Integrated Strategies

Forecasting, Pt 4

noreply@blogger.com (DMusic) — Fri, 19 Jun 2009 14:30:00 +0000

Forecasting’s ultimate goal is to accurately understand how your business will run

The chart below shows the input that a forecast has on any given business decision. As you can see it is only one of six possible inputs (although past market conditions may also be captured in the forecast). Tribal knowledge, gut feel and market conditions are also significant inputs into the decision.

For the purposes of this discussion it is important to define Tribal Knowledge and Gut Feel with regards to forecasting. Tribal Knowledge is the information known by workers of a company that is not captured in any database, qualitative or numerical format. Tribal Knowledge is best classified as the information critical to the function of any business that is simply known and un-captured.

Gut feel is the concept of “knowing” an answer. Any decision maker will hesitate on a decision that they are uncomfortable with. Humans are capable of capturing and processing information subconsciously which leads to the sense of making decisions without solid input. Most effective decision makers will “trust their gut” often enough that it will impact many critical decisions. This also happens to be one of the best error finding methods in model creation.

You will also notice the three inputs that go into the Revised Forecast Model. All three have the ability to be both good and bad. As we’ve discussed previously, past model performance is no indicator of future performance. There are many variables that could unbalance the tenuous nature of the interactions. Past performance does provide the main driver of model improvement as refinements are made to fine tune the variables actually in the model.

Past bad decisions is an important input to the model structure. Any good analyst will design their model to avoid past mistakes. The situations that led to those decisions will have specific avoidance mechanisms built-in. This is both good and bad. It’s always good to avoid past mistakes, just not at the expense of making new ones.

When modeling in past scenarios many analysts fall into the trap of over simplifying the causes of the past error which causes the model to detect the scenario in more situations than would actually be called for. To use a simple example, a modeler in the Northern US state may put in a mechanism that says rain in January will lead to frozen roads which leads to significantly reduced revenue because the model would predict fewer people driving. However, it is entirely possible to have a very mild month where rain either has no impact or positive impact (depending on the business and specific location).

On the other extreme is the analyst who overcomplicates the situation. To use the same example as above, that same modeler instead programs a situation that rain in January but only on Tuesday’s leads to frozen roads. This leads to six days being excluded from the situation. Neither situation leads to effective decision making.

The third input to the model setup is Forecaster Bias which is very similar to the Past Bad Decision input. Any modeler creating a new forecast will have their concept of what should be included or excluded. This will be modified slightly based on the input of others, but ultimately decided by the model-builder. They are in the position they are because they probably have enough experience on the topic to make good predictions of what will be necessary but they may also have blinders to other inputs.

Ultimately, a forecast model is no better than the people who create it, the time it has been used and revised over, the data input and the situations that are predicted to occur. This still leaves quite a large opportunity for any model to be wrong in many situations. For this reason it is important to reiterate that no model should have the final say in any given business decision.

Forecasting, Pt 3

noreply@blogger.com (DMusic) — Mon, 15 Jun 2009 20:42:00 +0000

Iterate regularly to test for variable sensitivity

Every model has the ability to be stress tested. Test them regularly to see how the result changes based on varying conditions. Test for sales dropping 10%. What if prices drop 5% and sales rise 10%? What if your entire logistics department is out sick for the month of October?

To go back to the role of forecasts in the economic downturn, most of the models used in financial houses had no capability to test for the possibility of an across the board housing price drop. Their inputs would not allow them to enter a negative number. It’s possible that those institutions wouldn’t be in the situation that they find themselves in if they could test the sensitivity of their outputs based on negative home price increases.

If your forecast model doesn’t allow you to test for a given condition change that could occur, it is time for a revision. Never let yourself be held hostage by the constraints of your overgrown spreadsheet. It is up to you to make decisions based on the criteria you feel you need to make them against.

A common question is “how do you test for sensitivity?” It surprises everyone who asks how simple it actually is: draw up five scenarios that could happen over the next forecast period (typically this will be high variable growth, medium variable growth, no change, medium variable decline and high variable decline). Use your imagination because it changes from business to business and period to period.

Brainstorm how those five scenarios would make the numbers look. Some data points will go up, others down. Use your best estimation abilities; accuracy is not vital since the scenario didn’t actually happen. Put the revised data into the model and see what the outcome is. Compare all five scenarios against what actually happened. You now have a possible range of outcomes that could have occurred.

This gives you a greater ability to understand the impact of shifting market conditions. If you believe that there is a 5% chance of high growth 15% chance of medium growth, 40% chance of no change and 40% chance of medium decline you can apply those probabilities to the outcomes to get a blended decision. You are essentially hedging against the possibilities that are likely to occur. You will be a better decision maker for this process.

Forecasting, Pt 2

noreply@blogger.com (DMusic) — Fri, 12 Jun 2009 20:40:00 +0000

Never, ever, over-trust the forecast output

Models are unintelligent. They have no means of deciding to leave out unnecessary information or retrieving information that they actually need. Unfortunately, there is a tendency to trust the outcome of previously successful models. The thought process goes: “It was right before, it will be right now.” Until suddenly it’s not; a market condition has changed leading to massive failure.

Flawed models are at the heart of the recent economic downturn. Every financial and rating institution was using the same flawed models. For more than five years the models worked with enormous success. Analysts would put in their data points, the model would return the likely outcome and the analyst would execute against that decision. A highly effective system…until it broke.

