Operations Strategy (Forecasting)

BASICS OF SUPPLY CHAIN MANAGEMENT

Supply Chain is from the time the product is taken out of the ground, the water, or harvested all the way to final consumption by the ultimate consumer. With many products, the recycling piece also. So it covers Purchasing and all inbound functions, it covers all material movement within the 4 walls of the company, and it covers the movement of the product to the final consumer. All of the planning and all of the information flows that move the product/service are part of the Supply Chain.

Not to long ago in the life of industrial America, most of the supply chain functions were performed by different organizations who may or may not even know that someone else was doing a piece of the supply chain. The popular term today is functional silos. Many authors call it dysfunctional silos. Each worked to be efficient in its own area no matter the impact on other departments. For example, the Purchasing department gets kudos when it can buy at the lowest price. Many times this means buying has to stock more material for a longer time period and Finance has to pay for it.

Marketing wanted perfect customer service.

Manufacturing wanted the longest production runs.

Finance wanted the lowest cost of inventories.

Distribution, depending on who it reported to, either wanted perfect customer service or lowest cost.

Work with other companies was done at legal, “Arms Length”.

Some mutual work was done but not too much. It was left to the individual manager.

The reason it works is called ECONOMIC UTILITY

Place Time Form Ownership

Toyota changed all that with the start of JIT. In the US where the distances are greater, improved, automated communications started with EDI in the 1980’s.

In the 1960’s Ollie Wright and a few co-workers started the whole MRP/Master Plan/MRP II movement as directors in manufacturing companies and then as consultants with IBM and others. Their approach was to make the Physical process as trouble free as possible by having planning be the controlling force within a company.

The current Supply Chain Concept is “The entire set of activities from raw material production to the final customer purchase is a LINKED CHAIN of activities”.

But, the supply chain concept can be boiled down to 2 words, “THE BOX”.

Imagine 1st a box, then move that box from point A to point B.

That all there is to supply chain, moving a plain, ordinary box.

Anyone telling you different doesn’t work in supply chain.

BUT, Now comes the fun part.

What is in that box?

Is it valuable?

Is it perishable?

Where are you moving it from?

Where are you moving it to?

Is it going from your supplier to you?

Is it going to a distribution center?

Is it going to a customer?

When is it ready to pick up?

When does it have to be there?

How many times are you moving this box?

Once, or are you going to do it again and again?

How many? One at a time, or is it 1,000,000 at a time?

Every day, once a week, once a month, for how many months or years?

What are the restrictions, the ship from point can only handle trucks?

It is in a foreign country and there are import/export rules?

Changes it a little bit, doesn’t it?

Most of what we will talk about is the forecasting, planning and then execution of those plans. From the Board of Directors, to corporate officers, down to the clerks on the shipping and receiving docks. To all the bar code scanners in the world that tells someone what has been sold at Shaw’s, Wal-Mart etc.

Big picture: Organizations and their Supply Chains do not act in a vacuum.

Therefore let’s look at the conditions that impact on us:

Government: Just look at what is going on in this country with the economy, the war in Iraq and the war on terrorism. Jus the Home Land Security regulations are enough to drive any shipping/receiving dept. crazy. The price of gasoline and diesel has gone up over 25% since last summer alone. Just watch for the nutty taxes that will come at you from local, county, state and federal to pay for the shortfalls. Not only the ones that Washington will talk about but the little ones like doubling the cost of your drivers’ licenses and registrations for your trucks.

Economy: Everyone is driving prices down. Everyone is outsourcing to get lower prices or higher productivity. As a manager, you will not get any extra help. “Figure how to do it with less people” is the cry out of the board rooms.

Competition: Look at what Wal-Mart has done to the retail industry. 15 years ago they were not in the grocery business. Now they are the largest grocer in the world. Just how many more Asian companies are going to develop and sell cars or appliances in the USA so they can better follow the Japanese model of the 1980’s and 1990’s. Look at the pc market; Dell did not make it on technology, they made it on the supply chain/customer service/manufacturing model. H-P and Compaq had to merge or die separately.

Customers: Do we ever know what they want? Is it cheaper, is it better quality and reliability, is it better style and fashion, is it more convenience and they want it when?: The answer is YES to all 5. And they vote by withholding their money by not buying from you.

Technology: It is still changing as fast as before. But now companies are only buying technology to survive. A completely different reason than in the 1990’s when the market could support any thing new that come out.

Why should companies, organizations, etc use Supply Chain Management?

Lower Inventories Higher Productivity

Greater Flexibility Shorter Lead Times

Greater Customer Satisfaction

ALL LEADING TO HIGHER PROFITS.

Touches: The more touches, the higher the cost, the longer the time, the higher chance of errors, the higher the chance of damaged goods.

Unit Load #1: P & G; single item into a master carton onto a skid. I.E., 2400 rolls of 35mm film could fit very nicely on one 44x44x44 pallet.

Reduced Touches: #2 Staples – needed a new desk for my wife’s studio. Off to Staples, picked out a nice one and ordered for delivery. What did Staples do? They sent the order to the manufacturer who shipped it directly from the factory in Ohio to our home. No touches within the Staples organization at all. All they moved was information electronically.

Merge in Transit: #3 Dell, Dell does not make monitors at all. So you order a system from Dell. They issue an order to production to assemble your computer. They also issue an order to the monitor manufacturer’s warehouse either on the west coast or east coast to ship via UPS. The label tells UPS not to deliver it until the box from Dell shows up. Then deliver both at the same time.

Cross Dock: #4 The Limited gets its goods from manufacturers from all over the world. Limited, when it orders an item, already knows what store needs it. All shipments from suppliers go to Columbus, Ohio. When the box comes down the conveyor belt, it is scanned and automatically routed to the correct outgoing location to be shipped later that night. It is flown to a major location, i.e. Atlanta and a local delivery service delivers it to the store. Oh by the way, the item is already priced and prepared to go to the display rack. And since all of the restocking is done by women, no box can weight more than 18 lbs.

Velocity within the system is A MAJOR GOAL