Supply chain managers are always tasked with the challenge of building flexibility into your organization’s supply chain. In years past it seemed that this task could be satisfied rather easily when your organization was responsible and performing the in house assembly, production and shipment of your products from one or multiple facilities. The solution to provide flexibility in your supply chain for supply, production and shipment was more like defined as developing a contingency plan.
In building a contingency plan with an in house assembly and manufacturing supply chain required having duplicate tooling as well as additional manufacturing or shipping capacity with having redundant capabilities at other manufacturing and distribution sites. Typically, the supply chain could test the ability of the contingency plan by have another site or multiple sites build and ship the same product. An organization could test this strategy for effectiveness several times a year to ensure that the flexibility, additional capacity was working properly and be the viable solution for the flexibility in your supply chain. Another solution was aligning with a contract manufacturer and third party logistics provider using the same principles as the in house multiple site model. The outsource solution would have added complexity to be able to have orders and invoices executed with compatible ERP and WMS systems or through an EDI solution with separate ERP and WMS systems. In either solution, your organization would need to invest in some capital equipment, such as tooling, process equipment or assembly lines however the ability for your supply chain continue to fulfill product to your customer’s is worth the small price for having the flexibility built into your organizations supply chain.
Today, maintaining flexibility in your company’s supply chain has the same challenge however the globalization and outsourcing employed today in the supply chain makes this challenge more complex and challenging. In addition, since outsourcing usually means off shoring in Asia that also equals longer supply chain and lead times ,so this is a more challenging task to add the flexibility to meet the customer’s demands.
One of the more challenging scenarios for an organization’s supply chain using an outsource supply chain is protecting the Intellectual Property or Base Technology where these commodities, components or processes that can be provided by one supplier. In these situations, my recommendation is to require your selected outsource partner or the sole source supplier to develop a solution that will accommodate able to handle the flexibility that your organization requires for your customer base. These suppliers are an integral part of your supply chain, so placing the responsibility with your partners and suppliers should be an expected requirement. One of the solutions that have been employed in my experience is to agree to a level of inventory that the supplier or partner must carry on a single source/base technology that will be readily available for deployment to your satisfy your supply chain needs for a limited time frame. In my recent supply chain experience, it was a common occurrence that there was some type of commodity that was in constrained supply and on WW Allocation, so planning and designing flexibility in your organizations supply chain is an absolutely critical strategic step in managing your organizations supply chain.
Considering the downstream portion of the supply chain, the assembly and production phase, the same critical thinking and planning must take place in your supply chain development. Where there is no Intellectual Property or technology issue than the challenge of adding flexibility becomes more of a business decision. Do you add more capacity by selecting another ODM/CM partner or require the current ODM/CM add capacity at another site or would your organization consider building in house assembly capability? In any event, there are so many variables and solutions in building “flexibility” in your supply chain; these are just a couple of possible solutions.
Wednesday, July 21, 2010
Tuesday, May 25, 2010
Lesson Learned in Supply Chain Improvements
I haven’t given problem solving techniques much thought in writing about the challenges with Supply Chain. However having lunch with one of my colleagues, a certified Black Belt, we started an interesting discussion. My colleague asked me the question what gets me excited in my job. Since this is not usually a lunch topic, I really had to think about what gets me excited when it comes to my role working in Supply Chain. I started out answering the question in a typical generic fashion focusing on the supply chain roles and responsibilities that I have held through my career but then I began to think about a specific challenge.
As I began to discuss this problem, I thought about the basic concepts and critical elements which were used to effect change in the process. What was interesting was while using the Lean Manufacturing techniques ultimately using a simple approach resulted in yielding the results that were needed.
The challenge was how to improve the order cycle time through our entire supply chain by 2X and as a subset how to improve the order cycle time through the factory. We then formed a Lean Six Sigma team to analyze the problem and provide recommendations to improve the order cycle times. The Green Belt team utilized the various tools and techniques to develop the recommendations and the solutions. The team used FMEA, Cause & Effect, SIPOC, Process Mapping, RACI Diagram and Pareto Diagrams.
