ESSENTIAL GUIDE TO THE SUPPLY CHAIN

Transcription

1 ESSENTIAL GUIDE TO THE SUPPLY CHAIN

2 Copyright Statement All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, recording, broadcasting or by any other information storage and retrieval system without written permission from the Logistics Learning Alliance Limited.

3 CONTENTS PAGE WHAT IS THE PURPOSE OF THIS GUIDE?...1 WHAT IS A SUPPLY CHAIN?...2 What Is Supply Chain Management?...5 WHY IS SUPPLY CHAIN MANAGEMENT IMPORTANT?...8 HOW A SUPPLY CHAIN WORKS Decoupling point 1: Make and deliver to stock Decoupling point 2: Make to stock Decoupling point 3: Assemble to order Decoupling point 4: Make to order Decoupling point 5: Engineer to order Inventory considerations Profile of activity Manufacturing Process Order Cycle Time HOW SUPPLY CHAIN PERFORMANCE IS MEASURED Supply Chain Performance Metrics Supply Chain Delivery Reliability Supply Chain Flexibility and Responsiveness Supply Chain Costs Supply Chain Asset Management Efficiency Delivery Performance Order Fulfilment Performance Fill rate Order fulfilment lead time Perfect order fulfilment Supply chain response time Production flexibility Total logistics cost... 23

4 Value added productivity Warranty cost Cash to cash cycle time Inventory days of supply Asset turns Cost to Serve HOW THE SUPPLY CHAIN CAN BE IMPROVED Making Demand Visible Supply Chain Synchronisation Compressing Time Order Cycle Time Process Cycle Time Flow Time Reducing Complexity Breaking Down Barriers Understand the Supply Chain Process Improve Communication Breakdown Functional Barriers Conflicts of Interest Trade-Offs Trade-Off Levels Build Trust Reduce the Impact of Inaccurate Forecasts Balance Supply and Demand Effective and Efficient Supply Chain Maturity Grid Information as an Enabler CLOSING THOUGHTS... 44

5 WHAT IS THE PURPOSE OF THIS GUIDE? This guide is structured in a way that will give you an overview of supply chain principles. The purpose of the guide is to create an awareness of the key components of the supply chain. It is not designed to give you an in-depth knowledge and understanding of the subject. You will find the guide a useful introduction to the area of supply chain. It will give you a broad understanding of how effective supply chain management supports, and helps deliver, an organisation s business strategy. The guide begins by explaining the fundamentals of supply chain management and how a supply chain works. The way in which product and information flows through the supply chain is examined. Attention is paid to the issue of complexity and the importance of visibility in the supply chain is demonstrated. A number of basic concepts are explained and these set the framework for the final part of the guide, which deals with performance measurement and supply chain improvement. Performance needs to be measured both within organisations and between organisations in a supply chain. A number of metrics are listed, leading the reader to the final part of the guide, namely the targeting of potential areas of supply chain improvement. Major benefits can accrue through the identification and exploitation of such improvement opportunities. The guide suggests some of the areas that will deliver benefit for organisations.

6 WHAT IS A SUPPLY CHAIN? At first glance there is nothing really complicated about a supply chain. If you are going to sell something, then clearly it must be made and then delivered to the customer. Of course the difficulty of the task will depend on the product complexity; a car is much more complex than a pen. The location of the customer will also help or hinder; reaching a customer in London from your distribution centre in Holland will clearly be easier than reaching the customer in Vladivostok. Start to explore what lies behind these simple activities and it does not take long to realise that the costs of supporting them could vary greatly from one company to the next. And of course how well you perform the activities will surely determine whether the customer returns to buy some more. Getting it right therefore could have a dramatic impact on the success of an organisation. The simplest supply chain is one where the consumer places an order and there is sufficient time available to enable the factory to make and deliver the product. If there were also time available for suppliers of parts or components to also deliver then the supply chain would need no inventory at all. This would be a true Make to Order supply chain. A Simple Supply Chain

7 Gradually complexity gets added. Consumers require product to be available when they want it and so Points of Sale (such as retailers) get added. In time the retailers create distribution centres to supply their outlets. As the retailer becomes more demanding the supplier decides to create their own distribution centre holding inventory of finished products. Later they add a materials warehouse to ensure supply of materials for the production line. Finally, suppliers too may choose to hold inventory in a warehouse to meet the demands of the factory.

8 Adding Complexity Complexity is created for a variety of reasons: To overcome uncertainty and variability within processes To aid the maximisation of factory capacity utilisation To improve delivery reliability To reduce the risk of product becoming obsolete or passing the sell by date. To overcome the lack of trust between supply chain partners To aid the maximisation of transport capacity utilisation To facilitate the attainment of functional objectives To compensate for long cycle times To enable product to made in efficient batch

9 sizes To protect against the variability in demand To compensate for the seasonality in demand and/or supply To minimise factory changeover costs To overcome the lack of information To provide product variety To minimise the impact of poor communication To protect against the inaccuracy of forecasts To allow silo thinking instead of process thinking. Most of all complexity gets added to ensure product is available to the next stage of the supply chain. Product availability is the key linking theme for supply chain management. WHAT IS SUPPLY CHAIN MANAGEMENT? Supply chain management commences with understanding consumer demand. This is the demand that arises from the actual use of the product. Customer demand may be different in that this arises from your immediate customer, such as a retailer, before it is then sold to a consumer. At the other end of the chain is supply. Again this can be taken back as far as possible to the providers of materials or to growers. Supply chain management is about connecting this supply to the demand.

10 There are a number of flows: The primary goods flow connects supply to demand. During this flow product may change format several times from raw material, into work in progress before becoming a finished product. There is also a reverse goods flow, covering the return of defective product or the recycling activity. Finally there are information flows that act as a trigger to the activity (the consumer order) and accompany the product to control and monitor the flow. As product progresses down the supply chain it typically passes through a number of functional activities involved with buy, make, move and sell. Often it will pass through functions, such as purchasing or manufacturing, more than once. Further as it progresses a number of barriers are encountered: Functional barriers as activity is moved from one function to the next Company barriers as ownership transfers from one company to the next International barriers as the scope of the activity reaches across national borders. Having considered what the supply chain is let s examine the scope of activity associated with it.

