 Supply Chain Optimization in Lean/Six Sigma Environments
Inventory Optimization Software improves inventory positioning and reduces |
| "We have tended to use all our energy and Six Sigma science to "move the mean" to reduce order-to-delivery time to 12 days. The problem is, as has been said, 'the mean never happens' and the customer is still seeing variances in when the deliveries actually occur -- a heroic 4-day delivery time on one order, with an awful 20-day delay on another, and no real consistency. Variation is evil." -- Jack Welch, 1998 GE Annual Report. |
For many manufacturing companies, as global competition has increased, the basis of competition has spread from product features, total cost of ownership (including product price), and customer service capabilities to include Order-to-Delivery (OTD) response times. To maintain and increase market share, competitors have enticed customers with shorter and more predictable OTD response times. At the same time, companies have increased the complexity and uncertainty of their supply chains by: increasing product features and options; encouraging new product introductions and shorter product life cycles; and sourcing parts and manufacturing capacity from remote, global locations with longer and more variable supply lead times.
Order fulfillment managers are expected to make OTD response times shorter and more predictable within the reality of a large-scale, complex, and increasingly uncertain supply chain. Inventories play a critical role. In terms of inventory targets, the scale of the problem can reach over many million inventory parameter decisions driven by thousands of raw material components, which are stocked at hundreds of locations (supplier and/or plant locations); thousands of finished product configurations, which are stocked at hundreds of locations (plant, distribution center, and dealer locations); and the need to plan 26 to 52 weeks in advance. Uncertain variables and constraints include, among others, total demand per planning period, demand for each product configuration in each planning period, time-varying demand across planning periods, external supplier lead times and capacity, internal manufacturing lead times and capacity, and customer service targets.
At SmartOps, we are often asked how our optimization software and services complement a "Lean / Six Sigma" environment. Through our work with Lean / Six Sigma manufacturers, we have demonstrated our ability to help manufacturers model and implement strategies to significantly improve and stabilize OTD response times with significantly less total supply chain inventory.
With SmartOps, Lean / Six Sigma manufacturers are able to answer and implement solutions to the following questions:
- What OTD response times (mean and variation) are possible? At what cost and inventory levels?
- What are the drivers of OTD response times? What is the sensitivity of product availability to these drivers?
- What are the right mix and positioning of inventory that enable us to improve and stabilize OTD response times while minimizing total supply chain inventory?
- What inventory reduction is possible?
- Do we have the appropriate data and systems to implement inventory optimization and sustain product availability objectives?
Reduce and stabilize Order-to-Delivery response times -- Using the SmartOps MIPO enterprise application, integrated with existing ERP/MRP and APS systems, manufacturers are able to implement a dynamic, multi-echelon inventory placement strategy that enables faster OTD response times with much lower variability.
Improve inventory turns -- Inventory turns measured inside the plant could be 25, while the inventory turns when measured across the entire supply chain could be 3. SmartOps inventory optimization can improve overall inventory turns by determining and coordinating targets for all types of inventory (raw materials, in process, postponed goods, finished goods) as well as the "purposes" for carrying inventory, such as merchandising, cycle, pipeline, pre-build, and safety stock.
Manage variability outside the plant -- Inside the plant, process times and variability could be actively managed in a Six Sigma fashion, while often left unmanaged outside the plant are lead times, lead time variability, and demand variability, which drive significant inefficiencies and waste. SmartOps software directly models and quantifies the cost of supply and demand variability.
Manage inventory given capacity constraints -- Flexing production to align with demand, rather than stabilizing and smoothing production, could be the optimal choice to reduce unwanted inventory at other stocking locations. SmartOps helps to quantify those tradeoffs, provides visibility into demand-related inventory drivers, and accounts for time-varying capacity constraints.
Increase cross-functional planning and optimization -- Inbound supply and replenishment decisions should be coordinated across functions and departments (e.g., purchasing, transportation, warehousing, inventory control, and merchandising) to drive a lowest-total-cost perspective. SmartOps coordinates planning across functions to help minimize total chain costs for carrying and replenishing inventory over time.
Understand the reasons for inventory -- Because inventory is generally viewed as "waste" in a Lean environment, manufacturers often do not, by choice, have the internal expertise to plan and optimize inventory positioning when lead times and supply and demand variation require that inventory be held. SmartOps provides the capability to determine the lowest-cost, highest-service inventory positioning plan and enables analysis to identify the drivers of inventory in the supply chain.
Continuous Improvement for the Lean / Six Sigma Manufacturer
Lean manufacturing is only one element of an overall best-practice order fulfillment strategy. To achieve maximum product availability and customer service at minimum total chain inventory and cost, you must address more than just the manufacturing processes. SmartOps offers a way for Lean / Six Sigma manufacturers to expand efficiency benefits to the extended supply chain, by enabling companies to do the following:
- Actively manage the key drivers of total chain inventory and cost.
- Improve planning decisions when inventory must be held in the system.
- Gain a total chain inventory perspective to manage and improve supply chain performance.
- Improve inventory turns by determining and coordinating targets for all types of inventory.
