Category Archives: Plan

Debt, Inventory and Revenue

Inventory

Inventory

Your code is your debt

You spend money, efforts and bug management to control your debt. Code doesn’t automatically generate revenue, user features and user satisfaction do. It doesn’t matter that you write 100 000 lines of code in 10 000 hours and complexity is 1 million (it, well, matters for technical guy) if those efforts doesn’t acquire new users or generate more revenue. It is like saying: I have borrowed 1 million dollars and spent all in this project. It sounds cool but it doesn’t do any benefit to the company. Even worse, it harms the company.

Inventory

Inventory is what you produce but just sitting on some warehouse/storage and does not generate any money. It could be even worse if it costs you any money to store those things.
Like Joelonsoftware said: inventory can happen in each of the following software process, and they can have different results:

      Decision-Making Process: documentation, product backlog, feature ideas…
      Design Process: diagrams,
      Implementation Process
      Testing Process
      Debugging Process
      Deployment Process

Each of stage’s products can never be implemented, get ignored or become unrealistic the next time. Here, we don’t talk about the waterfall process, which could make it even tremendous. For example, the feature backlog that is written in hundreds of pages that 90% are not implemented. The bug database contains all the bugs, efforts to maintain them and understand them but only 10% of them get fixed after a long time.

As with any kinds of inventories, after a while, your products inside the inventory gets obsolete, and needs cleaning up so the new things can be added in. The obsolete inventories will cost you the efforts and time to create it, maintain it and get rid of it. It is the same for software engineer, the bugs that are no longer bugs (after lots of updates), the features documentation that are not compatible with the current products…

It is important for manager to understand about the similarity of the cost, the debt, the inventory and the revenue in a software engineering process. It is easy to measure engineer by how much code they write, but it is the same as measuring how much debt he brings to the team. Higher debt doesn’t mean higher revenue, so be careful.

References:
http://www.joelonsoftware.com/items/2012/07/09.html

Startups TDD or not

Startup Trap

Startup Trap

This question is not a simple one, so you may not expect a simple question. If you read about this blog post, Uncle Bob Martin is a big fan of TDD, even for startup. I would say, for any startups, or any company, the technology process has to be aligned with the business process, which means it has to satisfy both the short term and long term goal of the business.

Think of any business you know, think of their products.  If you serve a bigger, long term goal, the team will be given more money and time, otherwise, it will be given much less. If their products are the main cash cow, it is the long term product, otherwise, if it only built to last a couple of weeks and months, it is not.

So, startup, even though not a mature business, still needs to deal with this problem on a daily basic. I think the best approach for any startup is to determine how long the project would need and reconsider their decisions every few months to make sure they are still on track. When the startup thinks that the product is going to last long or the number , they need to add more tests into it, to refactor the source code, to raise the source code requirement. In economics, it is an important concept that “in the long term, everybody dies”. So, who cares about long term if we are going to die tomorrow? But, if we live for 10 years without a plan, I am sure that you will die within the next few weeks. The matter is how long you think your product will live.

And of course, if you keep the same plan, or the same process for the startup when the product grows, you sure gonna die. That’s the job of the executives to keep teams aligned with the business goals. And any company cannot do this will not survive for long.

Steve Jobs: What I feel about him

Steve Jobs

Steve Jobs

I finished this book quite a time ago, but I didn’t feel to fully understand and let all the information and knowledge penetrates into my mind. There are conflicts, there are debates, there are loves and hates from everybody. It is so easy for people to judge emotionally and I didn’t think that I understand everything to start writing it out.

There are many lessons inside this book, and each single person takes his own belief from the book. I have my own lessons, hope that it is not emotionally biased and spend time thinking through it for a while.

