Sales & Operations Process Improvement
Important "Qualitative"
Supply Chain Decisions

October 2014    
In This Issue
Mitch is Presenting "Important Supply Chain Decisions"
Important Aspects of Supply Chain Management

 

Our last e-newsletter in July reviewed important quantitative supply chain decisions.  These quantitative decisions were usually inwardly focused on your firm.  This complementary e-newsletter reviews supply chain decisions that are outwardly focused where there isn't a clear cost-minimization, profit and customer service minimization or risk mitigation formula.  Instead you must use your own experience and knowledge to make the best decision for your firm. 

Sincerely,

The Supply Velocity Team
Mitch, Ray & Cyril
Mitch is Presenting "Supply Chain Decisions" 

If you live in St. Louis and would like to hear more about some of the topics discussed in this and the July e-newsletter, I am presenting "Important Supply Chain Decisions" for the Midwest Manufacturing Leaders on November 7th from 7:30 - 9 AM. 

Click on the link below and on the lower right-hand side of the page is an orange register button. 
http://mmlgroup.org

 
 Illustration of a Supply Chain
Important Qualitative Supply Chain Decisions  

I have written an accompanying white-paper to provide additional details.  If a certain topic is of interest to you, it will be easily found in the white-paper link below.   

 

 http://www.supplyvelocity.com/wp-content/uploads/Important-Qualitative-Supply-Chain-Decisions.pdf  

 

  • Designing the right supply chain for your products (Lean, Agile, Lean/Agile hybrids)
  • Trust and collaboration amongst supply chain partners
  • Information technology in supply chain management
  • The Bullwhip Effect - reducing demand variation from customer to suppliers
  • Aligning suppliers, internal operations and customers

 

Designing the right supply chain for your products 

  • Lean, Agile, AgiLean (hybrid)
I will cover the three basic supply chain designs. These designs are product-focused, meaning we are not focused on customers or supply chain partners specifically, but rather the nature of your products. 

Lean supply chains are low-cost and low-inventory supply chains.  Demand is usually stable and profit margins are low.  The best strategy is to minimize costs.

Agile supply chains are focused on meeting unknown customer demand.  While inventory costs are high, the cost of not meeting demand is higher.  Profit margins are typically high.  The best strategy is to ensure the right inventory is in the right configuration and in the right locations. 

AgiLean is a hybrid push-pull inventory strategy.  Raw materials or component inventory is produced or purchased to a forecast.  It is assembled or configured only when customers place orders.   

 

Trust & Collaboration 

  • Ways to Collaborate
    • Product development
    • Demand forecasting
    • Vendor managed inventory
    • Joint promotions
  • When it makes sense to Collaborate
    • 80/20 suppliers and customers
    • Strong technology capabilities
    • Suppliers do not belong to competing supply chains
    • Trust

One could argue that trust and collaboration amongst supply chain partners is the basis for supply chain management as a field.  However, there seems to be lack of evidence it actually happens as much as we think.  I believe this is due to a lack of understanding about how to collaborate (see list above for a start) or when not to collaborate.   

 

This last consideration, when it does not make sense to collaborate, is important.  While collaboration can lead to amazing results, if you do not meet the criteria listed above, it may not lead to profitable results.  See the linked white-paper for many additional details on when it makes sense to collaborate.   

 

Information Technology and Supply Chain Management 

  • Enterprise Resource Planning (ERP)
  • Cloud computing
  • Application Programming Interfaces (API)

Many researchers have tied the rise of supply chain management to the rise of information technology.  These technologies have enabled the collaboration mentioned above.  ERP systems allow the supply chain within your firm to communicate and collaborate.  Cloud computing makes information available to supply chain partners and has lowered the cost of sharing information.  APIs are another technology tool to enable collaboration.  These allow different systems (Oracle, SAP, Epicor, etc.) to share data.   

 

The Bullwhip Effect  

If you operate on any echelon of the supply chain further back than the retailer, you know that demand varies, even for products that have level consumer demand.  This variation grows (amplifies) the further one is back from the consumer.  It causes overtime, extra inventory, stock-outs and the need for excess capacity. 

I will summarize the reasons for The Bullwhip Effect below and some potential counter-measures. 
  • People will over-forecast during up-cycles and under-forecast during down-cycles
    • Let computers do inventory reordering
  • Economies of Scale in transportation drive large re-order quantities
    • Use logistics companies to fill up trucks with more frequent, but smaller deliveries
  • Companies will over-order when supply is limited and demand is allocated
    • There is no good solution as companies will do whatever the can to get the supplies they need
  • Price promotions create demand spikes, and after the promotion period, demand valleys
    • Every day low pricing
    • Coordinate price promotions between manufacturers, distributors and retailers

 

Aligning suppliers, internal operations and customers  

Alignment amongst supply chain partners is the goal of supply chain management.  However, this is perhaps the hardest strategy to achieve.  Researchers have proposed that the supply chain share common performance measures.  Of course, problems arise when one firm is taking a large share of the ultimate performance measure, profit.  Aside from joint-ownership arrangements, such as used by the Japanese keiretsu, finding a firm that will subjugate its profit to benefit the overall supply chain is rare.  A suggestion, therefore, is to make sure your internal operations are aligned and share performance measures.  When you are internally aligned, you can begin the very difficult job of aligning your external supply chain partners.   

 

If you want more information any of these strategies, give Mitch Millstein a call (314-406-4962) or send him an email (mitch@supplyvelocity.com).