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Best practice for the modern manufacturer

Five top tips : Supply chain management is important. Today, ev... thumbnail 1 summary
Five top tips :

Supply chain management is important. Today, every manufacturer understands that: the days are long gone when inefficiencies in the supply chain could be compensated for by shopfloor productivity, or worse, slick marketing. But in seeking the very best in supply chain management good practice, manufacturing companies face a problem.

Two problems, to be exact. First, what was best practice a few years ago is now no longer at the cutting edge. Management thinking and best practice moves on, and manufacturers must move with the times. Staying still is not an option, but finally getting round to implementing what might have been fashionable five years ago will no longer deliver the results that might have been experienced then.
Secondly, supply chain management still remains dangerously over-exposed to hype. Software vendors, consultants, would-be gurus: once a bandwagon is identified, the scramble to secure a place on board is intense. In the short-to-medium term, for example, it is highly unlikely that RFID technology will have the impact on the average manufacturer that its proponents anticipate.

So what will genuinely cut the mustard? Here are five examples of best practice that pass the test. Each makes a genuine difference, and is relevant to the business world of 2005.

The first example of best practice concerns the quality of the demand information that companies pass down the supply chain: accurate data on what customers are actually buying, or going to buy, is vital. Without that, it is impossible to accurately predict what raw materials and components will be required. “Collaborating with bad data is worse than not collaborating at all, it just sends so much noise into the supply chain,” warns Laurence Dupras of Celerant Consulting.

Dell Computer Corporation has long understood this. “It’s about information, information flow, and getting hold of good quality information,” stresses Nicky Hartery, Dell’s European vice-president of manufacturing and business operations. Competitors who have tried to emulate both Dell’s business model and its slick manufacturing lines have generally failed to appreciate the importance of this, he believes.

At the start of Dell’s assembly lines at its Limerick plant, for example, lies just two hour’s worth of inventory, which is replenished every two hours by suppliers based on the same manufacturing ‘campus’. Dell has just 3.7 days of inventory forward from this point in its entire supply chain. That covers everything from work-in-progress to finished computers en route to customers. Its suppliers, meanwhile, hold a further seven to ten day’s worth in a pipeline stretching back to Asia. Sales data is scrutinised closely, and supplier’s order books’ updated accordingly. “We can adjust the forecasts that our suppliers are working to on a weekly, daily or even hourly basis if required,” says Hartery.
The results speak for themselves. Fifteen years after Dell showed the way, its main competitors are still staggering under between 12 and 16 weeks of inventory which, as Hartery notes, “is both ageing and higher-priced than the material in our supply chain.” Obsolescence, which continues to be the bane of its competitors’ lives, is either zero or very close to it. “We just don’t have obsolescence,” says Hartery. “There just isn’t time for materials and components to become obsolete.” Is it any wonder that the personal computer businesses of both Hewlett-Packard and IBM are suffering?

A second example of best practice lies around replenishment strategies. Kanban-style replenishment might be old hat, but it’s still a very powerful tool. Especially for low-value items, irrespective of whether they are high volume or low volume. Fasteners, consumables, maintenance materials: huge numbers of items are eligible for kanban-style replacement.
What’s more, savvy suppliers hungry for business are offering it, and manufacturers are usually finding that while kanban-style replacement might not offer the cheapest per item price, there is still a saving to be made once reduced inventory costs are taken into account. Especially if the opportunity is taken to consolidate a range of items onto a single supplier.
Explorer Group, the UK’s second-largest manufacturer of caravans and motor homes, switched to a kanban system from fastener supplier Henry Halstead in 2002, explains the company’s finance director, Rob Quine. “Halstead offered good competitive prices although they weren’t the very lowest in price,” says Quine. But with each motor home that the company produces requiring 30,000 small parts or components, he adds, Halstead’s reputation for quality and service made up for this.

And although Halstead was originally contracted to provide just fasteners, the attractions of kanban replacement have seen the range of products expanded to include fixings, hinges, terminals, pipe fittings and brackets. Line stoppages due to shortages are a thing of the past, and there have also been substantial productivity improvements in both purchase administration and good inwards receiving and inspection.

