Working outside in rather than inside out
Perhaps one of the most inane – but very typical – aspects of the business process in manufacturers is the construction of the supply chain from the inside out. Three times in the last week – count ‘em – three for three – I visited a manufacturing company with (1) problems delivering in the time frame customers want; (2) lots of inventory but rarely the right inventory; and (3) a supply chain constructed by their supply chain people based on some idea of how to construct a supply chain but not one constructed based on a delivery objective.
In other words, some factory guys got together at some point – probably with an accountant or two breathing down their necks and decided this is how we purchase and this is how we schedule production and that is the resulting lead time, so sales …. Go out and try to shove tose lead times down customers’ throats, regardless of what customers want or need.
The alternative, of course, would be to start with customer lead time requirements, and the put together a process of procurement and production scheduling that meets those requirements. That seems so inherently logical that I have a very hard time understanding the reasons for doing anything else.
Of course, when the internally constructed processes fail to align with customers’ needs, the next step is to throw a small mountain of finished goods inventory at the problem – basically to compound the problem of a misconstrued supply chain with a big pile of waste – and to view that as the only possible solution.
Any questioning of the resulting mess is typically met with criticisms of the sales folks for lousy forecasting (It’s the Sales Department’s fault. If they forecast accurately we wouldn’t need all the inventory and wouldn’t miss so many shipments – which is really nothing more than blaming the customer because, after all, where else would Sales get the perfect forecast data needed for the supply chain mess to look like it was actually put together with a little thought behind it?).
The next defense is to advise the person questioning the nonsense that they really don’t understand the complexities of the company’s particular business. In fact, any manufacturer not making consumer products has it relatively easy. The consumer products folks typically have a staggering number of SKU’s and customer lead times measured in terms of hours … always a hoot to hear some guy from some industry that can’t meet two week customer lead times consistently with only a few hundred SKU’s telling me that I simply don’t understand the complexity of his business, and how it is really quite impossible to meet such stringent demands … and then he returns to his ERP system with its forecast driven master schedules and to his Chinese suppliers and goes back to work failing all over again.
Any factory producing any product can meet any customer lead time needed. That is simply an irrefutable fact. Now the factory may not be able to do so with the same systems and processes it is currently using, and it is probably not going to do so if it has processes wholly dependent on soothsayers and crystal balls to predict the future in enormous details. It is most likely to require demand pull and continuously shortened lead times both from suppliers and within the factory. It is probably not going to happen with long set-up/changeover times and big batches of stuff flowing through the supply chain like so many pigs flowing through so many boa constrictors. But it can be done … of that there is no doubt whatsoever.
The kind of thinking that drives companies to devise a supply chain process entirely of their own making and then foist that upon the market is precisely the same thinking that drives companies to bundle up all of their costs, whether they are value adding or not, whether they are directly related to the product or not, whether they are fixed or not, and them tack some pie in the sky margin percentage on top of that collection of useless numbers and call that a price to be foisted on the customers.
Seems clear to me that you can either start with the customers and their requirements and then work backwards to put together a supply chain and a cost structure to meet those needs; or you can decide that it is all about you and put together some supply chain and cost structure based entirely on whatever you like considering only that which is easy to accomplish within your four walls and then task Sales with the impossible mission of convincing some customer to pay for the output of that exercise. The choice most likely to succeed is rather obvious, don’t you think?