This past summer Chad Smith, a Supply Chain expert and co-founder of the Demand Driven Institute presented a webinar with Ultriva about consumption-based replenishment. Smith is the co-author of Orlicky’s Material Requirements Planning, third edition (ISBN 978-07-175563-4) who suggested, “A solution must be deployed that allows companies to plan effectively while maintaining or increasing flexibility. Most global manufacturers, enterprise resource planning (ERP) software companies and manufacturing consultants seem to ignore the obvious path….Instead, the most common approach is to chase symptoms and propose incomplete and even disastrous solutions that either overcomplicate or oversimplify planning, execution, and control systems with less than desirable results.”
Smith suggested there are three key questions to be answered with regard to planning and flexibility.
How do we minimize or eliminate shortages? Shortages cause problems in manufacturing. Any person who spends even one single day in operations knows this fact. When those shortages are chronic and frequent, they can cripple a company’s service and financial performance. Frequently shortages result in additional spending in overtime and expedited freight, cause scheduling deviation and general chaos, and jeopardize service levels. In a time when customer tolerance times are shrinking, controlling shortages becomes even more crucial to a company’s sustainable success.
How do we keep production lead times as short as possible? In order to stay lead-time-competitive and minimize the amount of inventory required to do so, companies are under constant pressure to compress manufacturing and purchasing lead times.
How do we keep working capital (materials and manufacturing assets) synchronized with demand? Companies are striving to minimize inventory positions while at the same time provide a high level of service. Defining this kind of strategy is a smart business move no matter what the climate. In the best of times, it means a significant return on average capital employed (RACE), and in the worst of times, it minimizes the company’s exposure to downturns and recessions.
Ultriva focuses on improving inventory velocity and increases inventory turns through a set of specific steps: size the inventory, sense the demand changes, validate the lead times, validate the lot sizes, monitor the parameters, and aid in resizing inventory to meet the corporate goal.
The lead times to the customer and actual cycle time to produce are commonly at odds. It is very common to see manufacturing companies commit to a 15 days lead time when the cycle time to produce the product (if the raw materials and components are readily available) is less than a shift. The rest of the 14 days becomes the order processing, production planning, waiting in queue, handling, picking, packing etc. By positioning the right buffer at appropriate location, lead times can be easily reduced by 50% or more. Faster delivery to the customer increases customer retention, and profitably improves the bottom line.
The operational silos of planning, purchasing, procurement, supply chain, materials and shop floor create confusion due to interdependency and overlapping responsibility (especially during a crisis of part shortages affecting customers.) Ultriva provides one version of the truth; a single view including the status of every order, exceptions, and how to handle them. The visibility, real time actionable information, status of supplier actions, integration with logistics, delivers metrics which make the silos vanish, allowing the team to operate cohesively.
Smith insisted, “The answer to these three questions resides in understand and protecting against variation and volatility within both the manufacturing enterprise itself and its supply chains.”