Using all or most of these techniques provided some excellent information of which areas in the supply chain which needed to be improved to effect a positive change. Although the team could have stopped and provided a general improvement plan, the facilitator and the team decided to continue on the journey of improving the order cycle times but had not realized the 2X improvement goal.
The team then started to meet every day and began charting open orders on a histogram with the number of days open and not shipped The team began to work the open orders and isolate on those orders open in the system for 20 to 30 days, still in WIP. Specifically through the ERP, shop floors system, the team could then identify those orders by order numbers, have all the relevant details of the order and the status of the order. From that list the team started to work 20 orders a day to determine the root cause, assign one team member to take the action to fix the problem and then report back. The team continued to work on the open order report and select the highest or longest open orders. The team used the Six Sigma tools mostly the Pareto Charts to determine the root causes for delays in the supply chain. After the first ninety days the team reported their findings back to the Green Belt Steering Committee and the Executive Management. The improvements were focused on forecast accuracy, component delivery, testing, factory scheduling, and unit repair. The materials and forecast improvements would represent better than 60% of the order cycle improvement. As a result of the Green Belt project, the expanded use of Vendor Managed Inventory solution and an improved inbound logistics was utilized on key components company wide.
In the first six months of the project with several process changes implemented, the team realized about 50% or half way to the goal. In order to reach the project goal, we expanded the team members as well as extended the teams to other factories. The teams continued to work the open order reports and continued to take the step by step approach on working the oldest orders and solving the issues on those orders. The Team reached their goal achieving a 2X improvement on order cycle time in the supply chain in 12 months.
The lessoned learned by Green Belt the team’s patience, persistence, and working the details yielded the results.
Simple but Difficult!
As I began to discuss this problem, I thought about the basic concepts and critical elements which were used to effect change in the process. What was interesting was while using the Lean Manufacturing techniques ultimately using a simple approach resulted in yielding the results that were needed.
The challenge was how to improve the order cycle time through our entire supply chain by 2X and as a subset how to improve the order cycle time through the factory. We then formed a Lean Six Sigma team to analyze the problem and provide recommendations to improve the order cycle times. The Green Belt team utilized the various tools and techniques to develop the recommendations and the solutions. The team used FMEA, Cause & Effect, SIPOC, Process Mapping, RACI Diagram and Pareto Diagrams.
Using all or most of these techniques provided some excellent information of which areas in the supply chain which needed to be improved to effect a positive change. Although the team could have stopped and provided a general improvement plan, the facilitator and the team decided to continue on the journey of improving the order cycle times but had not realized the 2X improvement goal.
The team then started to meet every day and began charting open orders on a histogram with the number of days open and not shipped The team began to work the open orders and isolate on those orders open in the system for 20 to 30 days, still in WIP. Specifically through the ERP, shop floors system, the team could then identify those orders by order numbers, have all the relevant details of the order and the status of the order. From that list the team started to work 20 orders a day to determine the root cause, assign one team member to take the action to fix the problem and then report back. The team continued to work on the open order report and select the highest or longest open orders. The team used the Six Sigma tools mostly the Pareto Charts to determine the root causes for delays in the supply chain. After the first ninety days the team reported their findings back to the Green Belt Steering Committee and the Executive Management. The improvements were focused on forecast accuracy, component delivery, testing, factory scheduling, and unit repair. The materials and forecast improvements would represent better than 60% of the order cycle improvement. As a result of the Green Belt project, the expanded use of Vendor Managed Inventory solution and an improved inbound logistics was utilized on key components company wide.
In the first six months of the project with several process changes implemented, the team realized about 50% or half way to the goal. In order to reach the project goal, we expanded the team members as well as extended the teams to other factories. The teams continued to work the open order reports and continued to take the step by step approach on working the oldest orders and solving the issues on those orders. The Team reached their goal achieving a 2X improvement on order cycle time in the supply chain in 12 months.
The lessoned learned by Green Belt the team’s patience, persistence, and working the details yielded the results.
Simple but Difficult!
