"What we're trying to achieve, from an end-state perspective, is to build flow through our supply chains. What we mean by 'flow' is... making sure that all the nodes within the supply chain are connected... so they don't work in isolation, but are actually connected from an end-to-end perspective. So we can take true customer demand, and drive that through the supply chain, down to our manufacturing sites and our suppliers." [Emphasis added.]
I was really captured by what Mr. Walker had to say in this brief statement.
It appears that Andy Walker and Merck have discovered “the first law of manufacturing” [*] and are applying it. The first law of manufacturing states:
All benefits will be directly related to the speed of flow of materials and information.
This first law or manufacturing has an expansion that reads like this:
All benefits will be directly related to the speed of flow of relevant materials and relevant information.
This relevance factor comes into play when we get to goal of Merck’s supply chain strategy. Let’s take time to dissect Walker’s statement:
- What Merck’s supply chain strategy implementation is seeking to achieve is “to build FLOW through” their supply chains. This strategy is entirely different from traditional “push-and-promote” strategies. Push-and-promote relies on building to forecasts and then relying the sales folks to “sell into” the channel. “Flow through” and “sell into” are entirely different paradigms.
- Walker goes on to define what Merck means by “flow.” Flow, he says, comes from assuring that “all the nodes in the supply chain are connected… so they don’t work in isolation….”
- Look carefully at THE GOAL! It’s found in the statement that begins with “So….” All of this is “so” something specific can be accomplished. And what is that specific goal? “So we can take TRUE CUSTOMER DEMAND and drive it through the supply chain, down to the manufacturers and suppliers.
True customer demand is truly relevant information—forecasts are not. I contrast this truly relevant information to forecast demand that—as the true adage goes—is always wrong, and is, therefore, mostly irrelevant information. Forecasts waste supply chain resources by consuming limited resources in the planning, production, storage, handling and transportation of irrelevant materials—materials the end-user does not want or need. And, while forecasts consume resources with irrelevant materials, they simultaneous block those resources from planning, producing, storing, handling and transporting relevant materials. This causes shortages, stock-outs and poor customer service levels.
Andy Walker and Merck have got it right!
Now, this paradigm shift needs to happen in more companies—especially the small- to mid-size business enterprises that are struggling to survive or stay profitable while still applying outdated principles in managing their supply chains.
Don’t see an alternative to forecasting in your business? Ask me. I’d be delighted to have a chance to respond.
[*] Ptak, Carol A., Chad Smith, and Joseph Orlicky. Orlicky's Material Requirements Planning. Third ed. New York: McGraw-Hill, 2011. Print.