It may surprise some of you that not all manufacturing managers value excellent customer service, low inventory and fast throughput. What we have come to know as the "bad old days" is still embraced like a comfortable security blanket in some companies.
Pundits will continue to predict economic recovery or decline. But the only certainty is that economic conditions will change in the future (for better or worse). How manufacturers react to such changes can have a significant impact on the service levels provided to their customers and the amount of working capital they have tied up in finished goods inventories (FGI). Periodic and practical reviews of FGI levels, based on item performance can yield significant benefits to manufacturers and their customers. Given the impact this can have on customer service levels and a company's balance sheet, it goes beyond being simply an operational best practice and deserves the attention of senior management.
Recently I was asked, "Why is implementing lean manufacturing such a big deal? The book I just read suggests I only need to worry about managing the value stream. Why is it so hard to do?"
While the effort required to be successful in an enterprise resources planning (ERP) system implementation is fairly well documented and understood, implementing lean and world-class manufacturing is far less clear. To help those who have a strong background using ERP systems, let's draw some analogies common to both types of implementations.
Enterprise Sales & Operations Panning: Synchronizing Demand, Supply, and Resources for Peak Performance
By George E Palmatier with Colleen Crum
J.Ross Publishing
In their book Enterprise Sales and Operations Planning: Synchronizing Demand, Supply, and Resources for Peak Performance, George Palmatier and Colleen Crum invite the reader into the inner workings of Universal Products Company, a division of Global Products and Services, Inc. The reader gets to spy on a company, discover how it operates and learn abouot senior staff, and see how a company can be turned around. The story is not all rosy. A number of major internal problems surface early on and the book follows the hero, Mark Ryan, as he meets key individuals and faces major issues in his effort to fix those problems.
The crux of managing inventory effectively is to ensure that our distributor will be able to at least meet or exceed his customers' expectations in order to maximize his profits. Customers' expectations differ - some will demand immediate delivery of an ordered item but some are prepared to wait longer. But what is relevant is to examine if customers are always this demanding. Surely there must be some items demanded that can be delivered in a certain time without negatively jeopardizing the customer service levels?
System complexity, an inherent element of most modern production and inventory control systems, creates a plethora of direct and indirect costs. To attack complexity, the manager must attack its effects and then identify and address root causes.
Complexity shows up in excess inventory, increased lead times, and falling quality levels (yields). Lets be clear, though, about one thing. There is nothing wrong with complexity if that's what the customer - especially the critical customer - wants and is willing to pay for. But complexity is wrong if it results from our attempts to satisfy customer demand at all costs or from our tendency to view and attack problems in isolation without drawing on past solutions.
I once read the following quote from Eli Goldratt, the author of The Goal:
"Tell me how you will measure me and I will tell you how I will behave. If you measure me in an illogical manner, do not complain about illogical behavior"
Nothing drives change like a well-designed set of performance measures. And as business guru, Dr Michael Hammer observed, "There will be more change in the supply chain field in the next 5 years than in the preceding 15." Clearly, few activities are more important to implementing supply chain strategy than the design of new performance metrics that promote process-oriented behavior. A supply chain should satisfy 10 performance measures.
A young 2nd Lieutenant was in the intelligence center of the Army. The building in which the intelligence center was housed also contained a number of other military units in the intelligence business. The lieutenant's commander, then a lieutenant colonel, had appointed the young lieutenant a supply officer. A short time later, when the lieutenant colonel was promoted to full colonel, his first official act was to summon the supply officer. He said, "Lieutenant, as you know, my new rank demands a new chair for my desk." It is true that the chairs of lieutenant colonels and colonels are the same, but the tops are different. The top of a colonel's chair is four inches wider than that of a light colonel and it has a full leather upholstery instead of PVC.
I happen to look through the analytics of this blog and was amazed at the number of hits on my article of December 15 entitled Distribution Resource Planning (DRP). I had no idea an otherwise "dull" topic could generate so much interest out there. So I thought a few more offerings on this topic wouldn't do much harm since DRP is the place to start if you want to solve the inventory management woes of your company.
Many companies that I worked in usually attributed their inventory management problems to poor forecasting. And in all those companies that started DRP actually found that their problems were caused by a multitude of other issues, least of which was inaccurate forecasting! In this article, I would like to share a very important element of DRP - safety stock. Let's recap….
As more companies turn to 3PLs for assistance, they're gaining confidence in these providers' ability to deliver more than just day-to-day tactical solutions. Many companies have "great expectations" for 3PL providers, expecting solutions that may be "undeliverable". I can think of four key issues even the best 3PL shouldn't be expected to solve.
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