11 SUPPLY CHAIN SCOPE STRATEGIC TACTICAL OPERATIONAL The scope of the supply chain spans many business activities: The supply chain is greatly impacted by the type of product and the markets a company serves. These two aspects are the heart of the business strategy so a supply chain strategy must support a business strategy. The requirements of customers particularly linked to time influence supply chain design. The design of the supply chain network, deciding on the channel design to support different customer needs and the inventory policy that will position inventory in the appropriate places. The supply management activity involved with acquiring materials and converting them in the production process into finished goods The demand management activity involved with capturing and processing orders and the warehousing and transport activity to ensure product is delivered when it is required.

12 The support activities associated with people management, resource and systems management, process and performance management. In summary supply chain management is about: Optimising flows from original source to point of consumption Connecting supply and demand in an integrated, coordinated manner Managing variability and uncertainty Synchronising activity so that plans and movements of goods are linked Making consumer visible to all partners in the supply chain process Reducing complexity, both in product variety and the infrastructure network Compressing time throughout the supply chain Breaking down functional, company and international barriers Importantly, it is about making product available Remember that supply chains have been in existence for some time. Customers receive product, use it and often come back for more, so supply chains are already operating. Supply chain management is about working together, in a different way, to satisfy consumer requirements.

13 WHY IS SUPPLY CHAIN MANAGEMENT IMPORTANT? Throughout the world there is increasing pressure to reduce the price of goods to consumers. This pressure comes from three sources: Consumers themselves Competitors as they reduce prices in an attempt to take market share Economic pressures from governments. The usual response to this price pressure is to seek to reduce input prices on materials. This has resulted in the expansion of global sourcing. Few supply chains do not have an international element in them. However, the ability to reduce input prices at the same rate as output prices is very limited and this will result in a reducing profit margin. The key to managing this reducing gap is supply chain management. Supply chain activity has a significant impact on the profit and loss statement, the balance sheet and the return on investment calculation. Equally important is the way customers decide to allocate their demand to suppliers.

14 Inputs My Company Demand Share Outputs Performance SERVICE Preferences Suppliers COST QUALITY Value Market Response Customers CYCLE TIME Market Size Outputs Inputs Competitors Demand Share If the customer doesn t perceive the product has value then the customer will not buy it, regardless of what the supplier thinks. The customer will then be more likely to buy from a competitor. The market demand will be shared between your company and its competitors. The basis of how it will be shared will dictated by the value that customers receive from purchasing and using your product and services compared with your competitors. In order to satisfy the demand a company must convert inputs acquired from suppliers into outputs. Since many of the suppliers will also be suppliers to your competitors the way in which you convert them into outputs will determine how successful you will be. This depends upon your value creation process. In simple terms a good test of value is whether a customer will pay you for performing that activity. Service is key to the customer value perception. Clearly, you can create value through providing a service that no one else does. Quality in the sense of conformance to requirements or fitness for purpose can also add value. Cost or how much it costs a customer to do business with you can also add value. This does not necessarily mean lower prices. It might be, for example, that your service has more reliable and consistent lead times allowing your customer to hold less safety stock. Clearly this would reduce the cost of doing business for your customer. Finally cycle time can also be a route to improving value. If you can bring new products to the market quicker or respond to changes in the business environment more swiftly this has potential to add value to the customer.

15 There is a clear relationship between these value criteria that can be expressed as follows: Value = Quality x Service Cost x Cycle Time Treat the components of value like an equation. It is possible to see that if you increase quality and the remaining three factors stay the same the overall value will increase. Likewise if cycle time is made longer and the remaining factors stay the same then the overall value will decrease. Supply chain management offers opportunities that can lead to improved quality and service whilst at the same time reducing cost and cycle time with the consequence of securing a fourfold hit on increasing value. This makes it a very powerful competitive weapon. HOW A SUPPLY CHAIN WORKS In order to understand the mechanics of the supply chain in detail it is necessary to firstly understand some basics of inventory management. The two basic components of inventory are: - Replenishment or cycle stock sometimes called pipeline stock Safety or buffer stock

16 Replenishment or pipeline stock comes from ordering policies. The level of stock is determined by the quantity and frequency (the how much and when). If demand is 5200 per year and one order is placed with the supplier per year then 5200 would be ordered. If, however, orders were placed weekly each order would be for 100 on average. Pipeline stock can be reduced by ordering more frequently. Safety stock is held as a "cushion" against variations/variability of suppliers and/or customer demand. It is the prime source of stock availability to satisfy customer demand/service. If there are a high levels of uncertainty in supply and demand, high safety stocks would be needed. If there were no uncertainty, no safety stock would be needed. Uncertainty is the mother of inventory. As we have seen a supply chain crosses several company boundaries. Traditionally each company within the supply chain has managed and controlled the activity independently of other companies. The demand pattern it experiences is derived directly from the orders that the next downstream organisation places upon it. In turn orders are placed on the supplier immediately upstream of them. The retailer obtains their demand pattern from the consumer and would hold safety stock to protect against the uncertainty in supply and demand. Typically the wholesaler would obtain their demand from the retailer and again hold safety stock against the uncertainty in supply and demand. This pattern is repeated to cover all parties in the supply chain. In such a situation each level in the supply chain is managing their activity entirely independently from other levels. Careful examination of the situation will show that considerable amounts of safety stock are introduced simply because different levels are not clear about what other levels are doing. The boxes in the diagram below illustrate the duplication of stock.

17 If we consider the situation in more detail further problems can be highlighted. At level 4 small demands will occur, each depleting the stock level until the re-order level is reached. At this point an order is placed upon the next downstream supply chain participant, level 3. Some time will elapse (the order cycle time) before the order will be received resulting in a big increase in stock. ring activity on level 3 would appear as follows: Stock Rol Time The stock would remain at a constant level until the first order from level 4 was received. Although stock is depleted it has not reached the re-order level and the stock remains constant until the next order is received. This order depletes the stock sufficiently to hit the reorder level. An order is placed on level 2. This pattern is repeated at the next level.

