SUPPLY C HAIN MANAGEMENT

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By Debra

PART 3 OF 3

In Part 1 of our series, we established the need for management to step into the 21st Cen-
tury to keep pace with the circumstances of supply chains in today’s more complex and
volatile environment. In Part 2, we listed five steps to force a change from push and pro-
mote to position and pull:
1. Accept the New Normal,
2. Embrace flow and its implications for return on investment (ROI),
3. Design an operational model for flow,
4. Bring the Demand Driven model to the organization, and
5. Use smart metrics to operate and sustain the Demand Driven operating model.
 SUPPLY C HAIN MANAGEMENT

Figure 1: The Gap Formula Between Flow-Centric and Cost-Centric Strategies

Net Profit
Visibility Variability Flow Cash Velocity ( Investment
) ROI

Core Problem Area Plossl’s First Law of Manufacturing and the Demand Driven Model

Part 1 focused on Steps 1 and 2. In the New Normal, a measures. We call the ability to think systemically
company’s success in relation to ROI is determined by its “Thoughtware.” In fact, we’ve found that before compa-
ability to manage time and flow of relevant information nies make huge investments in software and hardware,
and materials from a systemic perspective. Maximum they must first commit to implementing and investing in
revenue opportunity, as well as minimum investment and Thoughtware.
cost, is a direct outcome of better flow through the sup- At the base of this systemic thinking lies the primary
ply chain system. “right” financial measure—ROI. A company can’t claim it
Part 2 focused on Steps 2 and 3. There we made the has improved if it doesn’t have an improvement in ROI.
case that the core problem blocking flow, hence ROI, is It’s the only measure that makes net profit relative to the
an organization’s inability to generate relevant informa- effort invested over time. But measuring ROI at the end
tion (see Figure 1). of any financial period won’t change the result. It’s the
A change in visibility (relevant information) causes a tactical planning, execution decisions, and actions a com-
change in variability. When access to relevant information pany’s people take every hour of every day that will deter-
increases, variation experienced by the organization mine where the company lands on the ROI measurement
decreases. When access to relevant information is inhib- scale. Relevant information directs and focuses efforts
ited or blocked, or we generate irrelevant information for where the greatest ROI opportunity exists because both
decision making, variation experienced by the organiza- time and cash are finite.
tion increases. A change in ROI inversely follows the In most companies, it’s next to impossible for a local
change in variation. We used an equipment manufacturer manager to make a connection between his or her actions
to demonstrate the design of an operational Demand today and the effect those actions will have on ROI. This
Driven model (Step 3). The model included strategically has led companies to create a significant number (hun-
positioned decoupling and control points with appropri- dreds or more) of tactical and local measures to focus
ate buffers of stock, time, or capacity—a system designed and direct people’s daily actions. Companies fail to grasp
to create visibility for relevant information that protects two important realities when they apply a whole-system
and promotes flow by breaking variation and negating its rule to a local resource or area:
effects. Here we’ll focus on Steps 4 and 5. 1. The rules that apply to define what makes the sys-
tem efficient, how to maximize the efficiency of the sys-
Bringing the Demand Driven Model tem, and how costs actually behave in the system can’t be
to the Organization extrapolated and applied to the individual links that
To bring a strategy of flow and a Demand Driven operat- make up the system.
ing model to an organization, people must be taught and 2. The majority of these local or individual cost-
then encouraged to think systemically. The new opera- centric efficiency and utilization measures are based on a
tional model must have all of its rules, tactics, tools, and Generally Accepted Accounting Principles (GAAP) defini-
metrics align to a flow-centric strategy. Managers must tion of full absorption product cost.
be able to identify the right rules, metric objectives, tac- Table 1 is a summary and comparison of a cost-centric
tics, and reporting tools to drive flow as well as identify efficiency strategy and a flow-centric efficiency strategy.
and remove inappropriate and outmoded cost-centric Both provide a framework from which to derive policies,
rules that block flow. In our opinion, the thinking tool metric objectives, and tactics, but each will have very dif-
set of the Theory of Constraints (TOC) offers one of the ferent ROI results.
best systemic problem-solving and solution-definition Cost centric and flow centric have very different defini-
options available to empower an organization to think tions of business rules (policies), metric objectives, rele-
systemically and identify conflicting policies, tactics, and vant information, tactics, and actions.
44 S T R AT E G I C F I N A N C E I December 2013
 Table 1: Summary and Comparison of a Cost-Centric Efficiency Strategy
against a Flow-Centric Efficiency Strategy

