Creating transparency as basis for Supply Chain improvement

Transcription

1 Creating transparency as basis for Supply Chain improvement Article by Marc van Brunschot, Consultant Supply Chain Management Maurice Uiterweerd Consultant Supply Chain Management Breda, The Netherlands February 2007

2 Supply Chain management is increasingly viewed as a means of delivering competitive advantage, rather than just being a cost center for getting products to the customers. The process of making conscious and deliberate choices regarding product pricing, delivery lead times, customer service levels, etc., requires a profound insight into the value stream and the incremental cost for increasing performance. In order to truly utilize the supply chain as a competitive weapon, it is essential to make deliberate choices in the trade-off between the performance of the supply chain and the cost of the supply chain. To be able to make these choices, a transparent overview of the costs and performance of the supply chain is paramount: transparency is the cornerstone for supply chain improvement. If you have ever found yourself questioning how to specify the overall pressure for improvement, puzzled over the actual supply chain performance or in doubt over what really drives it, then please read on to find that you are not alone. Business information Often supply chain optimization projects start with creating a picture of the current situation, an overview acting as a reference point for planned improvements. As you may have experienced already, creating business transparency can be a tough challenge. More often than not, efforts are abandoned before they are finished, and the project is continued without a clear marker for the start. The first downside to this is the lack of control over a project s benefits, but there is more. In practice we find that the Business Transparency document was (and in some cases still is) used as The operational reference long after a project has been implemented and terminated. Creating transparency starts with gathering business information: profound insights in the characteristics of your business, without all the extra data that obscures transparency. In essence, it is the overview of what is happening in the supply chain and what is driving it

3 When initiating a process of data gathering, be aware of the typical pitfalls related to digging into the heart of the information administration and trying to compose a complete picture of the supply chain. The most common pitfalls that you can come across are the following: Data are inconsistent or incomplete Requirements are unclear or people chase data that is not available The right level of detail has not clearly been defined. People do not stick to the timeframe Commitment of people is limited. To prevent stepping into the pitfalls described above, a structured approach is required. Basically, three stages are identified in the process of creating business information. What do I need? Where do I find it? How can I get it? Turning data into information INFORMATION Tracker DATA > INFO FIGURE 1: 3-STEP APPROACH What do I need and where do I find it? The first step in creating business transparency is identifying what information is required and what information is available. Every business and each project is unique, but at the same time there are a lot of common aspects to all supply chains. The key is to identify those elements that are going to hold the means to characterize the complexity of the particular supply chain and the particular project objective

4 To be able to map the supply chain adequately, information on these subjects is required. VOLUMES Inbound (suppliers to plant) Primary (plant to DC) Inter-company Direct (plant to customer) Outbound (DC to customer) FINANCIAL Transportation costs Warehouse costs Production costs Inventory costs INVENTORY Inventory volume & value SKU overlap between DC s WAREHOUSE Storage capacity Storage characteristics Logistics equipment Personnel Contracts (outsourced) PRODUCTION Production portfolio Production capacity QUALITATIVE Customer service Lead-times Business requirements Future growth Customer strategy MASTER DATA Product codes Product grouping Unit of measure FIGURE 2 INFORMATION SUBJECTS Usually, the information displayed above is gathered from various sources. Quantitative information on volumes, inventory and the master data usually is well documented and can be retrieved from automated ERP systems. Also, financial information usually is available, although especially for financial data, the level of detail of data availability can be a concern. Qualitative information on for example the customer service levels or the intra-organizational processes are not always well-documented and sometimes are captured only in the minds of the workforce and have to be gathered through interviewing people. How do I make sure I get it? When the outline and scope of the required information is set and it is clear what information is needed and where it can be found, the next step is retrieving it from the sources. For this process there are a few key success factors. Shared workload Especially with larger projects, retracting the information from systems and from the organization can be a considerable amount of (manual) work. It is essential to assign responsibility to a limited number of key information holders, and to give them the necessary resources to collect the information. Realistic Timeframe In the same area as the former point, it is important to remember that data collection and checking for integrity and completeness is time-consuming work, and this is almost always underestimated. To keep all project members committed and motivated, the timeframe must be chosen carefully