Tuesday, May 11, 2010
Your ODM isn’t Performing Now What
Here is a scenario that is all too familiar with many of those in supply chain using an outsourced partner. You have transitioned all or part of your production or distribution and your ODM/3PL are not meeting your needs in the first 3 to 6 months. The ODM/3PL is not achieving the KPI’s that are needed to achieve your supply chain needs.
How is this affecting your supply chain and your customers? The more adversely this affects your customers the quicker that you and your supply leaders will need to respond and deal with these performance issues. KPI’s which can’t continue to be missed are typically missing the production requirements, quality, field and customer complaints, order cycle times or timeliness and quality errors in distribution.
In your contract agreement with the 3PL/ODM/Partner Contract should have a detailed outline with a well defined escalation process during the first year and specific expectations within the first ninety days of the agreement.
Managing an Out of Control Situation:
This will start with a defined “corrective” action plan that is initiated by the Partner Management team in your company. Partner Management will be the responsible group within your company to solicit the input from the other organizations, procurement, planning, partner management, quality and logistics regarding performance deficiencies. Partner Management will then develop a “corrective” action plan that is approved and supported by executive management prior to discussing the plan with the ODM management team. Here are the keys for a successful corrective action plan strategy.
• Ensure that both Executive Management teams are available to attend a face to face meeting.
• The meeting should be held at your site or neutral site not at the ODM’s site.
• The corrective action plan must be specific and provide details outlining the expected improvements which measurable and timed or phased improvement over a specific period of time.
• The corrective action plan should show specific examples of how the ODM is failing to meet expectations. Also indicate to the 3PL/ODM the specific impact to your company is in either lost business opportunities or service level penalties. This will provide a baseline for activating the penalty clause in the agreement.
• The action plan should include any and all areas of concern including personnel, capacity, ERP system, general responsiveness to supply chain requests. You are now providing clear and direct communication without reviewing other concerns later.
• During the meeting you should define how the corrective plan will be reviewed; a written response with a specific action plan to correct each area or KPI, responsible person for the action plan. Also, develop meeting frequency for action plan and KPI progress reviews and required attendees for meeting attendance.
• The 3PL/ODM must have a complete understanding and agreement of the consequences of not meeting the corrective action plan including contract default per the contract terms.
• The 3PL/ODM should be asked to assign one single point of contact to lead the corrective action plan as well as the 3PL/ODM executive sponsor for the corrective action plan.
If the 3PL/ODM execute and deliver to the documented action and KPI’s, then your company’s supply chain move back to a normal partner relationship. If the 3PL/ODM does not meet expectations then the next step in the process must be determined with more corrective or a transition to another partner?
How is this affecting your supply chain and your customers? The more adversely this affects your customers the quicker that you and your supply leaders will need to respond and deal with these performance issues. KPI’s which can’t continue to be missed are typically missing the production requirements, quality, field and customer complaints, order cycle times or timeliness and quality errors in distribution.
In your contract agreement with the 3PL/ODM/Partner Contract should have a detailed outline with a well defined escalation process during the first year and specific expectations within the first ninety days of the agreement.
Managing an Out of Control Situation:
This will start with a defined “corrective” action plan that is initiated by the Partner Management team in your company. Partner Management will be the responsible group within your company to solicit the input from the other organizations, procurement, planning, partner management, quality and logistics regarding performance deficiencies. Partner Management will then develop a “corrective” action plan that is approved and supported by executive management prior to discussing the plan with the ODM management team. Here are the keys for a successful corrective action plan strategy.
• Ensure that both Executive Management teams are available to attend a face to face meeting.
• The meeting should be held at your site or neutral site not at the ODM’s site.
• The corrective action plan must be specific and provide details outlining the expected improvements which measurable and timed or phased improvement over a specific period of time.
• The corrective action plan should show specific examples of how the ODM is failing to meet expectations. Also indicate to the 3PL/ODM the specific impact to your company is in either lost business opportunities or service level penalties. This will provide a baseline for activating the penalty clause in the agreement.
