Lean Supply Chain
from v 3.0 to v 6.0
by Dave Garwood
should I buy from you?" is a question a lot of customers ask. "Because
you always have" is no longer an acceptable answer!
loyalty is a fading concept. The new answer is, "make them faster, cheaper,
deliver defect-free products on time with more new features and, oh yes
.... I will pay less!" Get better or get out is the clear mandate!
manufacturing companies searched for answers to meet the new realities
of the marketplace, the landscape became saturated with fads-of-the-month
in the last three decades. MRP II was in, then out. Now it's called ERP
and MRP II is considered back-to-basics. Some even promised software miracles.
Whatever happened to the software solution that promised to eliminate MRP
II and OPTimize the schedule? JIT "pulled" a lot of attention and next
Quality was free. Downsizing to Rightsizing to Reengineering took the spotlight.
New software packages promised a lot, but most companies used old business
processes with the new software and got old, disappointing results.
new kid on the block is now Supply Chain Management. What's different about
this new phenomenon? A lot! Supply Chain Management focuses on solving
business process problems that are important to the customer. The emphasis
shifts away from quick fix, painless buzzwords.
Chain Management looks at the entire value chain from consumption to absorption.
The objective is to be flexible, quickly supplying defect-free products
up the chain, eliminating all unnecessary costs and time delays.
enterprises (represented as a yellow circle) are linked together and viewed
as one entity competing as a chain, not as a stand-alone enterprise. The
enterprises include retailers, distribution channels, manufacturers and
raw material and component suppliers. The focus is on satisfying the ultimate
consumer ... no longer focusing on or optimizing just one enterprise in
the process. The needs of the customer's customer and supplier's supplier
are simultaneously considered.
this need for flexibility and speed at low cost requires major changes,
paradigm shifts, in traditional practices. Tools normally associated with
MRP II, JIT, DRP, TQM, Partnerships, Empowerment and many others are deployed
to overcome the obstacles. The Rev. Level of Knowledge to competitively
manage a supply chain is raised from Version 3.0 to 6.0. Version 3.0 thinking
(and experience) such as physical staging to find material shortages, letting
the past due build up to motivate people to produce more, trying to calculate
accurate plant and supplier lead times, harping on the necessity for accurate
forecasts, taking annual physical inventories, maintaining multiple bills
of material, price-break buying, functional plant layout, distribution
warehouse orders and multiple supplier sources is obsolete.
new thinking, Version 6.0, includes supplier managed inventories, demand
planning to reduce variation, flexible capacity, lean manufacturing processes,
simulations to anticipate and avoid shortages, seamless passing of requirements
from distribution to manufacturing, point-of-sale-data, cycle reconciling,
available-to-promise and quickly configured bills of material for custom
products. A management team operating at V. 6.0 is essential!
such as Sales and Operations Planning and Master Scheduling to integrate
all functional department plans and balance supply and demand are an essential
part of Supply Chain Management. But Supply Chain Management is more than
materials management. Revolutionary new product development processes to
differentiate between customer needs vs. wants and concurrently develop
products and businesses processes are part of Supply Chain Management.
Strategic alliances with suppliers to develop true partnerships are also
part of Supply Chain Management. While suppliers experience tremendous
changes from traditional business practices, customers experience even
bigger changes as their demands are directly linked to drive their supplier's
schedules, eliminating forecasts based on historical usage. Demand planning
demands customer involvement.
yardsticks such as purchase price variance, direct labor efficiency, equipment
utilization and product development budget performance are no longer adequate.
A new set of metrics to motivate and reward right behavior is needed. For
example, quality of the demand plans replaces forecast accuracy. The number
of engineering changes as a measure of engineering design quality is replaced
by sustaining costs. Flexibility replaces lowest purchase price.
Chain Management promises to revolutionize the way we have traditionally
done business. In many industries, it already has!
and practicing V. 6.0 Supply Chain Management practices and principles
is an essential prerequisite to staying in the global competitive race
and growing .... profitably!