Supply Chain Consulting/Best Practices

Performance Improvement Best Practice:

Profitable growth occurs when the material flows are optimised

Improving inventory turns

Needing to introduce inventory strategy? Most companies are trying to achieve two things with an inventory strategy: service improvement and reduction in on-hand inventory/working capital. It is often difficult and sometimes impossible to do both simultaneously as too little inventory can be as bad as too much. Therefore, our 7-Day diagnostic, which offers a new approach to achieve inventory optimising for "right-sized" levels, helps our clients to address some of today's biggest inventory challenges and to optimise their material flows, as optimising your material flows is the essential first step to boosting inventory turnover.

Supply Chain Hub Regulator: The next order of improvement

Supply Chain Hub Regulator ensures material flow to manufacturing/assembly

To help our clients to build agility and lean into their supply chain, we have created the five dimensional (5D) approach, which we call The Supply Hub Regulator. The Supply Hub Regulator is a key element in achieving a competitive performance, because over half of a company's income from sales is likely to be spent with Suppliers of Material and Services. It reconciles requirements to produce a release sequence to match customer needs and provides opportunities for:

Material cost reduction
Reduced inventory levels
Higher quality service from approved suppliers
Reduced expenditure on inspection, administration and processes - No-Value-Added activities (NVA).

Levelled Schedules

To obtain the full benefit from Lean Six Sigma and obtain the competitive performance improvement from this approach, the workloads must be organised on a dynamic rolling basis to take full advantage of their enhanced capability. Workloads must be structured in terms of both production volume and mix. Such structured workloads may be obtained by the use of Levelled Scheduling, concentrating on bottlenecks.

Levelled Scheduling is the process of producing schedules where both the production volumes and the changes due to product mix have been smoothed out over a short time intervals by varying mix manufactured to fully utilise capacity whilst allowing mixed small batch flow.

SELL DAILY - MAKE DAILY

It is important to note that Levelled Schedules cannot exist in isolation and that they must be supported by measures such as changeover reduction programmes and the use of Failure Mode Effect Analysis (FMEA), Total Preventative Maintenance and Overall Equipment Effectiveness (OEE).

Benefits of levelled schedules:

Less Inventory
Shorter Leadtimes
Increased Responsiveness
Mixed mode product manufacture - giving economy of scale
A pattern of repeating/similar events means that problems associated with schedules, quality, maintenance, etc., become familiar, predictable and hence more readily solved
Control systems can be tailored, simplified and more effective where a consistent pattern of events occurs.

In today’s markets, leading CEOs are viewing increasingly their supply chains as a critical source of growth and a means to improve profitability. Boeing and Airbus are engaging in similar tactics to improve profitability. The first is to ramp-up production rates. A second is seeking cost savings from their supply chain. A third is to improve productivity through the introduction of new technologies and best practices. A fourth is to decentralise engineering activities. A fifth is to grow their service revenue. Therefore, this period of unprecedented change will continue to push aerospace executives to formulate tactical action plans that will leverage key resources along the entire supply chain to take advantage of the opportunities and to mitigate the dangers thrown up by the primes’ actions.

Failure of a supply chain: The wrong horseshoe

Napoleon's defeat in Russia 200 years ago was attributed to the harsh Russian winter. One specific problem was that his horses were wearing summer horseshoe. When winter came, these horse died because they slipped on icy roads as they pulled the supply wagons.The failure of Napoleon's supply chain reduced his 400,000 strong army to just 10,000. A small slip; a disastrous result!

Linking competitive performance and action plan

To explain how we should formulate tactical action plans, let us first establish the ‘Links’ between strategic competitive performance and operational tactical actions. The investment community traditionally uses the following bottom line financial measures to measure a company’s performance:

Net Profit, an absolute measure,
Return On Investment, a relative measure, and
Free Cashflow.

The aim is to take actions that increase these three measures simultaneously. However these bottom-line measures are woefully inadequate to judge whether the actions, being taken, is moving an organisation in the right directions.

Fortunately, there are widely used operational measures that can serve as a bridge between tactical actions plans and the three bottom-line measures. These operational measures are Throughput, Inventory and Operating Expenses. When throughput is increased without adversely effecting inventory and operating expenses, then net profit, return on investment, and cashflow are simultaneously increased. We achieve the same result when operating expenses is decreased without an adverse effect on throughput or inventory. But, inventory has both an indirect link to all three bottom line measurements through throughput and operating expenses, and a direct link to return on investment and cashflow. Therefore, there is a clearly multi-link relationship between these operational measures and the three bottom-line measures.

Given this and the opportunities and corresponding dangers thrown up by this period of unprecedented change, the necessary Sales and Operations Plan (S&OP) becomes critical. The challenge is synchronising our supply to maximise throughput and to optimise inventory and operating expenses in way that delivers continuous productivity improvement. However to do this, businesses are tending to focus solely on one of the following three key levers:

Inventory – where the focus is tactical, short-term gain, to improve efficiency at the expense of effectiveness.
Capacity – where the focus is strategic, long-term value, to improve effectiveness at the expense of efficiency.
Time – where the focus is on constant rescheduling, resulting in plenty of waiting time throughout the manufacturing system.

Companies need to optimise their material flows, as poor material flows result in bottlenecks across the supply chain, which lead to lower margins. It could also cause you to spend typically 5% of sales to correct the aftereffects or could cause your shareholder value to be reduced by 7%.

Turning a supply chain into productivity improvement force multiplier

Alternatively, companies can look at synchronising these levers from customers to suppliers in such a way that attempts to move material quickly, smoothly and cost effectively throughout their supply network in concert with demand. One method of doing this is considering forming a hybrid structure that is lean, agile and prompt. The first step is to optimise material flow that will serve as a baseline. The next step is to create an accountability/performance process based on Six Sigma. Then the next is to mature processes and technologies. Then there is a need to integrate supply teams throughout the supply network. Next is the need to synchronise supply to demand through the use of supply chain hub regulators. The result should be a hybrid structure that would have turned your supply chain into force multipliers and that has laid a foundation for continuous increase in net profit, return on investment and cash flow. Plus, it achieves a win-win relationship throughout a company’s supply chain.