• The action plan should include any and all areas of concern including personnel, capacity, ERP system, general responsiveness to supply chain requests. You are now providing clear and direct communication without reviewing other concerns later.
• During the meeting you should define how the corrective plan will be reviewed; a written response with a specific action plan to correct each area or KPI, responsible person for the action plan. Also, develop meeting frequency for action plan and KPI progress reviews and required attendees for meeting attendance.
• The 3PL/ODM must have a complete understanding and agreement of the consequences of not meeting the corrective action plan including contract default per the contract terms.
• The 3PL/ODM should be asked to assign one single point of contact to lead the corrective action plan as well as the 3PL/ODM executive sponsor for the corrective action plan.
If the 3PL/ODM execute and deliver to the documented action and KPI’s, then your company’s supply chain move back to a normal partner relationship. If the 3PL/ODM does not meet expectations then the next step in the process must be determined with more corrective or a transition to another partner?
Tuesday, May 4, 2010
Managing Your ODM Partners
Since there is such a high number of a high tech/electronic and consumer product companies using an “outsource” model for manufacturing their products, what is the best method to manage those partners and minimize risks in your supply chain? While there is no right or wrong strategy on how a company manages their partners the decision depends on the philosophy of the company and the confidence of how your partner can perform. Certainly, as your company works with an ODM partner there is confidence level of predictable performance will be achieved, the more likely that your management will be more independent style relationship.
Typically, a company/ODM business relationship will start with a contract full of terms and conditions, metric requirements with penalties included in the contract for failure to achieve quality and product or delivery targets. Once there a solid working relationship, a contract over the years will transition into more of a guideline, available only to ensure that the contract terms and conditions and metrics are adhered to.
In my experience there are three styles in managing these partner relationships.
Tight Management:
Typically, at the beginning of a business relationship with a partner, a “tight” relationship constitutes daily communication of some type in addition to onsite presence of one or more of staff members. For example, in the aerospace industry direct oversight of an ODM partner in the production or design functions was quite common many years ago. The definition of daily communication would consist of a daily meeting with the partner to review attainment commitments in the factory in addition to other material, quality or engineering issues that could impede achievement to the build plan. These daily meetings would then integrate into more formal reviews with weekly scorecards with a dynamic list of action plans using the LEAN Manufacturing/Six Sigma strategy. The review meetings would then roll up to monthly and eventually to quarterly or semi- annual reviews with executive management. Other disciplines, like engineering will also mimic this style in managing the partner as well. The benefit of the “tight” management style is the ability to quickly identify and correct the delivery or quality issues in your supply chain. The challenge with a tight style is that it is resource intensive and expensive to maintain.
Oversight Management:
Your company has developed enough confidence in your ODM partner to oversee the performance of your partner. The tactical approach in this model is much less intensive usually without any daily communication, meetings or onsite oversight. There would typically be weekly scorecard reviews along with monthly meeting reviews however dynamic action plans with improvements may not a requirement but supplied only if needed. The formal reviews with the ODM partner would be limited to once a quarter. This strategy would also be used with other disciplines within your company. The advantage to your company is there are fewer resources needed to support the “oversight” model so less costly however correcting quality or supply issues could be longer depending on the ODM response.
Open Management:
Your company has developed high confidence in your ODM to deliver products while there is also little change to product’s design. In this model, relationships with your ODM are very casual, formal metric scorecards and meetings are held more infrequently, maybe once or twice a year. Formal reviews may be held only once a year with a contract renewal. Since the relationship is so well established, there are only a few resources in your company that are required to support the ODM relationship. The “open” model is the least responsive to issues in the supply chain however also the least costly to support.
Of the three strategies described, today the most widely deployed strategy is the “oversight” management style.
Typically, a company/ODM business relationship will start with a contract full of terms and conditions, metric requirements with penalties included in the contract for failure to achieve quality and product or delivery targets. Once there a solid working relationship, a contract over the years will transition into more of a guideline, available only to ensure that the contract terms and conditions and metrics are adhered to.
In my experience there are three styles in managing these partner relationships.
