Sep 28, 2006
Creating Supply Chain Value w Cycle Time Inventory Yield – Part 1
You might have heard the oft repeated caveat – Truth in Advertising… What I knew vaguely was cleared up quite easily by running a google query – that there are actually truth-in-advertising rules that apply to advertisers, courtesy of the FTC. Here’s the link to the FAQs concerning truth in advertising.
So, what about truth in supply chains? That’s what Thomas Craig sort of has in mind in his article Creating Supply Chain Value w/Cycle Time & Inventory Yield published earlier this month at webpronews.com. He begins with the following lead…
A supply chain is not a series of links forged together for a common purpose. That is a nice image. However it minimizes the reality of the chain and how each link in that chain must design its own logistics process to function within the chain.
Or to put it simply – where the theory meets the practise…
The success of the chain depends on many things. How well and how clearly the key player in the chain, the large retailer/mass merchandiser or whoever, has defined what he is doing and why he is doing it that way. For suppliers located within the chain, this is important. There is no one standard universal chain. What you are dealing with are multiple, different supply chains and logistics processes and supply chains for each customer. That means developing agile, tailored logistics solutions to meet the requirements of each customer.
Thomas hits on a very important point in the above paragraph – he doesn’t flesh it out sufficiently in theory even though he elaborates what he experiences in practise. In theory, a supply chain is defined as interacting upstream and downstream links. What Thomas Craig is alluding to in the above is that within a market solution for a customer(s), there are interacting supply chains which may or may not be aligned, structured similarily or even designed with an overarching purpose in mind.
A firm operating in the world of business might classify its customers according to a criteria based on profitability, volume, customization or some mix of these factor or other factors. Another firm operating downstream or upstream would classify its customers (or even suppliers) according to some critieria described just above. Therefore, a reasonable expectation would be that the efficiency of the total supply chain is bounded by the intersection of several supply chains. Now, I cannot even be sure that I care about the total supply chain within a marketspace except in the sense of a macropolicy perspective but the realization must dawn on the supply chain practitioner that no matter how well structured and flawlessly executed one’s own mini-supply chain within the total supply chain is, that is still short of working to ensure one’s customer’s success.
Thomas continues,
Supply chains work on a pull approach. This applies whether the product is made to stock or made to order. Each chain is really a series of buyers and sellers of products and services. That means that each link participant has his own objectives, and sometimes conflicting and objectives, which can work against supply chain effectiveness. The diversity of participants in the chain can create a complex and long process. Companies buy and sell and participate in the supply chain for their own reasons. This is an important and sometimes overlooked fundamental of developing a working logistics process, both for the entire chain and for each link in the chain. There must be collaboration between and among various buyers and sellers.
Well, supply chains ought to work on a pull approach but frequently there are all sorts of push and pull activities going on in a supply chain. When it comes to the information chain, it is hard to see what is going on from time to time (my apologies to those who are prone to talking about seamless integration and the like).
Push and pull are operational principles that are employed in all firms whether they are aware of them or not. Frequently discussed in the context of manufacturing, these operational principles are applied everywhere. They represent opposite ends on a spectrum of operational philosophies. In practise, firms adopt combinations of both in their business processes. Look at this site: Edge Perspectives with John Hagel to get an idea of pull and push principles.
Push model: A mode of organizing resources and operations so that a product/service is created/delivered to address customer needs by pushing resources to areas of highest expected need. The aspects of the Push model that I would note are:
1. Centered around an expectation of need or demand
2. Organized as an allocation of resources that reflects efficient use of resouces towards fulfillment of the expectation of need or demand
Pull model: A mode of organizing resources and operations so that a product/service is created/delivered to address customer needs by presenting resources and opportunities as inputs that customers use to create their solution.
The aspects of the Pull model that I would note are:
1. Centered around actual customer need
2. Organized as delivery of tools and resources that form the building blocks of customer experience and linking production capabilities directly to customer needs
Thomas notes that the following about where Supply Chain Managment has been and where it might be going or where it ought to be going:
The initial purpose of SCM was to reduce inefficiency in the supply chain. That inefficiency was defined with time and inventory.
And,
Supply chain management is now transforming into its original purpose. Two key drivers for change are increased velocity for cycle time and inventory.
He explains what the two drivers – cycle time velocity and inventory velocity mean in the context of supply chains and why they’re important to track. Thomas defines cycle time in the following manner:
This cycle time is total inventory days in the supply chain; and it is consistent with the length and definition of a supply chain. The supply chain cycle time runs from the purchase order placed on suppliers through to final placement on the store shelf or floor or to the customer’s warehouse.
He further defines inventory velocity in the following manner by introducing the concept of yield management:
Yield management is applicable in supply chain management when inventory is viewed as the supply whose yield is to be maximized.
In the next part, I will look into Thomas’s exploration of supply chain cycle times and inventory yields and how they affect the supply chains in businesses. Also, I will explore Thomas’s strategies for improving supply chain cycle times and inventory yields.
Tags: Supply Chain Management, Cycle Time, Inventory Yield, Push – Pull, Information Chains