INCREASE THROUGHPUT FROM IMPROVED SUPPLY CHAIN PLANNING. Increased Throughput from Improved Supply Chain Planning 1

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1 INCREASE THROUGHPUT FROM IMPROVED SUPPLY CHAIN PLANNING Increased Throughput from Improed Supply Chain Planning 1

2 Increased Throughput from Improed Supply Chain Planning By Tapan Mallik and Donald Shobrys Companies with strong prospects for future growth face the related challenge of finding additional capacity to meet increasing future demand. Traditionally, companies first considered capital improements to increase or debottleneck existing capacity. Since these projects could require seen or eight figure budgets and extended lead times, a near term option might be to contract for additional capacity een though this consumes a good part of any future reenue increases. A lower cost alternatie is to increase effectie capacity utilization by improing supply chain planning. The ability to accurately balance customer demand with a company s ability to delier, and quickly rebalance as upsets occur, can significantly increase plant throughput. This increased throughput translates into an increase in the return on assets, and improed margins. Consider the following example: a business unit of a major chemical company came to us for help in finding additional capacity to support the expansion of their business, which was growing by 10% each year. This business operated internationally, with production distributed across multiple plant sites. The plants were stressed in meeting current customer demand, and felt that future increases in demand would exceed aailable capacity. The Problems A reiew of their existing planning process showed that the processes were fragmented by business function and geographic location. Capacity planning was done locally, so there was no way of using slack capacity at one plant to reliee an oerload on another. The information needed to support planning was also fragmented across a number of systems. The data needed for a complete iew of customer demand and the resulting material, manufacturing, and distribution requirements had to be collected and integrated manually. This included manual resolution of inconsistencies in units, data definitions, and the timing of updates. The effort required to do this was so great that it made the existing planning processes slow and cumbersome. As a result, the business operated in a reactie mode, finding ways to scramble around each crisis as they encountered it. This business also had the problem of time consuming and expensie changeoers on their production equipment, which made their reactie mode of operation particularly painful. Eery reaction that triggered a changeoer reduced production capacity and increased cost. Because of the lack of forward isibility, the reaction to one crisis could hae a ripple effect in creating other customer serice problems. These ripples imposed further costs on the business in the form of expedited shipments. The Solutions The solution process had three parts: Increased Throughput from Improed Supply Chain Planning 2

3 1. Implement an architecture that proides consistency and global isibility to the information needed to proide effectie supply chain planning 2. Integrate and streamline the supply chain planning process to utilize the global isibility of supporting information, and make the process more accurate and more responsie 3. Analyze production frequency and quantities to reduce the number of changeoers, and increase effectie capacity utilization All critical data was integrated in one seamless architecture that proides access to both supporting data and the current plan. This system consolidates all supply and demand information. This includes past and current orders; forecasts; actual production; yields and production rates; bills-ofmaterials; raw and finished inentory leels; distribution network capabilities; and comprehensie cost data. Detailed and summary information are much more readily aailable to a wider audience. This architecture facilitated a more responsie and more comprehensie supply chain planning process. A single supply chain process incorporates sales, purchasing, manufacturing, distribution, and customer serice. The improed accessibility of information, coupled with better tools for analysis, allows quick reaction to upsets. Capacity utilization improed as the business moed from a reactie to a proactie mode of operation. Further gains in capacity utilization came from tools that optimized the production sequence and production olumes. The tools also set inentory leels that minimized inentory inestment but assured adequate safety stocks. The Benefits A phased implementation achieed the desired results without disrupting current operations: Throughput olume is up 20 percent Raw material inentories are down 25% despite the throughput increase On time shipments hae jumped from 80 percent to oer 95 percent Shipping costs are flat despite the olume increase in the business Cash flow cycle time has been cut 9 percent The business has not only increased the output from existing assets, but also improed customer serice while reducing costs. The entire enterprise now works from a common ision of their capabilities and the path forward. Wrap Up Our example was of a chemical company, but the lessons learned apply to other industries as well. As a company grows, increased reenues are accompanied by increased complexity. The number of products, production lines, customers, production locations, and orders go up oer time. As complexity increases, Increased Throughput from Improed Supply Chain Planning 3

4 planning functions are fragmented so that people can continue to use existing tools and business processes. At the same time, as the size and complexity of a business increases, so does the cost of ineffectie supply chain planning. Successes, like this one, are gradually increasing awareness that effectie supply chain planning is a major part of maximizing the return on existing inestments. Increased Throughput from Improed Supply Chain Planning 4

5 ABOUT US Since 1993, Arkiea tools hae been used in more than 200 unique applications around the globe, and most of our clients leerage Arkiea software to support collaboratie planning teams in North America, Europe, and in Asia. Increased Throughput from Improed Supply Chain Planning 5