Advancing your supply chain to improve performance and working capital requires collaboration. But true supply chain collaboration is much more fundamental than information technologies committing to new platforms. Lean material flow requires each function and firm to first recognize that they are part of a system of interconnected functions. Recognition of the supply chain system is the first step in total cost decision making.
In my experience working with organizations across many industries and cultures, I have found that truly effective supply chain leaders recognize the following three lean supply chain fundamentals:
- Lead time is made up of only two things: value and waste.
Product is either moving toward the customer or it is not. When product is not moving toward the customer, it typically falls under the waste of waiting, rework or possibly overproduction. The percentage of value added time to total lead time in the supply chain is typically very low, so the motive of lean supply chain professionals is to always remove unnecessary lead time from the supply chain.
- Lead time and the cash-to-cash cycle are the same thing.
The purpose of most businesses is to convert money spent into money earned from customers, plus profit. When we reduce lead time we are reducing cost in the business while improving flexibility.
- The waste is in the hand-offs between functions (companies, divisions, departments, work areas).
How a department or function is performing internally is directly related to its relationship with other departments. For example, a materials planner might have perfect execution of departmental goals but if the goals are not taking into account the total system, we see piles of inventory in trailer yards, receiving docks, ports, etc.
Let’s take a look at the example of a distribution warehouse. There are three distinct processes that occur in a distribution warehouse facility: 1) Receiving inbound items and storing them on shelves 2) Picking items from the shelves upon receipt of orders, and, 3) Shipping the items outbound to customer(s). Maximizing one process without managing the effect on the other two processes will create sub-optimization and bottlenecks. Picking efficiencies will be directly related to the quality of material being received in the warehouse. Consider label accuracy, packaging consistencies, etc. It’s critical that the receiving function is able to measure the quality of inbound materials and provide improvement guidance through frequent collaborative feedback processes.
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Departments and functions may operate independently but are interlinked. The simple mathematical concept of local optima vs global optimum governs this notion. Without collaboration, each organization can only achieve its local optimum and be part of a sub-optimal supply chain. Designing a supply chain culture that operates at minimal total cost requires total collaboration from the supplier to the retailer.
This concept can be especially difficult in global supply chains for a number of reasons:
- High order-to-delivery lead times
- Geographical or cultural distances
- Large safety stocks
- Lack of visibility to current demand
- Instable demand and inaccurate forecasts
- High costs of managing material and information flow
A lack of collaboration coupled with the above mentioned problems leads to a very common phenomenon known as the "bullwhip" effect, where small levels of toleration gradually build up throughout the supply chain in the forms of inventory buffers an general instability. Often it is a fact that very stable customer demand as a very instable inbound material flow reality. We inflict this upon ourselves far too often.
Here are some examples of non-collaboration that can cause the bullwhip effect. How many of these sound familiar to your supply chain?
- Each organization has its own way of forecasting demand and does not share the data.
- Batched orders coupled with higher lead times lead to large orders with high variability.
- Inconsistent pricing policies conceal true demand.
- Downstream organizations tend to overstock whenever they foresee demand exceeding supply.
- Lack of a plan for every part strategy or a “one size fits all” plan for inventory sizing and layout
Companies can start to move away from these practices by sharing key information such as demand forecasts and aligning their inventory and transportation strategies. Leaders should allow the people that perform the work be a part of the larger picture of the supply chain and encourage ownership of cross functional hand-off improvement.
Achieving supply chain collaboration requires cultural and process commitment. It is a key differentiator for best in class organizations. The good news is that it does not require investment in any kind. Just a different way of thinking.
Posted by LeanCor Consulting
LeanCor Consulting is a division of LeanCor Supply Chain Group. Today’s complex supply chains require vision, strategies, and innovative techniques to create competitive performance. LeanCor Consulting is a trusted partner for advancing end to end supply chain performance through diagnostics, assessments, and full implementation. Global organizations leverage LeanCor Consulting to develop vision and strategy deployment plans for improvement in all supply chain functions. We focus on elements of speed, cost, quality, and delivery, and are able to develop innovative solutions from operational experience as a third party logistics partner.Facebook LinkedIn Twitter Google+