Tight Management:
Typically, at the beginning of a business relationship with a partner, a “tight” relationship constitutes daily communication of some type in addition to onsite presence of one or more of staff members. For example, in the aerospace industry direct oversight of an ODM partner in the production or design functions was quite common many years ago. The definition of daily communication would consist of a daily meeting with the partner to review attainment commitments in the factory in addition to other material, quality or engineering issues that could impede achievement to the build plan. These daily meetings would then integrate into more formal reviews with weekly scorecards with a dynamic list of action plans using the LEAN Manufacturing/Six Sigma strategy. The review meetings would then roll up to monthly and eventually to quarterly or semi- annual reviews with executive management. Other disciplines, like engineering will also mimic this style in managing the partner as well. The benefit of the “tight” management style is the ability to quickly identify and correct the delivery or quality issues in your supply chain. The challenge with a tight style is that it is resource intensive and expensive to maintain.
Oversight Management:
Your company has developed enough confidence in your ODM partner to oversee the performance of your partner. The tactical approach in this model is much less intensive usually without any daily communication, meetings or onsite oversight. There would typically be weekly scorecard reviews along with monthly meeting reviews however dynamic action plans with improvements may not a requirement but supplied only if needed. The formal reviews with the ODM partner would be limited to once a quarter. This strategy would also be used with other disciplines within your company. The advantage to your company is there are fewer resources needed to support the “oversight” model so less costly however correcting quality or supply issues could be longer depending on the ODM response.
Open Management:
Your company has developed high confidence in your ODM to deliver products while there is also little change to product’s design. In this model, relationships with your ODM are very casual, formal metric scorecards and meetings are held more infrequently, maybe once or twice a year. Formal reviews may be held only once a year with a contract renewal. Since the relationship is so well established, there are only a few resources in your company that are required to support the ODM relationship. The “open” model is the least responsive to issues in the supply chain however also the least costly to support.
Of the three strategies described, today the most widely deployed strategy is the “oversight” management style.
Tuesday, April 27, 2010
Dilemma: How can the Supply Chain deal with stretched lead times?
A common enemy to the flow of the supply chain is stretching lead-times which are often not anticipated. Typically within the electronics industry which I am familiar with there is warning signs that component lead times may stretch out for particular components. These anticipated stretches in lead times usually will have only a minor impact to supply chain deliveries as actions are taken. The most likely action is to increase the inventory within your supply chain starting maybe with the supplier and VMI inventories and then leading to the ODM and CM to minimize the impact to customer deliveries. The impact to the supply chain will be the cost impact in holding the additional inventory to support customer orders. For the supply chain this becomes a challenge considering the push today to reduce inventories to make cash available.
Now the most difficult challenge to the supply chain flow is on those times infrequent and unexpected when there is an unexpected worldwide commodity shortage. For the supply chain, these are times is where you only wished you had anticipated the shortage and your company stockpiled these components at almost any cost.
In my experience SRAM, DRAM, CPU’s are some of the culprits to these phenomena over the years. Today in Q2, supply chains are being challenged with stretched out lead times due to higher than expected demands coupled with slower than expected suppliers ramping of production capacity. Of course, the logistics of transportation now becomes a matter of air lifting all of your deliveries depending on the geography of the factory to the supplier location which again will inevitably increase the supply chain costs.
Here are the some other options that may be able to offset the delivery delays:
Inventory Positions-the supply chain will check all inventory within your entire supply chain including; ODM’s, CM’s, 3PL’s, Vendors and VMI Hubs.
Secondary Market/ Spot Buying – having been through these experiences in the past, the procurement team in an electronics company will usually have established relationships with solid reputable brokers who have sources for commodities throughout the world with various distributors, OEM’s and manufacturer’s. Excess stock may be available to buy in the secondary market. Again, pricing on product earmarked on the world wide shortages list can command some high premiums. Also, a supply chain must respond quickly to the secondary market as commodities can become scarce very quickly.
