Category Archives: How Tos

Stop Fighting Emergency Fires in Five Steps

Whenever I find myself spending most of my day fighting fires, I try to step back and understand why. A great framework that I like to use comes from the Malcolm Baldrige Performance Excellence Program. The firefighting example takes a process through five steps, going from “emergency crisis mode” to “no problem mode.”

The Malcolm Baldrige Performance Excellence program is a government sponsored award that focuses on promoting quality in US organizations. You can see the images below and other great resources on their graphics page.

Step One – Running and Reacting

1The first stage is where most of us start when we think of fighting fires. We react to emergencies that pop up by dropping everything and running to what’s urgent. If this only happens once or twice, then it might not be worth the effort to improve the response. However, the problems that occur frequently or have large impacts are the ones that need to move beyond step one. Focus on those problems for moving them through steps two through five.

Step Two – Running Less and Reacting Quicker

2If fires pop up in the same places frequently, then installing extra hoses in that area can really help. Likewise, if you repeatedly face the same emergency, making additional resources available in those areas can cut down the size or length of an emergency. Taking a few minutes to create simple, small countermeasures makes reacting easier.

Step Three – Response Game Plan

3Once countermeasures are in place, how can we get everyone on the same page? When the next emergency strikes, who contacts whom? Addressing these issues by making a game plan can make the response much more effective. More importantly, getting others involved makes the emergency less dependent on you. If you can’t ever leave the office because you’re the only one that knows how to handle certain problems, then this step can free you from that burden.

Step Four – Automated Response System

4Just like a sprinkler system automatically dousing flames, you can build a system that handles emergencies automatically. Basic computer automation or alerts can take care of many problems that frequently pop up. Emergencies that are more complex may require some IT investment, but many of those solutions are worth the price tag. Conversely, significant investment may not be necessary if a manual response system will work just as well.

Step Five – Innovate Emergencies Away

5This final step is not “brainstorm how this emergency doesn’t happen again.” That type of thought should happen at any stage. Instead, this is a systematic change in the design of work flows, products, and systems so that unexpected problems are less common and less damaging. A product’s cost can often be reduced by 70% when the designers’ goal is to make the product easier for manufacturing. Similarly, perhaps 70% of your emergencies could be avoided by focusing on internal customers and avoiding downstream emergencies. Of course, balancing the needs of internal customers with those of external customers is difficult. Nevertheless, keeping the needs of both customers in mind will help reduce emergencies for which you can’t plan.

How to Use the Five Steps of Firefighting

Whenever a problem arises, I look at where in the five steps my response to the emergency is. Based on the size and frequency of the problem, I can then look at options for moving the response to the next level. Few fires need all five steps; such investment would be overkill. However, simply knowing at what stage each of my problems is helps me prioritize my improvement efforts. Soon the categorization becomes second nature, and process improvement becomes easier, quicker, and more effective.

Best of all, there’s less fires to fight. And the fires I still have to fight are easier to put out.

At what stages are the recent emergency responses you’ve initiated?

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Don’t Miss Out on These Three Ridiculously Simple Negotiating Tricks You Can Use Today

Card Trick

We negotiate agreements all the time, but many people like you still don’t feel comfortable making deals. While there are lots great books with detailed advice, I wouldn’t want you to miss out on these three tricks that behavioral scientists suggests could tip the scale in your favor. Best of all, this paragraph contains all three tricks! Take 1 to 2 minutes and find out exactly what they are.

1. “Many people like you…”

Humans are social animals, and we’re constantly looking to others for clues on how to act. Knowing what the majority of people do creates powerful motivation for people to act similarly. For example, if a waitress at a restaurant told you, “We have two specials today, but many people like you are loving the filet mignon,” you would likely give the fillet mignon much more consideration than the other options.

In a business setting, this phrase can have significant impact with suppliers. For example, when negotiating payment terms, you can use a phrase such as, “Most of our suppliers like you offer us credit terms of Net 60.” This wording can give your supplier a strong inclination to offer you the same.

