Posts Tagged ‘Supply chain’

IACCM, Regression to the mean, and other topics of the week

May 17, 2013

NASA Sunspot Number Predictions for Solar cycl...

  • The humble founder of TPS planet – Captain TPS?…*running to the shower* – will be making an appearance on the, in this case inappropriately named, ‘Ask the Expert’ IACCM webinar series on June 6. I’ll be blathering on about prediction markets, crowdsourcing, and how they can be applied to procurement and the supply chain. You can register here. You have to be a member, but if you sign up close enough to the event, you can attend this one for free. Log in, listen, add your own thoughts, heckle me…just make sure you are there. You’ll either learn something, or watch me publicly embarrass myself, but either way, it’s a win for you.
  • While I’m on the topic, friend of the blog (and author) and CEO of IACCM, Tim Cummins writes a very informative blog on contracting that can be found here.
  • Least surprising, yet concerning, news of the week; the IRS scandal. So you mean that people with a substantial amount of power over other people’s lives have used that in a power in a biased way? Someone get Kahneman on the phone…
  • ‘The Un’ (of the Kim Family) has either gone quiet or the world’s news media has moved on to something more interesting. I wouldn’t be totally shocked to learn that his dad left him a script…’During the annual South Korean and USA joint military exercises, you shall take the following steps…’
  • Key quote from Thinking, Fast and Slow ‘We will not learn to understand regression [to the mean] from experience.’ (My note: among many other areas in which creative thought/problem solving/rationality is required). To put the quote in context, Kahneman is talking about the fact that most people base predictions of the future on a relatively small sample of readily available evidence without accounting for the fact that the correlation between that small piece of evidence and predictions of an uncertain future are less than 100%. We then take that evidence, and develop causal interpretations that are completely inaccurate.
  • Regarding job performance, I have witnessed this phenomenon more times than I care to remember. A couple random (or worse, influenced by selection bias) comments are taken as a proxy for overall performance (both good and bad). I would even go as far as to say that our visceral feelings about someone then bias overconfident people even further to selectively look for evidence of strong or weak performance. The good news is, if you are in a business environment, you can focus on looking good when an overconfident exec is watching and don’t worry much about the day to day (unless it results in a problem that then gains attention that can be pinned on you). The bad news? Well, if you do a great job everyday, but a random poor performance happens to be noted by someone influential, then you have a steep hill to climb. Ridiculous? Uh-huh.
  • Re-reading the stuff you have written in the past is always scary, but I went ahead and gave it a shot. I did not make the connection at the time between my article in The Journal of Prediction Markets and behavioral economics, but I now believe there is a link.  Our tendency is to predict more extreme outcomes than are truly likely based on our lack of understanding of regression to the mean (see discussion above). Prediction markets remove those errors by combining them with the errors of lots of other people, thus mitigating the extremeness of individual predictions. (If you can tell me what assumption I’m making here in the comments, you will win a free annual subscription to the TPS Report.)  Still think this is not having an effect on the information flow in your supply chain?


The TPS Report hits the road

May 1, 2013
Conférence supply chain

Random Supply Chain Conference. Conférence supply chain (Photo credit: Pierre Metivier)


Well, I wouldn’t say we ‘hit the road’ exactly…unless by hitting the road, you mean that we pressed the little green button on Skype.


Anyway, friend of the blog, Dustin Mattison made a mistake invited me to discuss how prediction markets could be used in the supply chain, commodity modeling, and solving problems through data analysis among other topics.


Did I have anything intelligent to say? You’ll just have to click over to the Future of Supply Chains Blog to find out.



The week in review

March 15, 2013

Top model Gisele Bündchen, SPFW

Laziness reigns supreme here on TPS planet. Every Friday, I think “should I delve deeply into a complex topic, or should I go with a notes column?” It pretty much goes without saying which wins.

  • It was good to see the new Pope adopt a stance of humility…if the ‘leader as servant’ role is promoted as a result, well, the Pope will have done business a great service.
  • “Amanpour” (CNN International) actually lives up to the hype. Even when the topic is not of particular interest to me, I still enjoy the show.
  • I love a good tech titan spat, so naturally the increase in Apple vs. Samsung rivalry rhetoric has me excited. I don’t suppose Tim Cook or JK Shin play hockey?
  • In procurement news, Procurement Leaders reports that Diageo is set to decentralize its supply chain. It is a good reminder to procurement, and business people generally, that sometimes greater central control is not always better. Good decision-making involves considering the likelihood that someone else knows more or is in position to perform better. I wonder how well their forecasting works…
  • With all the hype about share price rises and improved corporate profits, let’s not forget about all the value procurement can bring to the table…says the guy who makes his living doing procurement…
  • Advanced negotiation involves mastering whatever context in which you find yourself. The New England Patriots convinced Tom Brady (who could name his price) to take less than what he otherwise could have gotten. How? In short, by framing the debate in terms of the impact to the team around him. Instead of the advantage being with the guy that knew the budget (the salary cap), they convinced Brady to take less for the good of the team. Then they let his friend and trusted teammate – Wes Welker – leave for a relative pittance. My hunch is that Brady would not be inclined to do the same thing all over again. The upside for the Patriots? Tom Brady is 35, and his contract likely takes him through the end of his career. The upside for Brady? He’s still married to Gisele Bündchen.

Apple on rare ground

January 26, 2012
Image representing iPad as depicted in CrunchBase

Image via CrunchBase

I am both surprised and conflicted about my ability to come up with blog post titles that sound like newspaper headlines. It could be a very bad sign.