18 Stock Rol Time The impact is that demand becomes less frequent and occurs in bigger "lumps". In effect we have converted a fast moving item into a slow mover. The problem worsens if stock is managed on a weeks of stock basis and changes occur in a demand pattern. Suppose level 4 seeks to hold two weeks of stock and demand is currently 100 per week. LEVEL 4 DEMAND/WEEK 100 STOCK 200 If demand now increases by 10% to 110 per week, the decision making process would go as follows : LEVEL 4 DEMAND/WEEK 110 STOCK LEVEL REQUIRED 220 CURRENT STOCK 200 If the lead-time was one week, level 4 would order 110 for the weeks demand plus 20 to increase the stock to the level acquired. This would give an order of 130 to be placed upon Level 3. The Level 3 decision process then becomes:

19 LEVEL 3 DEMAND/WEEK 130 STOCK LEVEL REQUIRED 260 CURRENT STOCK 200 As a consequence the order placed will be 190, 130 to cover the weeks demand and 60 to increase stock. The pattern is repeated to mean that level 2 places an order for 370, 190 for demand and 180 to increase stock. Level 1 would issue instructions to make 910. The change in demand at retailer level has been magnified at each level giving an enormous increase at the factory. In practice, of course, the changes would be disguised by the fact that several level 4 players would buy from level 3, and isolating a particular order through the entire supply chain would probably be impossible. In reality demand for upstream members of the supply chain is a compilation of the orders from the companies downstream. Distortions in demand information can and do occur as we move further away from the end consumer. Both the perceived demand seasonality and forecast error can increase as we proceed upstream in the supply chain. The situation can be worsened when there are supply shortages. Frequently these can encourage customers to over order in the hope they will get a larger part of the share out of the limited supply. This in turn creates variability in supply that of course results in a need to increase safety stocks. In order to increase safety stocks it becomes necessary to order more and hence distort demand further. This phenomenon is referred to as the bullwhip effect. A small variance in actual consumer demand can crack the whip for upstream suppliers, causing them to alternate between overproduction and downtime situations. The consequences of this whole process can be summarised as follows: Stock held at several points Accumulation of safety stock Complex procedures for co-ordination Long overall lead times Focus on own activity rather than overall supply chain Unreliable delivery times Poor response to market changes

20 High unbalanced stock High capital employed High costs Poor service Erratic utilisation of resources Overall the impact has been to create real difficulties in trying to achieve a competitive cost/service balance. Understanding how demand becomes amplified within a supply chain is an important first step to understanding how a supply chain works. A different perspective can be gained by considering the supply chain as a combination of a supply process and a demand process. The supply process is the upstream activity, whilst the demand process is the downstream activity. The buffer between the two is usually the major stock point. Downstream (to the right) no further stocks would be held and upstream (to the left) stock would only be held if they were economically justified. FORECAST DRIVEN ORDER DRIVEN SUPPLY PROCESS STOCK POINT DEMAND PROCESS PUSH PROCESS PULL PROCESS

21 The demand process is driven by the customers order and this pulls the product through the supply chain. The supply process is driven by a forecast with the intention of pushing product to the stock point in anticipation of future demand. This major stock point is referred to as the decoupling point, since it decouples the order and forecast driven activity. The decoupling point position can alter depending upon the market requirements and the product characteristics. Five different decoupling point positions cover most product/market requirements. These are illustrated below: Decoupling Points DECOUPLING POINT 1: MAKE AND DELIVER TO STOCK The customer places their order and it penetrates into the supply chain to the point where stock is held. The stock is removed and sent to the customer to satisfy the order. All of the activity to the left of the decoupling point is designed to replenish the stock of product. A typical example of this would be a retailer of consumer goods that holds stock in all their stores.

22 DECOUPLING POINT 2: MAKE TO STOCK This is similar to decoupling point 1, but the stock has been moved further upstream usually into some form of central holding, usually on the manufacturing site. Again stock is removed to satisfy the customer order and upstream activity is conducted to replenish the stock. A typical example would be a mail order company holding central stock or a company using a centralised regional stockholding. DECOUPLING POINT 3: ASSEMBLE TO ORDER In this configuration the stock point has been moved further upstream. No stocks of finished goods are held. The stock point holds stock of work in progress, sub-assemblies or components. When the customer places an order it penetrates into the supply chain as far as the stock point. Upon its receipt final assembly is scheduled and once completed it is shipped to the customer. Activity upstream is conducted to replenish the stock of sub-assemblies or components. There are many examples of this configuration. Probably the most commonly talked about one is Dell computers, who satisfy customers orders by assembling them from stocks of modules, such as mother boards and disk drives. Increasingly motor vehicles are made like this. DECOUPLING POINT 4: MAKE TO ORDER Again the stock point has been moved further upstream so that only stocks of raw materials are held. On receipt of the customer's order firstly the manufacture of sub-assemblies is planned and then the final assembly to allow the product to be shipped. The upstream activity replenishes the stock of raw materials. Good examples of this configuration would be furniture, clothing and some low volume production vehicles. DECOUPLING POINT 5: ENGINEER TO ORDER Sometimes this is called design or build to order. At this point the supplier does not hold stock of the raw materials. When the customers order is received the product is designed, the raw materials ordered, production and assembly planned to enable the product to be shipped. Ship-building is a good example of this decoupling point position. The five decoupling point configurations represent significantly different ways that a supply chain operates. If we relate this position to the sub-processes of source, make and deliver you will notice that decoupling point 1 has the main stock point at the start of the deliver process. Decoupling point 5 is located at the end of the source process. The remaining three intermediate points are located at different stages of the make process.

23 Choosing the exact location of the decoupling point will determine the performance profile of the supply chain so it needs to be done carefully. The factors that influence the position include: Inventory considerations Profile of activity linked to product and market conditions Manufacturing process considerations Order cycle times INVENTORY CONSIDERATIONS There are several aspects relating to inventory that need to be considered. Firstly as product progresses down the supply chain value is added to it. For example a car fully assembled and ready to drive off is worth more than a kit containing all the parts that you need to assemble. Since value has been added it is more expensive to hold stock at DP1 than it is at DP5. Depending on the product this could be a considerable difference. Secondly, in general as we progress down the supply chain the amount of variety increases. In other words the number of product numbers increases. For example at DP3 we might be holding stock of 2 litre engines. At DP1 we would holding stock of yellow 2 litre cars, of red 2 litre cars, of blue 2 litre cars. Linked to value this will mean we hold more inventory at DP1 at a higher value. Thirdly, the risk of obsolescence increases as we move down the supply chain. Using the engine example we note that at DP1 a yellow 2 litre car can only be used to satisfy an order for a yellow 2 litre car. However at DP3 the 2 litre engine could be used to satisfy an order for a yellow car, or a red car, or a blue car. This obsolescence factor becomes particularly important when product life cycles are short. Hence the reason why Dell uses DP3! PROFILE OF ACTIVITY Earlier we explained that the decoupling point represents the point in the supply chain where order driven activity is separated from forecast driven activity. There is an essential difference between these two types of activity. Order driven activity is based upon the known requirements of the customer. Usually this means that we are managing certainty. There can be situations, particularly in decoupling point 5, when customers adjust the specification as manufacturing is occurring, but on the whole the requirements are known. On the other hand forecast driven activity is an attempt to manage uncertainty. Usually historical demand is used in conjunction with mathematical techniques to project the pattern of demand into the future. Whilst attempts are made to reduce forecast error it is highly unlikely it will be totally eliminated. It is often said that the only certain thing about forecasting is that you will be wrong!

