How to make your supply chain lean

It's tough out there. International competition is forcing cost-downs but demanding more agile operations in the struggle for customer service. That puts lead times, batch sizes and inventory under even more pressure. And given that we've largely done the cost-cutting and efficiency improvements in our businesses and on our factory floors, that means we need a new solution. That solution is a better supply chain, and it means we need to think differently about our core IT. As Guy Dunkerley, formerly IMI Norgren director of European logistics, now research director with analyst AMR Research, says: "Compartmentalisation of manufacturing is no longer valid – in either business process or system terms. It isn't about supply chain or production systems any more: manufacturing has to be a constituent part of supply chain solutions." There are various names and models for the ideal: demand-driven supply network (DDSN) is one; lean supply chain is another. Both recognise the importance of collaboration with suppliers. Both focus on sustainable improvements through visibility of information for planning and real-time scheduling. Both also seek to enable synchronised execution – also helping all parties to manage change due to events that happen in any business and on any production floor. And both are founded on the concepts and methodologies of lean thinking in tandem with modern supply chain systems. But how do you do this? What does a lean supply chain look like? How do you move from where you are today to a lean supply chain that fits you? I spoke to some of the expert panellists we've lined up to deal with this very subject at the MCS Lean Supply Chain Forum on 13 April at Gaydon in Warwickshire (www.mcsforum.co.uk) to seek their experience and advice. Dave O'Reilly, head of manufacturing and purchasing systems at Jaguar and Land Rover, sees several routes to improving supply chain operations. Top of his list is creating a stable and accurate demand signal so that the supply base gets the best chance to deliver. It's classic lean Toyota Production System talk, and it flies in the face of those suggesting that OEMs can simply use modern systems to keep re-optimising and force their suppliers just to respond to frequent late changes. "The problem is that OEMs want their supply base to be totally flexible – but that doesn't work. For supply chains to work we need genuine partnerships," he says. He points out that it only takes one or two suppliers to fail to fulfil and – with your plant already lean and exposed in terms of inventory – you're in danger of major disruption. "What's important is, first, to get information on your long term plans for supply stable and accurate, and second, to let suppliers see, day-by-day, even hour-by-hour, what you want – not just weekly buckets." Stability and visibility where change has to happen are his keys. There will always be problems, like suppliers failing to adhere to agreed schedules due to their own shortages and constraints on labour and their facilities. "Facility breakdowns are unavoidable, but shuffling around firm orders on suppliers has got to stop." Jaguar and Land Rover Jaguar Land Rover's supply chain system delivers a long range 26 week planning view in weekly buckets, followed by a mid-term daily or shift scheduling view 10 days out, both on EDI from Ford's CMMS3 global ERP/MRP system. Then there are sequence delivery signals broadcast four to eight hours ahead of line-side delivery, reflecting precise requirements, and triggered as painted bodies are teed up in sequence. Signals are Edifact messages broadcast every 10 minutes over leased lines with ISDN back-up via Jaguar-owned servers. For most suppliers the result is a printed ticket that drives their finishing and despatch processes, although for some that's through their ERP. O'Reilly is happy with the EDI trail, although he agrees that you'll always find some suppliers struggle, partly because they have to deal with several different protocols but partly also if they don't invest in adequate IT support on site. That's an issue in the automotive sector, with the drive for suppliers to set up assembly and warehouse facilities on industrial parks adjacent to the OEM: if something on the IT side goes wrong and doesn't get solved quickly, the supplier isn't getting the tickets and you're in trouble. The solution is visibility of sent/received signals and determinism, with escalation if signals aren't getting through – and suppliers' investing in remote system management facilities. Wouldn't an XML and portal approach be easier for suppliers? "It might," agrees O'Reilly, "but we have 600 suppliers and Ford has thousands so the cost and upheaval would be considerable." However, he reckons most suppliers would accept the technology, and sees benefit. "If we could make it easier for the supply base to tell us material is on its way, using a web portal, that would help. Then, our expediters could see at a glance what material is missing and focus on the exceptions. "EDI is transaction-based so they have to go into each line item to see the stock and incoming position. With a portal they could see hot spots and tell instantly that something hasn't arrived but is on its way, or isn't." Which leads him to another point: "When you've done lean manufacturing and lean logistics, you're inventory levels are down – and then you expose how good your processes are! For example, we have about one day's worth of material on site split between track-side and the lean marketplaces. So you need to revisit your processes for accurate inventory because your lean supply chain will fail wherever there is inaccuracy." And that means revisiting your receiving processes, supplier labelling accuracy and technology and level of labelling, lean marketplace management, even your bills of materials (BoMs). If they don't tally exactly with the real world, backflushing will kill you. For O'Reilly, the solution starts with monitoring suppliers. "We have Q1 approval processes that cover a lot of things, but absolutely accuracy of delivery. We're also encouraging the use of ASNs so that we can see materials coming in ahead of time, and move to push button receiving for our Q1 