Extreme Programming

What is Extreme Programming?

Extreme Programming (XP) is actually a deliberate and disciplined approach to software development. The methodology is designed to deliver the software your customer needs when it is needed. This methodology also emphasizes team work. Managers, customers, and developers are all part of a team dedicated to delivering quality software. XP improves a software project in four essential ways:

• Communication
• Simplicity
• Feedback
• Courage

XP programmers communicate with their customers and fellow programmers. They keep their design simple and clean. They get feedback by testing their software starting on day one. They deliver the system to the customers as early as possible and implement changes as suggested. With this foundation XP programmers are able to courageously respond to changing requirements and technology.

A Change in the Way We Program

A typical project will spend about twenty times as much on people as on hardware. That means a project spending 2 million dollars on programmers per year will spend about 100 thousand dollars on computer equipment each year. Let's say that we are smart programmers and we find a way to save 20% of the hardware costs by some very clever programming tricks. It will make the source code harder to understand and maintain, but we are saving 20% or 20 thousand dollars per year, a big savings. Now what if instead we wrote our programs such that they were easy to understand and extend. We could expect to save no less than 10% of our people costs. That would come to 200 thousand dollars, a much bigger savings.

Another important issue to customers is bugs. XP emphasizes not just testing, but testing well. Tests are automated and provide a safety net for programmers and customers alike. Tests are created before the code is written, while the code is written, and after the code is written. As bugs are found new tests are added. A safety net of tight mesh is created. Bugs don't get through twice.

Another thing your customers will notice is the attitude XP programmers have towards changing requirements. XP enables us to embrace change. Too often a customer will see a real opportunity for making a system useful after it has been delivered. XP short cuts this by getting customer feed back early while there is still time to change functionality or improve user acceptance.

When should Extreme Programming be used?

Extreme Programming (XP) was created in response to problem domains whose requirements change. Your customers may not have a firm idea of what the system should do. You may have a system whose functionality is expected to change every few months. In many software environments dynamically changing requirements is the only constant. This is when XP will succeed while other methodologies do not.

XP was also set up to address the problems of project risk. The XP practices are set up to mitigate the risk and increase the likelihood of success.

XP is set up for small groups of programmers. Team size between 2 and 12 is perfect, though larger projects of 30 have reported success. Your programmers can be ordinary to use XP. But you can not use XP on a project with a huge staff. We should note that on projects with dynamic requirements or high risk you may find that a small team of XP programmers will be more effective than a large team anyway.

XP requires an extended development team. The XP team includes not only the developers, but the managers and customers as well, all working together elbow to elbow. Asking questions, negotiating scope and schedules, and creating functional tests require more than just the developers be involved in producing the software.

Another requirement is testability. You must be able to create automated unit and functional tests. While some domains will be disqualified by this requirement, you may be surprised how many are not. You do need to apply a little testing ingenuity in some domains. You may need to change your system design to be easier to test.

The last thing on the list is productivity. XP projects unanimously report greater programmer productivity when compared to other projects within the same corporate environment. But this was never a goal of the XP methodology. The real goal has always been to deliver the software that is needed when it is needed.

[Courtesy Extreme Programming Website]

Six Steps to a Successful VMI System

Vendor Managed Inventory (VMI) systems came into vogue in the 1990’s as a way to decrease supply chain costs. Unfortunately, inventory crises left many manufacturers greatly disappointed when their new systems did not create the promised return on investment. Robert Schoenthaler, VP of SC solutions at KPMG Consulting Inc. has pointed out, “The lesson learned in supply chain management is that it is a journey, not something that can be solved in a single project. In the 1990s there was an explosion of growth in planning tools. Now the question of ‘how do I execute’ is becoming more important.”

VMI is not a perfect solution to inventory problems. Susan Cohen Kulp, a researcher at Harvard University, recently finished a study on the relationship between VMI systems and higher profits. Not surprisingly, she found that implementation does not always return better results than a traditional supplier relationship. Her study found that information precision and reliability, combined with an effective sharing mechanism, were the key factors in obtaining higher supply chain profits.

So, how do you implement a successful VMI system?