Once a model is discovered to be flawed, analysts often dive for cover under the excuse of “the model told me to.” This takes us back to the concept of trusting a model’s output. Don’t. Do not ever put too much faith in the outcome of a forecast (moving average, Monte Carlo, or anywhere in between).

Forecasting models are only tools in the digital toolbox of decision makers. The moment that they become elevated to a higher status is the moment that they should lose all credibility. Decision makers should be held responsible for their actions no matter their process for reaching the decision. Anything less leads to abuse of the system.

10 Simple Principles to Pass Down

noreply@blogger.com (DMusic) — Fri, 12 Jun 2009 20:38:00 +0000

In the recent past it has become clear that the world needs a new set of fundamental commandments if stability is to be achieved. Unfortunately change will only come when enough public support comes together with a single voice. These 10 rules are simple value statements that can create a framework for all decisions.

1. Always seek self-improvement
2. Be modest in all claims
3. Know your performance over time
4. Consider the non-economic impacts of all decisions
5. Participate in your communities
6. Do not select the least efficient option
7. Do not move backward from any improvement
8. Do not claim the improvements of others as your own
9. Seek to improve the areas around you
10. Give the returns of your improvements back to your communities

Forecasting, Pt 1

noreply@blogger.com (DMusic) — Wed, 28 Jan 2009 14:07:00 +0000

Forecasts are no more than a cog in a Prediction Process

Any process that ends in a decision involves forecasting the future. No decisions can be made that do not account for possible future actions. At their most basic level, forecasts are simply predictions of what will occur in the future.

Every C-level executive has a job that almost exclusively involves making numerous business decisions. Sometimes they use crude tools such as gut feel or personal preference and sometimes they use highly sophisticated, probabilistic models involving multitudes of disparate variables. The sophistication of a model does not necessarily make it better than its lower level brethren.

Moving Average forecasts are still around for a reason – they work. In environments not prone to sudden, dramatic changes a moving average forecast holds a lot of appeal: it adjusts fairly quickly to new conditions and it is easy to understand/fix. It will never predict future market condition changes but that’s understood when it is implemented.

Sophisticated Monte Carlo simulations that account for internal and external pressures are more likely to predict future condition changes. The issue with using this style model is that it is dependent on the variables it makes decisions on. Forecaster bias is a significant risk with complex forecasts. Forecaster bias is the condition where the forecaster includes only the variable he/she believes will impact the outcome. There is no way to include every possible variable and someone has to make the selection.

The Greening of America

noreply@blogger.com (DMusic) — Mon, 28 Jul 2008 21:29:00 +0000

It continues to surprise me how far the green movement has come in even just the past three years. At the same time I'm surprised at how little traction has been gained on the everyday side of green. When you look in any popular magazine or newspaper there is always some new story of a company going "carbon neutral" or completing a high profile LEED project.

Where are the stories about warehouses doing mass transitions away from metal halide lighting? Where are the stories of waterless urinal/low-flush toilets flying off the shelves? Where are the stories highlighting the benefits of simple LED light bulbs for exterior use? Why is there no attention on the small stuff?

Doing the right thing isn't always sexy or easy. I get that but in this case it should be. At the very least companies should feel ashamed to be using energy inefficient bulbs. Why hasn't GE or Sylvania brought out the campaign for energy efficient lighting? Where are the press releases highlighting the cost of not switching?

I follow the environmental industries not closely but regularly. It seems that recently all the focus has been on the macro-industries: energy, fuel, cars. What I want to see are the studies highlighting the little things. I guarantee a national campaign to change light bulbs will do more in the next 2 years than any amount of fuel efficiency will do over the next 5.

It's About the Experience, Not the Technology

noreply@blogger.com (DMusic) — Fri, 25 Jul 2008 12:04:00 +0000

Microsoft doesn't quite understand why Google is successful in search. Do you think the average surfer even knows how Google determines what order pages appear on your screen when you run a search? I can tell you right now that they don't care and they don't really want to know. So why do people choose Google over Microsoft if it isn't about the technology?

It's all about the experience. Google has a very clean homepage that is good for one thing - Search. That's it. If you want to do anything else with them you have to go looking for it. Live Search by Microsoft is moving in the right direction but still doesn't quite get there. The trick is to make it clear what users should use your site for - or your business - for.

How does this tie into your business? Keep your pitch simple. Don't offer too many choices, don't drop a menu on their lap and tell them to pick. Tell them what they need. Show them how you will help them. It's an easy to duplicate formula at the end of the day.

The reason Google is successful is that they were able to take their one product offering - Search - and leverage it into a profitable advertising company. They now make money off of nearly every search. If you are a marketing company, remember to first assist companies with their marketing. If you are a distribution center, remember that distribution is the only end result that matters to your customers. Make it fast, make it effective, make it run well but always keep in mind your one singular core priority.

There's a Problem With Consulting

noreply@blogger.com (DMusic) — Mon, 07 Apr 2008 16:32:00 +0000

Consulting has become a game that most everyone plays the same. Most consulting firms are set up in the same fashion, hire the same type of people and go after the same types of clients. Really, is one Harvard MBA different than another? Does having 15 of them as Senior Managers make you a better, smarter, more competitive company? Once every company has adopted the same model it won't be long until they can only compete on price. After you become a commodity it's a long, hard road.

This is the trap that most industries fall into after a certain period of time. The best way to categorize it is "Group Think." Once everyone is trained the same way, they work on the same types of projects, then begin to fall into a certain silo of specialty and you can't expect them to actually see the world through a different shade of lens. Out of all this comes your typical consultants that spout buzzwords like it's going out of style and offer generic solution after generic solution to every problem that they see.

