Supply chain compititiveness - ERP Tools

Most of this book is internally focused within the enterprise in order to get the internal house in order. However, every enterprise must understand that any chain is only as strong as its weakest link. The big return on ERP investment and the future revenue and profit growth come from integrating the enterprise to its entire supply chain. No longer will a company compete solely on its own merits. An enterprise will compete in the market based on the overall strength of its supply chain and how well that supply chain is aligned to solving real customer issues. Supply chains will compete with each other for market share and profits. While product is moving forward from the supplier to the customer, information is needed backward to provide adequate time for planning and replanning. Technology will continue to develop that will enhance and speed those information linkages. There is a common misconception that as the supply chain begins to approach true real-time interactivity, there will no longer be a need for planning. This could not be further from the truth. As the markets become more variable, the need for an integrated Sales and Operations Planning process becomes more important.

The term supply chain is really quite descriptive for the concept. The supply chain is the interrelationship of a series of links from individual companies focused on serving and providing value for the end consumer. Some companies have decided that they wish to implement only supply chain software without implementing the supporting ERP management processes. This is like building a house on quicksand. Without adequate control of the internal processes, an integrated supply chain will quickly crumble and fail. The integration of the supply chain is an area where the speed and accessibility of technology will make a large impact. This technology can include electronic data interchange (EDI), E-commerce, the Internet, XML, or a variety of other possibilities including some that have not been developed yet. Without the accurate data feeding this technology and robust business processes supporting the strategy, the risk is that the same bad information will be the result—only now more quickly. The Sales and Operations Planning process can be used to provide the management over-sight and focus needed for effective Supply Chain Management

Sales and Operation Planning’s role in Supply Chain Management.

Sales and Operation Planning’s role in Supply Chain Management.

PLOSSL’S SEVEN SUPPLY CHAIN POINTS

George Plossl, one of the key people credited with the popularization of Material
Requirements Planning(MRP)continues to be a thought leader in the supply chain arena.
His frequent presentations on the subject challenge us to remember that Henry Ford was able to product the Model T car at the River Rouge Plant from the mining of the ore to the finished product rolling off the end of the production line in a mere 83 hours. This remarkable accomplishment was done without the benefit of sophisticated computer systems including ERP, advanced planning and scheduling or Supply Chain Management systems. Too frequently managers reach for technology to solve problems rather than leveraging technology as part of the effective management toolbox. Rarely does a company fail due to technological failure. Companies fail because the management processes are ineffective to compete in the market. Even as computers become more and more sophisticated this fact still remains. Technology is necessary, but not sufficient to enable a competitive advantage.Mr.Plossl’s Seven Supply Chain Points are:

Satisfy the customer’s real needs, not wants. Communication of real need can be a challenge. Any purchasing agent will usually pad its real need by a few days or weeks depending on the reliability of the supplier. The worse the performance of the supplier, the larger the time pad. This process moves from the deceiver to the deluder. The supplier, knowing that the dates have been padded, commits to the customer’s wants.

The supplier knows full well that the customer’s need is really very different. They get confirmation of this when the shipment is late and nobody from the customer’s organization calls to expedite the delivery. This only confirms the customer’s practice of padding the delivery dates. This unusual and bizarre dance is continued until whenever we are in trouble we do it right. When the customer really has a desperate need and communicates this to the supplier by way of frequent phone calls and/or offered financial premiums, the supplier can magically produce the parts in record time and fulfill this need. The larger the bonus for being on time, or the penalty for being late, the more probable the shipment will be on time. For effective Supply Chain Management, the real customer’s needs must be communicated and satisfied, not their wants or padded expectations.

Understand how the real world works.With all the advertising and marketing about the latest and greatest information system, one constant remains. All benefits increase in direct proportion to the speed of flow of material and information. The more quickly information moves, the more value it has. Value is directly related to how linked the information is into the enterprise. Information that is old has very little value. Just ask the newspaper printer. The same fact is true for Supply Chain Management.

Manufacturers need to know what the retailer has sold as soon as possible after the sale. Sales information that percolates through a complex distribution system taking weeks or months to reach the manufacturer has little value. Even worse, this information can be misconstrued and exactly the wrong decision made. This has been well demonstrated in the “Beer Game,” which clearly shows the bullwhip effect when supply chain visibility is impaired and each link begins guessing at the demand drivers.

When demand is synchronized with supply, everyone can win. Customers get the products they want. Retailers sell the products they stock. Distributors sell the products they have. Manufacturers use capacity for products that can be sold. Using capacity to build products that cannot be sold adds no value(or revenue) for the entire supply chain. Similarly, the supply chain earns value only when the end consumer buys.

