Navigating Supply Chain Optimization
By Rachel Duran
The biggest opportunity in today’s manufacturing supply chain can also be one of its biggest headaches if not well managed.
The opportunity comes in developing a unified strategy across a company and its extended enterprise to optimize departments such as operations, logistics, marketing and demand planning, and purchasing. The hitch comes when trying to unify departments that have traditionally functioned in a vacuum; if only one area of the company carries out the improvements, it tends to create disruption in other areas.
For example, improving the purchasing department’s metrics by sourcing a part that is 3 cents less from a company that you don’t have an established relationship with, and which is further away than your regular supplier, can actually add costs. Consider that you will require engineering support to bring a new supplier online. If the company is located overseas they may be less responsive, resulting in additional inventory and more risk in the system.
You have heard it before and it still rings true: a company’s executive management needs to be on board, implementing a unified strategy in order for any type of improvements to succeed. “They need to be patient and realize this [supply chain optimization] is a long-term strategy,” says Andy Hayner, senior manufacturing specialist and supply chain program manager, Wisconsin Manufacturing Extension Partnership. The organization is one of 60 Manufacturing Extension Partnerships (MEPs) in the country, an initiative which is led by the National Institute of Standards and Technology (NIST). “Company executives need to resist silver bullets promised by improved technology systems,” Hayner says.
For example, companies will make investments in large integrated information and technology systems that are built to support existing operations. “Companies end up handcuffing themselves to a poorly automated system,” Hayner says. He says a solid approach is to develop a unified strategy; analyze and redesign supply chain operations; and finally, bring in the technological infrastructure to support the improved information flow. Or use the technology implementation process to simultaneously analyze and redesign operations.
Hayner’s MEP team, much like the others that comprise the NIST MEP system, works with OEMS and large manufacturers to identify strategic suppliers that are in need of operational improvements. The MEPs work with organizations in their states and regions, as well as others in the MEP system, to assist companies in achieving performance measures in manufacturing, such as in the supply chain.
In Virginia, the Genedge Alliance MEP has teamed with MEPs in Illinois, California, Texas and South Carolina to develop new products and services to enhance U.S. based supply chain competitiveness. “This shows the strength of the national system, where different MEPs come together to develop systems and products,” says Jeff Kohler, executive director, Genedge Alliance, which is based at Patrick Henry Community College in Martinsville, with locations throughout the state.
Kohler says the supply chain initiative includes elements such as workforce strategies; workshops to bring supply chain partners up to speed on the concepts of strategic thinking; workshops on total cost of ownership decisions; and risk management.
As part of the national supply chain initiative, a voice of the customer study was conducted to learn what OEMs and their suppliers were thinking, says Dave Boulay, president of the Illinois Manufacturing Extension Center, based at Bradley University in Peoria. As a result, priorities based on the study include total cost of ownership decisions, and supplier matching capabilities. “We are working to put together supporting resources for supply chain strategies,” Boulay says. “A lot of that revolves around the notion of the total cost of ownership — the idea that cost is a function beyond the walls of one plant. A comprehensive strategy will address risk in the entire supply chain.”
Boulay adds that the topics of innovation and sustainability are increasingly becoming part of the total cost of ownership decision component as well.
Beneficial To Both Suppliers And OEMs
ne of the top initiatives in the MEP Supply Chain Advantage Program is the Accelerate program. Accelerate not only assists suppliers in remaining competitive by reducing lead times, but they are also able to build in flexibility, conduct quality improvements, and improve on time deliveries. “They do this with less internal costs because they are eliminating wasted resources,” Hayner adds.
Accelerate has executed more than 400 projects nationwide, which has helped suppliers reduce overall lead times an average of 43 percent, which has helped their customers realize 50 percent improvements in delivered quality. Less defective product coming through the OEMs’ doors results in less disruptions.
In Virginia, the Genedge Alliance worked with the state’s largest employer to create improvements within the company’s supplier chain. “We worked with the company’s suppliers in Virginia, and we managed the national program; however, when a supplier located in Texas, we would contact the Texas MEP, which would provide a consistent approach to the improvements,” Kohler says. As a result of the efforts, one of the suppliers located in Virginia increased its on time delivery from 87 percent to 100 percent. The company’s new product response time dropped from six days to two days. What’s more, the supplier achieved its mil-spec compliances.
Hayner provides another successful example of MEP programming, where an electronics manufacturer was conducting complex electronic assemblies for an OEM. The OEM required 500 assemblies per month; the supplier’s maximum productivity was 75 assemblies per week. Through supply chain optimization efforts, the company was able to produce faster with less inventory, while at the same time building in better quality and achieving the customer’s demand rate. The supplier was able to achieve a 52 percent overall lead time reduction. “They added some capacity and labor; but they also redesigned the production process,” Hayner says. “They increased productivity from 75 assemblies a week to up to 100 assemblies per day. Quality improved 50 percent internally. The 5 percent fail rate was reduced to a 2.5 percent fail rate. And they reduced their work in progress by 80 percent.”
Hayner says MEPs have also been working in concert with the Defense Logistics Agency and several defense primes to identify additional supplier opportunities, including in the areas of capacity assessment and optimization. The suppliers learn how to manage variations and complexities so they can support a number of customers using the same resources. Hayner says when demand fluctuates suppliers are able to manage the complexity and identify bottlenecks in order to support optimal delivery performance.
Boulay says depending on the priorities of an industry, a supply chain strategy speaks to the complexity of certain elements in the supply chain. This includes the notion of sourcing, exporting, licensing strategies, etc. “They all become part of the mix that is an integral part of what we as the MEP are saying; the notion of what the next generation of manufacturing needs to be successful,” Boulay says. “Holistically it is now more than ever a question of strategy. Sometimes supply chain is viewed as procurement and the cost of an item, and can we get the lowest costs. The reason I say it is now a question of strategy is that there are 7 billion people in the world. Emerging economies are emerging so fast the strategy simply must be global.”
Hayner adds that when optimizing the supply chain, manufacturers should develop true collaborations with suppliers and move away from adversarial relationships. Execute a unified strategy and put metrics in place so each person understands what they are expected to do, and how to perform their piece of the puzzle in order to achieve overall company optimization. Also, resist the urge to drive short-term gains that will ultimately lead to negative long-term consequences. Doing so should lead to fewer headaches.