The well publicised plight of manufacturing companies in the United Kingdom has led to an ever increasing demand for reduction of internal costs and now, more than ever, the focus has been on the cost of supply chains. The nature of supply chains and their structure is however often overlooked, and many of the internal costs can be eliminated by examining the overall supply chain strategy. By developing a supply chain that reflects the needs of the internal customers, many of the previously unidentified inefficiencies can be eliminated and subsequent performance improved.
There are three categories of product that can be used to define the supply chain strategy for a typical manufacturing company. Firstly there are the core products that are manufactured on a continuous basis and form the bulk of production volume in any given period. Secondly there are products that are manufactured regularly to meet customer requirements or to satisfy a recurring demand, and finally there are those products that are manufactured to specific customer requirements on an irregular basis. The three categories are sometimes referred to as Runners, Repeaters and Strangers.
There is an unquestionable link between the classification of these product types and the supply chain organisation that is required to support them. Each classification requires a different supplier strategy and stock policy in order to maximise inventory turnover. For example, replenishment systems such as Kanban may be highly applicable to components used in the Runners group because of the rates of consumption but applied to the Strangers group may introduce higher volumes of inventory on long lead time parts. The selection of the appropriate supply chain strategies will therefore lead to two distinct systems, one for the Runners and one for the Strangers. The Runners supply chain will tend to be highly efficient with a focus on component cost, quality and the suppliers delivery performance. The Strangers supply chain however, will need to respond to the irregular customer orders and the focus will be more on supplier lead time and the ability to meet these hard to forecast demands. The Repeaters are likely to incorporate both systems and require case by case decisions on which approach to follow for each component. The Repeaters therefore typically lend themselves to strategic stock holding which requires regular review but gives a defined capability for production.
The classification of the products in this way identifies the needs of production and in turn identifies the type of supply chain support required to achieve the desired output volumes. More importantly, and often over-looked, strategies based on this simple analysis are more likely to support the customers requirements.
Having defined the groups of products and the styles of supply chains required to support the differing needs of these product groups, the supply chains themselves must be developed in accordance with these needs. The resulting supplier development programme can therefore be tailored to suit the different supply chain requirements and so support production needs and in turn the end customer in the most appropriate way.
There are many tools and techniques available for improving overall supply chain performance, but few have been developed to help define a supplier development strategy.
One technique called 'Supplier Positioning' maps customer perception of the risk and importance of its suppliers and also most importantly, the suppliers perception of the customer in terms of importance and ease of business. This can provide useful information by identifying which suppliers are not likely to support supply chain improvements. For example, many manufacturing companies will continue to purchase relatively low volumes of parts from large retailers, whose part cost, quality and delivery is beyond the customer's control due to the supplier's perception of the customer being 'low value'. These suppliers therefore have a disproportionate ability to detrimentally affect the manufacturing capability of their smaller customers.
In improving the supply chain and creating the development strategy, 'Supplier Positioning' can be used to ensure that the integrity of supply will be maintained by giving an understanding of how the various suppliers view the customer and the degrees of interaction required to maintain good relationships. This technique has an additional benefit in that it identifies potential weaknesses or mismatches in the supply chain relationships which, once highlighted, can be resolved.
The application of product classification and then developing the supply chain to suit the production requirements can undoubtedly help identify the strategic direction for supply chain improvement. The resulting activities will not only develop a leaner supply chain but will introduce greater control of inventory and a better understanding of the needs of the internal customers.
There is an extricable link between the three main influences within any manufacturing company. Identification of customer demand, production capability and the flow of materials to satisfy this must combine with clearly defined parameters and processes to generate the required output. Failings in any one area will cause a domino effect that will result in failure to deliver on time in full and ultimately unhappy customers.
The rate of demand defines the requirements for capability and material flow but must never be isolated or ignored as is often the case. Changes in demand or customer orders can only be fulfilled efficiently by having a balanced circle.
Each function in this model is dependant on the others and must therefore work within the same boundaries to achieve a common goal. The key therefore to reducing the inefficiencies in a supply chain lies in understanding and managing these relationships which is the start point for achieving a reflective supply chain.
Patrick Lee is a senior manufacturing advisor and John Hicks serve with the UK Government's Department of Trade & Industry MANUFACTURING ADVISORY SERVICE, delivered in London and the South East of England by EEF South (http://www.eefsouth.org.uk) - a leading, not for profit, business improvement & support consultancy and training service. John is Editor of their free monthly "Innovation E-Newsletter" (http://www.innovationnewsletter.com) |
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