COST-CENTRIC EFFICIENCY STRATEGY SUMMARY FLOW-CENTRIC EFFICIENCY STRATEGY SUMMARY

PRIMARY Unit cost reduction = Increased Return on Investment Protection and increase of flow (of relevant information and
materials) = Increased Return on Investment
ASSUMPTION

Maximize resource efficiency and utilization: Plan and Maximize system flow to market pull: Synchronize demand
STRATEGY
schedule resource activities to ensure the lowest product and supply signals between critical points—the control and
cost and highest product gross margin. Focus on cost- decoupling points. Identify and remove whatever blocks
reduction tactics, actions, and initiatives with emphasis on flow to and through the critical points.
labor saving, machine utilization, and inventory reductions as
top priorities. Every cost reduction increases ROI.

METRIC Gross profit product margins – Meet the profit plan for both Reliability – Consistent execution to the plan/schedule/market
revenue and product cost. expectation.
OBJECTIVES
Part and product standard cost – Efficient use of all Stability – Pass on as little variation as possible.
resources. Speed/velocity – Pass the right work on as quickly as possible.
Working capital dollar targets – Efficient use of working System improvement/waste (opportunity $) – Point out and
capital. prioritize lost ROI opportunities.
Cost-reduction initiatives – Meet the profit plan. Strategic contribution – Maximize throughput dollar rate and
Product cost variance analysis – Targeted resource efficiency throughput volume according to relevant factors.
and cost-reduction opportunities/compliance. Local operating expense – What is the minimum spend that
captures the above opportunity?

TACTICS/ Maximize all machine/labor efficiencies – Run larger Maximize system efficiency – Protect scarce capacity
ACTIONS IN batches; extend the forecast; run only on optimal resource. resources; run smaller batches to pull; run on any process-
CONFLICT Protect budget performance – Focus on actions to achieve capable resource.
standard unit cost. Protect budget performance – Focus on leveraging flow to
Maximize margin – Focus on lowering unit product cost. the market.
Minimize inventory – Enforce a dollar-value inventory Maximize margin – Focus on increasing service level, premium
threshold; postpone inventory receipt; mandate across-the- pricing, leveraging constrained resources.
board reductions; purchase on least-cost-buys and volume Minimize inventory – Commit to strategic stock positions to
discounts. protect the agreed-to market strategy and throughput; purchase
Get more volume – Lower price and raise order minimums. on quality, reliability, and lead times.
Maintain margins – Focus on actions that lower unit cost. Get more volume – Focus on service, lead times, and lower
order minimums.
Project improvement – Identify unit-cost-reduction
opportunities through increasing resource efficiency or labor Maintain margins – Focus on actions that increase
reduction. throughput.
Project improvement – Identify the largest sources of
variation, and remove them to lower lead times and reduce
investment in all strategic buffers.

INFORMATION Local resource utilization and efficiency measures; standard unit Visible real-time stock, capacity, and time buffer status; align
SOURCE FOR cost impact evaluated by the impact on the cost driver used to priorities, and identify when, who, and why a corrective action
DECISIONS allocate overhead (fixed costs) to products. Priority is based on should occur to protect flow to and through the decoupling and
AND ACTIONS the impact to “my resource/area” local measures. No systemic control points to the delivery schedule. Reason codes identify
view of product flow or net cash flows. variation, its source, and the flow impact. Buffer reporting
focuses corrective actions to “unblock” flow in execution and
prioritize future improvement actions. All resource execution
priority throughout the system is based on the purchase or work
order buffer penetration status against schedule.

