By Timothy McLean
Contents
Acknowledgments…………………………………………………………………………xv
Introduction………………………………………………………………………………..xvii
About This Book…………………………………………………………………………..xix
Author ………………………………………………………………………………………….xxi
1 It Should Be So Simple— Why We Fail to Deliver…………………….1
What You Will Learn in This Chapter…………………………………………………1
So What Is the Problem?……………………………………………………………………1
Six Reasons Why Companies Have Too Much Stock and Can’ t Deliver….3
Reason 1: The Customer Cannot Forecast Accurately……………………….3
Reason 2: Long Lead Times……………………………………………………………4
Reason 3: Big Batch Sizes and Big Shipment Quantities……………………4
Reason 4: Material Shortages………………………………………………………….6
Reason 5: Poor Factory Performance………………………………………………7
Reason 6: Poor Warehouse and Logistics Practices…………………………..8
Summary…………………………………………………………………………………………8
Key Points in Chapter 1…………………………………………………………………….9
2 Understanding Your Supply Chain………………………………………11
What You Will Learn in This Chapter……………………………………………….11
What Is a Supply Chain?………………………………………………………………….12
The Most Important Supply Chain Metric: Delivery in Full on Time……13
Lead Time: The Key Driver of DIFOT……………………………………………… 15
Takt Time: Keeping Track of Whether You Are Keeping up with
Demand…………………………………………………………………………………………17
Push, Pull, and Flow……………………………………………………………………….17
Understanding Your Supply Chain with a Value Stream Map………………19
Summary……………………………………………………………………………………….25
Key Points in Chapter 2 …………………………………………………………………..27
3 Understanding the Future— The Mystery of Forecasting………..29
What You Will Learn in This Chapter……………………………………………….29
The Promise of Forecasting……………………………………………………………..29
Can We Tell the Future?…………………………………………………………………..30
Forecasting and the Weather……………………………………………………………31
Importance of Significance………………………………………………………………32
Building a Forecast…………………………………………………………………………32
Forecasting Raw Material Requirements……………………………………………34
Low-Volume Products and Materials…………………………………………………36
Generating the Forecast…………………………………………………………………..36
Try Sensitivity Analysis……………………………………………………………………37
Forecasting Tools……………………………………………………………………………38
Demand Management: Maintaining the Forecast……………………………….38
Key Points in Chapter 3…………………………………………………………………..39
4 Can We Do It? Effective Sales and Operations Planning…………41
What You Will Learn in This Chapter……………………………………………….41
Matching Capacity to Demand: The Foundation for On-Time Delivery….. 41
Cycle Time and Takt Time: Developing a Simple Rough-Cut
Capacity Model……………………………………………………………………………….43
More Advanced Capacity Models……………………………………………………..45
Only Analyze Capacity at the Bottleneck Process………………………………46
Sales and Operations Planning Process…………………………………………….49
Demand Review……………………………………………………………………………..51
Supply Review………………………………………………………………………………..52
Sales and Operations Planning Meeting……………………………………………53
Overview of S&OP…………………………………………………………………………55
Key Points in Chapter 4…………………………………………………………………..55
5 Managing Inventory— If You Do Not Have It, You Cannot
Sell It………………………………………………………………………………57
What You Will Learn in This Chapter……………………………………………….57
Do You Need Inventory?…………………………………………………………………57
The Other Finished Goods Strategy: Make-to-Order………………………….58
Managing Your Finished Goods Strategy…………………………………………..59
How Much Inventory Do You Need of Make-to-Stock Items?……………..60
Calculating Safety Stock…………………………………………………………………..61
Avoiding the Knee-Jerk Response to a Shortage………………………………..64
Types of Pull Replenishment……………………………………………………………65
Kanban Cards…………………………………………………………………………………67
Other Forms of Pull Systems……………………………………………………………70
Virtual Kanban……………………………………………………………………………….71
Stock-Outs: A Leading Indicator of On-Time, In-Full Performance………71
Inventory Record Accuracy………………………………………………………………72
Managing Make-to-Order Supply to Achieve On-Time, In-Full
Delivery…………………………………………………………………………………………72
Summary……………………………………………………………………………………….74
6 What Should We Make Next? The Keys to Production
Scheduling……………………………………………………………………….77
What You Will Learn in This Chapter……………………………………………….77
What to Do Next: The Planning Question…………………………………………78
Typical Production Planning Scenario………………………………………………79
Managing Production Flow with a Pacemaker…………………………………..81
Finding the Correct Unit of Measure and Pitch Interval……………………..82
Using a Load Leveling Box………………………………………………………………82
How Long Should the Pitch Interval Be?…………………………………………..84
Overview of Pacemakers and Pitch………………………………………………….86
Deciding What Product to Make Next at the Pacemaker…………………….87
Understanding Your Product Mix and Building the Product Cycle………87
Running the Cycle…………………………………………………………………………..90
Leveling the Product Mix…………………………………………………………………91
Product Wheels………………………………………………………………………………91
Summary……………………………………………………………………………………….92
7 Managing Your Inbound Supply Chain………………………………..95
What You Will Learn in This Chapter……………………………………………….95
So Why Do Material Shortages Occur?……………………………………………..97
Deciding the Right Level of Material Inventory………………………………….98
Why Do Shortages Occur?……………………………………………………………..100
Reducing the Replenishment Interval……………………………………………..100
Reducing Supplier Lead Time…………………………………………………………103
Reducing Demand and Supply Variability……………………………………….106
Summary……………………………………………………………………………………..107
8 Making Your International Supply Chain Work…………………..109
What You Will Learn in This Chapter……………………………………………..109
Reducing the Lead Time in an International Supply Chain………………. 111
Increasing Shipment Frequency and Reducing Variability………………… 111
Options When Your Monthly Demand Does Not Fill a Container…….. 119
Managing Very Low-Volume Materials…………………………………………….120
Does Importing Still Make Sense? Assessing the Total Cost………………121
Summary……………………………………………………………………………………..123
Case Study: Importing of Custom Sheet Metal Components from
China to Australia…………………………………………………………………………124
9 Working with Suppliers……………………………………………………127
What You Will Learn in This Chapter……………………………………………..127
