Wednesday, October 22, 2008


Supply Chain Velocity for Competitive Advantage

In physics, velocity is defined as the rate of change of position. It is a vector which requires both speed and direction to define it. Similarly, the flow of material from supplier to consumer in supply chain can be termed as supply chain velocity. Speed & direction applies here too.

We were working with a client company in an island country of Africa, which is into manufacturing of garments for European countries. Kaizen/ Lean methodology assisted the company in setting up manufacturing cells to improve the flow/ velocity thus reducing the throughput time by more than 65%. The benefits included reduced time to dispatch, reduced WIP, lesser rework and space utilization, etc. After the implementation, the client met us over dinner and said, “I am very happy about the improvements done at the Gemba (shop-floor). It has drastically crashed our lead times and reduced our time to market.” But he continued to add that the reduced manufacturing time is not really impacting his final customer! This was a shocker, as we were celebrating the gains on shop-floor! When quizzed he explained that the shipment did leave the factory much faster after all the Kaizen/ LEAN improvements, but then the goods had to wait for days on end at the port (both at the point of origin & destination) before reaching the actual consumer! This came as a revelation. It reinforced our understanding that the entire value chain needs to be improved, and not just the bits. Thus the importance of the entire, end to end supply chain velocity improvement becomes important. These piecemeal improvements will have no or minimal effect throughout the supply chain. Here, traditional measures like productivity and efficiency fail to capture the overall system efficacy. It is debatable how well our current policies at various stages of supply chain comprehend the importance of the overall supply chain velocity.

The supply chain from upstream to downstream should be capable enough to take care of the material flow wherein the material velocity is in alignment with consumer demand rate, at every point. Unfortunately in today's hyper-competitive environment, very few companies have a true working knowledge of the velocity of their supply pipelines on one hand and have little control on velocity of goods once it leaves their warehouses. Not to mention ports, roads, statuary procedures are totally out of bound when it comes to control! Thus one tends to dig away with Kaizen / LEAN tools on one’s own shop-floor, constantly wondering why there is no major impact to the their bottom line or why their final customer are not thrilled!
Thus, the need to partner with key suppliers (upstream) and customers (downstream) in improving supply chain velocity is critical. While the larger, more evolved (maybe top 10%?) of the global giants understand it and are working towards end to end supply chain velocity improvements, the bulk of the businesses can’t see or do not wish to see the opportunities beyond their shop-floor. As the supply channel spreads out, correspondingly grows in the importance of managing the material velocity.

It is true that, it is easier to start within one’s own manufacturing facility - one doesn’t need to be Einstein to understand that the material velocity in the manufacturing system depends on the basic material flow, which in turn is affected by the machine downtimes, change over and set up changes, rework, inconsistencies etc. The bumpy road full of diversions and obstacles traversed by the material is smoothened by tools like process flow analysis, SMED, cellular manufacturing, TPM and others. These days concepts like lean and just in time which can be supported by streamlined processes & robust systems have been cliché. The underlined theme behind it addresses supply chain velocity which is very well understood by today’s intellectuals. However, the actual implementation of the concept throughout the supplier-consumer chain calls for change management/ paradigm shift. The government has to understand that poor infrastructure for instance greatly reduces supply chain velocity! Each player in a supply chain has to take interest and be open to people taking interest in improving each other’s velocity! As the system velocity improves every part stands to gain!

Remarkable changes in the current way of functioning can be brought in only by change in the way of thinking where one considers the system in totality. The outcome of such cultural changes would be far reaching and beyond imagination. Another aspect to be considered while deciding material velocity is takt time. Earlier, we mentioned about the consumer demand rate which is synonymous to takt time. Upstream suppliers should manufacture the goods per the demand from the downstream counterparts where the demand rate should decide the production rate. This in turn will facilitate uniform material velocity eliminating issues like bull whip effect, missed deliveries, fill rates, etc.

Lastly, we would like the readers to appreciate the significance of flexibility – internal (systems) & external (supplier) flexibility. Flexible systems are essential to achieve reduced lead times and high material velocity, in turn. The basic philosophy to be understood is that industries should graduate to ‘made to order’ model from ‘made to stock’ environment (wherever possible). Competencies like delayed differentiation, process & product standardization can play a vital part in this transformational change which again can be supported by Kaizen/ Lean ideologies. External flexibility is function of channel management & transparent communication systems.

To summarize, to improve supply chain velocities;
1. improve systems in totality – by being open to change!
2. understand demand rates and make as per demand by using delayed differentiation
3. create highly responsive & flexible systems at all points (leverage IT?)

In closing, let us get back to the garment manufacturer from the island nation. When we sat down and calculated his throughput time it was over 150 days! This is the time the product took to traverse through the yarn supplier, passing through the fabric supplier, passing through his own garmenting line, and then passing through the customs, ports before finally reaching his customer! The manufacturing throughput time (his dock to dock time) was only 10 day out of these 150 days in total! We were proud to crash these 10 days to less than 4 days, while he was forcing a smile for he knew that the actual improvement was 6 days shaved off over 150 days! Is it time yet to celebrate?

1 comment:

Nitinjit Singh said...

Wah Mundeya!!!!
Kewl to share your experience with PPl.
Worth an example to share