I saw this question posed on the LinkedIn group "Supply Chain Optimization," and I wanted to share the ensuing conversation with the members of the Supply Chain Expert Community. Below are the original post by Robert Cowan and the subsequent comments. Please share your own thoughts on this topic, and this discussion, by replying here.
Robert Cowan: Five tips for creating a Responsive Supply Chain have been posted on the http://www.TheSupplyChainNetwork.com as follows:
1. Make sure your Supply Chain partner capabilities are in-line with your expectations
2. Ensure visibility throughout the Supply Chain of Supply, Demand and Inventory levels
3. Have event driven risk management processes
4. Limit stock obsolescence by postponing final configuration where possible
5. Ensure the Supply Chain strategy is coherent with the strategy of the Organisation
Do you have any comments on these suggestions, and what do you think can be added to this list?
José Antonio Cordón Sánchez: Hi Robert, we could apport some points else that describe better these milestones that you expose and draw the framework of reference. That is crucial in order to answer to your question. Some examples could be:
1- Win-to-win relationship with partners (depending of sector,...): it´s not strong enough with making sure your supplier are in line with your expectations, it´s necessary to create a narrow relationship with them anticipating to their problems and monitoring their situation (their problems could be your problems in a short, medium or long term)
2- Ensuring visibility throughout the SC allows you to have truly information but not a system (depending on market, sector,....) permits you to have an optimal inventory system, purchasing planning, production planning, delivery planning,...such as replenishment,...It´s necessary to have visibility with the proper system
3-Totally agree. This should include internal and inter-companies mechanism of risk mitigation
4- I´d include this point in the second one
5-It´d be necessary to define how the strategy is transmitted downstream till suppliers, customers, sales, operations, financials, HR, ...,how it´s put in practices and how it comes back upstream, in sum how we define a strategy, how this information flows and how it evolves. As well, what mechanisms we must use to make sure all of that (S&OP, ...) by short, medium and long terms.
Robert Cowan: Thanks for your comments Jose. I agree with your added explanations, in particular the win-win situations mentioned in number 1. I think this is an ideal situation to get to. As you wrote, some sectors are more open to this kind of collaborative partnership than others, but I think that when it works it is certainly a win-win situation!
George Saddak: Totally agree with you Robert, especially about putting your business partners in line with your expectations, otherwise you will always run on the back foot. Also one other thing to ensure your above mentioned plan is occurring, I believe you will need also to ensure that your internal team players are online with this strategy, and each have his own objective to follow
Petri Huitti: Hi, I think one relevant part is missing and without it, it can be quite average or traditionally lead supply chain? Question is how to really create supply chain responsive in execution and replenishment? Partly related to points 1 and 2, what really should be the expectations and what to really do with the visibility, why is it required? Meaning that replenishment through the supply chain should be done much more frequently based on and guided by real consumption or sales in the customer end of supply chain.
When this is done, less need for planning, less stocks and obsolescence risk, more supply chain partners working right now on things which are really needed and pretty soon, much faster reaction to demand changes, even at lower total cost. But this requires overcoming certain policies and real challenges in supply chain, MOQ, "local cost reduction"/suboptimization, finding ways to do it efficiently, creating IT support etc.
I think Vector Consulting Group placed the challenge pretty nicely (in their Facebook page):
"There are two schools of thought for an effective supply chain
1) Predict to ensure certainty ( focus on perfect planning)
2) React fast to uncertainty ( focus on agile execution)
The first school of thought is a multi-billion dollar consulting and IT industry, as more than 90% of the supply chains operate in that mode and all of them are searching for a better way to do the same thing.
While for the ones, following the second school of thought, the search is over."
If interested and don't know what I am meaning, google TOC replenishment, Rapid replenishment. It seems both Theory Of Constraints (TOC) and Lean provide approach and tools to do this.
Duncan Klett: Petri, Excellent point on the "two schools": perfect planning vs agile execution.
I would suggest that the answer is not quite one or the other, but where to put the balance.
