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2014

Well, after a short diversion from Supply Chain I have returned to the subject, indirectly so. In the recent past there have been several statements made publicly that companies and or recruiters can not find qualified supply chain experts.  In this short essay I will hope to show you that these experts are right in these companies backyards - if they look carefully.

 

In studying the seven wastes - inappropriate processing, waste of overproduction, waste of transportation, waste of motion, waste of waiting, waste of unnecessary inventory, waste of defects - in a manufacturing environment we constantly disregard or give short change the ‘waste of talent’


If your employees are a company’s most valuable asset to ensure that the business runs smoothly, efficiently and constantly improves then why do we continuously fail to put people to good use? 

Without the total involvement and loyalty of employees any company will fail to compete efficiently in this global marketplace. In today’s global market with all of its uncertainty companies need every advantage that they can get to maintain, sustain and improve the business.


The primary cost of waste for talent within any firm is found in time wasted to make improvements and meeting customer requirements. Improvements will be much slower to take affect if your reliance is solely on the “experts” as opposed to engaging the engineers, supervisors and managers.  Though they may be small in numbers they are highly skilled people.  If improvements are not steady your competitors will eventually outpace you, move ahead of you and lead the way in margin and market gains. Your competitors will capture the business from you as they will offer enhanced service and lower costs.

Your employee’s creativity and talent is wasted due to due to a number of reasons but the central one is: having the wrong culture that fails to recognize the strengths and contributions that are made.  Many companies are not that type – they have managers who manage and employees who follow instructions. 


There are a few companies that try to recognize employee contributions but too often it fails. The failure is based in the lack of time and resources allocated to employees to enable them to meet and make improvements.  Company policies are inappropriate to meet employee recognition and too often stifle improvements due to layers of bureaucracy.  Part of this stems from fear: if their employees are well trained and overly involved they will expect higher salaries and or move to other companies.

The remedy for this type of waste is a simple prescription; but one that many companies fail to embrace.  Team working, training and leadership are all that is required to involve all of the employees with your companies. Follow these three and the drive towards perfection and continuous improvement will result.  Performance measures and compensation packages should reflect the companies need for people to work together.  Encourage your employees to take ownership of their areas, processes and products.  This will promote an “air” of pride and involvement.   Your people are your biggest asset, use them wisely and you will reap the rewards.

In the past I have written about LEAN Manufacturing and its primary goals of streamlining and control various types of wastes.  I thought I would take a breather from that format and write about something else which has been on my mind for a long time.  Can and or will United States manufacturing recover and bring along with it the US economy?

I believe we are at a critical juncture where either the US manufacturing sector could either prosper or help the economy regain its’ health or continue to decline to the point where the US may never fully recover its former manufacturing prowess.

At present, the U.S. manufacturers provide about 75% of the products Americans consume (never mind for now where these products are made).  The percentage could rise to 90% if the private sector and government leaders make the right decisions.  Conversely, the percentages could fall if the wrong decisions are made. (The percentages are from study conducted by The University of Michigan’s Tauber Institute for Global Operations).  As labor costs continually play a smaller role in manufacturing processes, this is where the possibilities for opportunities to create new conditions that support manufacturing will arise.

If these conditions surface the most likely winners in each manufacturing segment will be the following:

  1. Global leaders: Aerospace, chemicals, machinery, medical equipment and semiconductors. These industries have a worldwide advantage that stems from their high investment scales, intellectual property, skilled workforce and ties to customers.
  2. Regional powers: Food, beverages, tobacco, mineral products, wood products and petroleum coating segments. These markets will benefit from the fact that the U.S. is their largest and primary markets.
  3. On The edge: Paper, plastics, electrical components and computer equipment: These industries are being attacked by low cost overseas competitors.  The idea is that they may be forced to globalize or see their operations displaced to other countries.
  4. Niche players:  Textiles, apparel, furniture and appliances: Service domestic operations though most production is outside of the U.S.

Regardless of which sector or sectors win out the access to talented workers capable of supporting innovation is the critical factor driving global competition in the manufacturing field.  This has become even more critical than the “classic” factors such as material and labor costs, energy policies and government investments. If the U.S cannot access the right kind of talent, this will contribute to becoming less globally competitive in the near future.  A strong manufacturing sector is a crucial component of a country’s intellectual capital, innovation capacity and ability and economic prosperity. Manufacturing competitiveness is driven by an empowered talent base, especially as manufacturers integrate technology and products into new platforms.

This comes down to this mantra: WE NEED TO NURTURE THE INDUSTRIES OF THE FUTURE.  Yes, this statement begs for an answer to two questions:

  1. What do competitive industries look like?
  2. What specifically do we need to nurture?

The answers should cause all of us to pause, take stock and formulate a new path.  While the U.S. is still the world leader in ‘share-of-manufacturing-value added’ we are no longer the most competitive location for manufacturing. It won’t be a surprise to most of us that China is at the top of the most competitive list but it should concern us that the U.S. is losing ground and becoming increasingly less competitive.