There does not seem to be much talk of rare earth metals these days. The headlines a couple days ago were all about how Apple once again exceeded its sales targets for iPads and iPhones.

However, below the surface are two big concerns of which I believe Tim Cook should take note (Tim, you can get my number from Pippa – afterward tell her to hit the little button that looks like a trash can). One, is that his biggest supplier of logic chips is also his biggest competitor (Samsung). I’m sure there is a wall – Berlin-style – surrounding the Apple portion of the factory and the factory for in-house production. And that the Apple-side employees have taken a lifetime vow of silence. However, in spite of these measures…something tells me there is a risk here.

The other is the whole rare-earth thing. Currently China is cranking out microchips with about as much regard for the environment as George Clooney has for his legacy. Descendants, seriously?! But that could change.

In fact, if South Korea (Samsung HQ is in Seoul) starts to get a little too frisky with their northern brethren, China has shown they are not averse to a little strong-arming (see dispute with Japan circa September 2010). There, always wanted to use circa in a blog post, and 3 of you will have picked up on the fact that I used it wildly incorrectly.

Definitely possible that Apple continues its dominance for years to come. Fortune, or world events, could dictate a different fate.

Supply Market Analysis – a good reference

September 30, 2011
UPMC Montefiore, University of Pittsburgh

Image via Wikipedia

For those procurement, purchasing and supply chain professionals out there looking for a good brief summary of supply market analysis, click here.

David Hargraves, Senior Director Clinical Supply Chain from the University of Pittsburgh Medical Center – yes, I can even plug the hometown – has a solid, brief summary of how to conduct one.

He covers the main areas in which data should be collected, and techniques for getting that data. He even references the all-important Herfindahl-Hirschmann Index without even a single letter out of place.

Supplier relationships – a view from the sky

July 19, 2011
TPS report cover sheet.

Never forget the cover sheet on your TPS'll have 8 bosses coming by to tell you about it. Image via Wikipedia

A pure procurement post for a change, although previous posts apply to procurement as they would for any aspect of business.

We are finding an increase in interest in supplier relationship management recently among our larger clients these days, which is encouraging, since SRM seems to be one of those things that people know they should be doing, but don’t actually invest the time to do. Often, when things don’t feel important, they often aren’t and are wisely pushed to the back burner. This is not that.

Supplier relationships represent the type of thing that is important, but not urgent (thanks Covey). Just like reviewing our financial portfolio or doing a will, it is one of those things that we just don’t seem to get around to doing. I personally don’t need to worry about those things, since I am, of course, immortal, but I think others should.

I won’t go through a comprehensive (read: boring) list of why we should be more concerned about supplier relationships, but my main reasoning here is we here at TPS report see the way business works as a giant system. The farther away we move from our little corner of that system, the less we focus on individual personalities, and the more we see either breakdowns in coordination or good coordination making operations flow smoothly. It doesn’t fit with our cultural narratives, but there are no real heroes nor real goats (ok, we all know a couple duds).

So, if we spend a great deal of time designing our organizations as systems, why shouldn’t we include our strategic suppliers? Just like individual relationships (see previous post), supplier relationships based on trust can deliver surprising results.

A good example of supply chain risk management

June 9, 2011

I know, I know…a bit of a yawner for some members of TPS planet. Other than the use of the word “robust,” (which middle-brows have left beaten to a pulp and completely devoid of meaning) this case study in supply chain risk management is a worthwhile read. Whenever we facilitate workshops, this session does not represent new/breakthrough-type knowledge. It is, however, a good reminder that business is not normally complicated… e.g. simply getting the supply chain to a point that everything runs smoothly and risks are minimal is a great place to start.

Demand driven or predictive bliss…or both?

March 9, 2011

On Lora Cecere’s blog, she articulates the concept of becoming demand-driven as an organization. One specific point was the following: “In supply-based organization, the supply chain is incented based on cost reduction, procurement is incented based on the lowest purchased cost, distribution/logistics is rewarded for on-time shipments with the lowest costs, sales is rewarded for sell-in of volume into the channel, and marketing is rewarded for market share.  These incentives cannot be aligned to maximize value.” I could not agree more.

Ok…a bit of stream of consciousness coming, so hold on for the ride. The quote above made me think of the way resources are allocated to the numerous change projects that are proposed everyday. After all, you won’t get noticed if you just stick with the status quo. Some organizations have systems in place to determine who gets R&D, quality and marketing’s time, but it often results in those with the most informal power, politics, or sponsor who is highest on the organizational depth chart who backs a project that determines the winner. Or, the R&D folks are just bombarded with stuff, so they choose how they spend their limited time based on whatever happens to be motivating them that particular month or which projects best fits with their incentives this year. What is the result? Many failed projects for every one good one, with the exact ratio depending on the consultant that you talk to.

So just like competing incentives that don’t help the organization as a whole, the internal fight for resources is quite unproductive as well. Most of us have just become used to this way of doing things, but what if there was a way to tap the collective wisdom to understand which projects stood the best chance of success. There is…and some blogger internet hack happened to write an article about it. Prediction markets. Reduce the politics, internal maneuvering, and make your decisions based on the knowledge that your people possess. The only issue is determining whether a project is a success…that, admittedly, could get ugly. However, I believe there is a solution if we take things case by case. The pay-off will be a higher success rate and a more motivated workforce as well.

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