two months after the wedding, on March 18th 1785, Magdalene died and was buried in Zell under the watch of her remorseful father and an indifferent husband who got remarried only 6 weeks after his third wife's death. He subsequently had another 11 children.

Hans, meanwhile was fighting as a mercenary in France and Austria, unaware of the tragedy that happened to the only woman he ever loved. Years later his younger brother met him by chance at a battle in the Alsace and told him what happened. Hans asked for an 18 hour leave, rode to Zell and visited Magdalene's grave. Without visiting his family, he immediately returned to the fighting front and died in battle the next day.

Magdalenes father, the bailiff of Muehlstein, fell in the winter of 1780 - exactly five years after Magdalenes death - and froze to a miserable death overnight.  (My retelling here does absolutely no justice to Heinrich Hansjakob. If you get a chance, read the book and you will be taken by the rich character descriptions and you can gain a glimpse of the interesting lives of the people of the late 18th century Black Forest)

Today, Magdalenes grave is still maintained by the city of Zell, my hometown. And the Muehlstein house still stands. However, since we now miss the Erdrich Sepp, no one knows if we can ever walk up the mountain again, to relive our past with a traditional meal (Vesper) and Most and Schnaps in the Stube on the Muehlstein.

Time will tell, but until then, I will put that book into my shelf in New York City and know for sure that it helps me to never forget where I am coming from.

Saturday, December 29, 2012

sexy SAP analytics

Just recently I read a comment from a fellow consultant on Twitter. He is mocking his client about their statement that the SAP LIS graphics are not sexy. "I suspect these managers should rather be focusing on the gruesomeness of their inventory levels, rather than “sexiness” of the SAP graphics!", he continues his judgmental ranting.

Really?, I am asking. Is that your idea of using the world's best operations management system? Doing analysis with graphics that look like Keith Richards would have used them in his early school years?

I am sorry, but I have to sympathize with the client. They are absolutely right to ask for a better tool and it is our (the consultants) responsibility to improve on the tools that our clients use. And yes: those tools should have some "sexiness" too! After all we are living in a new world (remember, the Mayan calendar has ended) and one of the important aptitudes of the new age is 'design'! (see my blog about Daniel Pink's Six Aptitudes). There are many better ways to analyze with standard SAP tools and beyond (I have written a number of blogs on the subject and will continue to do so).

In the end it comes down to what our job as a consultant is. It certainly is not to mock the client about wanting the best there is (I should note that the mocker himself ONLY knows the LIS from all the functions in SAP and therefore I understand his defense - but I do not support it). We consultants get around and we see many things. The good ones learn something new every day and aren't afraid to share it widely. The bad ones stick with what they know and mock any progress and the slightest possibility that what was good yesterday might not be so good (for our clients) today.

...and what's wrong with some sexiness in our otherwise prude subject matter?

Wednesday, December 26, 2012

Metaphysics and the SAP supply chain?

When Aristotle took on Metaphysics he wrote about four causes with which an object can be explained; material, efficient, formal and final. A material cause is the stuff a thing or system is made of, the efficient cause is the thing which made it or changes it. The formal cause, and now it gets interesting, is the system's essence or arrangement and the final cause is the purpose of the thing or system.

Now, if operations management with (or without) SAP underlies the still irrefutable laws of metaphysics, then I want to ask the question about how much of the formal and final causes we care about in our efforts to run and continuously improve supply chains. Obviously we do care a lot about the material and efficient causes. As a consequence we pay a lot of attention to the study of business process and product development, but underlying business dynamics and purposeful outcomes fall through the cracks.

All too often we can see slogans, buzzwords, 'philosophies' and entire movements with little or no final or formal goal orientation. Speaking of the goal: Eliyah Goldratt had formulated a final cause with his book 'The Goal' almost 30 years ago. His interpretation of The Goal for a manufacturing operations system (our final cause here) was: "to make money now and in the future". Wallace and Hopp updated this essential purpose by adding " ways that are consistent with our core values" in their book 'Factory Physics'.

Once we consider the final cause in our operations management system, we need a way to get there. This is where the formal cause comes into play. The formal cause of a manufacturing operations system is its structure; its underlying principles, governing laws; its essential 'form'. When constructed the right way, it provides a framework of reference, a scientific basis, a guiding model with which policies may be simulated so that we can anticipate what steps need to be taken to achieve The Goal.

