Efficient Supply Chain Network

The business climate has changed over the last 15 years as it transforms itself to a global economy. Manufacturing has moved to low cost countries where the environmental laws are not so stringent and the labor cost is low. The challenges faced by many large companies when sourcing from multiple locations is an efficient visibility to the extended supply chain.

There are four flows that companies have to manage which are Demand, Supply, Information and Cash. Companies who manage each of these flows efficiently run the most profitable enterprise. Early detection of change and ensuring a quick response to each of these flows are critical for the existence of companies. Inefficient management of each of these flows results in a buffer which ultimately hits the margin and market capitalization.

One of the largest technology company in the US, was faced with a challenge to reduce the inventory in their supplier network. The network of supplier was highly complex where there could be multi hierarchical network and multi level supply associated with each of the suppliers. Since each of the suppliers was a small medium business and could not invest in the technology support required to provide visibility, the company decided to invest and share their best practices across their supplier network. It was a win-win situation and economical decision to not only improve their margin but also help the supplier network to run their operations more efficiently.

The main challenge was to reduce the build up of inventory at each of the supply chain nodes which made the supply chain responsive but lethargic. These inventory buffers covered the demand/supply variability thus providing a quick response to changes in demand. However, if you look across the supply chain it seemed to be like a large python – which was very well fed and moved slowly. The solution to these problems is information flow. If the information is reliable at each of the supplier nodes then the buffer of inventory can be reduced and still be responsive to the changes in the demand.

The vision of the company was to create a solution that would be implemented across the supply chain network. The key areas that had to be addressed were a) inventory planning at each of the supply chain nodes, b) the demand picture that is propagated and exploded to each of the components at each of the nodes and the c) supply picture at each of the nodes. The solution was based on the Lean principles which promote reduction of waste in the system. The inventory planning is a key component which has to be in tune with the demand and ensure a level supply plan. The level supply plan is propagated upstream to determine the supply plan for the upstream partners. While planning is the correct step but the execution has to be tightly controlled. A dashboard depicting the overall demand and supply plan was planned for each node and individually managed. The technology enabled a PDCA approach to control the deviation and enable a faster decision making process.

It is a reasonable solution and the right approach. The green supply chain economics has put pressure on the manufacturer to reduce waste not only within the compounds of the facility but across the supply chain. As natural resources are being consumed and depleted, we have to be smarter about using them effectively.