5 Archiving and Progress Monitoring Especially in larger or multi-regional projects, the required data can be extensive. To prevent the project team from losing track of the big picture, it is important to very clearly document and monitor the data collection process. This way progress can be monitored and problems can be spotted in an early stage. Turning data into information Once all data has been received and archived, the final step is to link it all together and to create one coherent picture of the supply chain. Usually a general application like MS Access or Excel is used to set up the calculations. For detailed analysis, specialist applications such as CAST-dpm and SAILS can be used. The decision to use any application depends on the volume, complexity and specifics of each individual supply chain. When all information on the above described areas is checked and combined, a supply chain overview can be put together containing the physical flows, financial flows and information flows. Also, the organizational environment, customer service specification and external requirements are covered, automatically exposing any improvement areas in the current supply chain. Supplier Production Distribution Customer FIGURE 3 OVERVIEW - 5 -

6 Added value of Business Transparency Benefits of creating business transparency are plenty. Feelings and suspicions that stakeholders have regarding supply chain performance can be confirmed or discarded, weak and strong aspects of the supply chain are exposed and the complex supply chain issue that caused the improvement project to be created, is reduced to its (often very manageable) cornerstones. A broad spectrum of management information can be obtained using the collected set of business information that is created. A transparent overview of your supply chain can be a valuable tool to identify the real cost drivers in the supply chain, and focus on improving those areas that have the largest potential. Applying Activity Based costing principles, supply chain costs can be attributed to individual Product-Market-Combinations. Do not be surprised to find that some PMCs in fact do not create any value after deduction of all logistics and supply chain costs. Performance measurement using key performance indicators, creates the opportunity to not only assess current performance, but also to execute performance benchmarks, start trend measurements and set targets on those aspects of the supply chain that really add value. Conclusion In short, creating transparency in your business is the essential first step that can determine success and the added value of any supply chain improvement project, by offering: A reference for any discussion regarding supply chain costs or performance related issues An eye opener for current performance of the supply chain A baseline upon which any future improvement initiatives can be validated. If you have any questions or you want to react to this article you can contact the authors

7 About Groenewout CONTACT DETAILS The Netherlands (HQ) Groenewout Consultants & Engineers Mr. M. Uiterweerd P.O. Box DG Breda The Netherlands Telephone: +31 (0) Fax: +31 (0) USA Groenewout Consultants & Engineers S. Cain P.O. Box Georgetown (TX) USA Telephone: +1 (512) Fax: +1 (512) Groenewout is an international consulting company specializing in supply chain and logistics. Our core competency has been honed in supply chain optimization and detailed designs of manufacturing, distribution and fulfillment centers. We therefore place a great deal of emphasis on both the identification and realization of feasible opportunities. We pride ourselves on innovative and creative thinking to arrive the business improvements to our clients process needs. We desire a strong client participation to address a comprehensive solution. Our services provided include the focus areas supply chain management, sourcing, manufacturing, warehousing & distribution, transportation and assets & facilities. Although our work performance and technical expertise are recognized as the best in Europe Groenewout has also provided its services to clients in North and South America and Asia. Since its establishment in 1966, Groenewout has been privileged to count leading international companies from Europe, United States and Japan among its many clients. Groenewout s headquarter is located in Breda, The Netherlands. From our office in Warsaw we serve our customers base in central and east Europe. The North American office is located in Austin, Texas. During 2005 we will start our Spanish location in Barcelona in order to provide dedicated support to our southern European customers. For more information about our company we invite you to visit us on our website:

8 About the authors Mr. Marc van Brunschot has been working with Groenewout since 2004 as a consultant in Supply Chain related projects. Over the past years he has worked in a variety of international projects in the field of supply chain optimization, strategy development, outsourcing & tendering support and network design, for a range of clients that are global business leaders in their industry. Before joining Groenewout, Mr. van Brunschot worked for OGD, a Dutch IT deployment company. Mr. van Brunschot has completed a Master of Science curriculum at the Eindhoven University of Technology in Industrial engineering & Management Science with a specialization in Supply Chain Management. Mr. Maurice Uiterweerd joined Groenewout in His experience is diverse: transportation management, supply chain network optimizations, implementation management (planning tools, Logistics Service providers) and tendering. Having started his career at Tyco Electronics as Supply Chain Analyst, he is now using his experience in supply chain analysis and improvement programs for various international customers. After having completed a logistics business school, he has continued his education at Nijmegen University with a masters in Business Administration (major: Strategy, Marketing and Distribution). Recently he has completed the APICS certification course, focusing on production and inventory management. If you have a question or want to react on this white paper, you can contact Groenewout by Uiterweerd@groenewout.com - 8 -