Product Selection- the supply chain may have the opportunity to overcome worldwide component shortage when one version of a commodity can be substituted with another version. In this example, possibly a commodity with higher or lower spec’s can be substituted for the originally requested commodity. Working with the sales teams, the customer impact can be minimized be “steering” the customer to higher or lower specified product.
Now the most difficult challenge to the supply chain flow is on those times infrequent and unexpected when there is an unexpected worldwide commodity shortage. For the supply chain, these are times is where you only wished you had anticipated the shortage and your company stockpiled these components at almost any cost.
In my experience SRAM, DRAM, CPU’s are some of the culprits to these phenomena over the years. Today in Q2, supply chains are being challenged with stretched out lead times due to higher than expected demands coupled with slower than expected suppliers ramping of production capacity. Of course, the logistics of transportation now becomes a matter of air lifting all of your deliveries depending on the geography of the factory to the supplier location which again will inevitably increase the supply chain costs.
Here are the some other options that may be able to offset the delivery delays:
Inventory Positions-the supply chain will check all inventory within your entire supply chain including; ODM’s, CM’s, 3PL’s, Vendors and VMI Hubs.
Secondary Market/ Spot Buying – having been through these experiences in the past, the procurement team in an electronics company will usually have established relationships with solid reputable brokers who have sources for commodities throughout the world with various distributors, OEM’s and manufacturer’s. Excess stock may be available to buy in the secondary market. Again, pricing on product earmarked on the world wide shortages list can command some high premiums. Also, a supply chain must respond quickly to the secondary market as commodities can become scarce very quickly.
Product Selection- the supply chain may have the opportunity to overcome worldwide component shortage when one version of a commodity can be substituted with another version. In this example, possibly a commodity with higher or lower spec’s can be substituted for the originally requested commodity. Working with the sales teams, the customer impact can be minimized be “steering” the customer to higher or lower specified product.
Tuesday, April 20, 2010
Minimizing Inventory Levels = Maximizing Cash
Working in the supply chain discipline of a business no matter of the size there is always a concern about inventory levels, inventory turns, inventory accuracy and inventory obsolescence. The challenge for the supply chain is how to achieve the lowest levels and maintain accuracy with minimum obsolescence within your company’s business model. Inventory is an opportunity in any business today to generate cash; the lower the inventory the more cash a business will have to invest in other areas of the company including capital goods, infrastructure investments and human resources. As a supply leader, here are several considerations in minimizing raw, in-process and finished goods inventory that will maximize a company’s cash to cash position.
1. Raw Inventory relates to how a company orders components and assemblies from the supplier base.
a. Forecasts – sharing forecasts with a rationalized supply base for high value, critical parts can assist in maintaining inventory levels at lead time or within lead time levels. Some buffer stock should be modeled into the demand plan to accommodate for order swings during higher demand periods.
b. Vendor Managed Inventory- a supply chain strategy that is being used widely with large high tech companies with a supply base from Asia which requires longer transit times for U.S. companies. Using a VMI model allows your company to have only days or could be hours of inventory that is your company is financially responsible for. The supplier will be responsible for holding inventory per agreed inventory levels per the company’s contract with the financial responsibility with a strategic supplier. While a company gains tremendous inventory improvements this will undoubtedly translate into higher commodity costs. The company will then need to weigh the benefits of a VMI cost model for your supply chain.
2. In- Process Inventory – the quantity of inventory is being utilized through the manufacturing process.
a. JIT Manufacturing – in today’s supply chain, most of manufacturing is set up to process orders from start to finish without the any need for having an in process inventory. However, the faster orders are processed through the factory the lower the level of in process inventory. One additional consideration is to be sure that any fallout and rework is repaired as quickly as possible to catch up with the rest of the order. Rework and fallout can increase inventory levels as well as impact delivery times.
b. Order Release Process – the company’s ERP system should only allow scheduling and releasing order to the factory if all the material has been received and available to build the entire order. Attempting to build product without all the product available only results in increasing inventory levels and missing and lost components in completing orders.