1. COMMUNICATE expectations of all parties. Customers and suppliers must make the effort to sit down and discuss the goals and objectives of implementing VMI. The importance of this step cannot be overstated. Both parties’ hardware and software requirements must be identified, and an understanding must be reached in terms of how both companies’ systems will communicate. Then a plan for implementation must be mapped, specifically identifying each party’s financial and other responsibilities.
2. Customer must commit to sharing PRECISE information. Suppliers must have visibility into the customer’s internal sales and inventory information. Without accurate data, ability to quickly meet demand will be impaired.
3. Suppliers must ensure RELIABLE transmission, receipt, and use of information. To facilitate step 2, the supplier must be able to guarantee that the customer’s trusted information will be communicated, received, and utilized securely and thoroughly to meet the designated needs. Time should be spent during the planning phase discussing information precision and reliability.
4. Sufficiently TEST systems before going live. As with any new system, testing will uncover any bugs or inefficiencies and can help to avoid future headaches.
5. Expect implementation to be a PROCESS not a project. Remember that there is no on/off switch. Adjustments will have to be made as demand levels fluctuate, and no system will be perfect 100% of the time.
6. Plan to spend sufficient TIME AND MONEY to make it work. Most successful VMI systems we’ve read about took 2-2.5 years to put into operation, and cost hundreds of thousands of dollars for IT and training. Spending (or finding) the time to create a comprehensive system can be a challenge.

Inventory Fundamentals

Inventories usually represent between 20 and 60 percent of total assets of a Manufacturing Organization.
Aggregate inventory management works according to their classification (raw material, work in progress, and finished goods) and the function they perform rather than at the individual unit level. It involves:

1. Flow and kinds of inventory needed
2. Supply and demand patterns
3. Functions those inventories perform
4. Objectives of inventory management
5. Costs associated with inventories.

Item inventory management is also managed at the item level. Management rules include:

1. Which individual items are most important?
2. How individual items are to be controlled
3. How much to order at one time
4. When to place an order

Raw Materials are purchased goods received which have not entered the production process, including materials, component parts and subassemblies

Work In Progress (WIP) is raw materials that have entered the manufacturing process and are being worked on

Finished goods are ready to be sold as competed items

Distribution inventories are finished goods located in the distribution system

Maintenance, repair and operational supplies (MRO) are items that are used in production but don’t become part of the final product, including hand tools, spare parts, etc.

Anticipation inventories are built up in anticipation of future demand (i.e. created ahead of Christmas)

Safety stock is to cover unpredictable fluctuations in supply, demand or lead time. It prevents stockouts

Cycle stock Lot-sized inventory are items purchased or manufactured in quantities greater than needed immediately. This is done to take advantage of shipping discounts or minimize setup costs.

Transportation inventories exist due to the time needed to move inventories. They are also called pipeline or movement inventories.
The average amount = (transit time in days) * annual demand / 365

Hedge inventory (usually done with commodities) is done if prices fluctuate and buyers expect prices to rise, so they buy more now

Inventory management objectives include:

1. Maximum customer service (orders shipped on schedule, stockouts)
2. Operating efficiency (build seasonal inventories, larger production runs, but in larger quantities).
Balance this against costs and tied up $$ in assets

Item cost is the price paid for a purchased item (includes direct costs like transportation, customs and insurance) also called landed price. Can also be determined in house including direct material, direct labor and factory overhead

1. Carrying costs include all expenses incurred by the firm due to volume:
2. Capital costs or opportunity cost of $$ tied up in inventory
3. Storage costs including space workers, and equipment
4. Risk costs include obsolescence, damage, theft and deterioration.

Typically 20%-30% of inventory costs are carrying costs

Ordering costs are associated with placing an order either with the factory or a supplier. It does not depend on quantity ordered.

1. Production control costs
2. Setup and teardown costs
3. Lost capacity cost
4. Purchase order costs

Average cost = (fixed cost / number of orders) + variable cost
Stockout costs expensive due to back order costs, lost sales and lost customers
Inventory turns = annual cost of goods sold / average inventory

ABC inventory determines the relative importance of items and then has different levels of controls

‘A’ items – 20% of items account for 80% of dollars
‘B’ items – 30% of items account for 15% of dollars
‘C’ items – 50% of items account for 5% of dollars

To calculate ABC:

1. Determine annual usage
2. Multiple annual usages by cost to get total dollars
3. List items by annual usage
4. Calculate cumulative annual dollar usage and percentages
5. Group ranked items into A, B and C categories

ABC rules are:
1. Have plenty of low-value “C” items (order a years at a time and carry plenty of safety stock)
2. Use money and control effort saved to reduce inventory of high-value items (‘A’ items)

‘A’ items – high priority – tight control and frequent review, expedite when needed
‘B’ items – medium priority – good controls with normal attention and processing
‘C’ items – low priority – use simple controls and order many items

Summary One needs to balance cost of carrying inventory against:

1. Customer service
2. Operating efficiency (longer production runs and fewer setups)
3. Cost of placing orders (decrease with less orders)
4. Transportation and handling costs (smaller orders cost more per item)

Looking beyond costs - Strategic Sourcing and Supplier Collaboration

The dynamics of the global market has changed so ever recently that the conventional Supply procurement is almost non-existent. Bulk over-seas and cross-border trading has led to development of newer, more radical strategies. Earlier, Bulk Ordering and Long term agreements meant better Pricing. The picture today if not totally, is different from then. Strategic sourcing Plans are being put in place to cut down on Supply Risks to ensure Supply Continuity. So what do we mean by Supply Risks?