 

 

Autocratic, it is so necessary in the success of the company. People may believe that Steve Jobs was fired due to his wrong approach of management or people favored a salesman too much more than the product guy. I think it was mainly an organization politics problem, Steve Jobs was right but he did not get enough power and networks to back him up. I believe in his autocratic, as much as I believe in Mark Zuckerberg’s autocratic system. Forecasting an uncertain future is too hard to convince everybody to follow the leader. It is wasting both time and efforts. It was a quite shock for me while reading this article. I agree with the Jeff Bezos’s style of management in this article: https://plus.google.com/112678702228711889851/posts/eVeouesvaVX

Steve Jobs is not a genius, sorry for any of his fans. I don’t underestimate his talents and efforts but no success comes overnight. He was in a hard time after leaving Apple, building NeXT and then Pixar Animation Studios. There were up and downs in his life but he chose to stick into his core value and keep moving forward with innovative ideas. He has a great mind to recognize the great ideas, a great mind on how to make a product perfect. People may say that many ideas are not original by him. If they look deeper into the product development process, there are 2 things people must understand: the possession feeling and a great care of details. I love the ways Steve Jobs take an idea as if it is his own, as if it is his baby. That’s how passion and great care for the products are made from. If the product manager doesn’t have the feeling of the product as his own. Steve Jobs took this possession to a great level, and ignores the original owner as a whole.

The last great thing that I learn from Steve Jobs is details matter, a lot. I learnt from my own product development, from writing my own book. Details matter, a lot. People may not care about how great most of your works are, but they quickly recognize your mistakes. It is part of how people’s psychology works, they would assume you need to produce a great product so the great parts are normal. And negative emotion has a bigger impact than positive emotion.

 

How Information Technology changes global supply chain?

The outsourcing trends started with manufacturing in 1990s and then this trend happened to software industry. This trend helped the software industry grow really fast, creates a lot of entrepreneurs that can only have a small fund to invest. Through freelancers and outsourcing websites, small entrepreneurs can cut cost and outsource parts of their projects to China, Vietnam or India to get their work done with almost the same quality.

 

And now, this trend has been back to manufacturing industry, where small companies and entrepreneurs can outsource the works of manufacturing to China. Do you have a good idea? No problem, you outsource to China to produce some amount of the products, as small as hundred or thousand products for a tiny cost. There is no need to have a factory and the inventory. You only need them when you have the customer orders.
This new trend will bring more innovation from anybody within the U.S., as long as you have a good idea.
Easier to access the workers
In the past, to get your idea implemented, you need to have at least hundreds of thousands dollar initially. It is also much more risky when you have to order at least tens of thousands of products so that the factory can start manufacturing your products. Lots of people fail when they do not have enough money to start or they could not sell all of their products.

Now, things have changed. Based on sites like alibaba.com, U.S. entrepreneurs could get access to a pool of talented manufacturers. These manufacturers accept to work on anything, ranging from a small contract of 100$ to 10,000$ and they could deliver your products quickly. This lowers down the barriers of entry for new entrepreneur and creates more chances for people to step in.

Alibaba business-to-business model has been a huge success, with around 500 companies do their business in alibaba.com. The revenue of the company has grown from 48 million USD in 2004 to 183 million USD in 2006 and it still keeps growing up. The platform of Alibaba allows U.S. companies to hire any Chinese manufacturer they need for a tiny cost. An instant translation service will help both of them communicate with each other accurately.

Lowering down the cost
This not just helps the entrepreneurs but also the small and medium enterprises as well. This lowers down the cost as well as the risks for any companies to invest into their new ideas.

Bdier, a graduate student at M.I.T Media Labs, quitted her job to become a new-age manufacturer. She designed a protocol for making electronic components into Lego-like bricks that could be used by anybody. She then gave the protocol design to the Chinese manufacturer to make it for her.

There are more case studies that people can work on their garage has a good design and then send it to a Chinese manufacturer to make the actual product. This could save these entrepreneurs a lot of money and they can finally create what they love.

Easier to sell and do marketing
Due to the nature of the Internet, it is now easy for a good product or idea to spread out. Facebook, Twitter, Gmail and Youtube now help companies to do viral marketing with a very small cost. People observed the success of many small companies that have cool products and do not need to spend much money on marketing.

Google, Alibaba, and then Dropbox has been successful in the same way. They make good products and then give it out for the world to try it. Then people will tell their friends, and the product grows by word-of-mouth.

References

-Why the Chinese web portal is giving up its stockmarket listing, So Long, For Now, The Economist, viewed on March 6, 2012 <http://www.economist.com/node/21548253>

– Secret of Alibaba’s success is team work, sense of mission, Monster and Critics, –Business News, viewed on March 04, 2012

<http://news.monstersandcritics.com/business/news/article_1371368.php/Secret_of_Alibaba_s_success_is_team_work_sense_of_mission>

– Giridharadas, N, 2011, The Kitchen-Table Industrialists, The New York Times, viewed on March 3, 2012

Does ERP and SCM Actually Save Money?