Any consultant that you get out of the typical top firm is going to be out of this mold. They certainly have their strengths which usually include sales, client relations, asking the right questions, creating informative presentations and spotting trouble spots in an organization. The problem becomes their weaknesses. Traditional MBA programs are designed to train a certain style of thinking and decision process. That process is typically financially driven and risk averse. It leads to the natural selection of a low risk solution that creates good net present value, internal rate of return and acceptable payback period. This is all great if all you want is to be average.

Great companies all assume some element of risk. Great solutions require people to think outside the box. Great value requires a project manager not just thinking about how to get the next sale. I won't sit here and say that we here at Integrated Strategies don't ever look for the next sale, but I will tell you why we're different. We think our next sale is in the implementation of our recommendation. We'll take more consulting work but what we're really in this business for is to implement our ideas, make them work and then make them successful. Next time you get a consultant in for a meeting ask him if his firm will personally do construction management and implementation of their plan. I'll bet that they won't.

The trick to changing consulting is getting the answer from people who will do the work after they show you their solution. Consulting firms that hand you the solution and walk away accept no responsibility for your success. Wouldn't you rather have a partner than some abstract adviser?

Cutting Edge of Communication

noreply@blogger.com (DMusic) — Fri, 28 Mar 2008 13:09:00 +0000

Want to know a secret? Email is not a key source of communication anymore. I get more good information via snail-mail now than through my email box. People are on the move so often now that email is a burden for sending and receiving detailed information. It's great for passing along meeting notices though.

The artificial limitations built into email make it difficult to manage for a large number of users. Too many places limit the amount of storage space you can use. Another common issue is the size of files that can fit through the filters. Good information anymore is larger than 5MB. A good picture is larger than 5MB!

Email creates a way for trackable communication. If you need a timestamp to identify when you sent something then email is absolutely the way to go. For every other type of non-marketing communication email simply is not the best route anymore. FTPs create a simple way for safe file transfer or even a free website where you can upload files for someone to download. Need to share pictures use something like Flickr online which allows you to do more than simply view the pictures.

Information is more than 1 dimensional. Remember that the next time you are typing up that long email with lots of files. Think about if there's a better way to control the flow of what you need to share. New communication methods only make things easier for others, not harder.

The Carbon Neutral Smoke Screen

noreply@blogger.com (DMusic) — Thu, 20 Mar 2008 16:39:00 +0000

It is all the rage for companies to strive for carbon neutrality. A system has been set up to trade carbon credits on the open market where carbon neutrality can be bought at a price. No longer are companies applauded for simply reducing their footprint, it requires an additional outside investment in, usually, a non-profit carbon harvesting plan.

True carbon neutrality is impossible to achieve using even the most modern technologies. It is the marketing and advertising arms of large companies have convinced them that carbon neutrality is still achievable. It is one thing to be able to make the claim that you've reduced your carbon impact on the environment by 45%. It's another to say that you have no impact on the environment. This leads down the messy path towards carbon positive companies which I can only imagine is not far down the road due to typical corporate one-upmanship.

There is a better way to achieve carbon neutrality as a company that will put those additional dollars at least partially toward the bottom line: invest in carbon reduction technologies for your suppliers and customers. You make the investment for them and claim the carbon savings for yourself. Any agreement with them would be for them to pass along operational savings to your costs as well.

Retailers should invest in improved manufacturing processes for their suppliers. Manufacturers should invest in improved transportation modes from producers of raw goods. Real Estate companies should invest in the infrastructure of leasable buildings. Restaurants and grocery stores should invest in the growth of local agriculture.

The pay-back for reduced item costs is a bonus on top of the ability to claim multi-year carbon neutrality. The good will it will generate also has a value. Sure your competitors will benefit as well, but why should their good fortune keep you from making a wise business move? Is it really better to put your money into some carbon farm that has no financial benefit to your company other than the claim for one year of carbon neutrality?

Supplier Management

noreply@blogger.com (DMusic) — Wed, 19 Mar 2008 13:21:00 +0000

Far too often companies have a need for a supplier and after the contract is signed, simply hope for the best. However, working with a supplier on a regular basis is an on-going relationship that must be constantly evaluated and worked on. Rarely should a supplier be in a position to negatively influence your business and if you have a supplier that can hurt you, make sure that you have a backup plan in case of the worst.

For your typical business you probably get most of your supplies from a third party. It could be paper and office supplies from the local office stores or specialty products with logos and slogans from someone else. Whatever it is that you need to maintain your business on a day-to-day basis requires oversight and control. If you can't control them it's time for a change. If you are already in a situation where your suppliers seem to have too much control and are starting to impact your business it may be time for a heart to heart with them. If they aren't willing to become part of the team it's time to make a new team.

No company is in business so that they can let someone else tell them what they have to do and what hoops they must jump through; especially someone that they are purchasing through everyday. If communication isn't regular and friendly between groups, make a change.

Happy Pi Day!

noreply@blogger.com (DMusic) — Fri, 14 Mar 2008 16:05:00 +0000

I'm a numbers guy and pi is one of the ultimate numbers. Today just happens to be 3/14 so at 1:59 everyone should just stop and reflect on how this number effects everything you do....or just use it as a reason to stop working for a minute. Have a great Friday all!