Though, Americans believe a strong manufacturing industry is critical to our economy and recovery, as this sector of the economy increasingly goes abroad the growth or creation of jobs will prove ever more difficult.   There are many characteristics that will be inherent to the leading manufacturers of the future and chief among them are the following:

  1. Global Orientation: Sustainable manufacturers will be global, even if they never produce products outside their nation. They will need to open their business processes to from collaboration with partners around the world.
  2. Innovators: Innovation of products, processes, services and sales will be the most important competitive differentiators of the leading manufacturers around the world.
  3. Intersection Conductors: Innovation will occur at the intersection of intellectual capital, financial capital, human capital and physical capital.  Leaders will outpace competition by developing and deploying capital through superior leadership, collaboration and technology.
  4. Customer & Supplier Assets: Manufacturers will derive competitive advantage from the creation of assets in the form of networks of suppliers and customers.  These new suppliers and customers will play a huge role in creating new products, services and commercializing them.
  5. Supply Chain effectiveness: Effective global supply chains will become increasingly important. The definition of productivity will be inclusive of all facets of manufacturing and the business environment.

What we are seeing is the shared factors of leading manufacturers – especially given the increased competitiveness due to the Great Recession.  Are we looking at the formation of nation-states?

All of this brings us back to the original questions: How will we know what industries to nurture? How can the U.S. remain among the most competitive locations for manufacturing and the prosperity that arises from a strong industrial base?

In any period of economic challenges it is vital to enhance every dollar and minute mean something. Time is money. Waste within a company’s supply chain, either internal or external, are a huge expense of time and money that can drastically decreased through more efficient supply chain processes.


Most companies in order to be successful must find methods which decrease waste and activities that do not add value. 

One method is to implement the use of Electronic Data Interchange (EDI). EDI is used to standardize work such as accounts payables and receivables, order processing, warehousing and logistics, and inventory management. EDI can be integrated with existing in-house systems such as WMS or ERP to augment their current functionality.


Following are the four areas where most of the inefficiency lies – many consider these the core of supply chain:

Order Processing – The typical internal procedure for EDI is: order comes in via fax or e-mail, order is manually entered and inventory management is alerted to the order.:

   

The process is wasteful and inefficient as it is not paperless. EDI is designed to centralize the data in processing an order, including customer information, forms, computerized next step processes.  In addition, Warehouse Management Systems can aid in the procurement and monitoring of inventory. At the same time it will also decrease man-hours needed to physically check inventory levels.


Inventory and Raw Materials – Implementation of just-in-time practices will permit a company to increase their cost savings. JIT will decrease the cost of inventory, increase inventory turns and assist in reaching a near perfect order measurement timeframe. The cost of warehousing inventory is avoidable as electronic communications makes procurement of raw materials a simple process. The supply fulfillment process will show exactly what is required without the additional costs.  With the carrying out of this process the cost of obsolescence is lessened as well as the cost of warehousing, insurance and taxes.


Material Acquisition – In procuring raw materials for order fulfillment several wasteful processes are taking place; proper quantity, placing orders via phone or fax, writing purchase orders and sending those purchase orders to suppliers. Implementing electronic data interchange and integrating it with the warehouse management system the ordering steps are reduced from four to two. Another method to reduce purchasing costs is to find vendors where are located in close proximity to one another and willing to share transportation costs.


Compensation and Reimbursement – The actions in sending and receiving payments squanders valuable resources.  Electronic payments will dramatically decrease costs such as paper checks, printer paper, toner, stamps, etc,.  EDI systems can create invoices from purchase orders and payment actions from invoices.


Electronic Data Interchange is a central process for any firm to reduce the cost of business and save money. It will replace many wasteful processes within the supply chain including order processing, logistics and compensation.

In today’s challenged economic environment it is important that every process is as proficient as humanly possible so that money is not hemorrhaged through inefficiencies.

It was not too long ago when we read about Findus, the frozen food brand and the horse meat scandal – their beef lasagna was found to have horse meat.  In response to these charges Findus has joined and enlisted the assistance of the Supplier Ethical Data Exchange (Sedex).

With their support Findus will conduct ethical, health and safety tests of Findus’s supplier.  With this information they hope to manage risks throughout their supply chain.  The plan is to engage suppliers to create more transparency across the global supply network.  Of course, the plan includes re-gaining the public trust.