suppliers. Then we can focus our material handlers on the other suppliers." Jaguar Land Rover also uses LLPs (lead logistics providers) like Excel Logistics, which now have responsibility for collecting materials from multiple suppliers on a milk round. Under the SLA, it's their responsibility to validate fulfilment accuracy and to create an ASN, either from the trailer or indirectly via the logistics centre, using wireless PDA technology. Isn't there a case for more barcoding or RFID to further automate receiving and materials movement to line-side? O'Reilly agrees there is, but there are cost and practicality issues. Many suppliers still only barcode to the stillages so there's a way to go here, and limits on feasibility. "Remember, we're a high volume business and suppliers would have to put cost on if they barcoded or tagged everything to the piece part level." Where to start How should you get started? According to Carl Powell, consulting director at Unipart Solutions Practice (USP), part of Unipart Logistics which runs Jaguar's spare parts supply chain, one of the points is to run an IT assessment. "How lean or agile your supply chain is depends on how good the underpinning IT is. We use a high level strategic health check, where we go in at the board level and look at the business drivers and needs – see what levels of service are needed and how the company differentiates itself. Then we talk to the IT manager and see if he's on the same page. The objective is to assess that area of IT strategy: then you can go down the levels eventually to the KPIs." Most important is to ensure integration in order to achieve role-based useful visibility as close to real time as makes sense. At the centre you need the core functions working well: inventory management, forecasting and planning, production and warehouse management. Then supporting those you need systems for supplier planning and collaboration, with exception management, and all based on one view of the supply chain – with visibility from the customers all the way back to the suppliers so that signals for planning and management are as noise-free as possible. Looking at key enablers to supplier collaboration, Powell cites RFID for the future, because of its potential to automate so much of material handling, and to improve accuracy. For now, however, he counsels getting more value out of existing ERP systems by driving towards supplier portals. "They're still at the advanced end of thinking: not many companies are doing much yet… We don't go down the EDI route much now: we look at supplier portals, mostly using WebMethods because portals are easier to implement with new suppliers and easier to maintain." But which way you go, and what you do with the systems depends on your supply chain relationships. "Tesco, for example, is different to others: it mandates how deliveries will be made and how you will provide information. SMEs can't be so demanding." The trouble with technology For Powell, collaboration is critical in all this. "We've been talking about collaboration for four or five years, but the Internet technologies and the applications are there now. And it needs to happen to make businesses and supply chains agile." An excellent example is Unipart's own work with Jaguar: its parts suppliers can see everything on a secure portal – everything from the parts profile all the way down to the dealer network, and that's world-wide. The portal gives them rolling six-, three- and then one-month firm orders, and it lets suppliers do their own planning and scheduling using trends and usage data. "There's a choice here," advises Powell. "You can stop information visibility at your level, or you can share information and be transparent. I can see why some companies might find the latter 'challenging', but that is how you get real collaboration and agility. All good and encouraging: however, no-one ever said this is easy. Stuart Facey, senior vice president and general manager of asset management company TrenStar, has experience of supply chain technologies on both sides of the fence – as a user now, and formerly as a vendor with supply chain IT developer Viewlocity and Dutch systems integrator Covast, where he focused on Microsoft BizTalk server for supply chain integration. He believes that too few organisations are taking advantage of what the technologies have to offer, but adds that unless the business will is there to collaborate there's little point in pursuing the idea. "Supply chain event management and alerting systems, for example – the early warning systems – aren't used enough. But they do require a huge amount of co-operation to set-up and get working." Likewise, he says: "Supplier portals can work very well, partly because they're one to 'n', rather than 'n' to 'n', but I haven't seen many good systems in operation. They're not as simple to get working as the software vendors make them out to be." And he has a similarly sceptical view of integration technologies. "I don't think integration is any easier than it was. It would be fine if we had the time and the investment to turn everything useful we have into components. But we haven't. I've got a 15 year old AS/400 with no ability whatsoever to communicate with the outside world. But we need that system, and the cost of getting it integrated is prohibitive. "Also, use of XML hasn't materialised as it should; we may not have exactly the same problems as before, but with all the legacy stuff, sometimes it's too difficult or too time consuming, or there are other priorities. You can't solve those issues with technology. I can see IT people struggling with those for 50 years." Returning to Jaguar's O'Reilly, there is another piece of advice that has little to do with IT, but everything to do with success. "We do value stream mapping across our main component suppliers. So when, for example, they quote for our business, we send a team in and walk through their end-to-end processes of materials in, production, assembly and delivery to track-side. "We look at the costs, the wait times, find out if there's information we could give them to help make them more efficient." Lean supply chains start with partnership and for that to work, well, you need frank collaboration.