3. Finished Goods Inventory-the quantity of inventory that is available built and ready to be sold.
a. The most difficult challenge for the supply chain to influence however there should be agreements and rules that are agreed upon. All Build to Stock orders should only be released to the factory and authorized when approved by Sales, Finance and executive management depending on the financial investment of the build to stock order. The supply chain team in this case needs to provide is the impact of using these components on other Build to Order prior to authorizing Build to Stock orders.
These are some of the critical considerations on how to minimize inventory levels while maximizing cash. The key in inventory measurement analysis is how your company bench marks against other locations or divisions within your company as well as other companies in your industry.
1. Raw Inventory relates to how a company orders components and assemblies from the supplier base.
a. Forecasts – sharing forecasts with a rationalized supply base for high value, critical parts can assist in maintaining inventory levels at lead time or within lead time levels. Some buffer stock should be modeled into the demand plan to accommodate for order swings during higher demand periods.
b. Vendor Managed Inventory- a supply chain strategy that is being used widely with large high tech companies with a supply base from Asia which requires longer transit times for U.S. companies. Using a VMI model allows your company to have only days or could be hours of inventory that is your company is financially responsible for. The supplier will be responsible for holding inventory per agreed inventory levels per the company’s contract with the financial responsibility with a strategic supplier. While a company gains tremendous inventory improvements this will undoubtedly translate into higher commodity costs. The company will then need to weigh the benefits of a VMI cost model for your supply chain.
2. In- Process Inventory – the quantity of inventory is being utilized through the manufacturing process.
a. JIT Manufacturing – in today’s supply chain, most of manufacturing is set up to process orders from start to finish without the any need for having an in process inventory. However, the faster orders are processed through the factory the lower the level of in process inventory. One additional consideration is to be sure that any fallout and rework is repaired as quickly as possible to catch up with the rest of the order. Rework and fallout can increase inventory levels as well as impact delivery times.
b. Order Release Process – the company’s ERP system should only allow scheduling and releasing order to the factory if all the material has been received and available to build the entire order. Attempting to build product without all the product available only results in increasing inventory levels and missing and lost components in completing orders.
3. Finished Goods Inventory-the quantity of inventory that is available built and ready to be sold.
a. The most difficult challenge for the supply chain to influence however there should be agreements and rules that are agreed upon. All Build to Stock orders should only be released to the factory and authorized when approved by Sales, Finance and executive management depending on the financial investment of the build to stock order. The supply chain team in this case needs to provide is the impact of using these components on other Build to Order prior to authorizing Build to Stock orders.
These are some of the critical considerations on how to minimize inventory levels while maximizing cash. The key in inventory measurement analysis is how your company bench marks against other locations or divisions within your company as well as other companies in your industry.
Monday, April 12, 2010
Minimize Your Supply Chain Risks: Another Idea
Now that we have explored risks utilizing an Asian Supply Chain can your company support a conservative supply chain strategy which would provide most protection to risks in your supply chain? Let’s explore if a regional or near shore supply chain strategy can be utilized as a model in your supply chain.
Regional Domestic Supply Chain would be defined as having your key components, sub assemblies or assemblies manufactured or supplied in the same region as your factory or distribution points to support your customer base. For example, if your business was located in the United States, the majority of your critical supply base would also be located in the United States. As an example, you could have a blended approach with key manufacturing operations that contain “intellectual property” within your company’s factory network while other key components and assemblies which support the factory provided by a network of regional supply chain suppliers.
The key driver in a regional supply chain would be the ability to provide a much shorter recovery period to a disrupted supply chain typically in days vs. weeks based on deliveries anywhere in the region with minimal transportation uplift costs. However, a determining factor in all likelihood is can your company financially support a regional supply chain model to offset the minimized risks?
Near Shore Supply Chain would be defined as having your key components, sub assemblies or assemblies manufactured or supplied in same continent as your factory or distribution points to support your customer base. For example, if your business was located in the United States, the majority of your supply base, factory or suppliers could be located in Mexico. Mexico is certainly a “low” cost supply chain solution maybe not quite as financially attractive as an Asian supply chain however a near shore supply chain would be able offer better recovery times for a disrupted supply chain. Again recovery for a disrupted supply chain flow could be days vs. weeks. A near shore supply chain strategy used in combination of a regional supply chain strategy could offer an attractive cost benefit while minimizing your supply chain risks. In any case, a Near Shore or Regional Supply Chain or a combination of the two should be a key consideration in designing a supply chain for your company.
