• Unlocking Profits in Manufacturing, Distribution, Retail and Service Supply Chains


  • Supply Chain Management – Typical Problems and Solutions

     
    To review the fundamental concepts of Supply Chain Management please click What is Supply Chain Management
     
    Are you experiencing one or more of these problems while trying to manage your supply chain?
     

    • High Inventories?

     

    • Frequent Stock-outs?

     

    • Poor or Unsatisfactory Customer Service?

     

    • Inaccurate sales / demand forecasts?

     

    • Regular expediting?

     

    • Low / unsatisfactory productivity?

     

    • Frequent changes to production schedules?

     

    • High costs throughout your Supply Chain?

     

    • Regular fire-fighting?

     
    You have come to the right place. While we do not promise that we have solutions for every problem you may have in your organisation nor do we promise that our solutions will completely eliminate the problems they can address, our solutions will certainly help you in reducing / minimising some of the problems listed above.
     
    As a matter of fact most of our existing clients who came to us after visiting our website tell us that they visited our website because they were trying to find solutions for some of their business problems. So now let us look at each of these problems and discuss how our solutions can address them

     

    HIGH INVENTORIES

     

    A significant cost to manufacturing, distribution and retail organizations is the inventory carried to support internal processes and sales to external customers. As a matter of fact, inventory is a financial expense that ties up cash and can represent 40-50% of your company capital investments.

     

    Right-sizing your inventory without compromising service levels provides a beneficial way to increase your ‚ “return on inventory investment.  But accomplishing this can be challenging if you do not have complete visibility to your products on hand ¦ or the right planning and optimization tools in place for segmenting your inventories and building optimal plans that take demand variance, supply reliability and product obsolescence into consideration.

     

    If you have high inventories, the most effective approach is to identify the causes rather than focus on symptoms. Among the typical causes of excess inventory are:

     

    1. The customers demand finished goods on hand, so you need to forecast future customer demands but the forecast accuracy is poor.
    2. Your planning system is unreliable
    3. Products are purchased or manufactured in larger quantities for economy of scale
    4. Customer orders are released for manufacturing earlier than needed
    5. Lead times are long
    6. Suppliers are unreliable
    7. Extra inventory is purchased or manufactured as allowance for scrap
    8. Inventory is manufactured just to absorb overheads
    9. Manufacturing is measured on utilization of equipment
    10. Purchasing is measured on price reductions or production shortages
    11. Poor data integrity (for Inventory records, Bills of Materials and more)

     

    Unfortunately, some of these causes (8, 9 and 10) above are purely management issues and no software solution can address them. Number 7 is a quality issue and there is no software solution for it. Also, there is no software solution for poor data integrity; it generally a people and process issue and needs to be addressed accordingly.

     

    Let us look at the rest.

     

    POOR FORECAST ACCURACY

    Notice that this was also listed as a separate problem (number IV) in our list of problems.

     

    If your product demands are very erratic, the life cycles for your products are very short and there are continuous technology changes, perhaps it will be difficult to significantly improve your sales / demand forecasts. I suggest that in majority of the businesses this is not always the case. Majority of the businesses can as a starting point rely upon the past sales history to develop forecasts that may need to be adjusted for what is typically called market intelligence.

     

    Unfortunately many companies even today do not formally forecast or forecast using manual methods. It is amazes me that many companies will employ highly intelligent, highly paid executives to spend their time gathering sales data for them to massage it in an Excel Spreadsheet to develop a forecast – a process that at times takes a few days. More often than not, they spend 95% of this time gathering data and 5% of the time in evaluating results.

     

    We have a proven solution here and it is called Forecast Pro It is inexpensive, comprehensive, easy to use, highly reputed and a very powerful forecasting package. You do not need any knowledge of statistics to use it. It has a built-in expert system to automatically select best statistical forecasting algorithm for each item to be forecasted. It accounts for events such as promotions or stock-outs while forecasting. If appropriate, it can forecast top down from say a national level to a state level. It provides very powerful exception reporting including forecast accuracy evaluation. It allows for judgmental forecasts overrides and facilitates collaborative forecasting to allow for inputs from appropriate people in your organisation..

     

    UNRELIABLE PLANNING SYSTEM

    If you are already using a Planning System (perhaps a typical ERP system with planning modules including Material requirements Planning (MRP) and if you think the planning system is not working or is unreliable, perhaps you need to look at the possible causes such as inaccurate data, lack of understanding and more.

     

    We do not recommend that throwing out your current ERP system and staring from scratch is what you should do. If you do not address people and process issues first no system will work for you.

     

    However, if you do not have a planning system (and perhaps use things like Excel Spreadsheets) and you are not prepared or cannot afford or justify implementing an ERP system, we have an excellent software solution called Supply Chain Planning (SCP). It is very affordable, user-friendly, easy to integrate with your existing systems and offers integrated Forecasting, Distribution Requirements Planning (DRP), Material Requirements Planning and Capacity Planning (optional module) capabilities. If you are a VMI (Vendor Managed Inventory) Vendor for your customers, SCP will be an excellent tool for you.

