SUPPLY CHAIN MANAGEMENT

In today’s struggle for a competitive edge, companies are embracing the principles of Lean Manufacturing.  Lean Manufacturing is a set of techniques and operating practices aimed at reducing through put time, lowering costs and improving quality by eliminating wastes.  Wastes that occur due to delays, disorganized work areas, mistakes and materials with poor quality or not delivered when needed. 

Supply Chain Management is the Lean Manufacturing technique that addresses wastes related to the supply of materials. Supply Chain Management is an essential Lean Manufacturing technique since it addresses all three drivers of competitive manufacturing - shorter through put times, lower costs and higher quality.  Supply Chain Management brings together the various tiered levels of the supply chain to work as a team to identify and eliminate waste throughout the entire material pipeline. 

In most manufacturers materials represent 40% to 50% of the Cost of Goods Sold. These percentages increase even more when the costs associated with handling and storage are viewed as material costs instead of manufacturing burden.  Given their magnitude, it is easy to understand that even a small reduction in “Total” Supply Chain cost provides immediate and lasting improvement in gross margin, manufacturing overhead and gross income. 

So what are the essential elements of Supply Chain Management? Lets start with the basics.  Knowing what materials are required, quantity needed and when they are needed is a must.  If you don't know, you can’t expect your vendor to know unless crystal balls really work.  Knowing “what”, ”how much” and “when” requires different things be accomplished depending on the type of manufacturing being done. 

At a repetitive manufacturer, Bills of Material for every product must be complete and 100% accurate.  Production schedules must be planned and executed with minimum variances. Where the production schedules are based on finished goods, inventories in the warehouse(s) or at the distribution center(s) must be current and accurate. 

At ETO manufacturers, the “materials lists” must accurately identify all materials, quantities and scheduled use.  Identifying long lead-time items is a must and requires constant communication with suppliers and, most likely, some "on hand" stock. Those are the basics, now a few of the refinements.  

Supply at Point of Use –  While more appropriate for repetitive manufacturers, materials should be delivered to their point of use on the shop floor.  Ideally, a supplier’s parts would be packaged and delivered in a manner that eliminates subsequent handling and satisfies the hourly, half-day or daily production schedule. 

The replenishment cycle will be affected by the size and weight of the item. Material costing includes the costs to put each item at its point of use –  A materials/components cost should include the costs of handling, storage, unpacking and delivery to its point of use.  Including these “delivery” costs will identify wastes and “non-value” costs in the supply chain. 

Establishing “Target” material/component costs with your vendors –  Most manufacturers face constant pressure from their customers to reduce the cost of their products.  And, like it or not, that pressure will continue.  Establishing a future “target” cost for materials/components helps companies identify and eliminate the wastes that add costs to their products. 

Material/Component Specifications –  Establish dimensional and quality specifications for all materials/components. Then work with vendors to improve their quality processes to ensure specifications are achieved.

As everyone knows, the quality of your product can be no better than the quality of your supplier’s. These are just a few of the Supply Chain Management practices available to identify and eliminate waste.  Applying these, or other Lean Manufacturing practices, with a continuous improvement mind-set – “Always better, never best” – will ensure wastes are identified and eliminated. 

For more information on how to initiate a Supply Chain Management program at your company complete this Information Request form and we well contact you to discuss your interests and improvement objectives. 

Post Script – Improving operating and financial performance can lead down many paths.  Clearly, implementing Supply Chain Management could be one.  Other paths to improvement include Process Re-Engineering, Lean Manufacturing Principles, Structured Work Flow, an ERP System Solution and Performance Measurement and Reporting. 

To learn more about these and other programs click on a button, below:

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