With more organizations moving towards the Lean approach and reduced inventories, the buffer as well as safety stocks maintained by manufacturers have gone down. Also, as per “Just in Time” Strategy - The next batch of supply is only scheduled to arrive when it is needed; not before to avoid Inventory inflation and definitely not late to avoid stock outs. In such a scenario, Delays caused by the supplier in providing the goods on time can be catastrophic and can disrupt the delivery cycle completely.

Another risk associated to Lean manufacturing techniques is the defect ratio and probability in the incoming supply. As per TQM, a particular assembly or manufacturing unit expects to receive parts with zero defects from its preceding unit or supplier. In such a scenario, a defect is only discovered at later stages of Assembly and many times when the product is finished. Manufacturing units and assembly plants can with quite an amount of flexibility can control the Quality checks inter to its organization but has only a limited control over his Vendors.

Also, with Suppliers spread across the globe - there is a significant order lead time associated with supplies. So in case of inaccurate forecasts of demand would lead to an inaccurate forecasting of Supplies which cannot be fulfilled immediately due to Cross border trade restrictions. This would make the manufacturers doing more spot buys at a premium price from the local market during crunch time. This cuts down their profit margins in order to meet customer demands.

Finally, international trade relationships can also be affected with the civil as well as governmental climate of a country. A break of war or civil disruptions in the countries involved in exports or logistics can affect your supply continuity.

Veterans of strategic sourcing more or less agree that more than price, a control over these parameters is more critical. Of course, in spite of the above implications price still seem to be the deciding factor because in the end it's all about making profits. But consider this - a Control over your forecasting and sourcing capabilities with lesser defect turn out in Supply would ensure that you save money if not in cost but in inventory holding costs, lesser defective products and lesser stock outs.

Information Technology and Indian Apparel Retail

India being one of the new emerging economies has opened it's gateway to a host of new products and brands. Many businesses are now targeting the Indian population as their new market and potential customers. The retail segment is booming and the Indian consumer is now looking beyond the store at the corner of its street. With global as well as Domestic retailers compete to capture the Indian market, Strategies are being evolved and deployed tailored for the Indian market. Yet however, for numerous reasons, the domestic retailers fail to comprehend the need of Information Technology (IT) in their supply chain whereas, global retailers are spending a considerable amount of their revenues in deploying more IT based solutions. Indian retailers are more focused in increasing their sales by providing a competitive price compared to their counterparts, where the global retail mind is strongly focused on making their business more agile. In fact, the focus of the industries is so impressive that they are the new preferred customers of many Supply Chain solution providers.

So what keeps us as Indian retailers from investing into IT solutions? Stating the obvious - The investment involved. Any quality service provider has premium rates. The lesser ones in the category aren't reliable enough to deliver complex solutions usually associated with Supply Chain Management (SCM). Licenses of SCM engines don't come cheap and that's not all. There's a non-trivial cost involved such as the consulting, Deployment and maintenance of complex solutions.

Quite of the failure of IT in the domestic market can be attributed to the way the economy is driven locally. Organizations have yet to evolve to a system where the demand is first created and then fulfilled (pull Based System). The biggest names in domestic retailers are still buying the grey Stocks in order to reduce the buy price because for them their only USP being a competitive price. This way they end up competing among themselves. Global retailers on the other hand are striving towards adding more value to their supply chain and making their business more agile. IT solutions like Decision Support Systems (DSS), Enterprise Resource Planning (ERP) and e-commerce gives higher visibility into their supply chain. They get better managed inventories, more accurate demand forecasting and fulfillment. They work towards optimizing retail cycle and reducing cycle time. They continue to provide premium content to the customers and survive the competition from the Domestic market.

Another big one is the executive and the middle management level mental roadblock and lack of faith in IT. This mentality can also be attributed to the lack of awareness and knowledge of them in the IT itself. In case of Developed Economies, the IT and automation is omnipresent to the level that people even don't notice them around. Compared to societies where people order food online, we are in a phase where many of us still rely on Cheques and pass books when facilities like ATMs are available to us. Even though organizations in India have accepted automation and IT, it is poorly implemented and loosely coupled. Many Formidable manufacturers and Retailers have ERP available and yet they use it for purposes which probably can be taken care by some neatly designed spreadsheets and simple databases. CRM solutions are being implemented but then are not vertically integrated. Hardly Indian retails have an e-commerce website.

Like there's a dawn to every night, both the retailers as well as solution providers are waking up to the new realization. SCM Product companies are working towards a better pricing model for Indian market like Subscription based and On-Demand Solutions. Few of the retailers already have started looking in this direction and though with difficulty, started shelling out hard earned bucks. Maybe, this is the first sign of the changing winds.