Cost-centric efficiency is focused on planning spends—the system’s cost to operate in the time period
and executing the “best” individual resource efficiency measured.
and least unit-cost performance to deliver the business Flow-centric efficiency is focused on synchroniz-
plan and maximize ROI. Low unit cost is a natural out- ing and aligning all resource priorities to actual market
come, but it has no correlation to what the system demand and on the velocity of the system flow to maxi-
December 2013 I S T R AT E G I C F I N A N C E 45
 SUPPLY C HAIN MANAGEMENT

mize ROI. High due-date performance (DDP), short rules for nonlinear, complex systems and complex adap-
market lead times, and minimum invested capital are the tive systems. The starting point is a Demand Driven sys-
natural outcomes. This has everything to do with the tem designed to the specifications seen in Part 2 of our
maximum market opportunity for the minimum system series. This model is used to determine the strategic
spend and investment. investment required to deliver the strategy to the market
These two conflicting strategies lead to opposite tacti- and is a core part of the sales and operating plan (S&OP).
cal decisions and execution actions. A company can’t have 2. Day-to-day nonfinancial measures for manufactur-
two opposing strategies and expect coherent planning, ing and distribution operations. These are control point
execution tactics, and favorable results. Unfortunately, and decoupling point buffers, feedback loop systems, and
this is exactly where most companies and managers find smart metrics used to measure a supply chain perfor-
themselves today—straddling a world of decisions that mance management system. The primary goal is system
demand constant compromises between conflicting key coherence and signal synchronization with the defined
performance indicators (KPIs) and objectives forcing self- strategy or model.
imposed forms of variation into the supply chain. Four of the six smart metric objectives in Table 1
Becoming Demand Driven requires the organization to maintain system coherence in day-to-day operations
break the conflict over its strategy, tactics, and metrics in planning and execution. The first three are nonfinancial,
favor of flow, and leadership must break that conflict. and the fourth is a mix of both financial and nonfinancial
elements.
Demand Driven Operating Models 1. Reliability – Consistent execution to the plan/
and Smart Metrics schedule/market expectation within the model.
The point of discussing GAAP measures and establishing 2. Stability – Pass on as little variation as possible.
the reality of today’s supply chains as nonlinear, complex 3. Speed/Velocity – Pass the right work on as quickly as
systems is to create a sufficient case to challenge and possible.
debunk the current paradigm of supply chain perfor- 4. System Improvement/Waste (Opportunity $) –
mance as independent financial data points managed and Point out and prioritize the lost ROI opportunities.
measured through an additive series of static snapshots of Now we’ll show you how smart metrics achieve these
GAAP unit costs. In short, the rules required to run these objectives.
complex systems are fundamentally different from the
current paradigm. One of the keys to managing complex The Power of Pareto and
adaptive systems (CAS) is to understand the importance Smart Metrics
of coherence. (See Chapter 10 of our book Demand Dri- Nonlinear, complex systems are best explained with Paret-
ven Performance—Using Smart Metrics.) ian distributions or “rules” because they model the large
A complex adaptive system’s success depends on coher- effects of the very few relevant system factors. In linear
ence of all its parts. A subsystem’s purpose has to align systems, Pareto distributions focus on the 80:20 rule—
with the purpose of the greater system for coherence to 80% of the outcome can be attributed to 20% of the
exist. Without that alignment, the subsystem acts in a way events factors. In nonlinear, complex systems, the ratio
that endangers the greater system it depends on. Coher- rule is much higher at 99+:1. The fact that a complex sys-
ence must be at the forefront of determining the signal tem can be understood and managed from a limited set of
set, triggers, and action priorities. To keep coherent, all factors that govern the whole system is the key to making
resources/subsystems must ensure that their signal sets the complex simple. Smart metrics use a Paretian view to
contain the relevant information to direct their actions focus on a visible feedback loop of strategic buffers of
and that they aren’t at cross-purposes with the goals of stock, time, and capacity and the status of the critical
the systems they depend on. points they protect. Aligning all resource schedules and
Based on the importance of coherence and CAS, a priorities to these few visible focal points creates system
Demand Driven performance measurement system has coherence and a feedback measurement system focused
two distinct components of financial and nonfinancial on ensuring the first four smart metric objectives.
metrics: The most important thing for managers to manage is
1. Internal financial measures for evaluating strategic the events outside the targeted limits at the control and
investment decisions that follow the relevant information decoupling points. In particular, a shift of managers’
46 S T R AT E G I C F I N A N C E I December 2013
 F Figure 2: Completed Demand Driven Design Model
LEAD TIME =
4 WEEKS LEAD TIME = 3 WEEKS LEAD TIME = 1 WEEK