Are There Any Good Suppliers out There?………………………………………127
Understanding Your Supplier…………………………………………………………128
Basic Rules for Working with Suppliers…………………………………………..130
Be up Front from the Start……………………………………………………………. 131
Establishing a Service Level Agreement…………………………………………..132
Putting in a Firewall………………………………………………………………………132
Relationships That Go beyond the Purchase Order………………………….133
Importance of Metrics……………………………………………………………………134
Managing Poor-Performing Suppliers………………………………………………136
Summary……………………………………………………………………………………..138
10 Making the Best Use of Your ERP System…………………………..139
What You Will Learn in This Chapter……………………………………………..139
What Is an ERP System?………………………………………………………………..140
So What Is the Problem with ERP Systems?……………………………………. 141
The Right Time to Purchase an ERP System…………………………………… 145
Selecting an ERP System……………………………………………………………….. 145
Successfully Implementing Your ERP……………………………………………… 147
Ensure You Have Accurate Master Data…………………………………………. 149
Keep Bill of Material Structures and Routings Simple………………………. 149
Be Flexible about the Go-Live Date……………………………………………….. 151
Focus Training and Support after Go-Live……………………………………… 151
Summary…………………………………………………………………………………….. 151
11 Managing a Distribution Network…………………………………….. 153
What You Will Learn in This Chapter…………………………………………….. 153
Why Do You Need a Distribution Network?……………………………………. 154
Key Elements of a Distribution Network………………………………………… 154
What Can Go Wrong in a Distribution Network?…………………………….. 155
Designing Your Future State Distribution Network………………………….. 157
Determine Where You Will Hold Your Finished Goods…………………… 159
Minimizing Freight Cost…………………………………………………………………160
Calculating the Right Level of Inventory…………………………………………. 161
Controlling Replenishment……………………………………………………………. 162
Sales and Operations Planning in a Distribution Network………………..163
Importance of Good Product Management in a Distribution Network…. 164
To 3PL or Not to 3PL?…………………………………………………………………… 165
Summary…………………………………………………………………………………….. 167
12 Bringing It All Together…………………………………………………..169
What You Will Learn in This Chapter……………………………………………..169
Addressing the Six Reasons for Poor On-Time, In-Full Delivery………..169
Measuring Supply Chain Performance……………………………………………. 171
Improving Your Supply Chain Metrics……………………………………………. 172
The Wrong Measures Drive the Wrong Behavior…………………………….. 174
Bringing It All Together: The Industrial Chemicals Case Study…………. 175
Getting Started on Transforming Your Delivery Performance…………… 176
The Right Supply Chain Manager……………………………………………………177
Do You Need a Consultant?………………………………………………………….. 179
A Final Word……………………………………………………………………………….. 179
Index…………………………………………………………………………………..181
Introduction
The most fundamental requirement for a manufacturing or distribution business is to deliver to customers what they want, in the quantity they want, when and where they want it. It doesn’ t matter how good your product is, how much the customer likes your salesperson, or how slick your marketing campaign is. If your customers can’ t get what they want when they want it, they will get it elsewhere and your business is in serious trouble.
I spend most of my days out in factories and warehouses and find that the simple problem of delivering on time, in full every day remains a major challenge for a huge proportion of businesses. This even happens in many cases where the company has the most advanced enterprise resource planning* software. The costs to business and the economy are mind boggling, with billions spent on expediting, overtime, breaking production schedules, scrapping excess stock, last-minute replenishment, empty shelves, and lost sales.
It would seem straightforward enough. You take an order, you pick the goods, and you ship them to the customer. For very small businesses, it is often as simple as that. However, for most businesses the reality is that they handle dozens or even hundreds of orders per day and hundreds or even thousands of transactions and material movements every day to meet those orders.
Why Most Experts Don’ t “ Get It”
The difficulty for manufacturers and distributors is that most experts are focused on the solution rather than the problem. The area of supply chain management theory has become highly contested, with adherents to the different solutions believing theirs to be the “ one true way” to the exclusion of all others. Whether the proposed solution is the traditional supply chain management approach, with heavy reliance on forecasts, software, and complex business rules; the Lean approach; or the theory of constraints, most of the books I read will promote this one solution to the exclusion of all others. For example, many Lean purists will argue that you should never use a forecast for replenishment and instead use only Kanban or just-in-time supply. This is a great system, but what if your supplier is on the other side of the world and your lead time is measured in months? On the other hand, the supply chain management gurus mock “ low-tech” solutions like Kanban cards and insist building to a forecast is the only sensible and modern way to manage a supply chain. No wonder so many operations and planning professionals are confused.
My personal view is a little different. Every supply chain is unique, and while many of the symptoms of poor delivery are common (such as excessive inventory combined with frequent stock shortages), the root causes and the solution will vary from business to business. The aim of this book is to help you understand what is going wrong and select the best approach to solve the problems in your business. That solution may involve a combination of enterprise resource planning, Lean, and practical business common sense. It may borrow from the American Production Inventory Control Society* playbook or the Lean approach, it really doesn’ t matter. What matters is that it enables your business to deliver the right products to your customers at the right time and in the right quantity.