What do we mean by Aligning a Supply Chain?

 

Last Monday, September 13, the Chicago Tribune published an interesting article titled Jumbo Problems for Boeing in its Business section.  Apparently, the well-known problems with the development and delivery of Boeing’s 787 Dreamliner are impacting another major program – developing a freighter version of the 747 jumbo jet that most of us have traveled on and enjoyed for over 20 years.  The article attributes many of the problems to “supply chain mishaps” including “some partners who are just not capable of doing the job”.

 

In a recent meeting of supply chain professionals here in the Chicago area, we tackled the subject of this post – what does alignment mean to supply chain management.  Our first insight was that the alignment must be pointed at the corporate strategy that comes from the senior management team of the organization.  The Tribune article mentions a change in culture at Boeing and the re-location of corporate headquarters and management from Seattle to Chicago.  Both may have had an impact on alignment.

 

During our discussion, the importance of insuring complete understanding of corporate strategy throughout the company was seen as a key first step towards an aligned supply chain.  Utilizing a Sales & Operations Planning process is the next logical step in the alignment process.  S&OP will serve to align the operating functions of the supply chain process so that major initiatives that are critical to the company and its customers and suppliers can succeed.  S&OP also provides opportunity for regular feedback on progress toward completing an initiative.

 

When outsourcing of products or sub-assemblies is part of the program, it is important to confirm up front the capabilities of those suppliers and their processes.  Clearly, that was one of the major flaws in Boeing’s Dreamliner program.  According to the Tribune – “the pendulum is swinging back as Boeing has taken direct control of more of the 787 process.  Boeing bought …two early supply chain bottlenecks.”

 

We also talked about the idea of using compensation to reward people throughout the process when the goals are met.  That of course implies that there should be measurements in place that are consistent with the corporate strategy and the objectives of each major program. 

 

Finally, the group saw communication and feedback as being important to aligned supply chains.  Communication from the top down provides the opportunity to adjust alignment when conditions change.  Feedback will help everyone including management to react quickly when something is not going as planned.

 

To summarize, alignment includes strategy, S&OP, outsourcing, compensation, measurements, communication, and feedback.  Let me know if you think we missed anything.

Is Excess & Obsolete Inventory impacting Supply Chain Performance?

 

Excess and obsolete inventory is costing the typical business 15 - 25% a year of its original value.  This is a burden that most businesses cannot afford, especially today.  However, since the excess inventory is usually stored in the back of the warehouse, in high racks, or worst case, in an outside rented warehouse, most companies do not address the problem on a regular basis.

 

A colleague of mine, Jim Bissonette, had responsibility at Motorola for E&O and cost reductions for several years.  Here is what Jim had to say based on his analysis of the issues at Motorola:  “the problem that I was managing in the electronics industry was caused by our system not being able to react quickly enough to changes in demand with short product life cycles.  In the electronics industry, you are always coming out with new models and new technologies.  When you add the component lead times which can be up to 26 weeks, you have a very difficult situation to manage.”

 

My experience in dealing with the issue in both heavy equipment and consumer products manufacturing mirrors what Jim said.  I see three fundamental drivers of E&O:

 

• Customers do not buy as much as they forecast or order.
• Sales introduces new items that do not sell to forecast.
• Purchasing buys in large lots to take advantage of quantity price breaks.

 

Note that all of these are based on good intentions, and may be critical to your business.  Measurement of these situations is what is usually lacking –i.e. what does history tell you about the first two, and what is the trade-off in inventory represented in the third?

 

Motorola is a large company that can afford to assign the management of E&O inventory to one individual.  When we took a similar approach at Helene Curtis in the 90’s, we saw immediate improvement in the disposition of existing excess and obsolete and, importantly, we took steps toward prevention of more excess inventory in the future.

 

Jim ended our discussion with this suggestion:  “Organizations need to dedicate resources that can take ownership of E&O and not just report the problem or the data.  There is a huge opportunity for companies to reduce and mange E&O if only they would dedicate the resources.  Let’s face it, E&O does hit the bottom line.  Organizations today are scrambling for sales, cost reduction, and improved margins.  Why not attack and manage E&O.”