24 If the market demand is very irregular with erratic variations in the pattern, forecasting will be more difficult and inaccurate. In such cases the point will need to be moved upstream so that as much of the activity as possible can be conducted in response to a firm order. Likewise if the product is of high value. Holding stock would be expensive, so making to order would be financially advantageous. MANUFACTURING PROCESS Clearly, it is beneficial to run as much of the supply chain as possible under conditions of certainty. Hence locating the decoupling point as far upstream as possible is attractive. If however there are long manufacturing lead times, or that the costs of changing over machinery to run a different product are high, this will push the point downstream towards the customer. Similarly if it is difficult to control the manufacturing process the point will also need to be moved downstream. ORDER CYCLE TIME All the indications so far point towards moving the decoupling point upstream. Indeed decoupling point 5 would be best. As we move the point upstream it will increase the length of time to service a customer s order. In other words the order cycle time will increase. As this time increases then the greater will be the chance of unreliability developing. If the required order cycle time is short compared with the sourcing and making times, then the decoupling point will tend to be pushed downstream. If the order cycle time is long compared with the sourcing and making times then the point can be moved upstream. The decoupling point position will be determined by a trade-off analysis considering the cost and service implications. The outcome of the analysis is one of the most important business decisions, since it will form the basis for how the supply chain is structured and dictate the requirements for the planning and control processes.

25 HOW SUPPLY CHAIN PERFORMANCE IS MEASURED There are many ways that supply chain performance can be measured. Within this guide we will look at two ways: Performance metrics Cost to serve. SUPPLY CHAIN PERFORMANCE METRICS Different companies, functions of an organisation and different people in the same supply chain hold different views about what needs to be achieved. If they are measured on different targets and objectives, this will be a key driver in stopping the flow. As a business strategy is passed down through the tactical planning levels down to the operational levels that need to deliver it, it needs to be translated into some measures so the business is able to track how well that strategy is being delivered. This process enables the business to focus on areas of weakness and support them to help deliver the strategy successfully. It also allows the business to become more efficient in areas that are over-performing. Supply chain performance metrics are the standard measures that indicate how well a supply chain performs within certain categories of performance known as performance attributes, for example delivery reliability, flexibility and responsiveness, cost, and asset management. These can be looked at in further detail: SUPPLY CHAIN DELIVERY RELIABILITY Supply chain delivery reliability is the performance of the supply chain in delivering: the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer. SUPPLY CHAIN FLEXIBILITY AND RESPONSIVENESS Supply chain flexibility and responsiveness reflects the agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage. Supply chain responsiveness is the velocity at which a supply chain provides products to the customer. SUPPLY CHAIN COSTS Supply chain costs cover all the costs associated with operating the supply chain.

26 SUPPLY CHAIN ASSET MANAGEMENT EFFICIENCY Supply chain asset management efficiency represents the effectiveness of an organisation in managing assets to support demand satisfaction. This includes the management of all assets, fixed and working capital. The first two performance attributes have a customer focus and are seen as having an external orientation. The later two have an internal focus and can be influenced from within the organisation. Once performance attributes are established organisations can assign metrics to them. Some examples of metrics and their corresponding performance attributes are demonstrated below: Performance Metrics The list of metrics supplied on the left hand side is by no means exhaustive. In fact each one of these shown can be broken down into further detail. The Supply Chain Operations Reference manual supplied by the Supply Chain Council offers a great variety of metrics. We can look at the given examples and relate them to the four performance attributes. The definitions of the performance metrics are given below. DELIVERY PERFORMANCE Delivery performance is the percentage of orders that are fulfilled on or before the customer s requested date.

27 ORDER FULFILMENT PERFORMANCE FILL RATE Fill rates are the percentage of ship-from-stock orders shipped to customer request. For services, this metric is the proportion for services that are filled so that the service is completed. FULFILMENT LEAD TIME Order fulfilment lead times are the average actual lead times consistently achieved, from customer signature/ authorization to order receipt, order receipt to order entry complete, order entry complete to start-build, start build to order ready for shipment, order ready for shipment to customer receipt of order, and customer receipt of order to installation complete. PERFECT ORDER FULFILMENT Perfect order fulfilment is a perfect order, defined as an order that meets all of the following standards: Delivered complete - all items on the order are delivered in the quantities requested. Delivered on time to customer s request date, using your customer s definition of ontime delivery. Documentation supporting the order including packing slips, bills of lading, invoices, etc., is complete and accurate. Perfect condition - faultlessly installed (as applicable), correct configuration, customerready, no damage. SUPPLY CHAIN RESPONSE TIME The responsiveness lead time, minimising elapsed time, including all delays, to receive a customer order and transform resources into goods and services, through to the point of customer receipt. PRODUCTION FLEXIBILITY Production flexibility falls into two categories. Firstly upside flexibility: The number of days required to achieve an unplanned sustainable 20% increase in production. Secondly downside flexibility: The percentage order reduction sustainable at 30 days prior to delivery with no inventory or cost penalties.

28 TOTAL LOGISTICS COST Total logistics costs are the sum of supply-chain related MIS, finance and planning, inventory carrying, material acquisition, and order management costs. VALUE ADDED PRODUCTIVITY Value-added employee productivity is calculated as total product revenue less total material purchases total employment (in full-time equivalents). WARRANTY COST Warranty costs include materials, labour and problem diagnosis for product defects. CASH TO CASH CYCLE TIME Cash-to-cash cycle time is calculated as inventory days of supply + days sales outstanding average payment period for materials (time it takes for a dollar to flow back into a company after its been spent for raw materials). For services, this represents the time from the point where a company pays for the resources consumed in the performance of a service to the time that the company received payment from the customer for those services. INVENTORY DAYS OF SUPPLY Inventory days of supply equals the total gross value of inventory at standard cost before reserves for excess and obsolescence. ASSET TURNS Asset Turns are calculated as Total gross product revenue Total net assets. This links back to our understanding gained of how the supply chain impacts the financial performance of an organisation. The lower our asset turns - the lower the investor return. Different parts of the same organisation may of course require different metrics. The business performance is then measured against the agreed metric. Areas of weakness can then be focused upon and improved to add value and improve business performance. Metrics are the tool that helps an organisation deliver its objectives through its departments and people and follow the age-old rule if you can t measure it, you can t manage it. For any supply chain configuration it is important to determine which performance attributes are important. For an organisation trying to become a cost leader greater attention will be placed on the internal measures. Conversely, an organisation placing customer service at the forefront of its strategy will place greater emphasis on the external attributes. Within each attribute area it is then necessary to select the most appropriate performance metrics that will enable progress to be measured on the way to achieving the required business objectives.

