Supply Chain: These Bad Practices That Put a Strain on Robustness and Efficiency
A Robust Supply Chain for Three Challenges Addressed
A robust and efficient Supply Chain meets three challenges:
- Product availability,
- Decrease in non-priority stocks,
- Reduction of associated costs.
In order to make them both robust and efficient, several areas of Supply-Chain improvement appear.
- Management of Information Quality
- Order management
- Flow management
- Performance management
We address them here in the form of a statement of observed phenomena, a sort of inventory of DON’Ts from which it is possible to start one or more effective transformation plans.
Information Quality Management
Phenomenon # 1: Product Sheets not Up to Date in the ERP (Purchase Price, MOQ, Incoterm, etc.)
A lower quality of product data leads to non-compliant supplier orders and therefore degraded product availability. One of the solutions to remedy this problem is to put in place an effective communication system between the purchasing departments and the supplying department that will reduce data update times – in some cases: up to 90%.
Phenomenon # 2: Unreliable Raw Material, Semi-Finished and Finished Stocks
A lack of visibility on the state of current stocks is a source of costs. Improving up-to-date data on stocks of raw materials, semi-finished or finished products presents two major challenges:
- Reduction of working capital for companies – therefore setting up an appropriate and easy to manage dashboard is essential in order to take control of the management of part of its working capital;
- The reliability and automation of the CBN, resulting in the stabilization of production plans and scheduling, elements that can be disruptive to the supply chain.
Phenomenon # 3: Analyzes Based on Unreliable Data
Unreliable data leads to skewed analyzes, and these analyzes in turn lead to actions not adapted to the real issues. Among the analyzes impacted, we commonly find:
- OTD,
- Pallet volume,
- Supplier transport,
- Management of returns.
Order Management
Phenomenon # 1: Firm Orders Placed With the Supplier Well Upstream of the Need
The generation of over-stocks: this practice makes the various downstream systems lose flexibility – production tool, customer demand, etc. However, it is necessary to be able to react quickly if one wishes to prevent the harmful effects due to the overloading of the operating system (Véronneau and Cimon, 2007) and thus maintain a certain agility of the Supply Chain.
Phenomenon # 2: Orders Modified After Deadlines (Supplier Lead Time)
They impact the supply chain and supplier planning. This is a recurring worst practice that complicates the procurement process. In addition to the consequent extension of deadlines caused by these modifications, the supplier / customer relationship may suffer. The definition of clear and effective management rules greatly contributes to limiting this phenomenon.
Phenomenon # 3: Needs Not Regularly Shared With the Supplier
Two bad practices concerning the sharing of visibility with suppliers are observed. They greatly reduce the visibility of future needs and prevent any form of proactive action on the part of anyone who, considered as a service provider, could become a partner.
- Lack of forecast sharing – this bad practice creates a need among suppliers to secure their lead time by extending it, creating a negative effect on supply flexibility. Setting up a sharing system allows the generation of shorter lead times, up to 50%. Studies – Cachon and Fischer (2000); Lee et al. (2000); Cachon and Larivière (2001); and Zhao (2002) – show that when demand and inventory information is shared, a significant reduction in inventory and costs follows.
- A lack of regular synthetic sharing of firm supplier orders: like the previous point, the implementation of such communication reassures the supplier about the level of his production and supply plan.
Flow Management
Phenomenon # 1: An Absence of a Review of the Distribution Strategy That Takes Into Account the Logistical and Commercial Constraints of the Stores
Reducing inventory levels is one of the major challenges of a robust Supply Chain provided that the reduction is done under rules that take into account the logistical and commercial constraints of the company, its customers and the market. The absence of such a review causes a blind flow of warehouse stocks. An inventory reduction optimization approach increases disposal rates.
Phenomenon # 2: Non-Optimal Storage Choices
The choice of product storage flows must be the subject of an in-depth market study. Rotations, the nature of the products stored, the geographic locations of suppliers and customers all have an impact on the Supply Chain. Too often, reference warehouses with strong national rotation or subject to weak regional demand are observed in local warehouses. Optimizing storage choices will make it possible to gain storage area in strategic warehouses, reduce operating costs while adding value to stocks, which will consequently optimize working capital.
Phenomenon # 3: A lack of Control of Consumption at the Edge of the Line
A lack of control of IT consumption in production will adversely affect the provision of components at the edge of the line, the management of waste via the overriding of production orders and, as a last resort, the calculation of the PRI.
Performance Management or Animation of QCD Elements
Phenomenon # 1: An Absence of KPIs and Animation of the Activity
Such deficiencies prevent the achievement of desired performance levels. A relevant dashboard is the basics of successful supply chain management and monitoring of its performance. It makes it possible to measure the deviations and therefore to resolve the problems relating to these deviations within the department concerned and, if necessary, to escalate them to more appropriate decision-making levels within the organization.
Phenomenon # 2: Silotage Between the Different Departments of the Supply Chain
The lack of communication and definition of roles is a big blow to the performance of the supply chain. An integration of the Supply Chain via the sharing and coordination of information flows between all the members of these, therefore allows to better define their RACI (R: director; A: approver; C: consulted; I: informed) (Kempainen and Ari, 2003).
Phenomenon # 3: Cumbersome Processes With Steps Without Added Value
One of the brakes most often encountered in the management of logistics chains is the cumbersome nature of the processes – Purchasing, Procurement, Preparation, etc. – with a large number of tasks with low added value but essential for the proper functioning of the process.
A combination of VSM (Value Stream Mapping) – to formalize processes – and RPA (Robotic Process Automation) – to automate them – makes it possible to make the error rate negligible while optimizing processing time. We will cite here two typical fields of application: the manual procurement process and the management of credit notes to be applied on future orders with the supplier.
Sources
- Cachon G.P. et Fischer M., “Supply chain inventory management and the value of shared information”, Management science, vol. 46,2000, p. 1032-1048.
- Cachon G.P. et Lariviere M.A., “Contracting to assure supply : How to share demand forecasts in a supply chain”, Management science, vol. 47,2001, p. 629-646.
- Garnier A. – Understanding Supply Chain Management in 10 basic trends
- Garnier A. – Supply Chain Management: Is Blockchain the New RFID?
- Lee H., So K.C. et Tang C., “The value of information sharing in a two-level supply chain”, Management science, vol. 46,2000, p. 626-43.
- Zhao Y., The impact of information sharing on supply chain performance, Ph. D. Thesis, Northwestern University, 2002.
- Kempainen K. et Ari P.J.V., “Trends in industrial supply chains and networks”, International journal of physical distribution & logistics management, vol. 33,2003, p. 701-719.
- Véronneau S. et Cimon Y., “Maintaining robust decision capabilities : An integrative humansystems approach”, Decision support systems, vol. 43, p. 127-140,2007.