Modular Wall Systems

noreply@blogger.com (DMusic) — Thu, 13 Mar 2008 16:08:00 +0000

One of the biggest questions on the minds of facility managers across the country is how to incorporate green products while saving money. The largest on-going cost in most facilities is churn caused by growth/contraction/relocations. Construction costs are regularly planned into the budget to make sure everything is in place for optimum performance. To that end I'd like to talk about movable wall furniture systems.

Almost all of the major workstation manufacturers have begun development on modular office systems. It's a natural progression to extend panels to the ceiling and provide attractive options outside of workstations and cubicles. The tough sell is that currently the cost is higher in most markets than traditional drywall construction - often high enough to put it outside the budget of your average company. Another difficulty is that since it is classified as furniture it is often excluded from a landlord TI allowance. However there is a growing trend in the real estate market for landlords to pay for these style walls within the TI assuming that they stay with the building at lease end.

With that being said, there are significant advantages to looking in the direction of a furniture system instead of traditional construction. The most important to a facility manager is cost. Wall systems are made to last up to 15 years. A typical payback period for a system of this type should be measured in terms of number of moves instead of years. Walls that are built to move are a cost avoidance over traditional construction. The electrical and data systems within them are built to be plug and play which makes things twice as easy. It is not uncommon for these walls to pay for themselves after even 1 reconfiguration. In more expensive construction markets they may even be the same price as traditional office construction.

The second reason is they are built to be environmentally friendly. If you are looking to have a LEED or environmentally certified space then these walls are the only way to go. Their use eliminates construction waste, they are often made from recycled materials and they can be reused many times. For a modest to good payback you are able to do your part for the environment.

If you are looking to undergo a workplace design change talk to your furniture vendor about this option. You may find that it fits well into your already existing plans. Or you can always contact us for help. We're always willing to talk construction methods.

US Manufacturing Should Embrace Green

noreply@blogger.com (DMusic) — Tue, 11 Mar 2008 13:37:00 +0000

With all the talk of recession lately I've been thinking about the new green economy that is being developed and what it could mean for the US manufacturing industry. There has been the lingering fear of manufacturing jobs eventually disappearing from US soil as they are slowly off-shored to cheaper labor markets. Sustainability dictates that the trend will reverse.

Sustainability principles put more weight on carbon than on price; regionally procured products are even one of the points available for LEED certified projects. As the market for green products grows, there will necessarily be a corresponding growth in regionally operated factories. There is a premium inside of sustainability for products produced and warehoused within 500 miles of the purchasing location. This also would mean a reemergence for the local mom & pop brick and mortar stores.

Whenever things seem to be going one way, there is usually a light at the end of the tunnel. In the short term sustainable practices offers higher prices and new ways of doing things. Long-term there is a potential for a rebirth of the good old days.

Real Estate Analysis

noreply@blogger.com (DMusic) — Wed, 27 Feb 2008 14:35:00 +0000

Everyone knows that it is important to get a regular checkup from the doctor. Just get a quick and easy assessment of where they stand as far as the basics are concerned. In the best case, the doctor will give them some tips on how to do better. Worst case the doctor tells them there is something wrong and tells them what they have to do in order to get healthy again. It's common sense to keep tabs on where you stand.

The same should be true of your real estate portfolio. Real estate is a constantly shifting arena: prices fluctuate daily, buildings are built and knocked down, the demographics of a region change. Whether you have one location or a hundred it is a good idea to make sure that you are in good positions that are not hurting your business. Just like for your own health, it's important to get checked out by someone who is an expert in the field.

When the topic of a real estate analysis comes up most people in business think they can do it themselves. However, where would you start in order to figure out if you are doing the best you can be? A surface look would point at cost per square foot as the key factor of whether you are doing well or not. If you know the market rate for your area and are at or below that then you are doing well, right? Not necessarily.

If that isn't the decision point, what is? To really understand how your portfolio stacks up you need to look at a diverse set of metrics that includes: square feet per seat, cost per person, average churn cost per year, and common/shared space allocation. Then you need to benchmark this against your industry competition. Why does all this come into play with your portfolio? Isn't this an HR issue? It's important because the real estate cost is the effect of HR and Real Estate not being in alignment which is often the case.

If you have a high square footage per person, regardless of if your lease rate is at or below market you are overpaying for your space. You have too much of it. If your churn rate (or cost to alter the space with changing business conditions) is above your competitors then you may not be in the right type of space. If your shared space doesn't meet the needs of your employees then you may not have an effective workplace strategy in place (which ties directly into real estate).

Is it possible to do this evaluation internally? Absolutely, but there is a reason that most companies do not perform this level of analysis on themselves: it requires a specific type of expertise and knowledge that is outside the core competency of the business and is not performed on a regular basis. If this sounds like something that may help you then look into it. An inefficient office is a terrible drain on the bottom line and it may not even be noticeable if you don't know where to look.

The Myth of Continuous Improvement

noreply@blogger.com (DMusic) — Mon, 25 Feb 2008 14:47:00 +0000

Continuous improvement is thrown around as the best way to stay ahead of the competition in business. It's used as a talking point for consultants, senior management, engineers and a wide range of others who have responsibility over a process. Six sigma is the king of continuous improvement still today. Take a documented process and set up metrics and means to improve it incrementally. By definition the process is known to be below standard.

Focusing on continual incremental improvements reduces the flexibility to implement the big changes that could take a process to the next level. Measuring against improvement gives managers a reason to never achieve optimal. If you know that you have to perform 5% better next year, you're going to make sure that you have enough capacity in the system to achieve that performance. The question becomes if you can't fix what you don't measure, how should you actually measure improvement?