Enterprise Resource Planning (in short, ERP) is an organization management system that uses software application to corporate different aspects of the organization, automate and utilize the information between different departments of the organization to make it perform better.  These departments include finance, customer support, supply chain management, distribution, accounting, inventory management…
In our supply chain management, we mostly focus on 3 macro processes of the supply chain framework: Customer Relationship (CRM), Internal Supply Chain (ISCM) and Supplier Relationship (SRM). These 3 supply chain frameworks help the organization to manage its customer, its own process in supply chain (inventory, tagging and accounting…) and its supplier relationship. These macro processes run on a basic framework called Transaction Management Foundation, which include basic components for finance, accounting and human resources… Figure 1 depicts how these 4 frameworks work together.

Figure 1: Frameworks for Supply Chain management

Requirements of a good SCM system
In today competitive world, a good ERP and SCM system has to support the organization with high quality information to quickly make good decisions. To achieve this goal, the information and the system must satisfy multiple requirements:

  • Information must be accurate: it is not necessary for information to be 100% correct but the general picture must be represented truly.
  • Information should not be out of date in a specific period: when managers need information the most, they should have the up-to-date information that can help them make decisions.
  • Information should be in the right format that managers can use it to quickly make the decisions. For example, information might need to be aggregated to help managers know the general state of the supply chain system.
  • Information should be shared between involved managers that help them to understand the same picture.
  • The information system should be updated whenever the business requirement changes, that helps the organization to have the correct and necessary information.
  • The system should be easy to use and requires little training for the staff to work with the system.
  • The system should run with few bugs, always available when the staff or managers need them.

These requirements do not look too hard for an organization to have its own SCM system. In practice, 75% of ERP implementations were considered a failure. This gives us a big question about why an organization could not achieve its goal in designing and implementing an ERP system.
Reasons for failures of ERP system

It is hard to measure a real success of an ERP system. The question is if the benefits the new ERP system brings is much higher than the cost and the risk that the organization has to invest in. There are multiple problems, the lack of the communication between business and IT manager, poor planning to deal with hidden cost, the lack of understanding about the risk and complexity of an IT system.

Risk and Complexity

Business managers usually underestimate the risk and the complexity of a SCM system. A current version of a simple ERP system now consists of millions of lines of code. This is too complex for any small team of people to understand the whole system.

Complexity goes along with a big number of bugs. These bugs cause a risk that managers could not see and estimate it clearly. If the system is down for a couple of hours, it is already millions lost for the company. As in Foxmeyer, 1996, the SAP’s SCM deployment did not expect to handle this level of volume of orders. “We ran some simulations but not with the level of data we have in the operating environment”, one company executive said. Foxmeyer tried to solve this problem by sending hundreds of workers to work around the issues but the underlying software kept failing in middle of the process. Totally, this bug costed Foxmeyer tens of millions of dollars.

Hidden Cost

There are many hidden costs in designing and implementing a new ERP system for the organization that managers usually do not plan for. This makes up the total cost for the implementation to be much higher than the benefits gained from the implementation. According to Jarn, M.2002, there are 5 main costs that managers usually overlook:

  • Training Cost: people usually underestimate this cost. It usually takes a while for staff to adapt from the old system to the new system, for the changing of the old process to the new process.
  • Variety forms of data: data in SCM system is usually not in a standard format. The data come from multiple suppliers and the order requests come from multiple retailers and distribution centers. This makes it very difficult for any firm to standardize this data and match same items from different suppliers. The same iPhone case can be given different descriptions, specifications when it comes from different suppliers from different countries.
  • High Consulting Cost: this usually be overlooked by the consultant and the companies. The consultant may not have enough experience to plan for the project and the project may require longer time to finish or more payment to the consultant.
  • Integration and Implementation: Consultants want to test with the real dry-run to see how it affects the system, but usually the firms don’t want people to touch in their valuable data. This makes the integration, implementation and test process much harder than it is planned.
  • Managers fail to keep the project deadline. Because it is too difficult for consultants to give a correct estimation, most of the SCM projects fail to meet their deadline.