Products that can be made and shipped close to actual demand are more likely to be what customers want. Remember that forecasts are less accurate further into the future.Being able to execute quickly can remove the need to forecast.

Another real world fact is that material will expand to fill the space provided. The four walls of the company are what really control inventory. The Japanese have the advantage that space in their country is exceptionally expensive. This provides motivation to reduce inventory and develop pull systems such as kanban to provide only what is needed when it is needed. In North America, space is relatively inexpensive. This is demonstrated by the inventory held in North American companies and the installation of automated storage and retrieval systems (AS/RS) supported by sophisticated warehouse management systems (WMS). These highdensity storage systems are required simply because there is just too much inventory!

Installing one of these systems is an excellent way to add to the excess assets already tied up in the form of inventory. When a company moves to a larger building because the current building is too small to handle operations, within 10 years this new building is too small. Many documented cases exist about howembracing Just in Time (JIT)/lean principles have led to space savings or reduction of travel distances. The real truth is that unless this space was leased or could be sold, the saving is really a mirage unless increased throughput can realized from this space savings. The cost of the space is still there.

Have a complete integrated system. A complete system includes both planning and execution management. This is the point where ERP can be very effective as a tool.

The fact remains that plans will change, but failing to plan is planning to fail. The planning side of the integrated system uses soft data. Changes and variability are normal expected events. The more quickly an enterprise can react, the less cost is incurred by the operation. However, implementation requires hard data. Implementation is where the resources of the enterprise are committed and changes become very expensive.

When designing and implementing a system, remember that system effectiveness is inversely proportional to the complexity. There is elegance in simplicity. This is why the simple kanban pull signals work so well. A 2-week class in computer concepts followed by hands-on workshop to learn the keystrokes is not required. The pull signal can be explained simply. When the signal comes or the block is empty, build the next one. If there is no signal or the block is full—stop. What could be simpler?

One problem with all the advancements of technology is that we can develop the intergalactic solution using the most advanced technology possible. We like developing these very sophisticated complex solutions, and the analysts like to write about sophisticated complex solutions—and if it has a three-letter acronym, so much the better. Unfortunately in the process we lose sight of the goal. How do we improve the competitiveness of the company now and into the future? Technology continues to advance. Analysts continue to hype this new technology with great estimates of return on investment. Companies continue to purchase this technology and implement it. Competitors then purchase it for fear that they will fall behind.

With all this money invested, does the bottom line really improve? We find ourselves swamped with data and starved for information. The number one success strategy for installing any piece of technology is to have a clear vision on how it will improve the real profit for the enterprise now or in the future. Technology can only provide a positive return if it addresses a limitation that the company is facing to achieving its desired sustainable competitive advantage.

Use accurate data.Watching the development of middleware systems that automatically link demand from customers and forecasts from sales personnel directly into the ERP system with no review is terrifying. We can now drive all this bad information into the system only faster. The computer is a box of electronic components that possess no intelligence or judgment at all.

Why is it that we expect brilliance to come from a machine that is really nothing more than a very big calculator with lots of storage? If you take the same bad input data that you have always had and put it into a new and improved supply chain system, what makes you think that you will get any different answer? If the outputs of the system are wrong, check the inputs!

The system will rarely make a computational error. Without accurate input data, the best hardware and software will be nothing more than a big money pit and provide no return on investment. Or even worse, this investment will be a career limiting move. The management oversight of the Sales and Operations Planning process is required to ensure the feasibility of the business solution not just a mathematically feasible solution.

Manage cycle time.Cycle time is the amount of time that elapses between material entering and exiting a production facility. Given the stress to get orders to customers on time, it is easy to get into the vicious order release cycle. Since orders are late, the desire is to release orders earlier. The belief is that if the orders are released earlier there is more time to complete the work and the order should ship on time. The reality is that when more orders are released, there is more work to be managed and longer queues at each operation. The systems become more complex and the resources needed to manage the inventory increase. Orders spend more time waiting to be run. This directly results in more late orders and increases in expediting. If all orders could be completed in 1 day, there would be no need for expediting. Consider all that can be completed in 1 day is 1 day’s worth of work. Why is there more work on the shop floor than can be completed in 1 day? Do not release orders to the floor unless all material and capacity is available to run it. This drastically shortens the cycle time. One company in upstate NY reduced the lead-time on a complex medical instrument from 6 weeks to less than 1 week from following this one simple rule. On time orders increased and so did revenue and profits.

