What a sensational trip. I recently had the pleasure and privilege of travelling to Japan to visit a number of factories at various stages of implementing Lean  Manufacturing practices. I have to firstly say thank you to all the wonderful people who I travelled with - you are a great bunch of wonderful human beings.

I had the pleasure of meeting, travelling with and discussing business practices and philosophies with the most wonderful person I have met in a long time. Dr Michel Mastre is one of nature’s gentlemen. His advise and discussions during the tour were fantastic. I have learnt so much during this trip.

My experience with Lean principals to date have left me with a few pieces of the overall jigsaw picture still missing or at least I was having trouble finding a suitable place for them. This trip allowed me to “SEE” the picture and for those jigsaw pieces to come together and complete the picture for me.

I would also like to  thank Alice Lee from Beth Israel Deaconess Medical Center in Boston. Alice allowed me to see where else Lean principals can be applied. I have a client in the health industry and I have been thinking for sometime that we should be presenting these concepts to their customers (Aged care, day surgeries and hospitals). Alice has helped me see what is possible in this area and her encouragement has been terrific.

Well, the share market has taken another battering today, but it resisted dropping below the support level of 4,900. After many attempts, it seems that the 4,900 level is hard to break. I still can’t help but feel that there is more trouble to come. Businesses in Australia need to re-examine their processes and to identify waste in their businesses sooner rather than later. It is my view that companies have had a good run for some time now, evidenced by comments that inventory is cheap and companies are filling warehouses.

There is no doubt Australia is in for some tough times in the next couple of years. The price of oil, the fall out from the credit crisis (which in my view still has some way to play out here in Aussie) and the fear of resulting inflation (along with the perception that the current Government simply does not have the economic credentials to handle this issue) will feed into a slowing economy. This is something many managers have not had to handle before. We almost have a generation of managers who have not known tough times or inflation and this begs the question of how will they handle the situation.

As the economic cycle turns and money becomes more expensive, capital becomes harder to come across and sales start to drop - my view is that companies that have set the platform for waste elimination will be in a far better place than those who don’t.

If they don’t identify this waste, companies might find themselves servicing large overdrafts which have financed inefficient practices, and trying to unload inventories in an environment of slowing sales.

Add to this the Federal Governments recent legislation requiring companies to start reporting carbon emissions as of July 1 this year, and companies are facing a significant increase in the cost of doing business in Australia. It seems that before long, every company in Australia will be required to report their carbon emissions.

In response we are rapidly developing a product that will assist companies to comply with this requirement.

I was reading an interesting article in the Financial Review today which covered the reasoning behind the decision by Australian banks to raise their interest rates despite the RBA not having changed rates to them. In summary, it explains why the credit crunch in the USA was restricting the supply of money to the banks, which has in turn increased the pressure for them to raise rates on loans because their cost of money has increased. This has the flow-on effect of banks now increasing the interest rates paid on deposits, which hopefully will increase the supply of cheaper money for them.

So what is the impact on business’ supply chains of all of this? This obviously will vary depending on the gearing a company carries; however, the most obvious impact will be that the cost of money will increase. So any company with an overdraft or borrowings of what ever structure will be paying more. Likewise any company that is cash positive and carrying no debt will be receiving more for their money (depending on how they manage their surpluses).

It also seems inevitable that rates will continue to increase for the foreseeable future. It seems to me that the American economy is undoubtedly slowing, as is Europe’s. This is evidenced by the credit crunch and employment numbers in the USA and slow-downs in Spain and other parts of Europe. The talk is that this will also flow through to the UK. So with slow downs occurring in many developed economies, one asks why Australia is any different. Many say we are immune because our economy is being driven by China. Many believe that China is ‘de‑coupled’ from America and therefore their demand will continue despite what happens in the USA. I do not subscribe to this theory.

While China does seem to be generating sufficient demand internally to keep the economy growing through infrastructure projects and internal growth, the manufacturing plants in China have to be selling their goods to somebody. If the economies of USA and Europe are slowing then the demand for goods from China will slow, which will then flow on to a slowing of demand to some degree for our commodities.

For me, this all points to a continuation of tightening of rates. So what impact should this have on our supply chain strategy? Well, for quiet some time now, companies have been operating in a stable and low interest rate environment. There is almost a generation of young executives who have not experienced this type of market and those of us who have seen this before have most likely forgotten what it was really like. It seems to me that this environment re‑enforces the need to be agile, particularly given the level of uncertainty as to the economy’s future. So any supply chain philosophy that re-enforces agility and responsiveness requires further attention, particularly by those executives who have not considered the cost of capital in their decision making up to now.

