Supply chain executives are often enthusiastic about visibility—they envision being able to see in real-time what is going on and easily drill down into trouble spots thus enabling rapid local decisions. Real-time decision making will create more speed and efficiency and help resolve problems during disruptions.
A recent WSJ article focuses on how [Name Redacted] will manage global supply chain with real-time software. It describes how the company has installed large monitors and devised a system that enables real-time tracking of suppliers. [Name Redacted], which designs, manufactures and ships products for other businesses, expects the software to help identify potential problems with suppliers earlier and redirect work to keep inventory moving. It notes that “some companies have chosen to centrally manage their supply chains using a control tower approach. In contrast, [Name Redacted] wants the whole company to see the same information globally, but let local managers make decisions.”
This approach seems to intuitively make sense as who knows the situation better than the local people? And for some tasks, such as stocking shelves, reordering inventory or dealing with an irate customer this makes a lot of sense.
But the article also hints at some of the problems with this approach, an executive mentions in regards to having uniform part numbers and naming conventions across the company’s global systems. “We allow the factories a certain degree of autonomy and that creates challenges in master data management.” Can this degree of autonomy also create problems in effectively managing the supply chain?
A typical example: The planning of many manufacturing companies are often driven by the dictates of the efficiencies of producing certain batch sizes. Depending on the product and demand pattern this may sometimes be efficient. However, this practice that can produce inventory that does not match demand because the decisions were not driven by demand but rather by long term forecasts. Nowadays, it is considered a better practice to allow demand driven supply chain planning to dictate production requirements to the plants rather than the other way around.
Some additional examples of the advantage of central planning:
We worked with [Name Redacted] on reducing inventory in their Square D miniature breaker product line. They were quite happy with the results of various local optimization projects inside warehouses or plants and did not think there was much more they could do. So we decided to test this assumption through modeling the end to end supply chain and doing a multi-echelon inventory optimization. The analysis yielded significant opportunities to reduce inventory—from 10% using local methods to 30 percent using the end to end approach. The reason for this is that lacking a centralized end to end view of inventory there is no real understanding of inventory drivers and allocation of inventory throughout the supply chain.
Inventory can also be a factor in managing risk but in order to do that you need to understand inventory and your risks. When it comes to supply chain risk, centralized planning is a proven approach that helps companies avoid the serious repercussions of unexpected events and disasters. Companies can create risk mitigation plans ahead of time and the local decisions are driven by these plans. Risk mitigation plans should involve the following:
Obviously, having accessible, timely data on the supply chain is an asset to any company but in order to fundamentally improve efficiency it will need to add analytics that will take advantage of the information to come up with both day to day analysis of problem areas as well as long term planning. There may be some discomfort with a “black box” that does analysis that employees think they can do on their own because they have visibility into their part of the process. However, the rewards are significant and management should not shy away from tackling this type of process change because otherwise they are very far from performing efficiently and effectively.
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