Low Signal Detection

Low Signal Detec/on

© North Delta College 2015

Mathema'cs applied to Business Theory 1

2 CASE STUDIES ON LOGISTICS AND ITS BOTTLENECKS

INTRODUCTION

Low Signal Detec/on is concerned about describing key crisis situa/ons occurring in the art of the Logis/cian. Logis/cs generally deals with the moving of the physical goods necessary to fulfil an organisa/on’s needs. As such it has one of the oldest

corpus of techniques in any branch of business management.

We will present 2 case studies showing a breakdown origina/ng in a poor or incomplete logis/cs set up and demonstrate how to solve them.

The reader will get the tools to re-‐ques/on his own logis/cs needs.

So, Welcome, Ladies and Gentlemen to Low Signal Detec/on, where your Logis/cs

and Supply-‐Chain Understanding will be taken to new dimensions and your business imagina/on into a mind-‐blowing journey.

. Mathema'cs applied to Business Theory 2

SUMMARY


Part 1: What is Logis/cs all about? A)  Defini/on of Logis/cs B)  Logis/cs in Businesses C)  Logis/cs MoYos Part 2: Case Study 1: Processes BoYlenecks A)  The Situa/on B)  An Adventure C)  The Crisis D)  Consequences E)  How this could have been solved Part 3: Case Study 2: Safety Stock A)  The Situa/on B)  Normal Daily Rou/ne C)  The Crisis D)  Consequences E)  How this could have been solved Final Statement

PART 1: WHAT IS LOGISTICS ALL ABOUT?

Logis/cs is the art of displacing products, people or equipment to fulfil an organisa/on’s needs, whether it is weapons for an army, or taking businesses’ products from factory to customers, or organising holidays for a group of 10 people… Logis/cs exists since at least An/quity and started probably with Warfare to support supply of arms to the fighters on the baYleground. Among others, Logis/cs concerns itself with transporta/on, storage in Warehouses, sourcing supplies, Time management…. It is about making sure your organisa/on’s physical movement of goods follows the organisa/on’s needs and objec/ves.


Defini/on of Logis/cs

Logis/cs in Businesses

Most of businesses selling physical goods have a Logis/cs department. This department is generally concerned about transpor/ng supplies from suppliers to the business’ factories and warehouses, managing stocks in Warehouses and then transpor/ng finished goods to customers. In modern days, Logis/cs is part of a more general framework called Supply-‐Chain Management concerned with the full chain of product flow from original suppliers un/l delivery to customer. We will plunge into this fascina/ng subject in subsequent presenta/ons.



Picture 1: Logis/cs in Businesses

Picture 2: Logis/cs & Supply Chain Factory in

Birmingham Warehouse in London Area

Warehouse in Dubai

Customer in Ras-‐Al-‐Khaimah

Interna/onal Transporta/on: Ship Truck Truck


Logis/cs MoYos

The most famous moYo in Logis/cs is the well known: “The right Product at the right /me in the right place” In the following 2 case studies we will show how this principle gets challenged in real business situa/ons where: In case study 1, profitability takes over true logis/cs needs by pueng speed as the ul/mate principle of a logis/cian In case study 2, a small business where the principles of Lean Inventory have not yet been implemented and the CEO and his organisa/on are overtaken by a sudden surge in demand.


Picture 3: Logis/cs MoYo 11:50 AM SHELF A,

RACK 18 B

Case Study Objec/ves

Logis/cs BoYlenecks Show an erroneous Logis/cs Principle

Safety Stock Why Lean Inventory makes sense

Dutch explora/on missions were the first to colonise Mars in November 2118 prior even to the Americans. 2 scien/fic teams landed on the Red planet at 11 days interval, with liYle inter-‐connec/on except a small communica/on device nick-‐named Denise Soren Layatollah. Team A took its headquarters in the Mar/n Valley and very quickly built a temporary air base in order first to occupy properly the given environment and then start developing their project-‐mission: “Earthifying Mars.” Team B arrived few thousand miles North and launched their own out of space Robinsonade through more complex socio-‐biological experimenta/ons, in par/cular ques/oning the long Term survival of both missions on such a remote loca/on