This lack of visibility or transparency and weight over suppliers can and does lead to issues such as:

  1. Work can be sub-contracted to suppliers with poor health and safety standards
  2. Dismal labor practices
  3. Detrimental environment al practices

Labels belonging to Indites, Wal-Mart and Sears were found in the ashes of the latest factory fires in Bangladesh, where more than 100 workers died in factories with inexcusable safety issues.

Yun Foods, owner of KFC, saw a scandal from its Asian supplier who trashed a rainforest to source paper for KFC buckets.

These are just two of the many instances of ignoring health, environment and safety issues. What can manufacturers and retailers accomplish to avert these scandals? What are the challenges inherent in such a global task? Where do they start the journey?

Climate change, more extreme weather, ill thought out farming practices, water scarcity and population growth all make their mark on the global supply chains.  The result is higher raw material costs, scarcity of those raw materials, resulting in a threat to retailers’ and manufacturers’ operations.  Thus, analyzing the risks is almost always a mounting struggle. Companies become inundated with ‘Big Data’ and suppliers are hesitant to complete check list and or undergo audits.

In the words of Sedex CEO Carmel Giblin: “Manufacturers and retailers need clarity of purpose”.  These types of companies – mostly food and clothing – need to establish procedures which put into motion clear, concise and realistic expectations for high risk areas.  Having the use of ‘Big Data’ is one thing, using it wisely is another?  Must understand their suppliers’ business challenges, review suppliers’ supply chain issues as a team and relate how sustainability is linked to the health of both businesses.

Companies should collaborate in working groups and joint projects such as the Ethical Trading Initiative.

Tackling industry wide issues as one entity can accelerate change in a cost effective manner.  Cross collaborative groups have become ever more popular. These collaborative groups can empower suppliers who have direct relationships with other suppliers further down the supply chain.

Retailers and manufacturers who collaborate with local suppliers can be influential in communicating effectively with regional suppliers.  The result of this collaboration and communication can’t be underestimated.

As manufacturers are reaping the benefits of Lean and Lean Six Sigma or other continuous improvement processes within their facilities to enhance their supply chain for the 21st century the importance of eliminating waste still hold sway.  So the question now facing these manufacturers is this:

Has the time come where Just-in-Time inventory levels need to be changed to Just-in-Case levels? With the present and at least near future volatility of the economy this may prove to be the case.  The answer lies within each company’s own supply chain and decided upon based on each company’s individual requirements.

Inventory is considered one of the seven (7) wastes in a lean manufacturing environment.  It is any material over and above what is required for use in the process. The JIT environment basically works much like this: a piece per process > one piece delivered > one piece processed > one piece shipped.  Any and all inventory on hand after this process can be viewed as waste.

There is no such thing as the ideal situation and it’s quite impractical.  Thus, inventory is carried within the facility.  In practice just about every company carries inventory of some magnitude. And thus many issues ensue – excess storage requirements, carrying costs, increased material handling and obsolescence. The real concern should lie within the raw materials inventory levels as finished goods and sub-assemblies are in company’s control – based upon customer service levels and on-time delivery rates. 

Over the past several months many small companies have shuttered their businesses.   Much of this occurred when a primary supplier shutdown operations and damaged your delivery performance. 

Under these circumstances perhaps it is time for the remaining small manufacturers to take a good hard look at their suppliers and ask the following questions:

  1. How well do you know your first, second and third tier suppliers?
  2. Are any of them at risk of closing their doors and catching you off guard?
  3. Have you looked at their financial health?

Maybe the time has come to get to know them better. Harks back to making your suppliers your business partners.  The slightest change or disruption upstream can cause a major effect downstream.   It might be a good idea to carry a few weeks inventory to protect the company until the risk potential with this supplier can be evaluated.  Perhaps a visit to this third tier supplier would be in order to avoid higher future costs.

Start this process by reviewing some of the more vulnerable suppliers.  For example: if you are in the automobile industry start by checking the health and stability of suppliers you share with the North American automakers. 

In any industry, in order to implement JIC, and to determine how much and type of inventory need to carry these questions require honest answers:

  1. How difficult will it be to source replacement parts?
  2. How long does it take to get customer approval to move the tooling?
  3. How much testing is required if a new supplier is needed in an emergency?
  4. How long can you delay in shipping to your customers before it affects relations?
  5. How much space will be required to carry enough stock in case of emergency?

The answers to these questions will point the way to determining the on-hand inventory levels.  In addition, with good strategy and procedures it should also help to determine which components are at the greatest risk. 

Please keep in mind that JIC could be a temporary solution to a temporary problem.  It is extremely expensive to carry JIC inventory for every part, so the decision needs to be made as to which parts are the most critical.  Be aware, the carrying cost may increase exponentially, at least in the short run.   Consider JIC an insurance policy but when the crisis is over re-think the policy and return to JIT and LEAN.