29 COST TO SERVE So far we have examined how supply chain activity spans boundaries between functions and companies. When we considered the scope of supply chain management we stressed the importance of considering different product and market combinations. In reality any organisation has several supply chain combinations that it must manage as an integrated whole. Each one of these combinations must co-ordinate the planning, sourcing, making, deliver and return activity by carefully positioning the decoupling point so that the right balance between forecast driven and order driven activity is obtained. This will require careful consideration of the relationship between order cycle time and the overall supply chain response time. As a result of this relationship the reliance that must be placed on forecasting will become apparent and through the size of forecast error the level of inventory that will need to be held to provide the level of customer service. You will recall from our scope triangle that determining customer service requirements is key. The nature of the service commitment that a company makes to its customers is a key part of the marketing strategy. It is also the fundamental starting point for supply chain strategy. It is not uncommon for different service offers to be provided to different customer groups. The days of a one size fits all policy have gone. This service offer will usually focus on order cycle time and on time in full performance (OTIF). OTIF measures the amount of an order that was satisfied combined with whether it was delivered at the time promised. The success of the customer service offer will determine what share of demand we achieve through the competitive framework model. We have also explored how the order cycle time influences the position of the decoupling point that in turn decides how the supply processes will be run. In turn the combination of the supply and demand processes dictate the amount of inventory that will be held at the decoupling point. By considering all of these aspects it is possible to determine a cost to serve for a particular supply chain combination.

30 CHANGE CONDITIONS OF SUPPLY CHANGE CUSTOMER SERVICE OFFER SOURCE MAKE DELIVER C C O O S S T T T T O O S S E E R R V V E E For each combination the range of supply chain activities performed must be identified. Typically these will include: Order capture and processing Procurement Manufacturing Primary transportation Inventory investment Warehousing Secondary transportation For each activity a cost driver is identified. The particular driver will depend upon the operation, but examples would be: Order capture orders or order lines Warehousing handling unit Transportation Weight, cube, order size Each activity is then defined on the basis of fixed and variable costs. The variable costs are calculated by using the cost driver and multiplying by the level of volume for the supply chain combination under analysis. Using this approach it is possible to allocate costs in a number of different ways such as:

31 By activity, e.g. warehousing By channel, e.g. direct deliveries from factory to customers By product group This allows a cost to be determined for providing a particular service offer to a group of customers. This cost is known as the cost to serve. Conducting a cost to serve analysis often shows huge differentials between different supply chain combinations. Often these differences have not been previously recognised and therefore decisions have been made without understanding the supply chain implications. Clearly, if the customer service offer is changed or the conditions of supply are altered a different cost to serve will result. More importantly by knowing what the cost to serve is for a supply chain we can explore ways that could reduce it without reducing the customer service offer. HOW THE SUPPLY CHAIN CAN BE IMPROVED We have explored what the supply chain is and how it works. We have looked also at how performance can be measured. Let s now turn our attention to how it can be improved. The improvements we will look at are: Making demand visible Synchronising activity Compressing time Reducing complexity Breaking down barriers Doing the right things Having looked at each of these in turn we ll introduce a tool that will help establish where you are as an organisation on the improvement road. Finally we ll highlight the importance of information as part of the improvement process. MAKING DEMAND VISIBLE Demand amplification emphasises the importance of making the consumer demand pattern visible throughout the chain of activity. In addition to demand data there is other important data, which needs to be obtained from the customer. Delivery times, delivery reliability, order confirmation time and flexibility to adjust orders, all need to be clearly defined and communicated throughout the supply chain.

32 Improvement to the cost/service balance can be achieved through: Synchronising objectives across functions and corporate boundaries. Linking objectives to customer requirement. Providing an integrated structure to control the material flow. Using these objectives and data will enable a foundation to be built, which will enable the correct supply chain structure to be selected. The changes will lead to a more product/market-orientated structure, which can lead to substantial changes to manufacturing and distribution strategy as well as to the product design. If demand is visible throughout the chain, the reactive positions can be converted to anticipation. Suppose that it takes one week to move product between each level. If product is required at the retailer for week 5, then it must be at the wholesaler for week 4, at the distributor in week 3 and available at the factory in week 2. The anticipation removes uncertainty, so that intermediate safety stocks held to protect against uncertainty in supply and demand can be removed. The consequences of these actions are very clear. Firstly, there will be a considerable shortening of lead times and improvements in the lead time reliability. Secondly, the ability to respond to changes is enhanced by the increased flexibility. Finally, there will also be a substantial cost reduction. Overall we will have created the opportunity to not only improve service, but to reduce costs also.

33 SUPPLY CHAIN SYNCHRONISATION The decoupling point position has a major impact of the way we balance supply and demand. Of equal importance to this balancing process is the way we establish the planning processes. The following key factors must also be taken into consideration when specifying planning processes: Planning periods for inventory and forecasts Planning lead times over which outputs from the plan are put into action Product structure; the level of detail at which planning is done, time periods for forecasting and planning, and the horizon over which forecasts are maintained. Buying, manufacturing and shipping batch sizes These points can be summed up as setting a consistent set of rules for the supply chain. Each element must be understood and the associations between them resolved, particularly as various elements often do not operate in harmony. Clearly there is a need to synchronise the elements of an organisation into a consistent way of working that has internal harmony. Synchronisation of the supply chain is extremely important in this context.

34 Supply Chain Synchronisation The illustration shows a supply chain comprising of source, make, deliver and customer receiving product. A set of rules exists that determine the service and inventory performance for this supply chain. These come into play at each link in the chain. To set up the supply chain rules or synchronise the supply chain, each of the key factors must be understood. However the greater the number of people, functions and departments are involved, the greater the chance for disconnection within the chain exists. Disconnections may exist between marketing and production or cross any combinations of functions. Within an organisation synchronisation of these key factors will help bring consistency and internal harmony. COMPRESSING TIME Understanding the impact of lead times on the supply chain activity is an important part of analysing, configuring and improving supply chains. Different people and organisations often have very diverse views on exactly what lead time is and it is for this reason that we define several different times rather than using the generic term.