The Landscape

PART 2: CASE STUDY 1: Processes BoYlenecks

Picture 4: Mars

Logis/cs appears

In order to communicate properly, Team A had set up Denise Soren Layatollah or (DSL). The objec/ves were two-‐folds: First, remain in contact with Team B Second, support scien/fic needs for both Teams. The set up of DSL was as follows: 2 small probes were sent every day from Team A near the Southern pole along 2 geodesic paths. The first path linked back to Junc/on Point “Ether” near Team B close to the Equator. The second path followed diverse experiments i/neraries on the Red planet. Team B had on the other hand the responsibility to provide Fresh Food for both missions in the long term. In this regard, another probe was sent at Junc/on Point “Ether” in order to drop food, material and other equipment. One of the probes from Team A had to collect them at this same Junc/on point.



Picture 5: Junc/on Point Ether

Team B Territory Team A Research zone Junc/on Point Ether

2 Logis/cs Processes

We have therefore 2 different Logis/cs processes mee/ng at a junc/on point: Process A star/ng with Team A and Process B star/ng with Team B.



Process A is a pick process with a 2 hours logis/cs cycle, which means the pick has to happen within 2 hours of reaching the Junc/on Point, if not the process owner has to move the probe to another loca/on. Process B is a drop process, which is /med, meaning items have to be dropped as fast as possible. Obviously for the whole opera/on to work properly, at the junc/on point, process B has to occur before process A. i.e. the item has to be dropped at junc/on point before it can be picked.

Picture 6: The 2 Logis/cs Processes

Process A Process B

Ether

On a normal day

In normal /mes, no problem occurs. Furthermore, both processes can be done fast because they have been engineered so. Over/me, both Dutch missions are gaining confidence as everything seems streamlined, and the DSL concept of exchange appears as the perfect solu/on to the Mars colonisa/on riddle. Very cleverly, the colons have kept monetary transac/ons alive and the whole ecosystem follows a free liberal economy. Everything has to be paid for, even the transac/ons on the DSL. The managers for both processes A and B quickly realise that in order to make more profit on the DSL speed is of the essence. The faster the clerks do their job, the faster the probes move, the more money the managers make. Thus both Teams have a Logis/cs MoYo: “Speed is King”. Mathema'cs applied to Business Theory 10


Picture 7: Free Liberal Economy

A mission cri/cal day

11 April 2119 is a crucial day for both teams. A fundamental piece of equipment is going to be exchanged through the DSL. However this is precisely the day when the crisis happens. For some reasons, the probe of process A is one hour ahead of /me and the probe of process B is one hour late. Because A is /med differently and has a window of only 2 hours to do its job, it leaves the junc/on point without picking the item causing the item to be labelled as missing.



Picture 8: Missing the /me slot

Time

Process A

Process B

Consequences

Both teams think the equipment has been lost on the surface of Mars. Both Manager A and Manager B are unable to find the equipment and thoroughly blame the other person as responsible of the mishandling. A major crisis hits the opera/ons of the expedi/on jeopardising almost its survival on the alien planet. It takes months to the colons to overcome what at the origin was only a small mistake.


CEO


Causes of the crisis

Let us now ask ourselves what are the causes of the crisis. It is indeed linked with /me management. The fact that probe B was 1 hour late is certainly a managerial error but looking at the deep root causes of it, one sees there were plenty of jus/fiable reasons why it happened. New environment, uncertain clima/c condi/ons, unknown unknowns etc… Something which can happen to any business on Earth too during major external changes. More serious, is the Logis/cs logic of team A… which ar/ficially increased the speed of probe A to answer profitability needs. They were in known business territory and could have avoided the whole blunder. They would never have imagined that in business one can be too much in advance…



Process Real cause of Time Mismanagement

A Wrong Logis/cs Logic

B Unknown Unknowns

Solu/on to Case study 1


We see therefore that in the Logis/cs realm, speed is not necessarily an indicator of efficiency. Timeliness seems more appropriate. There is a reason why the brain behind a business process has precisely given that window of /me to the process and no other. Therefore speed is not the answer to Logis/cs. Right /me, right place, right product. What happened with /me (/me mismatch) here in this case study happens very oqen with products with real businesses on planet Earth precisely because speed is wrongly considered as the essence of Logis/cs (or Opera/ons Management in more general): i.e. The customer receives the wrong product.


