The Lean Supply Chain

Moving from v 3.0 to v 6.0

by Dave Garwood

"Why should I buy from you?" is a question a lot of customers ask. "Because you always have" is no longer an acceptable answer!

Brand 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!

As 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.

The 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.

Supply 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.

All 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.

Meeting 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.

The 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!

Tools 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.

Old 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.

Supply Chain Management promises to revolutionize the way we have traditionally done business. In many industries, it already has!

Understanding 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!