35 ORDER CYCLE TIME Firstly, we have order cycle time. We define order cycle time as the time that elapses between a customer deciding a need to place an order through to the time that the goods are received and made available for issue. This includes the components shown in the diagram below. MOVEMENT SUPPLY CHAIN LEVEL ONE SUPPLY CHAIN LEVEL TWO SUPPLY CHAIN LEVEL THREE ORDER TIME CONSUMER ORDER NFORMATION Order cycle time can also be viewed as the sum of movement time and information time. Information time refers to the time it takes for the order to be raised and transmitted by the customer to the supplier and then the time it takes the supplier to process the order. Movement time refers to the time it takes to move the product from the supplier to the customer. This movement time is important in deciding the position of the decoupling point. PROCESS CYCLE TIME In a similar way that customers place orders in a supply chain other supply chain players have to order from their suppliers. This is what we call process cycle time and is defined very much like order cycle time. PROCESS PROCESS ORDER MOVEMENT MOVEMENT MOVEMENT SUPPLY CHAIN LEVEL ONE PTRIOMECESS CYCLE TIME SUPPLY CHAIN LEVEL TWO PTRIMOECESS CYCLE TIME SUPPLY CHAIN LEVEL THREE O T R IM D E ER CYCLE TIME CONSUMER PROCESS PROCESS ORDER s Learning Al 2013

36 FLOW TIME Supply chain flow time is also important when analysed alongside order cycle time. Flow time represents the time a product is typically present in the supply chain. The easiest way to appreciate this is to think about "stapling yourself" to a product at the very start and then staying with it until it reaches your customer. Throughout this journey you would experience several movement types either through production or transport, and would rest many times as inventory in a warehouse. The diagram below illustrates such a journey. PROCUREMENT PROCUREMENT TO TO STOCK STOCK Supplier Component Factory Subassembly Factory Final Assembly Factory 28+4 DELIVERY DELIVERY TO TO CUSTOMER CUSTOMER 5+1 Warehouse Distributor Retailer = 256+? Notice the figures at each stage. The first figure represents the average time spent at that stage. The plus or minus figure then provides the minimum and maximum stage time. The total at the end is then the summation of the averages plus or minus a range depending upon each stage time. We therefore define flow time as being equal to total movement time plus total stock time. The diagram below shows the breakdown. FLOW TIME TIME TIME TIME PROCESS MOVEMENT STOCK TIME PROCESS MOVEMENT STOCK TIME ORDER MOVEMENT SUPPLY CHAIN LEVEL ONE PROCESS CYCLE TIME SUPPLY CHAIN LEVEL TWO PROCESS CYCLE TIME SUPPLY CHAIN LEVEL THREE ORDER CYCLE TIME CONSUMER

37 Flow time does not include any information times. This is because this activity is being performed in parallel to the physical activity. REDUCING COMPLEXITY The expansion of product ranges is a feature of the world we live in today. As ranges are expanded there is usually a smaller increase to profitability. The usual methods of costing used by many companies do not reflect the impact of: Rates of demand Levels of supporting inventory Changeover times in manufacturing Costs of order processing and sourcing Quite often fixed costs or overheads are apportioned based on average rates of throughput. ABC Analysis (also called Pareto or 80/20 analysis) often reveals that the A items whilst typically only consisting of 20% of the range contribute 80% of the revenue. In addition the rate of throughout will be high and the level of volatility will be low and quite manageable. On the other hand the C items will be 50% of the range and contribute only 5% of revenue. The average rate of sale will be low and they will be very volatile and unstable requiring proportionally more inventory investment. Often the functions operating in the supply chain choose to ignore these implications and pursue their own functional efficiencies. An example might be a manufacturer shipping to its own distribution centres in full pallets when a full pallet represents 9 months of demand. Actions like this work against the time compression principles we have been investigating that are so important. Of course we are not saying product ranges should not be expanded. It is likely to remain a part of marketing strategy for some time to come. Importantly however it is necessary to understand the costs associated with such a policy. Leading companies are working to find ways of offering the variety whilst manipulating the supply chain in a way that at least counters part of the increased costs.

38 Another feature of supply chain complexity is the network infrastructure. Many companies have more than one supply chain. Each supply chain may consist of several channels. Hence supply chain management involves balancing multiple links concurrently. Potentially there may be tens of suppliers and hundreds of customers and thousands of products. Often as we saw right at the beginning complexity increases for very good business reasons. We all know however that often the status quo goes unchallenged for long periods of time. Challenging the existence of stock points and links within the chain often yields substantial improvements. BREAKING DOWN BARRIERS We have considered material flow in supply chains and examined the processes that make supply chains work. We now need to identify the barriers that stop the flow through supply chains. We will examine these in more detail by looking at the following: UNDERSTAND THE SUPPLY CHAIN PROCESS This is potentially the most crucial barrier to overcome. Firstly, if individuals working within all the companies that share a supply chain do not understand the process, barriers will come up. People, functions and companies will then pull against each other in search of their own objectives, rather than the objectives that satisfy the whole. Secondly without this knowledge individuals will find it difficult to understand the supply chain language and certainly the opportunities and threats from real industry examples.

39 Therefore we will firstly need to understand the supply chain process. Without this understanding attempts at supply chain improvement will be very difficult. Once supply chain understanding has been achieved then the other flow barriers can be addressed. Each will in turn demonstrate a degree of difficulty to overcome, matched with a potential benefit. IMPROVE COMMUNICATION Before any supply chain improvement can take place communication must improve: Internally, between company teams, activities and functions Externally, between supply chain partners, customers and suppliers There are many examples of improving communication and the resulting benefits. If teams within the individual supply chain links do not communicate well, for example the sourcing function struggle to communicate internally, there is very little chance they will communicate well with plan, make and deliver functions. Another example internally could be a sales function not communicating a new product launch allowing sufficient lead time for the manufacturing unit to supply. Alternatively it could be manufacturing having spare capacity and not telling sales who, perhaps, are not taking as many orders as they possibly could. Both scenarios make the business less effective and efficient. Therefore the first step is to improve internal communications and raise this to a company level. Once this has been achieved then communication with suppliers and customers can be improved. Externally a powerful example is the sharing of information such as demand data within supply chains. BREAKDOWN FUNCTIONAL BARRIERS Once an understanding of the supply chain and communication have been achieved, to understand functional barriers and therefore look to improve supply chains further we need to examine the following: Conflicts of Interest Trade-Offs CONFLICTS OF INTEREST Having considered the whole supply chain we can identify conflicts of interest that are found between functions pursuing their own objectives rather than overall supply chain objectives. Sales and marketing seek high stock availability to assist with providing high levels of customer service enabling increases in revenue. This may conflict with finance who require low stocks to keep overall costs down leading to increased profitability.