Maybe we can now agree that any improvement or change efforts guided by material and effective causes only, may be exclusively driven by experience and guesswork. Once we are adding the final cause to have a purpose to work towards to and a formal cause with a model, where we can practice and simulate policies... then we can develop intuition, anticipate results, measure progress and generally move into a better world.

So please allow me at this point to add my own little 'philosophic' part so that we could say: "...the final cause or essential purpose of a manufacturing operations management system is to make money now and in the future in ways that are consistent with our core values and...the formal cause or scientific basis of a manufacturing operations management system provides us the framework to construct policies to achieve the final cause"

In that sense it might be worthwhile to consider - next to material and effective causes - a well defined goal and employ a scientific approach in any business improvement program. Easier said than done... but what's the alternative? eliminate muda? that's like saying "I want to be a better cook" and does not provide any guidelines or goals on how good you want to become or how you can get there.

Sunday, December 9, 2012

S&OP can be done using ERP only. But! It's very dangerous if your adviser does not know APO

There are people talking at SAP supply chain conferences about how Sales & Operations Planning is playing the most important role in your planning process. I do believe it is important and a good plan for the right product can save you money in inventory holdings and make your customers happy with great service levels and fill rates. It can also reduce noise in the supply chain and, with a good forecast, provide a great tool to anticipate demand and therefore inventory holdings of finished goods, help with decision making in regards to the resources you need to make available and allow you to simulate various version and effects of a corporate supply chain strategy.

The question is how do you get to a good plan in S&OP. For those of you whose company has purchased SAP software, the speaker should lay out good practices (if not the best) and give you valuable insight on how to best use that tool - SAP. And as we all know SAP software is comprised of an S&OP tool in its ERP version but they also sell advanced planning tools with APO. Now, if you get an adviser who tells you to use ERP or another one who tells you to use APO, then you know that neither one understands both. And that is a problem! Because you certainly don't want the knowledge (or lack thereof) of your adviser drive your use of SAP's Sales & Operations Planning.

I agree with the ERP proponents that, without a good basic data setup in ERP, any APO planning process is sub-optimized. So if your company has bought APO, you should make sure that your data basis in ERP is sound before you go use DP or SNP. That is mainly because your history (consumptions, sales etc.) is collected in an info structure in ERP and then loaded into an info cube in BI from where it can be used for Advanced Planning in Demand Planning in APO.

If your company did not make an investment in APO yet, it is an easy sell for the adviser to convince you to make use of ERP's S&OP (granted they know how it works). But beware! there is a lot of potential for a false setup that you will have a very hard time with later... especially when your company thinks about getting APO later. And they should, because in the long run and after getting more and more functions inside of SAP, APO should be the system of choice for your demand planning, distribution planning, production planning and procurement planning.

And if you don't set up your ERP S&OP with APO in mind, you will have a very hard time to make the switch later!

And if your adviser doesn't know APO, you can not setup your ERP S&OP with APO in mind!

Just as an example: in APO the Planner (an object) is independent of the location (plant or DC) whereas the MRP Controller in ERP is plant specific. So the product portfolio design should be setup with this in mind.

Also, in APO there are Characteristics Value Combinations. These are essentially the Planning Hierarchies used in ERP. You really don't want to redesign all that later.

Yes! You need to use what you have today. But! You will also have to prepare for the future. You can not ignore and dismiss what's possible for you tomorrow... just because your consultant doesn't know about it. Don't let anybody tell you that you are not ready for APO. It's like they sell you a Porsche and don't let you drive past second gear.

Wednesday, December 5, 2012

Factory Physics and its possible application in SAP - variability

In previous posts I talked about using science in supply chain optimization. The science I am talking about is often rooted in Factory Physics (based on the great work of Mark Spearman and Wallace Hopp). There are many more, but the three most basic principles in Factory Physics are:

1. Little's Law, which describes working capital performance (WIP = cycle time * throughput)
2. the VUT Equation, which relates capacity, variability and time buffers (CT(q) = V * U *t) and is vital to understand costing implications
3. Variance of Lead Time Demand, which drives inventory and performance (sigma2 = Lead Time sigma2D + Demand Sigma2LT)

These formulas don't need derivation or mathematical explanations, but they describe some basic concepts which we can relate to as we define where we are standing and, maybe even more important, where we want to go in our efforts to optimize our SAP supply chain.

