Supply Chain Strategies
There's tons of books on operational, management and supply chain strategy. There's no point in trying to discuss in depth those in a blog post. But what I've spent some time looking into is what industries are typical for a particular strategy and then what type of metrics or KPI's should be used to measure your success. Using six generic supply chain strategy models we can begin to consider the focus areas.Continuous-flow
This model is typically found at manufacturers of components for OEM's, short shelf life food products and some medical reagents businesses. In a continuous-flow model, the basic business premise is low demand variability, low supply/demand balancing costs and long product life cycle's. You could characterize this as a mature business, highly predictable demand where the customers display little change in their ordering behavior."make to stock "What should the production setup then be? In this, you'd typically want to run a make-to-stock operation where you are replenishing predefined stock levels. You are offering high service levels, quick responsiveness and your customers the ability to hold low inventory levels. You need to focus on having strong relationships and extensive collaboration with customers to improve planning visibility. The main KPI's and metrics from a supply chain point of view should be inventory turnover, on-time delivery and short production cycle time with batches as small as possible.
Efficient (lowest cost)
Typically this model is used for commoditized products such as raw materials; sheet metal and chemicals or gases. There's strong competition between providers and high customer mobility. A procurement decision is often based on best price. To stay competitive, you therefore must push on lowering your operating expenses. Your customer demand variation will be more volatile but product life cycle and supply/demand balancing costs are similar to the continuous-flow strategy.
"make to forecast with some make to order"The production setup should be make-to-forecast with some room for random make to order's, aim therefore to reduce the number of production batch setups.The business needs to focus on reducing the number of low volume SKU's and plan on larger batch sizes for scale efficiencies. For seasonal variations you hold finished good's buffer stock to maintain high service levels. You'd measure on time delivery, which should be high along with low number of production setup changes, plant utilization should therefore be high. Focus on efficiency through continuous improvements resulting in lower costs. You will have high inventory but your aim is to have high perfect orders in your service.
Fast (speed to market)
These supply chain setups are usually found in trendy products such as fashion apparel. Customer's are interested in getting the latest popular item quickly. The product life cycle is short and demand is variable, depending on the popularity of the product. With quick turnarounds comes higher costs, therefore balancing your supply with demand is typically more expensive."make to forecast"The production setup is therefore make-to-forecast with large batch sizes, perhaps only one batch per SKU. The production cycle must be as short as possible to reduce the time to market. Close collaboration with your vendors are needed to help with market visibility. Measure scrap rate and obsolescence, forecast accuracy and freight costs.
Flexible
These types of supply chains are most often found in companies that manufacture metalworking and machining components and spare parts for industrial customers.Customers often order unique products, therefore component variation is high. Perhaps engineering is complex and products have a high level of other added services. These types of customers are generally not price sensitive but rather rely on good on time delivery and quality. Demand is therefore often highly unpredictable and product life cycle can be measured in decades. The cost of doing business will be high, transportation, holding costs, obsolescence etc.
"design to order"The production setup is often design to order. Each product is unique and rarely duplicated. Batch sizes will therefore be specific to each project. Suppliers need to deliver components with as short lead times as possible, have excess capacity and perhaps through pooled resources and/or stocking agreements have a supply of raw materials at ready. Production cycle times should be short. Inventory levels typically tend to be low, although a high service level strategy for spare parts may prove challenging. Plant utilization should not be optimized to the point that there is no excess capacity. Measurable metrics should be free capacity internally and externally, service levels, obsolescence, inventory turnover and careful monitoring of bottlenecks.
Agile
This is similar to the flexible supply chain strategy with the notable difference that the product life cycle is usually shorter. Products are unique to project specifications per customer. These companies tend to be in the intermediary industries that produce parts for industrial customers. Products are typically metal machining services, special chemicals and custom electrical assemblies. Demand variation is high due to the uniqueness of the products, and like the other high responsiveness strategies the cost to balance supply with demand is also high."make to order with some make to stock"Production setup is often make to order although some make to stock setups may also exist. Key is to have extra capacity always available for high demand peaks, it will have a negative impact on plant utilization but should not be a main focus. Suppliers must provide small batches on short notice. It is therefore necessary to have a pool of suppliers to leverage from when high demand situations exist. Raw materials should be pooled to offer best scale economies. Inventory should be processed to a common platform before differentiation. Metrics should capture production cycle time, supply chain costs, perfect order and demand forecast accuracy.
Custom-configured
ycle. Balancing the supply with demand carries high operating costs.
"configure/assemble to order"The production setup is often configure or assemble to order. Buffer inventory should therefore be maintained prior to the point of final configuration. Finished goods should be kept low, the point is to configure to demand and sell. Batch sizes will be variable to the customers needs. The supply chain should have a depth and redundancy in its supplier base to both help with capacity and to offer shorter order cycles. Main measurable metrics should include raw and semi-finished goods vs finished goods inventory turnover and production utilization prior to assembly/configuration and main configuration, they should should be high and medium with extra capacity respectively.
Summary
There's several different supply chain models that each addresses a different set of circumstances. A company first needs to understand their value proposition and demand situation before making decisions on the correct supply chain model. Often though, the challenge is not so much the supply chain model to choose but the need to have some hybrid version of two or more models. What is important is to manage the business according to the chosen model and to employ effective control mechanisms that allow for visibility to the ongoing business cycle.References:
Supply Chain strategies: Which one hits the mark., Herman David Perez, CSCMP's Supply Chain Quarterly, Quarter 1, 2013
How Many Supply Chains Do You Need?, Dan Gilmore, SupplyChainDigest, 14-Oct-2011
Designing the Right Supply Chain, Richard Kauffeld, Curt Mueller and Adam Michaels, Strategy+Business, Spring 2013, Issue 70, 1-Feb-2013
No comments:
Post a Comment