OUTSOURCE
OPERATION PLATE

C C

SHEAR

C WELD

RAW PAINT
STOCKS
SAW ASSEMBLY CONFIGURE
C CUSTOMER

C LATHES

LASER
PURCHASED
COMPONENT
STOCKS
HEAT
TREAT

C CONTROL POINT STOCK BUFFER

TIME BUFFER CAPACITY BUFFER

attention from the center of the distribution (the averages pling points, and initial zone parameters have been set to
in a normal distribution) to the tails (the outliers in the absorb supply and demand signal variation.
Paretian distribution) reveals solutions to existing prob- ◆ The time and capacity buffer zones have been ini-
lems and promising opportunities for market growth, tially sized to protect flow with the minimum investment,
process improvement, working capital minimization, and given finite capacity of the control points, actual market
less expedite-related waste. This Paretian view of statistics pull, and feeding resources variation. They are resized
is the math and logic of complex nonlinear systems. dynamically over time as changes occur in capacity, mar-
Smart metrics focus on the strategic control points and ket pull, and variation.
decoupling points. The events occurring in the tails of the ◆ The organization has created the ability to visibly
strategic buffer zones trigger action to keep flow on track. display these buffers in real-time status.
Purchasing, planning, scheduling, and deployment deci- ◆ The organization has the ability to finitely schedule
sions are determined and prioritized, and execution is its control points and choke flow to the pace of the con-
synchronized by the buffer zone penetration priorities. trol points.
Events in the tails are measured and trended to determine
resource and asset performance as well as focus improve- Stock Buffers, Pareto Analysis, and
ment opportunities and investment. Smart Metric Objectives
Let’s look at an example that demonstrates the use of Here we’re going to provide a short overview and exam-
smart metrics. Figure 2 is the Completed Demand Driven ple of a feedback loop system that comprises smart met-
Design Model (Figure 8 in Part 2). rics for strategic stock buffers. (This abbreviated example
The following assumptions apply to our example company: is excerpted from Chapter 11 of our book.) In Figures 3
◆ The organization has embraced a strategy of flow- through 6 we’ll demonstrate how a Paretian view is used
centric efficiency. with stock buffers to ensure that the smart metric objec-
◆ A Demand Driven design strategy has been com- tives and supply chain coherence are achieved.
pleted, and decoupling and control points have been cho- Figure 3 is a spectrum view that exists with all invento-
sen to protect the lead-time strategy depicted in Figure 2. ries at the single item or aggregate level. The line running
◆ Demand Driven MRP (DDMRP) methodology has in both directions represents the quantity of inventory. As
been used to determine the stock strategy at the decou- you move from left to right, the quantity of inventory
December 2013 I S T R AT E G I C F I N A N C E 47
 SUPPLY C HAIN MANAGEMENT