Slow to adapt to new business requirement

Although the companies spend millions dollar on the ERP projects, they also complain that it is too difficult to modify these systems to match their new business requirements. The risks and the complexities of the systems prevent developers and consultants to move quickly with any new business changes

References

<http://www.enterpriseacquisitions.com/articles/89-a-service-oriented-approach-to-cost-cutting-on-customizing-sap>

  • Brennan, J. 2012, Lean and Mean…There is a way of doing more with less…, Awards BA, viewed on February 26, 2012,

<http://www.bds.ie/blog-brentech-data-systems-blog/lean-and-meanthere-is-a-way-of-doing-more-with-less.533.html>

  • Tarn, Yen and Beaumont 2002, Exploring the rationales for ERP and SCM integration, Industrial Management & Data Systems, viewed on February 26, 2012

<http://contaduria.itam.mx/htm/alumnos/sicaof_prim03/ERP-SCM.pdf>

  • Wolf, T. 2011, What is ERP Software?, TMCNet, viewed on February 27, 2012

<http://www.tmcnet.com/channels/erp-software/articles/173165-what-erp-software.htm>

  • Supply Chain Digest, The 11 Greatest Supply Chain Disasters, Supply Chain Digest, viewed on February 28, 2012

<http://www2.isye.gatech.edu/~jjb/wh/tidbits/top-sc-disasters.pdf>

  • Rettig, C.2007, The Trouble with Enterprise Software, MITSloan Management Review.
  • Information Technology in a Supply Chain, Chapter 16, Part IV

 

Rethink about Transportation Cost

The oil price is increasing everyday, the politics corruption in China gets worse, the labor cost of Chinese increases quickly and the natural disaster happened in Japan and Thailand. Suffering all above problems, now is the good time for company to think about one question: Will Outsourcing still save cost?
Will Outsourcing still save cost?
There are some significant changes to the structure of the world in the last 20 years. Firstly, we look at the new cost of global supply chain management with the changes of oil price, Chinese labor cost and natural disaster cost. The next section will discuss about the cost of losing sales, market share and brand name by delay transportation.
Oil Price

Oil Price

Oil Price

Figure 1: The oil price in the last 25 years

http://en.wikipedia.org/wiki/File:Brent_Spot_monthly.svg

Figure 1 shows us how the oil price has behaved in the last 25 years. The best time for outsourcing was 1993-2003, where the oil price is stable and only around 40-50$. However, in the last few years, we have seen a new average oil price which is around 80$ and at sometime, the highest price is 140$, when the war in Iraq and then Libya happened.
Chinese and General Asian Labor Cost

China Labour Cost

China Labour Cost

Figure 2: The GDP per capita for China in the last 7 years

The labor cost in China has increased 3 times since the last 7 years, going from 1500$ to 4500$. This cost has been marked into the cost of good sales for all companies.
Total Landed Cost-Saving
According to McKinsey (2008), the total landed cost for outsourcing to China has changed significantly since 2003 to 2008

2003

2008

Labor savings

100

45

Freight

-7

-28

Shipping Related

-6

-6

Inventory Carrying

-12

-12

Product Returns

-6

-10

Hidden Cost

-5

-5

Total Landing savings (losses)

64

-16

Table 1: The Total Landed savings for midrange server has changed, from a positive to a negative number.

 

These total landed cost has been affected by the increase in annual wage in China, the cost of shipping and energy. Now, company has suffered 16$ lost when outsourcing the midrange server manufacture to China.
The Effects on Sales, Customer Service and Brand
Outsourcing has a problem, you have to ship the components to the assembly line and then ship the completed products back to US to sell it. There is a cost in this delay. Transportation is usually varied and currently, the transportation has become congested that delay is come more usual. This delay leads to various problems:

  • Over stock or out of stock: this could cost the retailers money when they are over stock and have to pay more for inventories. If they are out of stock, the problem can become worse, they can lose the customer and hurt the brand name.
  • The problem of delay manufacturing. If there is a big delay happens to the factory, the workers will have nothing to do for some days and then have to work overtime in other days.
  • The probability of accident and natural disaster: when the disaster happened in Japan and Thailand, the supply chain management is broken and people need to wait for the products to come out.
  • The global gridlock: there is a traffic congestion by train, truck, ship and air recently. This leads to a delay time in transporting the products to the right place. Actually, the company also needs to rethink between cost of air and ship shipping as shown in Table 2.
By Sea By Air
Unit Price