Picture 9: Timeliness vs. Speed Timeliness Speed

A rum factory in Jamaica

We are in a small entrepreneurial rum factory on the Jamaican coast run as a one-‐man-‐show by Dr Grunrelt with limited resources but huge turnover. The company sells a niche product to very faithful clients all over the West Indies up to the Bermuda Triangle. Though the customer base is strong, the organisa/on is very open & dynamic, expanding to new markets. Moreover, its business systems are very simple in order to remain flexible and respond to the very compe//ve and changing business environment. Dr Grunrelt is proud of his achievements but some/mes wonder how long he can sustain it.


PART 3: CASE STUDY 2: Safety Stock

Picture 10: Caribbean

Normal Daily Rou/ne


The Business processes are in fact very basic in the factory. BoYles come in every morning. 4 raw, purchased ingredients are used to elaborate the final product and are mixed first and then filled in the boYles, which are aqerwards sealed and sold as it is. Among the 4 raw ingredients, there is one key element, which gives the “kick” to the whole product and is called the “elixir” by the workers. It is the Safety Stock of the Elixir, which is our main centre of aYen/on in this case study. What is Safety Stock? It is the minimal stock one keeps in the factory even if the rest gets depleted. It should be large enough to sustain sudden surges of demand as well as not over-‐cau/ous as storage costs money. Dr Grunrelt uses a complex algorithm to calculate it based on es/mated demand.


Picture 11: BoYles

Picture 12: Safety Stock Safety Stock

Stock

The Crisis

One summer day, during a peak demand period, the factory suddenly runs out of Elixir and no more boYles can be produced. Everything has to stop. Dr Grunrelt is furious. He can see right now the impact this is going to have on his small business: Unsa/sfied customers, Loss of market share, boos/ng compe/tors and more seriously reputa/on damage. He decides to inves/gate what has happened in order to answer why it has happened.



Picture 13: Stock = 0


Root cause analysis

How come despite the Safety Stock, the stock of Elixir has fully vanished? He knows excessive demand is not an excuse as his Safety stock is based on forecasted demand. He summons the Logis/cs manager to give some explana/on on his stock management. The truth suddenly comes out. The Stock of Elixir is in normal /me far too high as it far exceeds demand. The warehouse manager cannot keep control of it and many employees knowing it serve themselves in the stock for their own personal use. Therefore although high, the real stock is s/ll significantly lower than the one indicated in the Excel sheets and explains why the crisis happened in the first place. Furthermore, due to excessive stocks in regular days, the warehouse manager is at pain at monitoring who does what on the shop floor and if the stock in hand matches with the one on the IT system. What is the solu/on to this new riddle?


How this could have been solved

One good solu/on here would be to switch to Lean Inventory and the Japanese Kanban method. 2 Principles to respect here: Keep Safety Stocks to their lowest levels in order to monitor physically (even visually) the Stock of Elixir Replenish stocks each /me there is a customer order and only in that case. Although this is not the ul/mate answer to the crisis, Lean Inventory and Kanban are proven methods. Furthermore it will avoid the problem of having too huge inventory to be monitored by a small organisa/on and employee chea/ng. Because stocks follow demand to the leYer with minimal depth, the warehouse manager should be able to control them far beYer as their size will never go off the roof. Mathema'cs applied to Business Theory 19


Picture 14: Lean Inventory Ship

Water = Stock

Rocks = Demand

Final Statement

We have therefore seen Logis/cs in prac/cal situa/ons.

How at the end, the whole problem of Logis/cs is concerned about detec/ng the opera/onal obstacles linked with transpor/ng goods, storage or just physical movement with a monetary

purpose.

The 2 case studies demonstrated 2 situa/ons where boYlenecks or crisis situa/ons appear, one due to excess profit op/misa/on, the second to a lack of Lean Management.

Logis/cs requires therefore common sense and some basic prac/cal guidelines … too oqen

forgoYen by many real-‐life businesses. These 2 case studies were presented to show case how and why simple principles can be totally missed.

. Mathema'cs applied to Business Theory 20

FINAL STATEMENT

Process apparently fully designed and streamlined

Looking closely: Small perturba/ons which can clog up the whole system

Picture 15: Low Signal Detec/on

Low Signal Detection

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