Darren Pitts, CPIM, CSCP | March/April 2012 | 22 | 2
Directions to better supply performance
Everyone knows what a supply chain is, right? It’s that mysterious network of suppliers, manufacturers, distributors, and retailers—at least, for the most part. It takes great people to make it function at peak efficiency. And as such, this system of interrelated activities sometimes requires a fresh view in order to help the players see and assess the supply chain in its entirety. Geographical visual tools are of great value in this regard—and they can present information that is much easier to analyze than a spreadsheet.
Mapping supply chains is a very revealing process. Maps quickly can become complex visuals when fully populated. Insightful maps often depict the geographical location of suppliers, lead times, manufacturing plants, transportation routes, intermediate warehouses, distribution centers, and major markets. (See Figure 1.)
It is important that maps are structured to allow for filtering or layering. Complex networks require a greater degree of map deconstruction to help separate causes from effects. In the presence of large numbers of stockkeeping units (SKUs) or categories, mapping must attempt to provide the clearest picture of the materials’ origin, movement, and ultimate destination.
More intelligent models include shipment frequencies, product mix and volumes, the location and quantity of pipeline inventory, supplier delivery performance, and total landed cost across primary value streams. Sharing this information often leads to good questions: “Why are we still buying material from suppliers in Arizona and converting it in New Jersey?” “What is causing us to need three warehouses for outside storage near our Mexico plant?” “Which suppliers in this cluster provide the lowest landed costs?”
The mechanics of building a supply chain map is not the central focus of this article. Suffice it to say that there are numerous means of accomplishing this task, such as physical wall maps or digital versions using applications that leverage Google technology. The most important aspect of the maps is that the information is current and accurate. It cannot be overemphasized that the underlying purpose of the map must be understood ahead of its development. Will its primary objective be to support network redesign or simply to identify where supply sources should be located? Is the goal to optimize inbound materials or outbound finished goods?
As one might imagine, mapping logistics relationships between entities can quickly overwhelm any diagram. This endeavor does not work well with spreadsheets. However, maps that offer geographical perspectives are intuitive and more easily interpreted. The use of color-coding can help distinguish categorical information. Logistical data are best presented as direct point-to-point lines or by using overlays of actual highway or railway information. The graphic representation of the network itself can reveal hidden patterns. Following are steps for creating and leveraging the insight of these maps:
1. Understand the primary audience and focus of your specific map.
2. Identify major activities and flows that depict the most accurate representation of the current state.
3. Populate with supplier and process data, including metrics, volumes, freight, and the like.
4. Create a lean value stream map (VSM) for each primary supply stream.
5. Launch improvement projects to eliminate non-value-added activities.
Building the map is easy; determining what to do next is what brings value. One tool for identifying opportunities across supply chain activities is the extended VSM. (See Figure 2.) Value stream mapping enables you to assess the worth of process segments. It is unnecessary to develop VSMs for all supply relationships—instead, focus on the key ones. Much can be learned by comparing value streams that are known to be great to those with a reputation for being unsatisfactory.
At this point, the engagement area has been defined, constraints identified, and critical paths revealed. Now comes the heavy lifting. But first, it is imperative that potential improvement actions align with corporate and business strategy. The application of tools within the lean world implies that the leadership team has stated that corporate objectives include reduced lead times and significantly less inventory.
To improve value streams, the idea is to focus on operational measures versus financial metrics, which are prevalent in most organizations. First, the overriding objective is to increase the synchronized velocity of value streams. Second, use six sigma (or any effective methodology) to reduce variation within existing flows.
Figure 3 illustrates one approach to leveraging insight from visual supply chain maps, especially when integrated with value stream mapping. The illustration relies on lean six sigma to identify the non-value-added activities from supplier to customer. Projects then are required to actually improve the processes. Continuous improvement across the three main supply areas is based on the organization’s capability to execute a series of parallel but interrelated projects. It is also imperative that management is open to temporary realignment of process ownership for the duration of these specific projects.
Making the plan
The toughest piece of supply mapping is creating projects that are designed to improve operational performance. The inbound side of value streams is where companies can begin their efforts to improve end-to-end operations. These following project ideas are based on insights gleaned from supply chain mapping and lean six sigma.
Supply map area 1—planning. Improvements in planning require leaders to fully understand the delta between forecast, order management, supplier scheduling, manufacturing, and inventory levels (in both the pipeline and finished goods). Furthermore, the planning parameters relating to system-maintained lead times, safety stock, and the like should be reviewed and updated frequently. It is important to remember that the people who initially configured materials planning systems likely are no longer in those roles. Therefore, knowledge sharing is a good idea.
Projects created within the planning function should focus on inventory and activities that create inventory. For starters, consider
• improving finished goods forecast accuracy from “X to Y percent” of historical demand
• reducing ahead-of-use inventory from “X to Y percent” of weekly consumption.
Improvements in planning can immediately affect the amount of inventory purchased, warehouse requirements, and transportation expense incurred. It is imperative that improvement projects focus on this area first. If your organization has an inventory problem, consider asking a seasoned practitioner of lean to develop a detailed process map that documents the inputs, outputs, and root causes from end to end.
Supply map area 2—sourcing. Improvements in sourcing include challenging the geographical location of suppliers, order lead times, up-side and down-side flexibility, transportation expense, pipeline inventory, and delivery performance of suppliers relative to the manufacturing centers they support. Landed costs that can be directly associated with specific suppliers typically blur once material is received. Cost traceability beyond this point requires aggregation and allocation across all goods produced by manufacturing.
Improvement projects in the procurement space typically require negotiation and should begin with
• reducing delivery lead time from “X to Y days” without increasing inventory
• increasing supplier on-time delivery performance to original promise date from “X to Y percent.”
The primary aim is to identify those policies, practices, constraints, and paradigms that limit operational performance—and to help management address issues. Collaborating with suppliers is the most critical factor in finding the greatest opportunities. Suppliers must be charged with helping reduce the total landed costs associated with getting components to the point of manufacture.
Supply map area 3—manufacturing. Significant improvements in manufacturing processes are possible, especially where projects are structured to increase synchronization between suppliers and manufacturing. Inventory buffering typically is highest just ahead of the conversion process. This often is driven by the loose control of supplier deliveries. Whenever suppliers are delivering to static warehouses and not direct to production, freight, storage, and material handling are far from ideal. However, manufacturing capabilities can be strengthened and more synchronous value streams achieved by
• extending firm production schedules from “X to Y days” for category Z products
• increasing direct-to-production deliveries from “X to Y percent” for category Z products.
Bringing it to bear
Enterprise supply chains are indeed complex. Improving segments of numerous value streams requires a holistic, integrated approach that acknowledges this complexity. Simplifying the complexity by virtue of illustration can be an extremely worthwhile
endeavor. This, combined with the geographical intelligence of supply chain maps, can help organizations visualize opportunities well beyond the fog and fear of complexity.
Supply chain mapping, lean six sigma, or something else? When it comes to improving supply chains, no single tool works best. Supply chain and operations
managers would be wise to consider making the most of them.
Darren Pitts, CPIM, CSCP is a lean six sigma master black belt for Kraft Foods. He has taught at Purdue University and is an APICS instructor in Chicago. He may be contacted at firstname.lastname@example.org.