A third area of modern best practice revolves around supply chain visibility. Much in vogue as a management catchphrase, the concept essentially boils down to knowing at what point in the supply chain a business’ parts or products have reached. But if stating the objective is straightforward, achieving it is somewhat more difficult.
Technology vendors are quick to point out how their offerings can help. But despite the hype, manufacturers should be cautious about RFID. “Unless you’re a manufacturer in a supply chain that culminates in retailers like Tesco and Asda-Walmart, then RFID is probably not going to be a priority,” warns Allen Knight, a director of supply chain consulting firm Berkshire Consultancy.
Instead, the typical manufacturer is likely to benefit more from the sort of radio-based ‘track-and-trace’ systems used by the major parcels carriers. Until recently, the size of the investment necessary to capitalise on the technology was prohibitive, but no longer. Lynx Partsflow, a delivery service for field service engineers, uses a managed service from Skillweb, a company specialising in mobile supply chain solutions. Based around Intermec devices, just like the major parcels carriers, the system uses GPRS communications to send messages to Skillweb’s own servers for onward transmission to its customers.
The availability of track-and-trace as a managed service that can be subscribed to makes it a very affordable proposition, believes Chris Wright, Skillweb’s managing director. “It’s increasingly applicable to small and medium sized manufacturers, or those with small to medium sized fleets,” he says. “The return on investment is usually less than a year, and is brought about through reduced stock losses, increased driver productivity, and much more visibility into the process of delivery.”

A fourth example of supply chain best practice, 2005-style, is the need to retain flexibility when automating or outsourcing. With cost pressures paramount, technologies such as automated warehouses offer welcome reductions in labour requirements, albeit at a price. But the downside can be another reduction – in flexibility. In times of high volume, old-fashioned warehouses can be flooded with temporary labour, a solution that’s harder to adopt with highly automated warehouses.

Two years ago, canned goods manufacturer Heinz, which sees shipments soar by over 40 per cent during the winter ‘soup season’, employed third party logistics provider Wincanton to design, build and manage a 350,000 square foot automated warehouse in Wigan for ambient goods. Its experience of automation has been very different, says Heinz’ logistics development manager Stuart Alldridge.

Costs have reduced by 30 per cent, he explains, while the business has retained the ability to increase shipments from 1.6 million cases per week to well over 2.1 million at times of peak demand. How? Simply through the warehouse being designed for efficient operation: this winter’s periods of peak demand, for example, have seen shipments of 2.5 million cases per week from just two despatch points as opposed to eight previously. Once, no fewer than 14 stock holding locations were used, with consequent huge amounts of non-value adding time being lost shuttling goods between them. Less waste, greater productivity, and no loss of flexibility: a winner.

The final example of contemporary supply chain best practice? Simple IT.
Upmarket cashmere wool producer, Dawson International, boasts a supply chain stretching from goat to Gucci – with all the vagaries that this implies in terms of lead time variability, demand fluctuations and the need to constrain inventory holdings of what is an inordinately expensive material. But running the supply chain of the business is Movex ERP from Intentia, rather than, say, a system from Oracle, SAP or even J.D. Edwards. “The business is simpler than many
outsiders imagine: there are only ten grades of cashmere being bought,” says Dawson IT manger Andrew Mountford. “There was no need to over-complicate things with a complex system, and Movex was seen as a simpler product than some of its competitors.”
What’s more, it’s a decision that hasn’t been regretted, despite the business extending its downstream supply chain to a growing number of countries. The moral? Complex IT systems abound, but sometimes the simple works just as well as the complex, and usually at much lower cost. What, after all, could be simpler than a kanban card, which still offers compelling advantage today, years after its introduction to western manufacturers by Toyota?
It’s a theme, in fact, that underpins most of today’s supply chain best practice. In the heady 1990s, supply chain excellence – at least, according to the pundits – meant buying expensive optimisation packages. Today, those vendors are struggling, and supply chain excellence has come to be characterised by the sort of lower cost solutions
outlined above. But the biggest cost remains the same: inaction. That can cost the business.

1 comment

Axel Petrelli said...

Warehouse management systems for success is a key part of the supply chain and primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions, including shipping, receiving, putaway and picking. They often utilize AIDC and RFID to efficiently monitor the flow of products. These solutions are really necessary to achieve success in the business.