10

10

Asian Manufacturing Cost

-3

-3

Ocean/air shipping cost

-0.2

-0.8

Landside shipping and storage cost

-1.8

-1.6

Accounting Profit

5

4.6

Average reduction in profit due to out of stock or over stock

-3.8

-2.5

Total

1.2

2.1

Table 2: Comparison between Shipping By Sea and Shipping By Air, which leads to a winning for Shipping By Air

  • There are some critical products that could not be delayed, especially health care system of the government. If they could not deliver the vaccine or the drug in the appropriate time, people could die. For example, in case of the heath care vaccine distribution program, the manager said:”It was clear that if a nationwide emergency, such as a bird flu epidemic, put pressure on the vaccine supply, the CDC couldn’t respond the way the public would demand”.

Recommendation
With these problems and effects on the business in the long term, this is the time we may need to rethink about the transportation and outsourcing. The real cost is increasing while the hidden cost of brand name and customer experience becomes more important in this competitive world. We need to start thinking about moving the factories out of China and move it back to near the main sales and distribution place. Mexico could be a good place for U.S. market and European Center would be a nice choice for the whole Europe market…

 References

– Barboza, D.2010, Supply Chain for iPhone Highlights Costs in China, The New York Times.

– Winter, 2008, Time to Rethink Offshoring, McKinsey on Business Technology.

– Stalk, G.2009, The Thread of Global GridLock, Harvard Business Review.

– Copeland, M.2008, How the U.S. Centers for Disease Control and Prevention revolutionized the way vaccines are delivered, Smarter Medicine.

Zappos.Com: Developing a supply chain to deliver WOW!, Stanford, Graduate School of Business.

– Schreibfeder, J.2011, Why Is Inventory Turnover important?, Effective Inventory, viewed on 18/02/2012,

<http://www.effectiveinventory.com/article2.html>

– World Bank Data, viewed on 19/02/2012,

<http://data.worldbank.org/indicator/NY.GDP.PCAP.CD?page=1&display=default>

 

 

Company’s objective and product design

Disclaimer: This blog post is from my assignment in the Supply Chain Management course. It is copied from here

The long-term strategy of a company will reflect on how product of that company is designed, how people in the company work together to achieve the same goal. This long-term strategy brings the company ahead of other ones, creates innovation inside the company, and makes a huge profit for the company while others still suffer the economic recession.

http://www.onedesk.com/2011/05/product-strategy-tips-for-success/

Cost Cutting Innovation
IKEA
The last year was an economic recession year with unemployment above 9 percent and housing is 73 percent below the 2006 peak. Given the furniture is one of the worst categories of retail sectors, the support from government and Barack Obama in jobs help did not push this furniture sector much. In this difficult time, IKEA finds it easy to cut down the price of its products. In contrast to this move of IKEA, almost all other commodity prices increase.

Based on interviews with IKEA CEO Mikael Ohlsson, the whole company culture focuses to produce cheaper products. They set the target price for the product first, and then, by any means, to achieve that price. By improving the efficiency in product design, factory manufacturing and then distribution and delivery, it can cut a significant amount of cost.

http://noellebullock.posterous.com/?tag=ikea&page=2

However, one of the key factors is via its supply network, when it can try to use the least sustainable materials in this world. This may mean some long-term impact but that is acceptable for IKEA to reach their long-term goal: cut the price.

Tata Nano
Tata Nano has innovated a new “Open Distribution” system. This system operates by a modular design approach. Every product is designed in terms of modules, or components, which can be built and shipped separately to different assemblies around the world. This helps Tata Nano to achieve its goal.

By using this Open Distribution approach, it allows suppliers to compete for better qualities and lower price to bid for supplying. To push this even more, Tata Nano has its own internal suppliers. These suppliers need to compete fairly with the outside suppliers, so the general competition level is increased.

These innovations help these companies to move forward faster, affect all of their product designs as well as the process to manufacture the products and ship them to assemblies.

