Posts Tagged ‘Supply and demand’

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I found a very good article at CFO.com discussing the supply chain management challenges companies are facing today in light of the rising logistics and commodity prices.  I posted a comment, entitled “integrating financial metrics into day-to-day supply chain management processes“ at the site and have included it here as well.

** My comment **

Great article covering the challenges that manufacturers in all verticals face today.  The increase in shipping and commodity prices is hitting everyone and forcing them to re-evaluate all aspects of their supply chain management strategies - from network design, to logistics, to sourcing, etc.

At the heart of the challenge is the reality that volatility is on the rise.  Whether it be customer demand expectations changing rapidly, supply disruptions or volatile costs, the fact is that things are changing at a faster pace.  And, the implications of not being able to adapt are significant.

Too many manufacturers have a disconnect between their business and sales and operations planning (S&OP) processes and day-to-day supply chain management processes.  Plans are put into place, metrics are passed down, but then people have to do their day jobs.

Given the rise in complexity and volatility, there are more and more high impact decisions that need to be made on the spot by your front-line responders.  Taken individually, these decisions may not have a material impact on your financial metrics, but in aggregate, it can be very material.

What manufacturers need are to develop supply chain management processes, supported by the right tools, that integrate financial metrics directly into the supply chain management processes.  The key is to ensure that the necessary high impact judgment calls are always aligned with the financial metrics of the company.  Without clear and immediate visibility to the impact a proposed action would have on these metrics at the point of action, your risk saying yes to the customer and dealing with the ramifications later.  The only way to ensure a profitable response to change, is by integrating financial metrics directly into the realities of today’s supply chain management processes.

In the latest edition of Manufacturing Insights, Bob Parker has a good piece discussing how high-tech/electronics can realize benefits through lean manufacturing.  Bob uses the publicly reported results on revenue and profit to draw a reasonable conclusion that the companies that have actively adopted Lean methodologies are out-performing those that have not.   He further elaborates on some of the challenges that the adoption process must address as the complexity and breadth of the supply chain grows.  In fact, I don’t think the article emphasize this enough.   The goal of lean manufacturing is to essentially connect the entire value stream and eliminate all forms of unnecessary waste.   The bottom line promises many things including; reduced lead times, less inventory, improved quality, and ultimately the ability to be much more responsive to customer needs.   With the continuing outsourcing trend, and both customers and suppliers more geographically dispersed, the ability to connect and synchronize that value chain has become dramatically more challenging than the days of the vertically integrated factory.

Many of our most sophisticated customers are still struggling with approaches to ensure that as demand changes occur, the entire supply chain is correspondingly adjusted.   To make the point clear, imagine a string of cars on the highway that are only 10 feet apart but all traveling at 60 mph.  If the first car suddenly slows down, only the second car in that string knows that anything has happened and even a minor delay in response will increase the risk of crashing.     With each successive car the opportunity for safely adjusting their speed diminishes, until at last you have one enormous pile of wreckage.    Instead, imagine if all the cars had radios so that the first car could broadcast the fact that he was hitting his breaks.   All the cars would slow together, and thereby avoid the resulting accident and rising insurance costs.

The challenge of connecting the supply chain is no small task as many of the players are using different ERP systems and lack the sophistication to properly establish or adjust ROP (reorder points) values based on the changing variables (demand, yields, etc..).   This is an area where RapidResponse with its ease of integration to disparate ERP systems and  exceptionally powerful analysis and reporting tools can be an instrumental part of the Lean value chain synchronization process.   As demand changes at the brand owner location, and assessment of the risk and need for Lean related adjustments across the entire supply chain can be made.    If adjustments are needed, they can then be communicated simultaneously.

I get a lot of requests for customer case studies.  In particular, a lot of companies that I talk to find they are struggling with inventory management best practices in the midst of their 21st century supply chains.  This is not suprising because the more globally distributed the supply chain and the more volatile demand, supply and product, the bigger the inventory management challenges are.  In many companies, it’s hard to get an accurate view of what inventory you have, and equally hard to efficiently leverage this “asset” to meet ever-changing business situations.

It just so happens that we have two customer stories that we can share that focus on these inventory management challenges.

The first is MC Assembly - a leading contract manufacturer.  Their customer spotlight has just been posted on our website.  Tom Rossi, vice president of procurement and materials says “Inventory turns have doubled and our excess / obsolete inventory is at an all time low. Our customers feel secure in knowing that we are managing the supply chain and not letting it manage us!”

There’s also a new article here in Supply & Demand Chain Executive featuring Kinaxis customer Alcatel-Lucent.  The article explains how, prior to the merger between Alcatel and Lucent, Lucent used Kinaxis RapidResponse to help reduce inventory from $6 billion to $1 billion over 3-4 years.  Arvind Ballakur, senior manager of supply chain and procurement at Alcatel-Lucent, goes on to say that “when the merger happened, we looked at various ‘what-if’ solutions that were in use at each company and selected RapidResponse as the key engine for all of Alcatel-Lucent.  Around April or May of last year, about four months into the merger, we started modeling the joint company’s in-house and outsourced operations.  By the end of this year we will have modeled 90 percent of the Alcatel-Lucent internal and external facilities, so we can provide a capability picture for all of the company.”  He goes on to say that “many people from the Alcatel side were surprised at its capabilities.  They had never seen a solution like this work company-wide.”