Figure 3: The Two Universal Points of Inventory

A B

TOO LITTLE TOO MUCH

STOCKOUTS, BACK CASH, CAPACITY, AND

ORDERS, EXPEDITES, SPACE TIED UP IN
0
AND MISSED SALES INVENTORY

Figure 4: The Optimal On-Hand Inventory Range

A B

TOO LITTLE WARNING OPTIMAL RANGE WARNING TOO MUCH

STOCKOUTS, BACK CASH, CAPACITY, AND

ORDERS, EXPEDITES, SPACE TIED UP IN
AND MISSED SALES
0 INVENTORY

increases; from right to left, the quantity decreases. picture when overlaid on this type of graph. Figure 5
Whether at the single SKU/part number or at the shows what’s known as an inventory “bi-modal” distribu-
aggregate inventory level, there are two very important tion. The bi-modal distribution has a relatively large dis-
points on this curve: tribution of parts in the “too much” range while, at the
Point B, where we have too much inventory and same time, having a relatively large distribution in the
excess cash, capacity, and space tied up in working capital. “too little” range and a relatively small distribution in the
Point A, where we have too little inventory and the optimal range. Worse yet, individual parts tend to oscil-
company experiences shortages, expedites, and missed late back and forth between too much and too little. The
sales. bi-modal distribution and the oscillation associated with
If we know that these two points exist, then we can it are representative of the bullwhip effect and are a huge
also conclude that for each SKU/part number, as well as challenge to supply chain coherence.
the aggregate inventory level, there’s an optimal range In a sample of more than 400 manufacturing compa-
somewhere between the two points. This optimal range is nies polled by the Demand Driven Institute, more than
depicted in Figure 4. 90% report the bi-modal distribution to a severe degree.
As inventory quantity expands out of the optimal The bi-modal distribution is devastating to flow and is a
range and moves toward point B, the return on working major source of expedite-related expense and waste. As it
capital captured in the inventory becomes less and less. relates to stock buffers, the power of Pareto and smart
The converse is also true as inventory shrinks out of the metrics is aimed at the identification and elimination of
optimal range and approaches zero or less than zero (the the bi-modal distribution.
typical quantity when we start to have too little). Placing Figure 6 shows the inventory spectrum with the
point A at the quantity of zero means that inventory DDMRP buffer management color-coded ranges inserted.
becomes too little when we are out of stock. Placing The color-coded zones and planning algorithm are
point A at less than zero (e.g., –1) means that inventory designed to keep the on-hand position in the optimal
becomes too little when we are out of stock but have range. The optimal on-hand range is in the lower portion
demand—the definition of a true shortage. of the yellow zone. This range serves as the primary speci-
This is particularly important when we consider that fication limits to judge on-hand inventory performance to
most companies’ inventory alignment displays a troubling prevent the bi-modal distribution. The average on-hand
48 S T R AT E G I C F I N A N C E I December 2013
 Figure 5: The Bi-Modal Distribution
OSCILLATION BETWEEN TOO MUCH AND TOO LITTLE

# OF PARTS OR SKU

TOO LITTLE WARNING OPTIMAL RANGE WARNING TOO MUCH

STOCKOUTS, BACK CASH, CAPACITY, AND

ORDERS, EXPEDITES, SPACE TIED UP IN
0
AND MISSED SALES INVENTORY

Figure 6: Target On-Hand Inventory and the Outliers or Tails on Both Sides of the Distribution