One caution many people like you should consider is not overusing the phrase (see how it gets old rather quickly?). Also, be sure that you’re honest about what you’re recommending. If most people don’t really do what you’re suggesting, then consider another approach.

2. “Take 1 to 2 minutes…”

A recent Columbia Business School study suggest that you should always quote a range with your real value on bottom. Doing so will increase your chances of getting the quoted price you want.

For example, let’s say you ask me how much I’ll charge for a small consulting project. If I was hoping to get $100, then quoting you a range of $100 to $120 not only increases the chances that you’ll be happy to agree at $100, but it also opens up the possibility that we settle at $110. The chart below details the bolstering strategy.

Ames and Mason range offers graphic

If you’re on the buying end, flip the strategy around. If you want to buy something for $20, offer 15-20 bucks, and the seller will likely be more willing to settle at $20.

The best part about this technique is that it can be used right away with very little risk. The next time you quote a price, include a range with a higher number and you’re more likely to get what you quote.

Read more about the details of the study from Columbia’s article: When It Comes to an Opening Number, Sometimes the Best Bargaining Move Is to Offer Two. The above chart is from the article as well.

3. “I wouldn’t want you to miss out…”

Another quirk about human behavior is loss aversion. We are disproportionately worried about losing  opportunities. Mentioning this aversion can trigger people to change their approach and be more willing to agree to a deal.

For example, negotiating better payment terms with a supplier might sound like this, “we have a lot of great growth opportunities next year, and I wouldn’t want you to miss out on extra orders from us because of tight credit terms.” Considering the possibility of missing out on future opportunities may be the key to getting the concession you need.

This technique, and the “many people like you” phrase, are both explained further in an excellent Freakonomics podcast, The Maddest Men of All.

Good luck in your future negotiations, and let me know if these tricks worked for you.

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5 Questions on How Startups Should Begin Improving Their Supply Chains

Improving Your Supply Chain
Hundreds of businesses are facing the exact same problems as you right now. Many are figuring out how to take their supply chain to the next level. What are some ways other companies have tackled what you’re up against?

In this latest podcast, I address five questions that have come up repeatedly in my conversations with small businesses:

  1. What are some ways to reduce costs and improve performance without sacrificing quality?
  2. How can a small business use technology to improve its efficiency?
  3. How can small business owners get employees and others to buy into managing their supply chain better?
  4. How can a small business oversee and boost the performance of their supply chain partners?
  5. What are some of my best suggestions for making the management of a supply chain more efficient?

Download or listen to the podcast from the link above, or check out the full podcast transcript. Also, be sure to subscribe to the podcast through iTunes or your other podcast app.

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Learn How to Analyze Big Data for Free

Intro Databases and Statistical Learning“What Should I Study?”

Right before I started my first full-time job, I had a good talk with the chairman of my university’s supply chain department. I asked him, “If I were going to study more after I graduate, what do you suggest I focus on?” Without a second of hesitation, he responded, “databases and statistics.”

Really? Databases and statistics?

I had taken the required introductory statistics class. Then, I promptly forgot everything that Excel couldn’t automatically do for me.

I had also done a few queries in Microsoft Access, but anything more on databases was taught over at the computer engineering school – not the business school.

As I entered the workforce, I read up on many other topics related to my field: books on negotiations, communication, and network optimization. I received my APICS certification. Logistics and purchasing trade magazines covered my desk.

I eventually taught myself SQL through Sams Teach Yourself SQL in 10 Minutes so that I could better query our company’s databases, but that seemed like more than enough database knowledge for what I needed to do.

However, after a few years, I kept running into the term “big data.” Although there are many definitions for big data, I like to think of it as ‘more data than an Excel spreadsheet can handle’. What’s cool about big data, and the reason it’s gathered so much attention, is that you can find trends and patterns that were impossible to uncover before companies started collecting so much information. Faster computers also allow you to analyze that information without waiting weeks for your calculations to process.

All of this is extremely important to supply chains and company operations. Millions of dollars are just waiting to be saved if you can uncover better trends and patterns, especially in forecasts.