Where long processes (including shipping & import/export times) are involved, then planning and/or buffering are key.
To make your execution truly agile, you need as-close-to-instant-as-practical information plus "alerting" to tell people and/or systems that something needs to be done. Ideally, you want to "see through" each level of your supply and distribution network so that you can react to changes at any level without waiting for all the intervening levels to detect and respond to the problem (a sequence of steps adding unnecessary delay at each one).
Every action that is delayed introduces the need for larger inventory buffers to support demand over the response time. Lean approaches are excellent! However, even they introduce delays in response until the pull signal has been received and acted upon at the supplying side. Virtual kanbans can help with this, but processes and supporting systems are still required in order to shorten the response time.
Robert Cowan: Thanks for all of your contributions - some very interesting points! I think that Duncan has mentioned something very important here - balance. Once it has been decided where to position that balance, as George mentioned - it is essential that the whole supply chain (internal and external) are in-line with it.
Do you think that reaching the balance is a question of risk management at a strategic level? I ask because the question of reaching a 'balance' also came up in another forum regarding this subject as follows...
"There is a balance that needs to be reached between achieving high levels of supply chain responsiveness and maintaining the security of supply throughout our supply chain. On the one hand you have the need to be efficient, responsive to your customer's needs and be profitable. On the other hand you have the need to manage the risk of a supply chain and ensure continued supply." - Posted by Brian Wilken on November 29, 2011 at 8:13pm on http://www.thesupplychainnetwork.com/profiles/blogs/responsiveness-and-the-impact-of-supply-chain-risk-management
Duncan Klett: Hmmm. Robert, yet another interesting question.
Clearly a "balance" needs to be found considering several levels, such as:
- high flow rate, low inventory
- risk of demand spikes creating shortages, thus carry more inventory
- risk of product or demand changes creating excess from higher inventory
- supplier risk, thus manage multiple sources or carry inventory
So, maybe it is at least a 3-way balance: strategy, planning, execution.
The good news in all of the above is that reducing real replenishment times (that includes the time to recognize/respond to a problem, make the item, transport it, etc) reduces the size of random variations. (generally, the standard deviation or anticipated variation over N periods is SQRT(N) * the standard deviation in 1 period. So, if you can reduce your total response time from 4 weeks to 1, you can cut your anticipated variation in half).
Of course, the above mathematics only applies where you have a demand pattern that can be represented as a "normal" or bell curve distribution. Different approaches are needed where you have very irregular, but large, demands.
Nidhi Sakhuja: Hi, it was a healthy discussion happening here. Cost is the major issue for any supply chain management. I have got to know about a webinar on Profit volatility protector on 13th . For more details about this you can go to this link. http://bit.ly/sSGEfZ
Robert Cowan: Duncan, so basically in an ideal world if we are able to reduce replenishment times, we can reduce risk and make our supply chains more responsive! I guess then it remains a business decision on the cost of reducing replenishment times vs. the savings in inventory, the savings in risk exposure, and the added value it provides to our customers.
If this is something feasible, I think optimisation of the entire supply chain can only be achieved by ensuring excellent communication throughout the supply chain and by developing strong partnerships to make sure all are working towards the same "balance". i.e. to prevent one link in the chain ending up with all of the inventory, or all of the risk!!
Duncan Klett: Yes, Robert. I think that is an excellent summary. I especially agree with your point “excellent communication ... and strong partnerships.” Both help with improving execution and reducing total replenishment time (which includes the physical times to make and ship plus the logical time to detect and act).
Thanks for sharing this. Securing positive supplier relationships can seem like an unattainable goal at times . . . there are a lot of moving pieces that all have to fall into place. Models like the Vested Outsourcing model have grown in popularity lately, which proves that there are a lot of manufacturers who want to improve relationships with the people who get their products to market.
I think a lot of times the problem is that the suppliers and the OEM have different goals. Most new outsourcing efforts are driven by a desire to reduce costs, but if your sole driver is a lower price (by any means necessary) you can sometimes miss out on the bigger opportunities available to you if you and your supplier work together as a unit.