AVERAGE ON-HAND INVENTORY

# OF PARTS OR SKU

TOO LITTLE RED YELLOW GREEN TOO MUCH

SMART METRIC FOCUS

target position is the point in the yellow zone that equates Reporting on the Tails
to the red zone plus half of the green zone. For a detailed Figure 7 shows trend reporting of parts with on-hand
understanding of both the math and principles of DDMRP inventory that repeatedly enter or reside in the tails. The
and strategic stock buffers, we recommend the third edi- top graph shows parts with unacceptable service levels. It
tion of Orlicky’s Material Requirements Planning by Carol focuses on the left tail and shows the number of days
Ptak and Chad Smith (McGraw-Hill Professional, 2011). over a 180-day period that each part has spent in three
Only after you understand and establish the zones can different categories prioritized by the severity of the
you begin to apply Paretian principles to focus on the out- potential net loss to the system:
liers (the tails) and drive on-hand inventory toward the 1. Parts stocked out with demand,
optimal range and out of the bi-modal distribution. The 2. Parts stocked out with no demand, and
on-hand range specification limit and the emphasis on the 3. Parts in the critical red zone (the lower half of red)
distribution tails establish a performance measurement penetration.
index to trigger buyers, planners, schedulers, operations Finance clearly can see why, where, and how much
resource managers, and deployment to take action when cash outflow and strategic investment is required to
events drive the on-hand inventory too far outside the align the stocking levels and buffer protection to the
optimal range. All daily inventory performance is based change in demand pull and/or to protect the market
on managing the events occurring in the tails to keep from increases in supply variation. A sales review can
material flowing and available to meet market demand. check the product sales trend against the sales plan and
December 2013 I S T R AT E G I C F I N A N C E 49
 SUPPLY C HAIN MANAGEMENT