     

    Supply Chain Planning can also provide help in managing a couple of causes of high inventories listed above, namely

     

    5. Lead times are long

    6. Suppliers are unreliable

    Some companies use the concepts of Vendor or Supplier Scheduling **effectively to address these issues. You can prepare Vendor Schedules using information available from SCP. While we are not promising that by itself will reduce your lead times and make the suppliers more reliable, the experience of other companies suggests that Vendor Scheduling helps.

     

    **APICS Definition- A purchasing approach that provides suppliers with schedules rather than with individual hard-copy purchase orders. Normally, a supplier scheduling system will include a business agreement (contract) for each supplier, a weekly (or more frequent) schedule for each supplier extending for some time into the future, and individuals called supplier schedulers. Also required is a formal priority planning system that works well, because it is essential in this arrangement to provide the supplier with valid due dates.

    Vendor Scheduling can perhaps partially help in cause number 3.

     

    3. Products are purchased or manufactured in larger quantities for economy of scale

    If the larger lot sizes are specified by the vendor, using Vendor Scheduling may encourage your supplier to supply smaller quantities as they are convinced that you intend to purchase from them on a longer term basis.

     

    Let us look at two manufacturing related issues.

     

    3. Products are purchased or manufactured in larger quantities for economy of scale

    4. Customer orders are released for manufacturing earlier than needed

    The first one is the result of the fact that in some manufacturing environments the setup times or changeover times are long. However, perhaps there are smatter ways to minimise changeover times (e.g. by sequencing jobs in an efficient manner such as going from lighter colour or mild flavour to a darker colour or stronger flavour). Typical ERP systems will not help you do it and it may become a complex exercise if you want to use manual scheduling methods.

     

    Releasing customer orders for manufacturing early in a make-to-order environment is a symptom of the fact that your scheduling performance is not very good and hence a buffer is created by early release. Typical ERP systems schedule on the basis of infinite scheduling and expect you to sort out any constraints you may have in meeting such schedules. Trying to joggle a schedule manually can become a very complex and time consuming exercise and then priorities can change on a daily basis.

     

    So if Scheduling is your problem area then our Preactor Advanced Planning and Scheduling System is the solution you need to consider. Preactor is a constraints based finite scheduling system. Depending upon the product you choose from the Preactor family of products, you can develop the production schedule using simultaneous multiple constraints (such as equipment, labour, tooling and more). Preactor 400 APS and higher versions consider material availability in preparing the schedules and they also have many intelligent scheduling rules such as minimise overall setup.

     

    STOCK OUTS

    According to a Howard Business Review study for retail businesses, .. 72% of stock-outs were due to faulty in-store ordering and replenishing practices retailers ordering too little or too late, generating inaccurate demand forecasts, or otherwise mismanaging inventory. Just 28% of stock-outs, we found, could be attributed to replenishment and planning problems in the supply chain. These included product droughts created by suppliers; category planners who mismanaged shelf space, promotions, or new product introductions; or supply chain managers who misjudged long-term demand. 

     

    If you examine some of the causes listed above, funny enough, the main reasons for stock-outs are the same as main reasons for high inventories. They are:

    1. Forecast accuracy is poor.
    2. Your planning system is unreliable
    3. Lead times are long
    4. Suppliers are unreliable

    I am sure there are other reasons for stock outs and there are bound to be some unexpected situations such as a very large one-off demand which may cause an out of stock; but if stock outs are regular occurrences, there are some fundamental issues you need to address.

     

    Our solutions that should help in improving accuracy of demand forecasts include Forecast Pro . Our solution that will help in addressing other causes listed above is Supply Chain Planning.

     

    POOR OR UNSATISFACTORY CUSTOMER SERVICE

    What causes missed deliveries, poor on time delivery performance, backorders and lost sales?
     
    Unavailability of products when customers want them.
     
    Certainly there are factors such as unexpected abnormal customer demands that can cause that. However, more often that not, the problems relate to inaccurate demand forecasts, late deliveries from suppliers, data integrity issues, unreliable suppliers, lack of or unreliable formal planning system, unreliable production schedules, poor on time manufacturing schedule performance and organisational issues such lack of teamwork, lack of communication and lack of accountability.

     

    As you can see from the above list of potential causes, all of the causes have been mentioned in the discussion above meaning these causes can result into multiple problems.

     

    So in terms of our solutions, it depends … for forecasting related causes, you need to consider Forecast Pro , for production scheduling related issues, Preactor Advanced Planning and Scheduling System is the solution you need to consider. And for issues related to unreliable or lack of planning system and some supplier related issues Supply Chain Planning (SCP) may be the appropriate solution.