The thoughtful supply chain in manufacturing

The well-publicized situation of UK manufacturing companies has led to increasing demand for internal cost reduction and now, more than ever, the focus has been on the cost of supply chains. However, the nature of supply chains and their structure is 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 internal customers, many previously unidentified inefficiencies can be eliminated and downstream performance improved.

There are three product categories that can be used to define the supply chain strategy for a typical manufacturing company. First of all, there are the basic products that are manufactured continuously and form the majority of the volume of production in a given period. Second, there are products that are regularly produced to meet customer requirements or meet recurring demand, and finally, there are products that are produced irregularly to meet specific customer requirements. The three categories are sometimes referred to as Runners, Repeaters, and Strangers.

There is an unquestionable link between the classification of these types of products and the supply chain organization that is required to support them. Each classification requires a different supplier strategy and stock policy to maximize inventory turnover. For example, replenishment systems like Kanban may be highly applicable to components used in the Runners group due to consumption rates, but applied to the Strangers group they can introduce higher inventory volumes on parts with long lead times. Therefore, selecting the appropriate supply chain strategies will lead to two distinct systems, one for Brokers and one for Outsiders. Runners’ supply chain will tend to be highly efficient with a focus on component cost, quality, and supplier delivery performance. However, Strangers’ supply chain will need to respond to irregular customer orders and the focus will be more on supplier delivery time and the ability to meet these hard-to-forecast demands. Repeaters are likely to incorporate both systems and require case-by-case decisions on which approach to take for each component. Therefore, repeaters often lend themselves to holding strategic stocks that require regular servicing but provide defined capacity for production.

Classifying products in this way identifies production needs and, in turn, identifies the type of supply chain support required to achieve desired production volumes. Most importantly, and often overlooked, strategies based on this simple analysis are more likely to meet customer requirements.

Once the product groups and styles of supply chains necessary to meet the different needs of these product groups have been defined, the supply chains themselves must be developed according to these needs. Therefore, the resulting supplier development program can be tailored to suit different supply chain requirements to support production needs and in turn the end customer in the most appropriate way.

There are many tools and techniques available to improve overall supply chain performance, but few have been developed to help define a supplier development strategy.

A technique called ‘Supplier Positioning’ maps the client’s perception of risk and importance of their suppliers and, more importantly, the perception that suppliers have of the client in terms of importance and ease of business. This can provide useful information in identifying which suppliers are unlikely to support supply chain improvements. For example, many manufacturing companies will continue to purchase relatively low volumes of parts from large retailers, whose cost, quality, and delivery of parts are outside of the customer’s control due to the supplier’s perception that the customer is “low value.” Therefore, these suppliers have a disproportionate ability to negatively affect the manufacturing capacity of their smaller customers.

When improving the supply chain and creating development strategy, ‘Supplier Positioning’ can be used to ensure that supply integrity will be maintained by understanding how the various suppliers view the customer and the degrees of interaction required to maintain good relationships. . . This technique has an added benefit in that it identifies potential weaknesses or mismatches in supply chain relationships that, once highlighted, can be resolved.

The application of product classification and then supply chain development to meet production requirements can certainly help identify the strategic direction for supply chain improvement. The resulting activities will not only develop a more agile supply chain, but will introduce greater inventory control and a better understanding of internal customer needs.

There is an inextricable link between the three main influences within any manufacturing company. Identification of customer demand, production capacity and the flow of materials to meet it must be combined with clearly defined parameters and processes to generate the required result. Failures in any one area will cause a domino effect resulting in complete non-delivery on time and ultimately dissatisfied customers.

The demand rate defines material flow and capacity requirements, but should never be isolated or ignored as is often the case. Changes in demand or customer orders can only be fulfilled efficiently if you have a balanced circle.

Each function in this model is dependent on the others and therefore must work within the same limits to achieve a common goal. Therefore, the key to reducing inefficiencies in a supply chain lies in understanding and managing these relationships, which is the starting point for a thoughtful supply chain.