This blog deals with the second of these principles, the VUT formula or Kingman's equation

Variability is an unavoidable fact of life that is best managed through understanding the tradeoffs it presents. Variability is a double-edged sword—it can be good, e.g. having more than one product to offer to your customers, or variability can be bad, e.g. machine breakdowns or order cancellations, late deliveries from your vendors and large differences between forecast and actual sales.

To manage variability we take two steps:

- First, determine the amount of good variability that allows you to stay competitive
- second, use the right combination of buffers - inventory, time, capacity - and take action to reduce it.

As we all know, we can not set demand levels or product offerings at will. But we can look at relationships and their implications (e.g. by use of the VUT formula) and use practical buffer management strategies to get the best possible performance under the given circumstances and external factors. The key to success is understanding the effects of variability on your value stream and managing the trade-offs to your advantage.

To get a better understanding and to gain visibility I suggest to map your operations in an SAP value stream diagram (I have shown examples of the SAP value stream in other blog articles. It is a conventional value stream map that includes information like customizing and basic data settings in SAP). Any value stream is composed of demand and transformation (where transformation breaks down into stocks and flows), where the transformation, in form of stocks and flows i used to meet demand.

 The most profitable situation is when demand and transformation are completely synchronized and demand is met with perfect supply in exactly that quantity of that product at that place on that time. We all know that this never happens. The difference is variability and variability is responsible for the appearance of three buffers.

This is not a bad thing - it's just the way things are. The bad things start to happen when executives and managers expect manufacturing and supply chain operations to behave differently than nature permit. The classic example is scheduling at 100% capacity utilization and expecting to be able to control performance well. Scheduling at 100% capacity only works out when there is zero variability and zero variability only happens at Christmas when the lines are down.

So to optimize your performance you can work with four things: The three buffers inventory, capacity and time and a reduction effort in variability. Now when it comes to using these parameters I want to quote the people from "factory Physics" as they talk about how a scientific basic is needed in today's supply chains:

"More and more, people are realizing that the goals of “eliminate variability” (from Six Sigma) and “reduce waste” (from Lean Manufacturing) are admirable goals but only state the obvious. If “eliminate variability,” is used to mean achieve zero variability, it is an impossible goal. If one accepts that zero variability is not possible so the mantra is changed to “reduce variability,” there still is no good description of what is a reasonable level of variability—as described earlier, some variability is bad and some is good. In the classic Lean Manufacturing approach, “reduce waste” is like saying, “Do the right thing.” It sounds great but doesn’t provide much direction."

I agree that we need to do more than just saying: "let's make things better!". In Factory Physics the answer to how to best optimize buffers and reduce variability is Kingman's equation. The VUT equation states that the cycle time in queue (in front of a production line or the inventory in front of a customer in the DC) is the product of a variability factor(V), times a utilization factor(U), times the effective process time(T).

The VUT is only an approximation but it gives an insight into the relationship of the three buffers and variability. It helps developing an intuition for managers to make better decisions. As an example: The combination of reducing inventory, doing nothing about variability, and expecting on-time delivery to improve or stay the same is a recipe for trouble. I've talked many times about the "unscientific inventory reduction" that some supply chain optimizers suggest. It's a prime example of where optimization projects do not produce results! With a good understanding of Factory Physics principles, your intuition would tell you not to approach inventory reduction goals by just mandating reduced inventory levels. You would accept the goal and then use your understanding of Factory Physics principles to determine what is required to achieve reduced inventory levels and direct your organization on how to proceed most quickly to achieve the inventory reduction goals with no loss in on-time delivery performance.