40 In order to seek production efficiencies manufacturing aims for long product runs with a minimum number of changeovers, which leads to high utilisations. This may conflict with sales and marketing requiring rapid new product development and expanded product ranges which leads to short production runs. These conflicts occurring at a strategic level are normally passed down to the operating functions of the organisation. This can be very disruptive for the business as different functions are trying to achieve different business objectives. To assist in the alignment of objectives organisations normally use metrics, key performance indicators (KPI s), targets or other types of measures within their organisations or even share them with suppliers and customers to help remove these barriers. But before they can set KPI s or balance the cost to serve effectively businesses need to understand the trade offs they are making which will then lead to the optimal decision. TRADE-OFFS We can look at how supply chain activities integrate with the marketing mix model (product, price, promotion and place) and we can identify a series of trade offs taking place: TRANSPORTATION COSTS Customer service requirements may dictate that many transport deliveries need to be made daily in small quantities. However from a transport efficiency point of view the preference is for fewer larger deliveries. WAREHOUSING COSTS This will also impact on warehousing costs particularly in terms of picking and replenishment where the preference would be for fewer bulk loads. INVENTORY CARRYING COSTS To satisfy customer service inventory may also be very high. From a cost point of view this again would be a trade off. However the transport view may well favour this as there are less out of stock situations and therefore less backorders to deliver.

41 PRODUCTION LOT QUANTITY COSTS Production want to run batches of say 10,000 units per day to maximise their efficiencies. However the warehouse can only hold 9,000 units and the customer s only want 5,000 per day. ORDER PROCESSING AND INFORMATION COSTS In order to maximise the efficiency of the order processing unit the larger the orders to as few customers the better it is. However the product may have to be delivered to many very small customers in small quantities. Different functions within the same organisation may have a different understanding of where the limits of cost or service should be fixed. This also happens between different organisations that share the same supply chain. Disagreements like this immediately cause barriers to rise, which restricts or stops the flow of the shared supply chain. Trade-offs happen at different levels in supply chain activity. TRADE-OFF LEVELS Level 1 : Supply Chain Level 2 : Company Level 3 : Functional Level 4 : Activity At the highest level supply chain trade-offs involve a company in making decisions which may increase their costs to allow the overall supply chain to operate more effectively. Clearly they would look for a share of the benefits. The cost service trade-off is a typical level 2 trade-off applied at company level. At level 3 an example of a functional trade-off might be the decision to build more warehouses in order to locate stock closer to customers and as a consequence reduce transport costs.

42 Finally, at level 4, trade-offs can be made within an activity area. For example, a decision could be made to invest in mechanical handling equipment in order to reduce labour costs. The size of the benefit from considering the trade-off increases as the level of trade-off increases. These potential benefits from considering trade-offs at the supply chain level are therefore the largest. A clear message from this is that it is important to consider the overall scope of the supply chain and seek to optimise this rather than to look for sub-optional solutions in one particular area and the creation of functional barriers. BUILD TRUST As an understanding clarifies how behaviour and actions impact on other parts of the supply chain, then these can be changed to deliver an overall improvement for the supply chain rather than an individuals gain to the detriment of the business. To reach this area of improvement requires a building of trust. Consider how relationships were between organisations before It was very common for retailers to not give or even sell demand data to suppliers. Also they would inform them with very little lead time about promotions on products that the supplier would have little chance of satisfying. Following this the supplier may even have a contract terminated for poor service. With this type of confrontational approach, trust was a long way from peoples mind. Some change initiatives that accelerate the building of trust and the building of relationships can be seen below: Shared information Shared accountability/ responsibilities Shared goals Co-ownership of customer sale Shared resources Information compatibility shared systems Shared best practices Shared Measures and aligned KPI s Shared benefits Although this is not something that can happen overnight, by sharing information, metrics and even people, organisations are breaking down the old barriers between them and starting to build collaborative relationships.

43 There is danger that without hard work on the improvement process journey that any teething problems met on the way will immediately bring back historic blame cultures, barriers will spring up and trust will be lost. Trust is an essential step in the supply chain improvement process. When this barrier has been broken down initiatives, such as cross-docking, just in time processes or Vendor managed inventory can be considered. REDUCE THE IMPACT OF INACCURATE FORECASTS If the previous four areas are considered they all have a direct impact on this flow barrier. It is very difficult for one individual to simply forecast better. We have already established the impact of forecast error on the supply chain and the businesses within it earlier in the programme. The biggest opportunities to improve this flow barrier are by collaborating across supply chains. For example sharing real demand data so that all players benefit from less inventory cost, better resource utilisation, better service and lower overall costs. The main areas to address are: Reduce the overall flow time in supply chains Force a match between predictions & reality Make the customers delivery time equal the flow time Sell what was forecasted Simplify the product range have less variety Standardise the products and process Forecast more accurately over a shorter period, in less detail Have a contingency for forecast errors, safety stock By reducing forecast error the uncertainty in the whole supply chain becomes less. As a result the amount of safety stock in the supply chain will reduce and therefore the cost of the end product will also reduce giving the supply chain a competitive advantage. BALANCE SUPPLY AND DEMAND We can now expand our understanding of the five previous barriers and look at how they impact on balancing supply and demand. Within a single organisation it is a challenge. However now consider this for a whole supply chain. Each separate company within the same supply chain often have different service targets and different cost and profit targets.

