Covid-19 has demonstrated the benefits of having stocks and surplus capacity available. Safety stocks and unused capacity in Lean Manufacturing are seen as waste, rather than a cost of doing business. Have supply chain professionals been overshooting in “leanification”?
In designing supply chains, at BCI Global we typically see that lead-time, operational cost, and working capital are the main criteria in identifying the preferred supply chain network set-up. Lean approaches are mostly used to improve the performance of any supply chain. Let me take you briefly into Lead Time Reduction (LTR), as one of the key and most deployed approaches in improving supply chains.
LTR can also be seen as response time reduction. The aim is to reduce the time it takes the end-to-end supply chain to respond to drastic change in customer demand. The approach looks into each supply chain element, and includes operational and safety stocks from the point materials become product-specific. An LTR program typically includes following main steps:
Hidden buffers will be detected and proposed to be removed from the supply chain. Yet for many companies these same buffers helped them to survive the earlier days of Covid-19.
BCI Global developed a Risk & Resilience framework by which we help companies identify current state of and improve their overall or specific: Supply Chain resilience. The BCI Risk & Resilience Framework addresses 5 risk sources (amongst which; pandemics) and 12 resilience competencies, in a total of 150+ factors.
Typically, Supply Chain resilience improvement contains following key points:
Some of the above measures will drive landed cost of goods upwards and in the typical view from Supply Chain and Finance that is a complication. The last section discusses how Lean/lead time reduction also helps drive down the cost impact of resilience measures.
Removing hidden buffers, reducing stocks, shorter lead times, culminating in just-in-time delivery concepts flourish when all steps in the chain are reliable. Flexible supply chains with short lead times can follow demand “rapidly”. Unfortunately, as Covid-19 demonstrated, companies do not control pandemics, nor some other risks like severe weather, geographic, and geopolitical risks. Such risks can present sudden massive interruption of supply. BCI Global aims to improve resilience of supply chains to be able to deal with these or other unpredictable risks. The goal is to do so without unacceptable rise of landed cost of goods.
A great benefit of running a Lead time reduction program is the high transparency created along the way. What is needed to reach the future state and how that translates in terms of performance on lead-time, yield, product quality, and the right cost. Very often the cost of ownership is improved double digit by suppliers by joining the customer-initiated(!) LTR program. So, when resilience improvement includes “duplication” or multi sourcing, that does not automatically mean the cost of goods will go drastically up. The information position of Procurement is much better which allows bringing best approaches also to new partners in the chain and be able to conclude good and fair deals to all geographies and partners in the supply chain.
Lead time reduction as well delivers information that allows fact-based assessment of risk/disruption scenarios. Where these disruptions cannot be fully mitigated by the agreed supply chain flexibility and duplicate sources, the same data set provides for a well-informed decision - supported by Finance / S&OP team - to install safety stocks in the right locations.
Conclusion: Building a resilient supply chain should include a lead time reduction program. The lead time reduction program enhances responsiveness of the chain, limits (or even lowers) the landed cost of goods when duplicating sources, and supports fact-based decisions where to put safety stocks.
Please feel free to contact Reitze de Graaf at Reitze.firstname.lastname@example.org to discuss more on Lead Time Reduction program and/or the BCI Risk & Resilience Framework.