Operations Rules

When CEO’s want to understand how to create a coordinated strategy that integrates supply management, IT and manufacturing to the level that innovators such as Apple, Proctor and Gamble, Walmat, Zara and Sharp have achieved, Simchi-Levi’s book is a great, great starting place.  Simchi-Levi , an MIT professor who just happens also be an entrepreneur, lover of all things IT, source of great statistics describing the industrial landscape, brings his combined expertise to an area very much in need of the kind of air-traffic control vision corporate multi-taskers need. Because it’s just not enough to be a retail whiz, or an automotive giant – think Toyota and its supplier chain crises -  or a manufacturing heavy.   We all know this, but only a few corporations have juggled the various disparate and often competing operations to produce the kind of integrated enterprise that captures and retains entire markets.  Like Apple!

Let’s take a look at Simchi-Levi’s Seven Myths, the clear barriers to success:

1.        Reduce costs by all means

2.       Apply the same operations strategy across all products, channels and customers

This is brilliant.  Think about your product offerings as having very different demand patterns, very different price and risk profiles, etc.  According to the author, “this is at the hard of some of the operational challenges that the Gap is now facing…. Three brands, Banana Republic, Gap and Old Navy,”   translates to different customers, different sourcing and different distribution requirements.  Can they be all combined?

3.        Deploy the latest and the best information technology – he says” IT investment must be driven by business needs, not the other way around.”  YES!!!

4.       Ignore IT because it is just another commodity.  YES!!

5.       Invest in a lot of redundancy and flexibility

6.       Treat corporate social responsibility as a charity

7.       Leave operations to the functional areas of the company.

Specific favorite chapters: 

Chapter 10, the effects of oil price volatility. Even with all reasonably well-designed logistics networks, tsunami, floods and oil prices can take sourcing strategy off the charts, into the red.  Although many companies are hesitant to discuss hedging, or contract buying for critical commodities such as oil, the author offers a straight-up, legal, legitimate primer on how to protect profitability by hedging key pricing.  Definitely worth reading and understanding.

MIT, as one would expect is big in network simulation covering all the key parameters.  These software tools are not expensive, and if nothing other than fun desktop tools, they  can have enormous impact on logistics/distribution decisions.

Chapter 4, Push-pull systems.  This discussion is long overdue and a little challenging from an IT perspective.  The author is not discussing the disadvantages of one particular system – the old MRP Push system for instance, but he carefully delineates the decisions one would make specifying which system works best in which product or market channel.  I love this discussion in light of recent questions raised about cultist adherence to manufacturing operations designed only for pull.  As Simchi-Levi proves, the consumer world is simply not structured to create demand only one way and it’s essential for the integrated enterprise to be able to respond to demand both ways – push and pull.  The question remains for sourcing and manufacturing pros – how to get there.

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