From Factory Physics: "The VUT equation is very useful since it describes the relationship of the three buffers in succinct form. If we want to have a low time buffer, then either V or U must be small. If V is not small, then U will have to be small. This means that if we have variability and want to have a small time buffer, we will need to have a large capacity buffer in order to keep U small. 
Example: If you are constantly making schedule changes because you allow customers to make changes to their orders at any time, you should also have plenty of extra capacity available or be prepared to ship orders late. What about inventory? 
For WIP we can use Little’s Law and get, WIP = CT x TH = (VUT) x TH. So to keep the inventory (WIP) buffer low we will also have to have a large capacity buffer in the presence of high variability. The VUT Equation combined with Little’s Law shows us that high variability at highly utilized work centers results in both a large time buffer and a large inventory buffer.
.. Example: What if we force WIP to be low? Managers do this all the time by limiting how much WIP is allowed in the system through use of pull systems such as kanban or CONWIP. If the VUT equation is to hold, something has to give. If variability is not reduced and process time is not decreased then U will go down with less WIP in the system. The only way for U to go down is for the throughput to go down. This is exactly what happens in manufacturing plants that are overzealous about reducing WIP. As discussed, such plants go beyond lean and become anorexic. WIP and cycle time will come down but so will output of the plant if variability is not reduced. So if you are making management decisions and you are focusing on reducing WIP, make sure you understand how much WIP is needed to maintain maximum throughput given the variability levels in your operations."

There is a lot of talk out there about the agile supply chain, the demand driven supply chain, real-time response and the lean, waste-less supply chain. i agree wholeheartedly that these are things we need to actualize with tools and functions SAP software provides us with, but look at the big picture and reference your actions to a framework that is based on a solid (scientific) basis. John F. Kennedy once said: “…be aware of the danger—but recognize the opportunity.". All too often you find yourself in an optimization project where you are beeing told about an opportunity in pursuit of better performance but the dangers are irresponsibly ignored. 

If you want to be agile/demand driven/real-time, you are stipulating that you require a very small time buffer and typically executives want this fast response with little or no inventory. If you attempt to have a very small time buffer, very little inventory, and you do not reduce variability, you will need a large increase in your capacity buffer. A large capacity buffer is typically very expensive. If you do not add the necessary capacity buffer, do nothing to reduce variability, and reduce your inventory buffer, the time buffer will increase. This means longer response times, reduction in on-time delivery performance and is typically also very expensive in terms of lost customers. 

to sum it up I want to quote Factory Physics again: "The solution to managing variability in your environment is to determine the amount of “good” variability that is required to be profitable in your market (e.g. range of demand volume, different product offerings, promised lead times, on-time delivery) and then implement and maintain the most profitable portfolio of:
.. buffers (inventory, capacity and time)
.. investment in reduction of “bad” variability (e.g. more fixtures to reduce setup times, stocking replacement parts to reduce downtime, dynamic scheduling, demand shaping).
Too often, executives and managers embark on great challenges or slogan-based initiatives to improve performance without a good understanding of the potential consequences of their actions. For you to be successful as an executive or manager of a manufacturing or supply chain operation, it is vital that you understand these fundamental relationships of Factory Physics principles and manage the tradeoffs proactively."

Now what does all of this have to do with your SAP supply chain? A lot. I am pleading for the use of a scientific basis before ANY optimization effort - whether it is the use of consumption based planning strategies to reduce inventory or the implementation of eKanban and MF50 scheduling to achieve 'pull' - , otherwise you might waste your time, or even worse, spend a ton of money on advisers who sell you their unscientific methodology no matter what your situation is... and ignore variability!

Tuesday, December 4, 2012

what it means to optimize an SAP supply chain

there are quite some different opinions out there about what an effort to optimize the SAP supply chain actually means. In my personal opinion, a process optimization or improvement is a precursor or a by-product of an SAP supply chain optimization... and not the primary goal. Of course things will have to get better when we optimize but in this case, the use of the tool should be improved. And that means:

- a better understanding on how SAP functionality works
- a better understanding about what options are available in SAP
- better use of the SAP system to support the optimized process
- more automation

If we plot this on a matrix, we can see that the process optimization should come first - to improve on your business process - and the SAP supply chain optimization should come afterwards - to have the tool, SAP software, support the optimized processes in the most automated and efficient way.

when I visit customers, I usually see a solid process, highly skilled planners, buyers and schedulers, a very good management team and a company that works very well. And if the aforementioned would not be true, I doubt that that company would still be in business. Come on SAP consultant! Do you really think you can improve your customer's process? the way they have been doing business for years... successfully!  or are you better suited helping them to get it done better using SAP as a tool? to get the most out of the available functionality? I think what is needed here, is an adviser who looks at the process and matches the right functions in SAP so that the process runs more efficient and more automated.

Almost always I see a good business running with a great degree of supply chain excellence .. but the question most likely is: "How hard is it for you - and how much manual effort does it take you - to get there?"

Saturday, December 1, 2012

Living in Tribeca...