Improvement is a relative term. Continuous improvement methods oversimplify the concept. Within business terminology improvement can mean anything from reduced costs, increased profits, better customer service, higher performance accuracy or quicker turn around time. Measuring performance should therefore take into account all the important metrics associated with that process.

The example I always look at is a department of 10 people that is in charge of customer sales:

Year 1: they set the performance baseline that everything will be measured against.
Year 2: department grows to 13 people. Productivity per person goes down, but profitability goes up.
Year 3: department grows to 15 people. Productivity per person goes back to Year 1 levels, revenue per person goes up and profitability stays flat.
Year 4: staff stays at 15 people. Productivity and all other metrics show improvement.

If you choose one metric to judge this department against there would be a down year at some point: productivity went down year 2, profitability didn't improve year 3. That doesn't mean it wasn't successful as a group, only that the situation was such that they improved in varying and changing areas.

Be open with your concept of improvement and make sure that overall things are directionally heading in the right direction. Just because one metric goes down does not mean that everything did. There may be a reason for the decline that will mean when it improves back to the baseline everything should rise proportionally with it.

Consulting Language (aka Buzzwords)

noreply@blogger.com (DMusic) — Thu, 21 Feb 2008 14:14:00 +0000

Buzzwords seem to be the stuff that consultants live off of. If they can they'll throw the words into every sentence they utter whether they are talking to a client or just simple everyday talk. It's at the point where all someone needs to do to instantly identify themselves as a consultant is start talking in buzzword circles.

Gen Y has an opinion of consultants (for better or worse it's there) and it comes from the movies. Office Space gave us the Bob's. That's who consultants are to us and sadly most consultants seem more than happy to fill that stereotype. It doesn't help that words and phrases such as:

synergy, rightsize, six sigma, lean, lean six sigma, efficiency, optimal processes, inventory rationalization, sourcing, paradigm shifts, strategic leveling of resources, knowledge management, process integration, disruptive innovation, value added anything, leveragable mindshare, extensible, uCommerce, iCommerce, accountability management, goal alignment, and don't forget the entire list of new environmental buzzwords

Sure these words all have a meaning and some can even be understood by a layman, but do they add any value to a conversation? The quick answer is no. The fastest way to lose a client is to speak over their head. Anyone who is knowledgeable about their field doesn't need to hear buzzwords and anyone who isn't knowledgeable won't understand the buzzwords.

Buzzwords came about because they are perceived to be quick ways to explain a complicated concept. Let's look at rightsize - the meaning of the word is to resize a process or area to match the actual operation requirements. Is it that much harder to say the sentence versus the word? It proves you understand the concept and aren't just throwing out words and also differentiates you from other consultants. If all of your competitors are using the buzzwords and you aren't that can be a competitive advantage over them. At the end of the day that could be the difference between you getting hired and them.

Another reason to avoid buzzwords when possible is because they create confusion. Buzzwords are meant to be vague and cover a wide array of options. Overuse of them can lead to confusion and conflicting opinions of what has been promised or what the scope of work is. Consultants are often seen as over-promising and under-delivering. Part of that is a lack of clarity in the language. Let's look at some examples of what they say/what they mean:

Say: Rightsize inventory through a rationalization project to optimize levels.
Mean: Set on-hand requirement levels to reduce inventory.

Say: Find synergies between groups by leveraging resources, processes and goals.
Mean: Find and eliminate unnecessary job duplication.

Say: Use six sigma process to value engineer the customer-facing processes of the call center.
Mean: Setup a process to eliminate errors that customers experience with the call center.

The list can go on and on but the result is always the same - there are easier ways to state a thought that doesn't include the use of buzzwords. When you are faced with someone determined to use buzzwords, let them know that you want them to state things a different way. If they aren't able to restate the thought then they probably don't know what they are saying to begin with. If they are able to then you'll probably have a more productive conversation.

Changing Tides and Gen Y

noreply@blogger.com (DMusic) — Tue, 19 Feb 2008 14:15:00 +0000

Do a search through any online news aggregator and you will find hundreds of stories related to how Generation Y is changing the rules of the workplace. Stories about how they don't stay with the same company for long periods, how they don't want to come in at the entry level but start with responsibility, and how they question everything. I've grown up as part of this new generation. I went to school with other people of this generation and I'm finally in my third year of real work. I'd say that I may have some insights into why things are the way they are.

First, every 15 years or so when a new generation comes along there are huge obstacles that must be overcome. The difference this time around is the swiftness of the change. Gen X was just fine sitting back and waiting for their turn because they had better things to do. Gen Y wants to change the world from day 1. There is a reason that Google has no problem hiring as many smart young people as they want, they give them opportunity to change things and make a difference.

Your typical company has a structure with positions filled by people with experience and certain skills. Those people got there by one of two ways: 1) worked their way up by proving themselves internally or 2) were hired from the outside because of previous experience. Generation Y is looking to change all of that and are surprised to meet resistance. The funny thing about it is that they don't mind the resistance since they simply find another way around. We are the most entrepreneurial generation ever. If you don't want to hire us for the job we'll simply go out and do it ourselves.

There are very few ties that keep us in one place or in one job. The internet allows us the ability to be instant experts on any given topic - learn about a topic one day, spend the next researching it, teach it the third. With the right resources and determination it is a very easy process. Sure, we won't be experienced experts but we'll know what the tools are, what the problems look like and some general idea of how to mix the two. Creativity will fill in the gaps.