Regional Domestic Supply Chain would be defined as having your key components, sub assemblies or assemblies manufactured or supplied in the same region as your factory or distribution points to support your customer base. For example, if your business was located in the United States, the majority of your critical supply base would also be located in the United States. As an example, you could have a blended approach with key manufacturing operations that contain “intellectual property” within your company’s factory network while other key components and assemblies which support the factory provided by a network of regional supply chain suppliers.
The key driver in a regional supply chain would be the ability to provide a much shorter recovery period to a disrupted supply chain typically in days vs. weeks based on deliveries anywhere in the region with minimal transportation uplift costs. However, a determining factor in all likelihood is can your company financially support a regional supply chain model to offset the minimized risks?
Near Shore Supply Chain would be defined as having your key components, sub assemblies or assemblies manufactured or supplied in same continent as your factory or distribution points to support your customer base. For example, if your business was located in the United States, the majority of your supply base, factory or suppliers could be located in Mexico. Mexico is certainly a “low” cost supply chain solution maybe not quite as financially attractive as an Asian supply chain however a near shore supply chain would be able offer better recovery times for a disrupted supply chain. Again recovery for a disrupted supply chain flow could be days vs. weeks. A near shore supply chain strategy used in combination of a regional supply chain strategy could offer an attractive cost benefit while minimizing your supply chain risks. In any case, a Near Shore or Regional Supply Chain or a combination of the two should be a key consideration in designing a supply chain for your company.
Wednesday, April 7, 2010
Minimize Your Supply Chain Risks: Just One Idea
Has your company recently outsourced its manufacturing or the company is sourcing its major components or subassemblies to an Asian or Chinese based supplier? What risks are incurring by sourcing 6,000 miles away from either your customers or factories and stretching your lead times. What steps have you taken to minimize the risk of shutting down your factories or not delivering to your customers?
Certainly the attraction to source in the Asia or
How predictable are your suppliers can they provide product 100% on time 52 weeks a year,7 days a week without any quality or delivery issues? Consider if there are no contingency plans in place you could be faced with some daunting decisions; ocean freight with a five week delivery, airfreight with a three to four day delivery at 2 to 4X the cost of ocean freight, or chartering an aircraft in extreme cases which could cost $500K. Here is one of several options that could be implemented with your Asian supplier base.
Vendor Managed Hub (VMI Hub) – Wouldn’t you consider reducing your inventory exposure and risks to your supply chain by having your supplier take on the burden? Using a Vendor Managed Hub would be an excellent way to accommodate your needs. You should discuss this concept with your suppliers with the expectation of having your key components, sub assemblies or assemblies stocked in your local geography close to your factory or distribution point. The inventory levels will depend on a lead time risk and needs assessment in conjunction with your supplier’s inventory replenishment models. A Vendor Managed Hub can either be managed by an outside logistics company or managed by the supplier. A VMI Hub provides a couple of key benefits. First, the VMI Hub reduces your company’s raw inventory costs by removing the financial burden of carrying weeks of inventory and any additional safety stock. Your raw inventory exposure is limited to the material that you order and per your master schedule or customer orders. Second there is higher probability that your suppliers will have higher levels of inventory and provide material when there is a break in your Asian supply chain. This will help insulates your company from stock outs or other supply or quality issues in your supply chain. In either case, the VMI Hub or Supplier Managed Warehouse must be strategically located close to your assembly or distribution point to ensure that either finished product or materials can be delivered in hours vs. days. If your company cannot support the VMI model due to business volumes, consider partnering with other companies in your industry or other suppliers in your supply chain to form a multi company or supplier Vendor Managed Inventory Hub?
In my opinion when your supply chain is a critical part or considered a competitive advantage of your business a Vendor Managed Hub is a critical part of your supply chain strategy.
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