Supply chains have become more global in outlook, particularly with outsourcing of manufacturing to China. This has added another layer of complexity to the supply chain; it has increased the time from order to delivery and increased the risk of delay, damage or loss at sea. As the price of oil continues to increase (albeit on the day of writing it dropped a little) it raises the question of a balance between the cost of oil verses the cost of labour. While labour in this country is more expensive than other countries, I can’t help but think many executives have forgotten that labour is their most agile resource.

In my view there will be a requirement to adopt those agile and responsive philosophies that encourage low and fast tuning inventories, a culture of continuous improvement and an adoption of smaller quantities more frequently so that if a downward shift in demand occurs, the company isn’t left with large quantities of obsolete inventory. The increased cost of oil re-enforces the need to have reliable sources of supply close at hand.

Adoption of these philosophies will release unnecessary capital that has been tied up in inventory and inefficient processes. This will provide two benefits to companies. Firstly, it will lower any overdraft and therefore the pressure placed by increasing interest rates, or it will provide a bigger cash surplus which can take advantage of the higher interest rates being provided by banks for cash. (I recall the day when some companies were selling product at or near cost just to generate cash that they could then place on the short term money market. Let’s hope rates don’t get so high to encourage this type of behaviour again, but it is sobering to remember them, all the same). Secondly, it will help place the focus of executives back on the actual return they are getting on their capital investments.

Does any of this requirement sound familiar to anyone??? These are all fundamental tenets of Lean Thinking. Executives have in general terms been lulled into a semi-false sense of security during the low interest rate environment. The cost of capital has been historically low and therefore there has not been a need to include the cost of capital into decisions. However now that that situation is starting to change the need to account for this cost will become more and more important and subsequently any business philosophies that encourage this behaviour become more and more important.

I will continue to encourage my clients to continually improve and adopt agile and responsive business processes.

I am not sure what it will take for manufacturers to fully understand what it takes to succeed in today’s market place. More evidence of the solution to Australia’s manufacturing woes was to be found in a news article I found on Yahoo Finance this morning. It was discussing the worst and best selling vehicles in the US.  Cars to feel major declines in sales due to the slowing economy and subprime issues in the US economy were: Chevrolet Silverado, Cadillac XLR, Jaguar S-Type and X-Type and Audi A8 and S8. Other models that weren’t on their list of worst sellers but had sales downturns this year included the Chevrolet Monte Carlo, Honda Element, and Volkswagen Passat. Guess who had improved sales…………(wonder if I really need to fully explain it, I have alluded to it before………..) Toyota !!! Sales of the Camry and Prius are both up by more than 6%.

One of the main benefits of Lean is to be flexible to the market place……however it is the application of the wh0le system, not a cherry-picked version of the system that makes it work. Yet again more evidence of how this philosophy works…..hopefully Australian manufacturers will catch on one day……………soon possibly????

I finally returned to my routine of sending out regular newsletters yesterday and in response a good friend of mine mentioned that I should add it to my blog as people might like to comment on it. So here it is…… I look forward to seeing your responses.

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Well I know it’s been a long time coming but I have finally made the time to re-visit my newsletters. With Christmas 2007 fast approaching I have taken the time to re-examine my business. Upon reflection I have fallen into the inevitable trap for consultants when they are busy – I let some little things go. Just like I ask my clients not to. So just like I ask my clients what are they going to commit to?, I am committing to providing you with better service through my newsletters.

This blinding flash of the obvious came to me during my recent trip to the USA and was reinforced when I was reading a newsletter from an associate of mine who lives and operates in New York. Because in his newsletter he covers a subject that I confront in nearly every project I undertake. In it he makes the following observation;

·                He set out in his doctorial dissertation (yes he is a dreaded Phd) to prove “that innovative tendencies were correlated to behavioural predispositions”, however he actually found that; “Environment was everything, and that all types of behaviours might end up innovative or non-innovative, depending upon the surroundings and support”.

Think about that for one moment – that the condition of your surroundings and the level of support provided within your workplace will determine the ability of your people to be innovative or not. After reading this I reflected upon a number of past projects that I have been involved in where the results were not as good as I felt they should have been. I have been taking a lot of pain to re-examine what it is I do and how I present my offerings to clients (and much good has come from this) to ensure that it wasn’t something I was doing that was causing these projects to under perform compared to the level that  I wanted them to be at.  

It is somewhat comforting to know that in many respects the ultimate result is completely out of my control. It comes back to that senior executive who sets the surroundings and culture of the business that ultimately determines whether a project will achieve its potential or not. I do understand that my role is often that of a lone voice standing against the company’s habits and old comfortable ways. Anyone who has worked with me knows that I am not shy and I do have an ability to make a stand for what I feel is in the best interests of the company. And yes I guess I have upset one or two senior executives in my time, although not on purpose and always with the best intentions in mind. But it is comforting to know that when projects do not achieve the level of transformation I felt was possible, there is little more I can do but to point out my advice, which after all is what clients pay me for.