The surprise for me, however was that to be a big data ninja (or analyst, if you want to use the boring job title), you need fairly decent skills in two areas. Would you like to guess what those two skills are?

Databases and statistics.

Learn Databases and Statistics through Free Online Courses

Well here’s the best part of this article – you can start mastering both of those topics for free.

Stanford University is offering free online classes on both of those topics right now. The process is easy and straightforward:

  • Professors lecture, explaining concepts and examples through online videos
  • You read the free course materials and/or books
  • You work through examples with free open-source software
  • You take online quizzes and talk with other students.
  • You learn some awesome big data skills and even get a certificate of completion from Stanford when you finish

To enroll, you just register at the class websites: Introduction to Databases and Statistical Learning.

I’m taking the statistical learning class right now and I’m really enjoying it. A friend of mine finishing his MBA program let me know about the statistical learning class. His professor suggested that he may want to take it as he heads off to work for UPS.

The classes started about a month ago, but there’s no problem starting late and jumping in now. Plus – there’s no risk at all – so if you start and realize it’s not the thing for you, then oh well, no worries.

Why I’m Studying Statistical Learning

Databases make sense if you’re interested in getting into big data. However, statistics seems a little more intimidating to me. Here’s the reason I’m taking the statistical learning class.
Before the class, I knew how to use the trendline function in Excel to find the relationship between two variables. I could easily figure out if there’s a correlation between sales and the money spent on TV advertising.

However, now I’m learning how to find the correlation between multiple variables, such as sales and combined advertising in TV, radio, and newspaper. I’m in the middle of chapter 3, where I learned what method to use to figure out whether a variable actually relates, or if other variables are responsible for the change. For example, shark attacks and ice cream sales both go up in the summer, but ice cream isn’t causing shark attacks. Similarly, in the advertising data I’m working with, newspaper advertising appears at first glance to have an effect on sales. However, when we look at all the variables together, newspaper advertising doesn’t affect sales at all – only TV and radio advertising do.

Now that’s an awesome observation if you work in marketing, but how will that help our supply chain? I plan to approach our forecasts much differently after understanding these statistical analysis techniques. If I could find relationships on dimensions such as date, location, promotion, price, and other variables, then I could get much better forecasts and hold less inventory. Even if I could improve our forecasts just a little, that’d more than make my time in a free class worth it.

The class teaches you how to use an open-source program called R, which many companies are beginning to use such as Google, P&G, and Ford. If they’re using it, and it’s a free program, then maybe my growing company should use it too.

If anyone is brave enough to sign up with me, let me know, and we can work together on any tough problems we encounter.

Supply Chain Cowboy ApprovedThat’s my thought for the week. The internet and improvements in technology have given us the challenge and opportunity of big data. Similarly, the internet and Stanford has given us a free way to learn how to surmount that challenge. Pretty cool, and definitely Supply Chain Cowboy approved.

If big data is something that interests you, here’s a recent, related article: Getting Started with Big Data in a Small Business

Build an Awesome Vendor Scorecard Program in 4 Easy Steps

Vendor scorecards measure and track supplier performance on various dimensions that are important to your organization. At first, I was reluctant to start a scorecard program because I thought our company was too small and too busy. However, after eventually beginning our program, I saw powerful results that freed up time and helped the company grow.

Vendor Scorecard Example

Vendor Scorecard Template with ExamplesVendor scorecards strengthen supply chain relationships and help focus your suppliers on what matters most to you. Scorecards set goals for your vendors to reach for so they can become your vendor of choice. You can clearly see where each vendor ranks against each other, which helps you decide which supplier to work with on complex projects. This article outlines the four steps I took in building our company’s vendor scorecard program. I have attached a Excel Vendor Scorecard Template that I put together as a starting place for your own scorecard.