Top that off with the fact that Gen Y are a generation of networkers. How hard is it to transform an active group of 100 friends and acquaintances into a business network. The connections that we make in our network are easy to retrace and remember. Conversations are stored on computers or phones in multiple locations. Pictures are abundant thanks to digital cameras and free online storage. If we need an expert in obscure applications of the third law of thermodynamics they aren't that difficult to find with a quick search or two.

The problem for the generations ahead of us is that we move very quickly. Before you know there is a major issue the person involved has blown past it and either moved on or resolved it. Flexibility is the goal of the day. Let us do what we know we can do. Sure, we will stumble and sometimes fall as things get rough but we will also perform great works before we are 25. We will change the world by 30. Make no mistake, we have lofty goals and strong beliefs that we can and will achieve them. Right or wrong, the only path we know is to chase down those dreams until we succeed.

Common Sense Forgotten

noreply@blogger.com (DMusic) — Mon, 18 Feb 2008 20:46:00 +0000

How many times have you come across a situation where there is a process and set of procedures in place that seem to run completely opposite of common sense? It happens far too often in business that good intentions run awry. Tracing backward in time it is easy to find the events and rational decisions that led to the situation. Every action was justified at the time and made perfect sense. However times have changed but the process hasn't.

Well run companies don't make rules that are not necessary. Employees are given the responsibility to solve problems the way the judge best. The more unnecessary rules that are in place, the more likely there are some that get in the way of efficiency and progress. Anyone worth keeping notices the obstacles to their success and either work to get rid of those obstacles or find a way around them (which sometimes means them leaving to have a better shot at moving up).

Remember to take the time and review the day-to-day requirements that you put upon the people beneath and around you. Every process should be reviewed regularly and everything should be kept up to date. If you have time to make them, you have time to keep up with them.

Giving Away Your Thoughts

noreply@blogger.com (DMusic) — Mon, 04 Feb 2008 21:43:00 +0000

One of the biggest arguments people make against company blogs is that it seems like the equivalent of giving away our intellectual advantage. If we tell people what we think and how we do things what is to keep them from simply doing it themselves? It's a valid question that is worth deeper examination. It's a question that goes to a deeper argument about giving away services or products in hope of selling additional or other services and products.

The argument against giving away knowledge makes a few assumptions that I don't believe are entirely valid. To be specific, the two assumptions I disagree with most are 1) people can completely grasp and execute the topics being discussed and 2) people have the time to do the work themselves. This isn't to say that most people who read this blog don't or can't understand what I'm talking about, it's that they probably don't see and understand the nuances that go beyond the high-level theory. Execution of an idea will bring up every exception, variance and incorrect assumption that cannot be covered in a one page article. It's one thing to talk about warehouse design but until you've done it 3, 20 or 50 times there are aspects you simply won't pick-up on.

There are people that grasp it, have done it in some form and could do it again. Here is where assumption 2 comes in. Those people already have a job that they are expected to perform at a certain level and that job has likely been already balanced to fill a 40 or more hour work week. It's hard to simply divert the attention of these people onto a new task. Their plate is already full.

Here's where the value of giving away the knowledge comes in handy though. If someone understands the value of a certain job and decides that they need it they typically go through some sort of RFP or interview process to decide who can best execute and meet their expectations. If you've been explaining your thoughts on the subject through a blog or newsletter then they have a way to become comfortable with you and your methodology. Especially if their internal experts look at it and approve of it. Assuming that prices are similar, or separated only by some level of tolerance, a company is going to contract someone they trust and feel comfortable with most of the time. In that perspective a blog becomes a means of relationship management and trust building.

Anyone with the time and desire to do what we do themselves can find the articles, whitepapers and processes online for free somewhere. Between Google, Wikipedia and the other millions and millions of websites it is possible to find anything that you want. You could do a search and find thousands of opinions contradicting mine on this topic if you wanted. It comes down to believability, trust and relationship. The same concepts that any strong business is built on. The same traits that most employees are held to. The same words that most people try to live by.

I wouldn't hold back information from a friend just so that I could try and sell him my services and make some extra money. I also don't think anyone who reads this blog would be dumb enough to stick around if I were simply selling my company and making everything we do sound impossible to execute without us. Good businessmen realize that there are always other options for people to hire, products to purchase and opinions on an issue. We want to help everyone that we can with their real estate issues and that may be by simply sharing our opinion on a topic, giving out some free advise or getting hired to do that thorough evaluation that we are good at.

Benchmarking

noreply@blogger.com (DMusic) — Fri, 01 Feb 2008 18:39:00 +0000

The year has only just begun but there is already a new hot topic that is flying around among our clients and it will probably be one of our focuses for the year: benchmarking. Interest in this topic is being driven by clients trying to get a handle on what they are doing right, what they are doing wrong and what is the magnitude of those things.

Reports are flying around newspapers and business circles of the economy turning down. This situation leads to companies looking toward ways to improve what they are doing today in order to weather the storm they see coming. Cutting costs is always an initiative on the table but it becomes more important as short-term growth projections are cut. Costs exist across the board but largely fall into a few large buckets: overhead, distribution, manufacturing, and real estate.

Benchmarking comes into play because it allows you to look at people in similar positions as you and helps you identify your strengths and weaknesses. Costs are then cut by focusing on strengths and improving weaknesses. By driving more of your focus into your strongest areas you focus on hitting your higher margin zones that carry less risk. Improving weaknesses shores up the resources to focus on the better areas.

