Manufacturing News

Getting your supply chain in shape

TRADITIONALLY manufacturers have not built their supply chains to respond in a synchronised way to variability in customer demand.

Production has been centred on making products to forecast and then pushing high levels of inventory into the supply chain to manage variability.

Eventually, these companies often resort to pricing discounts or promotional campaigns in order to create enough demand to move excess goods and deter substantial write-offs.

And these write-offs can come at a more rapid pace with the faster introduction of new and competing products.

As companies seek additional cost-saving methods and step away from the perils of holding surplus inventory to manage unpredictable demand patterns, the principles behind the lean management philosophy are becoming more valued.

“Lean” uses less of everything compared to mass production.

The leand principle focuses on reduction of waste and its theory classifies waste into seven categories: overproduction, defects, unnecessary inventory, inappropriate processing, excessive transportation, waiting and unnecessary motion.

By removing certain elements to create a lean machine, there is a threat that the customer’s desires for value for money and quality of products and services may be compromised.

Delicately balancing the needs for efficiency, agility and the production of quality products from quality processes is possible, providing that lean doesn’t translate into short-cuts.

Generally, the adoption of lean concepts has been limited to the shop floor.

An ARC Advisory Group strategy report from a few years ago suggested that 70% of manufacturers were using lean as their primary improvement methodology.

However, to reap the real value of lean principles requires these ‘less is more’ methodologies to be extended beyond the factory walls and included across the entire supply chain.

It is estimated that only around 10% of the companies featured in the report have moved lean beyond the four walls of the factory plant.

The extension of lean concepts across the supply chain can result in dramatic financial improvements, including:

Reduced cycle times;

Increased production yields and quality levels;

Decreased inventories;

Minimised waste;

Lowered costs;

Increased customer satisfaction; and

Increased revenues and operating margins.

Applying lean methodology across a supply chain requires thorough back-end business planning, up-to-date enterprise and supply chain planning and execution applications which can manage the demands of today’s multi-channel retail environment and, importantly, collaboration between trading partners.

Such a complex and daunting change can thwart many companies before they start. The truth is that companies hesitate when they find that their outdated legacy IT and traditional ERP systems fall short when applied to a networked supply chain model.

This can occur because these systems:

  • Lack visibility across the entire network;

  • Tend to be rigid, slow and error-prone;

  • Lack scalability and are not supported by customers, suppliers and partners;

  • Struggle with managing continuous demand variability or sudden spikes in demand.

The majority of companies have already begun to implement supply chain technology in order to take their businesses beyond the standard operations of traditional systems.

The need for complete visibility has increased in priority as retailers and their suppliers strive to meet their customers’ demand for service through an increasing number of channels, be it mail order, online or in-store.

Revisiting supply chain processes in order to take advantage of today’s technologies is raising awareness of the need to keep the supply chain trim.

It is also making companies aware that lean concepts applied across the complex network of suppliers, customers and partners can result in dramatic financial improvements for all.

What manufacturers must bear in mind when creating a lean supply chain?

  • Balance the needs for efficiency, agility and the production of quality goods

  • Extend ‘less is more’ methodologies beyond the factory walls to include entire supply chain

  • Invest time in back-end business planning, up-to-date enterprise and supply chain planning and execution applications

  • Review outdated legacy IT and traditional ERP systems to ensure they fit with your networked supply chain model

  • Embrace technology to help meet customers’ demand for service through an increasing number of channels including: mail order, online and in-store.

* Chris Stephenson is MD, Australia and NZ, Manhattan Associates.

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