Figure 7: On-Hand Inventory Performance Measures Focus on the Parts Trending

in the Statistical Tails
R270
COMPONENT PARTS

H981 CRITICAL RED

C488 STOCK OUT

H130 STOCK OUT

WITH DEMAND
H275

C150

B897

0 5 10 15 20 25 30 35
TOTAL DAYS ON-HAND INVENTORY RESIDED IN THE ZONE OVER THE PAST 180 DAYS

R871
COMPONENT PARTS

GREEN ADU
R973
DAYS > 15
H270
OTOG ADU
H274 DAYS < 15
C287
OTOG ADU
C283 DAYS > 15
C290

0 20 40 60 80 100 120
TOTAL DAYS ON-HAND INVENTORY RESIDED IN THE ZONE OVER THE PAST 180 DAYS

signal the need for an increase in the buffer zone levels. three different categories prioritized by poor flow rates:
A planning review can check if supply variability and/or 1. Parts with on-hand inventory over the top of green
lead time have increased and require an increased red- (OTOG) with less than 15 days of average daily usage
zone protection and/or an alternate source of supply. (ADU),
Regardless of the cause, these parts require an addition- 2. Parts with on-hand inventory OTOG that exceeds
al investment in either capacity or stock to support 15 days of ADU, and
market targets and/or decrease expedite-related waste. 3. Parts with on-hand inventory in the green zone.
Operations must act to improve the availability of these The choice to break categories based on an ADU
parts to keep the system reliable and stable and to pro- greater than 15 days ensures that parts with moderate
tect the market lead-time strategy and revenue opportu- and better flow are excluded from the trend reporting
nity. The parts in Figure 7 are a major source of system and focused only on parts that require review and action.
variation. They destabilize the system, making it less Finance clearly can see the cash flow implications and
reliable, less responsive, and more wasteful. Measuring working capital performance of the parts with poor flow
and prioritizing process improvement and strategic performance:
investment around these parts and the cause of their • How much = the variable cost per parts × (target on-
poor service performance achieve all of the six strategic hand – actual on-hand)
objectives of smart metrics: system reliability, stability, • How long = (target on-hand – actual on-hand)/average
speed/velocity, focused process improvement, maximum daily usage
strategic contribution, and minimum operating expense Parts with on-hand inventory over the top of the green
spend. zone indicates the need for a sales review to check the
The bottom graph shows parts with unacceptable rates product sales trend against the sales plan and/or a plan-
of flow. It focuses on the right tail and shows the number ning review of order policies and batching rules. If the
of days over a 180-day period that each part has spent in low-flow velocity is the result of manufacturing batches
50 S T R AT E G I C F I N A N C E I December 2013
and/or purchase minimums larger than the pull rate lated dependent variation of dependent event supply
requires, they should be reduced where possible. These chain systems that feeds and amplifies the bullwhip effect
parts are a major source of system waste. They reduce and to provide visibility and synchronization to resource
speed and consume cash, material, capacity, and space and managers so they can act. The combined buffer feedback
create contention for scarce resources. Reviewing buffer systems of stock, capacity, and time provide all relevant
status trends by part and by planner provides the bench- information needed to judge the state of the entire chain
mark to track improved performance and pinpoints where and direct attention or action as well as focus opportuni-
to focus increased investment and improvement efforts. ties for improvement and investment. Real-time excep-
Setup reduction opportunities and batch size challenges tion feedback is needed to identify issues and their root
for those parts using minimum order quantities (MOQ) causes proactively so people can take timely, appropriate
or minimum order cycles (MOC) are an integral part of action. They are also trended over time to provide focus
the process improvement feedback loop. to direct improvement efforts and permanently remove
recurring issues or events that routinely block flow.
A Quick Recap Now that you have a framework to work from that
In this article we’ve discussed the smart metrics objectives provides relevant information for smart metrics, you can
in relation to stock buffers. The objective is to drive help your company become Demand Driven and achieve
toward maintaining a single or uniform distribution better flow through your supply chain. SF
curve across those strategic decoupling points with an
on-hand inventory target position centered inside the Sections of this article are excerpted from Demand
specification range (typically in the lower half of the yel- Driven Performance by Debra and Chad Smith
low zone of the buffer). When that centering occurs, we (McGraw-Hill Professional, Hardcover, November 2013)
achieve the four day-to-day smart metrics objectives that with permission from McGraw-Hill Professional. To
ensure system coherence: reliability, stability, speed/veloc- learn more about these concepts and the results of
ity, and system improvement. companies that have adopted them, go to
The results are that shortages are minimized and www.demanddrivenperformance.com.
velocity is protected. Unnecessary expenditures are pre-
vented, and basic planning assumptions and information Debra A. Smith, CPA, TOCICO certified, is a partner with
are relevant. Materials are available, and lead times are Constraints Management Group, LLC, a services and tech-
reliable, which results in a more stable schedule and reli- nology pull-based solutions provider. Her career spans pub-
able execution. At the same time, a minimization of over- lic accounting (Deloitte), management accounting (public
ages protects velocity, prevents margin erosion through company financial executive), and academia (management
discounts, prevents write-offs due to obsolescence, accounting professor). She served five years on the board of
reduces space requirements, and allows common compo- directors of the Theory of Constraints International Certifi-
nents and materials to be better leveraged against multi- cation Organization, has been a keynote speaker on three
ple parent items. continents, is coauthor of The Theory of Constraints and
In today’s globally competitive environment, new Its Implications for Management Accounting and author
decision-making tools are required to monitor, measure, of The Measurement Nightmare, and received the 1993
and improve the business based on the reality that it’s a IMA/PW applied research grant. You can reach her at
complex adaptive system. A Demand Driven information [email protected].
system is designed to plan, execute, and focus/prioritize
improvement using a visible, real-time feedback loop Chad Smith is the coauthor of the third edition of Orlicky’s
focused on the flow to and through strategic control Material Requirements Planning and the coauthor of
points and decoupling points. This is designed to align all Demand Driven Performance—Using Smart Metrics.
with the system view and strategy and keep coherence. He is the cofounder and managing partner of Constraints
The points for measurement and real-time feedback Management Group (CMG) and a founding partner of the
are relatively few, and they are strategically chosen to pro- Demand Driven Institute. Chad also serves as the program
tect critical resources and/or hand-offs between processes director of the International Supply Chain Education
or subsystems. These strategic buffers of stored time Alliance’s Certified Demand Driven Planner (CDDP) pro-
(stock, time, and capacity) are sized to break the accumu- gram. You can reach him at [email protected].
December 2013 I S T R AT E G I C F I N A N C E 51