So why is benchmarking the way to go? Let's look at Southwest Airlines and how they benchmark airplane turnover - the time it takes to clean and refresh between flights. When they benchmarked themselves against their competition they couldn't find anyone who was doing it better than them. Instead of turning their focus onto other areas they decided to take the benchmarking to another level and focus on other groups that performed similar operations. Now they benchmark their airplane turnover against the likes of NASCAR pit crews.

The operations being compared are the same processes on different scales and in different environments. But when you are already best in your industry it makes sense to innovate and compete with groups outside of your specialty. If it seems like you've reached the top you probably haven't looked around to see the other mountains around you that go higher yet. There are always ways to improve, some just have yet to be put in place in your industry.

This leaves us with improving the weaknesses. Most companies are lagging behind in some core area. Either their percentage of overhead is too high or their inventory turns are too low or their transportation rates leave something to be desired. It's hard to have an expert around to diagnose every problem. Sometimes it's important to step back and see what you're missing and why it's happening.

If you operate a call center that uses 250 square feet per person then you are using more real estate for that function than most of your competitors. The lease cost associated with that extra space is a cost that you have to pay every month. It may be possible to consolidate another group in with that call center and get rid of real estate that you don't really need.

Benchmarking gives you the final advantage of knowing what to look at long term and the ability to track progress. Improvement is a long-term activity that should be constantly moved towards. If it's not part of your corporate culture it probably should be.

Automation vs. Manual

noreply@blogger.com (DMusic) — Wed, 30 Jan 2008 13:00:00 +0000

There are a lot of conveyor salesman that like to hoover around warehouses. They love to tout the productivity improvements that can be gained by installing their products. Throw in a nice little shoe sorter and you'll be able to take 4 people out of your shipping process! Add in a Pick-to-Light forward pick zone and you'll save 6 people on your picking! Wow! Why WOULDN'T I install this wonderful stuff?

There's a balance between operating manually and operating with automation and it is a fine line between justification for automation and throwing your money to the wind. It is all dependent on your operational needs for flexibility, knowledge of long term growth and cube throughput. Conveyor salesman will point to the Wal-Marts, Best Buys, Cingulars and other big companies as examples of businesses that use automation to lower their costs, increase their throughput capacity and enable cutting edge technologies. What they don't tell you is that those companies have an economy of scale in their DCs that enable them to know with a fairly high degree of accuracy what they'll need going through their facility in 3, 5 and 10 years. They add new DCs as opposed to growing existing ones.

So why wouldn't you want conveyor even if it cost justifies based on labor savings over a two year window? Answering "Yes" to any of the following questions may mean that automation is not right for you:

1. Are you going to outgrow it in 3 to 5 years and need to replace the whole thing?
2. Would you need to procure the technology systems to support the automation?
3. Is operational flexibility important in the processes that would be automated?
4. Is your business extremely seasonal?
5. Are your products or outbound boxes inconsistently sized?

There is a similar group of questions to ask yourself about whether conveyor is right for you, but this topic is about whether manual processes will work.

Manual processes have gotten a bad rap over the past few years from the six sigma, lean and just-in-time crowds. Automation has somehow become synonymous with efficiency. There is more to efficiency than meets the eye though. The text book definition of efficiency is the ratio of effective or useful output to the total input in any system. Or put into warehousing terms: the best combination of space, capital expenses and labor for the throughput required in the process.

One way to think about the problem is by changing the terms of the problem. Let's look at pallet storage systems. You can store pallets in any number of ways: floor stack, pallets rack with 12' aisles, double deep pallet rack, very narrow aisle pallet rack, AS/RS storage/retrieval systems, etc. There is a large set of alternatives. When you look at what you have and try to decide which to go with most people just end up going with what they know, traditional pallet rack with a forklift to pick from it with. Nice, simple and effective. But was it the best alternative for everything in your warehouse?

When you explain to people the conditions that effect how you should store pallets they are usually pretty good at understanding. They deal with pallets and storage all day long anyway so they understand the dynamics of it. Give them conveyor and all the sudden it seems like Greek. It's the same justification process, it's all about understanding the numbers.

For the average operation, manual processes are exactly what is needed. Your average human is quite capable of efficiently moving a box from one side of the warehouse to the other. A conveyor doesn't move that single box any more efficiently and the conveyor isn't going to do the processing at the other end either....that's a separate piece of automation. The trick is that conveyor can process regular, consistent volume more efficiently. If you need to move 400 cases in an hour then conveyor may be what you need. If you need to move 1000 cases....it may be even easier now to justify that automation. Ask yourself the questions above though, first.

Your conveyor system has to be designed for you busiest hour on your busiest day during the life of what it is expected to handle, which could be 5 to 10 years. If you have a peaking factor of 3 and are expecting 10% growth over the next 5 years- I'd really put some thought into whether conveyor is right for you yet.

RF Strategies

noreply@blogger.com (DMusic) — Fri, 25 Jan 2008 13:49:00 +0000

The most popular post on this blog is Warehouse RF Network. If you do a Google search for Warehouse RF it is the number 2 result. How we got to that spot I'm not sure, but there we are. A lot of the organic traffic that we get comes in through that post. Looking at the search terms that drive people there it seems that RF networks in warehouses are one of the biggest questions that people have when they go about setting up a new facility.