6. Eliminate nonvalue-added activity. Nonvalue-added activity is anything that the customer does not want. Too many ERP and supply chain implementations begin with the best intentions only to succumb to the desire to modify the system to reflect current business process.

This is not to say that every implementation should embrace industry best practices if these processes do not help the enterprise achieve its goals. This is a tactic that many consulting companies have sold to their customers to keep implementation costs down rather than driving higher return on investment.Eliminating nonvalue-added activity means not automating bad processes.

One aerospace company found itself developing a complex modification of its ERP software to support what they called the early advanced material releases (EAMR) process. This allowed the engineers to send requirements to purchasing to get long lead-time parts on order while the design was being finalized.

When the process was documented through a flow chart, it was determined that the engineers were spending more time developing and managing EAMRs than they were developing the parts themselves. When this practice was stopped the lead-time to release drawings dropped and the purchasing department could order from released drawings rather than from blue lines. This saved millions of dollars in obsolete inventory. As the patient said,“Doctor, doctor, it hurts if I do this,” and the doctor said,“Don’t do that!” The same is true for non value added activity—do not do that!

Use fully qualified people.Many companies will invest in the very best systems, hardware and software. Managers spend a great deal of time researching and interviewing integration and consulting suppliers. Extreme care is taken before committing to the final purchase.

Everything is set, and the people who are expected to operate the system are saying “Huh?” Just as you would not go to a doctor who has not had the proper education and training, turning Supply Chain Management systems over to untrained inexperienced personnel can be as devastating. Ask these seven questions to get qualified people.

  1. What business are they in? Just as there is an external supply chain so is there an internal supply chain. Two bricklayers working on a cathedral were asked, “What are you doing?” One responded,“I am laying bricks.” The other replied,“I am building a temple for God.” Which attitude would you prefer in your business? Does every level of the organization understand the vision, mission, and goals for the enterprise and understand how they contribute to it? If they do not—they will not.
  2. Where does their work fit into the total business? It is too easy to only focus on the task at hand. Historically, management has reinforced this through a hierarchical organizational structure. This organizational form was started in the military as the chain of command since it was necessary at the time to facilitate communication.
  3. Information was passed from one person to their direct reports for dissemination in a sequential fashion until everyone was notified. Now in the information age, these levels are not required. Communication can occur with many people all at the same time—instantly. Each person in the enterprise requires a more integrated view to understand how the decisions that they make impact the whole organization.
  4. Who are your customers? What do your customers need? What are theirproblems? Customers can be either internal or external. Understanding the needs, wants and desires of internal customers is also important. The problems facing each functional area must be considered as part of the overall strategy. Effective communication of problems or constraints to higher performance is necessary for the organization to achieve its goals.
  5. Who are your suppliers? What are their problems? With all the focus on customers,suppliers can get lost. Remember that this is a supply chain and the concern must be around finding the weakest link. Understanding what information the supplier needs or other problems they face is essential for the organization to be successful.Always remember that the output is only as good as the input or “You can’t make a silk purse out of a sow’s ear.” Effectively communicating and working with suppliers can provide excellent insights for internal processes that need to be improved. Each person should clearly understand from whom or where they receive materials or information.
  6. What are their tools (systems, data, machinery)? How well do they use them?Does the person understand the tools he needs to do his job? Does he require additional training to use them effectively? If a journey level master is required, putting an apprentice level person on the job will likely lead to disappointing results. Does the person keep his skills updated in his particular field? Recent studies have shown that the knowledge half-life is approximately 5 to 7 years. That is, in 5 to 7 years half of what you know is no longer valuable. Just as tools in the production area must be maintained, so must the knowledge tools of individual people. Many managers are concerned about educating their workforce to keep their skills up to date. Their main concern is that the employees will become a flight risk to the company and the educational investment will be wasted. On the other side of the question, consider what happens to the company’s performance if the workforce is not educated and stays? The reality today is that the most highly skilled work force will be attracted to those companies where their skills are kept at the highest level.
  7. Who is on their team? How does the person define his team? Does he consider his team only within his department or across the enterprise? Demand for agility is increasing. This agility can only be achieved through dynamic cross-functional teams.Does the person have the team skills needed to contribute effectively in this environment?
  8. Who are not yet fully qualified? After asking the previous six questions,it may become evident that some people are not fully qualified. A decision then has to be made to develop these skills or replace these people.Is there a development plan to bring the people who are not fully qualified up to the needed level?

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