1. Decide What Matters

The first step in creating a vendor scorecard program is to define what your ideal vendor would look like. For me, it would be someone that communicated clearly 100% of the time, shipped quality products for free, and had a lead time of 15 minutes. Although those requests are a bit ridiculous in my industry, it does highlight what matters to me in my vendors: communication, quality, pricing, and lead-time. Together with my team, we took my brainstorm farther and came up with four categories that matter most to us with our vendors:

  • Pricing/costs, including payment terms
  • Production and Supply chain, including communication and lead-time
  • Quality
  • Product Development

Essentially, if our vendors could continually improve on these four points each year, our organization would benefit immensely.

2. Measure the Metrics

Having defined the broad categories, we now have to build the nitty-gritty of the scorecard. You need to build specific, measurable metrics for each category. Specifically, what exactly will you measure, and more importantly, how? For example, a pricing metric could be a comparison of costs between all capable vendors. A quality metric might be the percentage of orders with quality defects.

Good scorecard metrics should clearly define what is good, acceptable, and bad performance in each dimension. Your metrics should be a score for how your vendors are doing in aspects that matter most to you. They should be easy to understand, and if possible, easy to calculate. Unfortunately, building the perfect metrics often takes some deep thought to get them right.

Nailing the Details is Key

Many metrics were much more complicated to fully define than I thought they would be. For example, lead time is an excellent metric that I use. Tracking the time from when you place an order to when it gets delivered is a great way to compare vendors and encourage reductions in lead time. However, measuring this can be tricky when you get into the details. Should you track the time until delivery at to your location or delivery at port? If you ask a vendor to delay a shipment, will their lead-time artificially inflate?

For most quantitative metrics, your accounting system should have the records you need. However, based on the specific things you want to measure  you also might need to start tracking new events or information. For both of the above lead-time questions, I had to change our receipt processes to account for how we wanted to measure that metric. Despite the added work, tracking more data allowed us to trust our metrics and better compare our vendors apples to apples.

A Note on Subjective Scores

When hard data is unavailable or impossible, use a subjective grade. For example, “This Vendor is Flexible in Requests to Alter Production” is a difficult metric to track in our ERP system. Instead, at the end of each quarter, our supply chain team fills out a survey for each vendor that rates them on several dimensions such as flexibility. Rating vendors on a scale is the best way to get a good score from a soft metric. Even better is when the survey has an example for a top, middle, and bottom score for the metric so that scoring is more consistent across teammates. Recording everything in a free Google Form that you send out to your team is even better.

Google Doc Questionnaire 2

Weight What Matters

Once you have the metrics you want to measure (I have 4-6 in each category), it’s time to weight them. Start by rating the overall categories. The pricing category may be 25% of the total score, quality 40%. When your categories equal 100%, weight the individual components of each category. For example, if the quality category is weighted at 20% and has three metrics, then those three metrics could be 5%, 12%, and 3%, which adds up to 20%. The Vendor Scorecard Template shows my weighting.

Example Weighting

Pull Out the Gradebook

Maybe it’s from the report cards I received every semester in public school, but the A through F scale carries a lot of significance to me. That’s why I like to use that scale for each of my metrics. Some can only receive an A or F, or A, C, or F, but they all have the same percentage score. Based on their grade, vendors receive a percentage of that metrics weight as follows:

  • A – 100% A metric with 10% of the total scorecard weight would be 10% with an A
  • B – 75% (7.5% with the same metric)
  • C – 50% (5%)
  • D – 25% (2.5%)
  • F – 0%

Color-coding the scale adds the final touch of understanding so that it translates well and conveys the message clearly.

Example Weighting

Build the Document

Finally, once you’ve figured out your categories, metrics, and weighting, put it all together in a spreadsheet scorecard. You can use my template as a starting point to build your own.

3. Roll Out the Program

Once your scorecard is complete, implementation is your next bull to lasso. You’ll need to devise a plan to clearly communicate what, why, and how you are measuring your vendors. Depending on your suppliers, your experience could be much different, but here’s what I did.Why a Vendor Scroecard?