44 To achieve our optimum cost to serve here the supply chain needs to balance. Again this can be achieved through internal and external communication. Also the use of performance metrics can assist this activity. However the biggest barrier to overcome is the decision process when supply doesn t equal demand. Both internally and externally it is very easy for barriers to be created once more unless all partners understand the cost to serve for a particular supply chain combination. Some organisations actually plan for failure, in this way they can safeguard the costs associated with the conditions of supply, even though they know a certain percentage of their customers will not get the desired service. As material moves through source, make, deliver there needs to be an overall supply chain plan. This plan can act as a referee and is the clear decision making process that is activated when supply doesn t equal demand. By using this referee the supply chain is controlled to deliver the optimum service at optimum cost in a consistent and clear manner. Supply chain management is about working together in a different way. Often is easy to switch the thinking behind these barriers and present them in a positive way. EFFECTIVE AND EFFICIENT Translation of these words into different languages is difficult but we see organisations striving to be strategically effective and operationally efficient. These are words that mean different things to different people, but we believe it is beneficial to think about them as follows. Effectiveness is about doing the right thing. This could entail changing your product design to suit the latest fashion and conforming to the customer requirements. If this is not done your strategy will not sell the product and would be deemed less effective. Efficiency is about doing things right. A lot of supply chain activity was focussed on efficiency in the early 1990 s. In particular use has been made of ISO9000 to document and record processes. It is of course possible to document a process that is not the best way of doing something. In other words you can document a bad process and do the wrong things well. Clearly doing the right thing in the supply chain is critical to performance if a customer is to receive what they ordered when they wanted it. Therefore it may be better to think about the best way to undertake the activity and then concentrate on doing it right. Supply chain management challenges traditional management thinking and if thought about in a strategic and tactical way, as well as, an operational one it can have dramatic impacts on business performance. Having considered these two concepts it is possible to group organisations as follows:

45 By drawing effective strategy on the vertical axis, organisations that are doing the right things well (eg right brands in the right places) have a high effectiveness. It follows that organisations doing the wrong things have a low effective strategy. Similarly by drawing efficiency along the horizontal axis organisations that are doing things right can be plotted. The more efficient the operation the more they are plotted to the right of the horizontal line. You can plot organisations on the model where you think they are at this moment in time. They will fit into one of four categories: 1. Death Doing the wrong things badly These organisations will not be in business for long. 2. Slow Death Doing the wrong things well - These organisations are doing the wrong things but are doing them well and are trying desperately to avoid being pulled into the Death box. This will be inevitable unless they change strategy and become more effective. 3. Survival Takeover Doing the right things badly - These organisations have the right strategy but are inefficient. They can survive but run the risk of takeover by an organisation that wants what they offer but can operate more efficiently. 4. Thrive by doing the right things and by doing things right an effective strategy is matched with an efficient organisation bringing success. If your management focus is on efficiency as the main driver, you are playing with death! The danger is that a competitor will put a stop to this activity before you have a chance to consider effectiveness. It is for this reason that we recommend effectiveness is considered before focusing on carrying out activity correctly.

46 We have been encouraging you to think about effective supply chain activity. SUPPLY CHAIN MATURITY GRID Different organisations are at different stages of development as regards embracing the concepts of supply chain management. The maturity grid provides a simply way of analysing exactly where your development is currently positioned. A stage one organisation is one where functional departments focus on improving their own process steps and utilisation of resources. Managers typically focus on their individual functional costs and performance. Processes that cut across multiple functions are not well defined or understood, resulting in limited effectiveness of complex supply chain processes. In stage two division or company wide processes are well defined, allowing individual functions to understand their roles in complex supply chain processes. Cross-functional performance measures are clearly defined and individual functions are held accountable for their contributions to overall operational performance. Resource requirements are typically balanced across the organisation. A well-defined demand/supply balancing process that combines forecasting and planning with sourcing and manufacturing is evident at this stage. A stage three company extends stage two practices into points of interface with customers and suppliers. The company has identified strategic customers and suppliers, as well as the key information it needs from them in order to support its business process. Joint service level agreements and scorecard practices are used and corrective actions are taken when performance falls below expectations. In stage four customers and suppliers work strategically to define a mutually beneficial strategy and set realistic performance targets. Information technology and e-business solutions now automate the integration of business processes across these enterprises. If this model is extended into the performance measures a useful way of evaluating development progress emerges. INFORMATION AS AN ENABLER We have explored many concepts and discussed how material moves through the supply chain and also the barriers that hinder or stop the flow. Whilst improving the supply chain is likely to be a long and difficult journey there is a clear pattern emerging as to how this activity is undertaken.

47 ENABLER E ĒḆB U U S S IN IN E E S S S S The diagram shows the first step of the journey to be the integration of internal activity. All the attention is focused on breaking down functional barriers within your own operations. One of the enablers of this step is the implementation of ERP systems, such as SAP. These systems seek to overcome the traditional problem of computer systems not talking to each other and hence inhibiting the flow of information within a supply chain. As we have seen visibility and exchange of information in a timely manner is extremely crucial to the improvement activity. Essentially an ERP system provides an integrated database that then drives all of the application programs needed to plan and execute supply chain activity. Such systems need an organisation to adopt process thinking rather than functional thinking in order that the full benefits can be derived. Those learners who have experienced this transformation will know it is far from an easy task, but the benefits can be great. The second stage of the journey can only be achieved following the first. This involves selecting suppliers and customers to work closely with in a collaborative way. This will sharing information and cost data and exploring jointly ways in which the supply chain can be improved. Clearly, such activity requires a high degree of trust in your supply chain partner and it is unlikely that this will exist if the first improvement step has not occurred. A partner is not going to trust your operation if the performance it produces is consistently below the agreed standard

48 CLOSING THOUGHTS Within this guide we have explored what a supply chain is and why it is important to an organisation. We have considered how a supply chain works and a variety of tools and techniques that can be used to improve the flows. There has throughout been a number of recurring themes that reflect the trends that are happening within this important business activity. These trends are summarised below: The need to optimise the supply chain process from source to point of consumption The ability to connect supply and demand, first internally, then with external partners The capability to manage variability and uncertainty by putting actions in place to protect against it, but exploring how it could be eliminated or reduced Making demand visible to everyone within the chain Synchronisation of activity so that plans link together and flows are balanced The need to reduce complexity within the network and amongst products The power of compressing time to yield a real competitive weapon The ability to break down barriers that stop the supply chain flowing smoothly Most of all we have stressed that it is about working differently together to satisfy consumer requirements. This guide has been designed to help you discover the potential that exists within the supply chain to give business benefits. We hope it has provoked thought and that it will spur you into action. There are further discovery guides on different supply chain topics, but there are also in-depth programmes that will facilitate your exploration in greater detail. These programmes are designed to help you put into practice the techniques that are referred to in this guide. We wish you well in pursuit of supply chain improvement.