It seems to me that over the last 5 years I did not spend a lot of time at home. In fact, looking into it, I spent about 80% of my time travelling. That KPI, I figured, stimulates me to make a point of spending more time at home. After all I live in Tribeca, one of the most featured neighborhoods in movies and books and destination to many tourists visiting New York.

Tribeca stands for TRIangle BElow CAnal street and is a historic neighborhood where, back in the days, most of those loft buildings served as giant refrigerators to store eggs and butter. Then, in the sixties, it went through its own dark ages. The building on the corner of West Broadway and Chambers, which today houses the Cosmopolitan Hotel, served as a halfway house and a place that convicted felons, who were done serving their time, used as a stepping stone to get back into society. Shootouts on West Broadway were as regular as were muggings and even murders.

In the late 70s and 80s the artists moved in, using all those lofty spaces for their studios and Tribeca became a hip spot that not a lot of people knew about. When I moved into the hood in 1997 it was still a deserted place to an onlooker, but it was a great community to the people who lived here. At night you would walk into the Odeon and there were familiar faces everywhere. The 500 feet from my apartment building to Morgans Market, the deli, took me about 30 minutes because I ran into at least 3 friends and neighbors. Everybody in the building would know everybody else who was living here and having my plants watered or the fish fed while I was traveling, did not require the hiring of a personal assistant.

Robert DeNiro had moved into the neighborhood and attracted a lot of his celebrity friends. Tribeca became a place where the hip and famous could live amongst us mere mortal fellow Tribecans without the fear of being stalked or asked for autographs. There was a time when almost the entire Sopranos crew would hang out every Wednesday night and 'Jimmy' Gandolfini would buy you a Jaeger shot while Michael Imperioli talked about how he is bummed out that he will eventually have to move to LA and leave his favorite place to live behind. Robert DeNiro's son ran a bar (more or less) and JFK junior was a regular sight at Bubby's talking to everybody there.

For a while there was a lot of activity on Reade Street. On Holidays or Sundays in July and August the fire department would open up the fire hydrants and that old cliche of children running down the street playing in the cooling water fountains became a reality - only this time it was the adults. On one occasion - right after a Soccer World Cup - we closed down the street, built a soccer field and had a two day tournament going on with an Oktoberfest on the side. Life was good in Tribeca. It was like a small village in the big city.

Then came 9/11. At first, the community became even tighter but in the long run this was a big change - of course! A lot of people moved out and then a lot of people moved in. Today I am sitting at the Cosmopolitan Cafe - as I am writing this - and look out onto a huge construction site (the Chambers Street Water project), people walking by at a rate of approximately 4 per second and there is a stroller invasion that looks for comparison.

There were many changes in Tribeca but the most obvious is the stroller invasion. Don't get me wrong: I love kids, but do I have to duck and dodge through foot traffic to not get rolled over and seriously injured by a horde of very aggresively pushing mothers? Brunch at Blaue Gans on Sunday becomes a kindergarden affair and where there was an adult playground (I am talking about restaurants or watering holes) on every corner 10 years ago, there are kiddy gyms, kids wellness centers, kids party houses and kids entertainment palazzos lined up - 5 in a row - right opposite the entrance to my building.

I am not bitter - no - I embrace the injection of youth and I know that things will always change in New York. But I do get a little nostalgic when I think about what great neighborhood this was - for me! and I realize what's great for me might not be so great for someone else.

Now that I am back here and enjoy being home again, I still love Tribeca. It still has that energy and feel that is hard to explain. But it is different; not better or worse. Just different. And we miss a few... unfortunately we lost some of the best; the ones who were a big part of making what Tribeca was all about. RIP Ralph Cummings and Angelo DiBari. You are being missed.

So today I will explore the new Tribeca. I will go to Whole Foods and buy groceries that will spoil in my fridge... because dinner at Ecco, Blaue Gans, Edwards or the Odeon is way too good to pass on the opportunity to go out to eat and meet people. I will walk around to see what's new, but rest assured, I will turn around before I get north of Canal Street. I will pass by Puffys and the Reade Street Pub because I need to make sure that I don't miss the Saturday afternoon action. And I will certainly run into a few friends and neighbors - maybe not into Kevin Spacey but maybe I see Steve Nash or that guy on 'Breaking Bad'.

Maybe it's not that different after all. In any case: it's good to be back!