Environment Safety First

In contrast with the approach to cut the cost by all means, there are companies that focus on making value and meaningful social responsibilities. These companies also gain high returns through social values, which would enable them to follow these values in the long term.

There is a trend in designing, manufacturing and distributing new products with the most sustainable materials. These materials help companies to achieve its environmental goals.

Herman Miller
The goal of Herman Miller is explicitly stated in its website:

We put Herman Miller’s corporate environmental goal quite simply: to become a sustainable business – manufacturing products without reducting the capacity of environment to provide for future generations

That’s clear. It is the goal of all employees and all products of Herman Miller, to create a sustainable business. That is a meaningful value for everybody, so all employees are proud and happy to work at Herman Miller, to create a social value.

An example of this strategy is when they make a decision about choosing between PVP and TUP. PVP is cheaper, easier for suppliers to work on and there are multiple existing suppliers. TUP, though, is more sustainable for environment but is a new thing and few suppliers are able to provide to Herman Miller with low price. They finally choose to implement TUP since the new product, so they do not have to redesign the existing product and they can be proud about this new product.

This environmental safety first also puts them ahead of other competitors. Due to the strict environmental regulation rules of the governments in product manufacturing, their competitors find a hard time to follow what Herman Miller does.

http://www.hermanmiller.com/about-us/things-that-matter-to-us.html

It also helps Herman Miller to get the best employees for their business, which put them in a competitive advantage position comparing to other companies. The Youtube video clearly demonstrates how Herman Miller could make their employees proud of what they are doing.

These examples give us a broad view of how the company’s long-term strategy and objective affects all their business: from product design to decision-making process to the culture of the company. IKEA has chosen the price to be their competitive difference, and then ignore the environmental side of their works. However, Herman Miller focuses on building sustainable products and business. Both long-term strategies put the ahead of their competitors and make a difference in their business.

References

1. Tutle, B.2011, Everything at IKEA is getting cheaper, MoneyLand, viewed on 06/02/2012

2. Hamilton, S.2011, IKEA cuts price of US shelves as outlook dismiss, Bloomberg, viewed on 07/02/2012

3. King, B.2011, IKEA cut shipping costs with switch paper pallets, Sustainable Brands, viewed on 06/02/2012

4. What matter to us, Herman Miller, viewed on 06/02/2012
http://www.hermanmiller.com/about-us/things-that-matter-to-us.html

What’s the biggest lesson I learned so far this year?

Lesson over plan and time management

Biggest lesson this year

My learning progress this year has been increasing so fast, many things change in my life for the last 3 months. I changed to new living environment, new learning environment and start up my business when I came here. There are lots of lessons that I learnt as a manager in my new startup and a student in CMU. I think the 2 biggest lessons I have learnt so far this year are: planning and time-management.

Plan and Vision

Let me tell about my story first. My plan has been changing every month since the last November. The event that I went to CMU has changed my plan for my master degree and my career. You can read over my past plan here. I had a plan to work hard and plan for the master degree 2 years later. Then that plan changed. Next, I plan to study hard in CMU. Then, chances came and plan changed.

The main point that I want to get is my visionary. My vision and objectives over all of the plans do not change. I want to become an entrepreneur and build something that can change the world, something innovative in terms of technology and business. Planning is a tool for me to set up my vision, to see what will happen for me and other trends and I am more than willing to change any plan when necessary.

I have learnt significant lessons over financial planning in my CMU, which will help me over my company growth a lot. I think that this is what I lack from my undergraduate career. Money. Financial. These are important for any business technology people. I believe if you want to be successful, you have to understand about 3: Money, People and Technology.

Time-Management

The last few months, I ran in a crazy way, not like ever before. Look, everybody, who knows me, will know how fast I learn, implement new ideas and improve myself. However, I never see I learn and work at that crazy speed before. Lots of things got done, lots of breaking news. And I am still looking for more.

There are a couple of issues and lessons I learn from that fast moving. Time-management. I got a few problems at the first time when I have too many things to do than the time I can have. Then, I try different approach to optimize my time, calendar, todo list and time saving strategy. I now work much more efficiently than months ago and can really focus on a thing that I do. That’s why I love moving fast. Only by moving fast, you can learn really fast.

Again, what I want to say is you have to focus, and have a good timing management skills to control your time. Time cannot be bought!