RF is one of the fundamental blocks of an efficient warehouse. It is the driver of so many "Best-in-Class" style processes that it is simply foolish to not implement it. The cost has come down over the many years since it was introduced that it should be part of any operation. However as is the case with most technology, a lot of operators are confused by it and what needs to happen to implement it.

When it comes down to it, an RF Warehouse system is not all that different from your at home wireless network. Most of the general equipment is the same in concept, simply bulked up to industrial grade. The real difficulty to RF is getting the right software and processes around it. Picking a WMS is the hardest part really. There are now so many options for Warehouse Management Systems that going through them to find the best for your situation can be a truly daunting task.

The trick to RF is making sure that the planning around it is complete. Follow these steps and you’ll be well on your way to putting in a very strong solution:

1. Implement a reliable WMS system
2. Setup a warehouse map and picking rules
3. Develop new putaway and picking processes to leverage the RF and WMS systems
4. Train all warehouse employees in detail on how to use the system
5. Perform a complete inventory count
6. Activate the system

The difference between RF and a paper system is, at the simplest level, the interface. Everyone you would employ in your warehouse is familiar with paper and how to work with it. There is a mindset about RF that it is more complicated because it involves a lot of technology. The truth is that the technology is now developed to the point where it is highly user friendly.

Lately when the topic of RF comes up, the natural follow-up becomes “What about RFID?” RFID is the next generation of Radio Frequency. There has been a lot of investment by organizations trying to push RFID as an efficiency driver. A lot of people know by now that Wal-Mart dictates their suppliers use it and the US Military has adopted it for inventory control as well.

What you probably haven’t heard is that even Wal-Mart is having a hard time driving their suppliers to RFID. They just recently began imposing a $2 per pallet fine for every pallet that comes in without RFID tags. The implication of course is that there are quite a few pallets coming in without it. Why aren’t companies moving towards it? Why is it always on the horizon as the next big thing without actually hitting? The simple answer is that the cost to implement continues to refuse to drop. Technologies usually drop in price as they become more widely used, RFID isn’t.

If you have any questions about these systems feel free to give us a call or send us an email. We are here to help you understand how to make these systems work for you and your company.

Time Makes All Things Better

noreply@blogger.com (DMusic) — Thu, 24 Jan 2008 21:56:00 +0000

I've recently been buried in project work and have not had the time to update this blog as regularly as I'd promised myself that I would. A funny thing has happened in the time that I've been away though. Traffic has actually increased since I've been gone. Organic hits from Google, Yahoo and AOL have actually been keeping traffic to the site growing even with a lack of posting on my part. We have gained subscribers to the email update as well.

I'd been growing a little disenchanted at the time it takes to make these regular updates but it looks like it actually does pay off as time goes along. It seems like we are striking the right cord with the audience at large and they want to hear what we are talking about in the industry.

Going back through some of the keyword searches that drive people to this site it seems like it's primarily warehouse and industrially focused. That could be in part because that's the focus I tend to have and it reflects posts I put more thought into but regardless I believe that is the direction I'm going to continue to lean towards moving forward.

Thank you to everyone who has stuck around this far. It looks like we're going to be back in business because it does actually work. I think it's safe to say it won't be a post everyday necessarily, but a few posts a week should be about right. Remember to invite your friends to read, invite coworkers and lets get some conversation going on the site.

The purpose of this medium is to provide an avenue for deeper thoughts on the subjects presented here. There are too many small business owners buried in the long-term operations to see that they may not be doing right on the day-to-day. There are too many operators who don't have the time to keep up with the latest trends in their industry. There are too many people who don't fully understand supply chain and logistics. Hopefully we can continue to educate and improve the state of business Supply Chains.

Environmental Outlook

noreply@blogger.com (DMusic) — Tue, 22 Jan 2008 17:15:00 +0000

The environment is one of those issues that has been around since earliest memory. Recently it has been given elevated status in the view of the world. It is now important to be environmentally conscious no matter who you are, what business you are in or what you sell. Utility companies have increased demand for green energy because individuals have begun to take it upon themselves to lead more environmentally focused lives. Businesses promote their environmental policies and progress on the front pages of newspapers and magazines. In every product category there is now an environmentally friendly option.

This has elevated beyond the realm of simple social trend. Being environmentally friendly is now an issue that every person and company has an obligation to face together. That's not to say that everyone has the same opinion of how to go about that or why it is the case, but it is to the point that everyone is taking notice. Car companies advertise efficient cars more often than SUVs now. Grocery stores provide better positioning for green products. Schools devote special lesson plans for how to be more friendly to the earth.

My company is driving towards an internal goal of having an environmental aspect to every project that we work on. That's not to say that we are an environmentally focused company, it is to say that we believe it is important enough for a mention in every project that comes through our door. Most of what we do is project management and strategy consulting business. Our clients are typically financially focused and have large issues occupying their attention from the little steps they could be taking at the same time.

We don't sell a tangible product that anyone can touch and feel. What we do is advise companies on how to do better with the people they have, the real estate they occupy and the money they spend. One of the ways that we do that is by recommending environmentally friendly solutions. It is surprising how many buildings don't even use or plan for high efficiency lighting. On the consulting side we are able to provide the environmental impact of transportation options. Reducing transportation costs means that you are driving fewer miles and causing less pollution all while saving money.

Imagine the impact if every company considered the environmental impact of every project that they undertake. Simply by having it in mind when making a decision typically will produce a better solution with almost no extra cost and probably some long term savings involved. It's the little steps that are going to get us to a goal of environmental improvement. It's taking it into account for problems that don't seem related that will be part of the solution.