First, I put together a presentation with one or more slides explaining the following. It was detailed and thorough so that our vendors could clearly understand each score. Specifically, the document had the following:

  • A detailed explanation of each category and metric
    • For complex calculations, I included an example slide
    • Explanation of weights were also included
  • Reasons why we were beginning the vendor scorecard program
  • The implementation schedule (trial and full launch)
  • Our commitment to our vendors

Armed with a document that clearly defined the program, our CEO emailed the presentation and the scorecard spreadsheet to the leadership of our key suppliers. He asked them to review it and then meet with us in a video conference discussing the program. During the meetings with our six key suppliers, the CEO expressed support of the program and our supply chain team explained the details. Most vendors appreciate being measured on more than just price, and so all of our vendors were excited about the program as a chance to prove their holistic value to our company.

We designated the first month as a trial period where we would track performance, iron out issues, and report scores but not take action based on their results. After meeting at the end of the first month to discuss the trial run, we began the program in earnest.

4. Review and Reward

What will make your vendor scorecard program truly succeed is your diligence after implementation. I strive to send out scorecards on-time at the end of every quarter. My team schedules meetings via Skype or in person to review the scorecard each quarter and discuss ways to improve. The communication is two-way – we want all our vendors to reach perfect scores. That is why we council openly about what each of us can change to improve the metrics.

Another big decision to make is what you’ll do because of the scores. Will vendors with consistently high scores obtain a preferred status? Will quality checks or audits happen less frequently? Will you distance yourself from vendors who are very cheap, but fail in every other category? Will you reward contracts based on scores?

If you find yourself rewarding higher scores with more business, then your weighting is probably correct. However, if more and more business is still going to vendors with lower scores, then consider revising your scorecard to better reflect your company’s true priorities.

A great and relatively inexpensive way to encourage scorecard improvement is a vendor of the year program. This could involve a personal meeting, dinner with the CEO, and a plaque for the winning company. When I watch the “Walmart Vendor of the Year” award go to one of my competitors, I find new motivation to improve. Your suppliers may feel the same.

Bonus Step – Survey Your Vendors for Improvement Tips

If your vendor scorecard program is chugging along, then consider asking your vendors to score you. Sending a quarterly feedback survey to your vendors to discuss at the same time as their scorecard can bring insights into how you can be a better customer. Some questions could be:

  • What good practices do your other customers do that you wish we did?
  • What can we do to help you reduce lead-time?
  • What was an example of a project that went well? What about that experience can we recreate for all future projects?

If you make it clear they won’t be penalized for honesty, then you may be lucky enough to get great feedback on how to truly improve. Becoming a better customer can help your vendors better service you. In addition, you may pick up some best practices from their other customers or resolve root causes of your own deep problems. Address these issues in the scorecard review meetings and make commitments to improve when possible. We received a lot best practice tips from our vendors when we said, “we’re really bad at forecasting, so we’ve brought on staff with forecasting experience and invested in the software we needed.” They detailed how their other customers forecast and recommended we try the same.

Final Thoughts

As I talked about in my article on supply chain gamification, games have a way of bringing out our passion and motivation. A vendor scorecard brings the power of game mentality to supplier relations. “Just keep everything green and keep out reds” becomes the goal of your vendors. “Work with the highest scoring vendors” becomes your vendor selection shortcut. Measuring progress brings improvement that both your vendor and you will enjoy.

From the success I’ve seen from the program, I wish I had started it years ago. This quickly brought to mind the mantra of a friend of mine in process improvement. “There’s two good times to plant a tree: twenty years ago and now.”

If you haven’t started a program yet, begin today. If you have one already, take a look at how you can improve. Either way, share your experience in a comment below.

Update – Learn More about Vendor Scorecards in our Podcast

In our podcast interview with Mark Kosiba (former VP of Operations at Skullcandy), Mark talks about vendor scorecards and their effect on his company. The above model was based on his help, so it definitely applies to anyone wanting to implement a vendor scorecard program similar to the above.

Check out the podcast to learn more: How Skullcandy Rocked S&OP (and Vendor Scorecards)