My associate goes on to say that if you surround yourself with positive, honest and supportive people (and here comes what I think is the really important point) especially those courageous people who are prepared to tell you when they feel you are wrong, you are apt to be successful. This unfortunately is a rare attribute in companies.

When was the last time you were involved in a meeting and you could see everyone waiting for the boss to say what he thought so others could support their thoughts. Or worse still, someone tentatively spoke their mind only to quickly change direction once the boss had made his/her opinion known. You can cut the air with a knife; everyone knows there has been a level of backside kissing going on but no one says anything. My recent projects have all had their fair share of this and when I question those involved they all have some great REASON/EXCUSE why the boss’s opinion was right. This is their way of saying that they didn’t want to “Look Bad”. Lets be honest, this is a major driving force in human behaviour. People will move heaven and earth not to look bad; they will break every principle they have not to look bad.

Likewise, Jim Collins in his book “Good to Great” found two of the determinates of Great companies were;

1. Their ability to face the brutal facts and then make decisions based on those facts
2. The ability of the organisation to have volatile debate (drag them down, bash it out discussions) without holding grudges about issues within the business. The ability of the leader to create the environment where his people are “Heard” not just allowed “to have their say”. (The difference being that action is actually taken in response to employees having a say). He found this provided the right groundwork for sound decision making.

All of the above sounds awfully familiar to my associate’s reference to surroundings and support to me and a lot like companies having cultures where different viewpoints make people look bad.

I am a firm believer in taking action so please take a couple of minutes to reflect on the surroundings within your business and to look for ways where it can be more supportive and where action rather than words (read hot air) are the norm. Look for places within the business where people are reluctant to fully express their views for the fear of looking bad and provide them with a safe environment to play full out – Your success will thank you for it.

I would like to take this opportunity to wish everyone a happy Christmas and a successful New Year. I look forward to helping everyone again next year.

Until next time………keep generating success.

Sincerely,

David Ogilvie

Well as you can see it has been ages since I actually contributed anything to my blog. Business has been very good and I have had little time between living a balanced life, project managing the implementation of an ERP system, helping another client choose an ERP system and my two coaching roles not to mention travelling to the USA for two great conferences and working with some fantastic supply chain consultants there.

While in the US I was reading USA Today one morning over my morning coffee and there was a story heading the business section of the paper with the Headline of, “GM forced to take a $39B charge”. The essence of the story was that the GM had been forced by the tax department to take write downs so that it remained compliant because, (and here is the really interesting part of the story)……. “accounting laws say a company cannot keep booking tax credits if it doesn’t have any track record of making money”.

Isn’t this one of the worlds biggest companies??? And the taxman is indicating that you don’t have a track record of making money?? Something is seriously wrong here. It is, however, an example of something that I find is all too familiar with companies, at least here in Australia and of the size I work with. There is an addiction to adhere to the old ways no matter what.

It would seem obvious (at least it does to me and the world I live in) that if you had continually operated at a level where the taxman is now considering that you don’t have a track record of making money, that you should start to think about doing something differently. Especially when there are only a few players in your market that actually make any money (read Toyota).

Here are two companies competing in the same markets globally, selling the same type of products and one is making more profit than all the other competing companies combined and the other is losing money like a drunken gambling addict in Las Vegas. I’m not sure how much money the executives of these companies are being paid but it would seem to me that maybe there is some credence in what the company making money is doing.

I found it ironic that about two days later there was a very small mention in a side section of the same paper of Toyota’s profit announcement. I still fail to understand why it is that decent men and women who are obviously intelligent fail to grasp concepts like Lean Thinking???? The results are obvious. Maybe its because they are counter-intuitive, maybe its because they need the whole system to be applied but our managers today want to cherry-pick the bits they want and to hell with the other disciplines - they are too hard. Maybe the devil is in the detail????? What do you think?

Welcome to Supply Chain Solutions first Web Log positing. My name is David Ogilvie and I am principal of Supply Chain Solutions, a business improvement consultancy business based in Brisbane, Australia. After hearing so much about this medium and finally getting some time to look at how this is actually achieved (thanks to a terrible case of the flu that knocked me down for two weeks), we have finally got our blog on line. Like many things in life, easy when you know how, but almost impossible if you don’t.

To that end I would like to thank Jarrod, my ever trusty IT adviser, for his patience and assistance. Your help is always appreciated.

My purpose for this blog will be to periodically log topics and issues that relate to Supply Chain Consulting in general and my experiences as a Supply Chain consultant in general. I welcome your comments and suggestions in response should you feel so inclined. (We have restricted responses to named persons at the moment because Jarrod informs me that if we leave the blog open to unrestricted responses, we will be swamped in spam. So if you would like to leave a response please email me at david@scs.com.au and I will gladly add you. Apologies for the inconvenience, however that’s a small price - thanks to the spammers of the world.)

Anyway thats enough for now - see you all soon.

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