Systems Check

Provider cites seven signs of weak links in manufacturers' supply chains

Evanston, IL  May 28, 2003  Got inventory reporting problems? Having trouble getting deliveries to customers on time? Seeing increased returns?

These are just a few of the supply chain "red flags" that manufacturers should be monitoring, according to a report out of Strategic Systems International, a provider of enterprise planning software.

Based on feedback collected over the past three years from its customers in the process manufacturing and publishing industries, Strategic Systems has produced a list of seven signs of weak links in the supply chain that managers should monitor in order to optimize their production capabilities.

The seven signs include:

1. Actual inventories consistently higher or lower than what the supply chain reports.

"There may be a problem with data being reported accurately to the supply chain system," said Paul Morel, project manager at Strategic Systems. "For instance, some segments of data may have been inadvertently filtered out. Also, there may be delays in the transfer of data due to multiple system updates that may cause problems."

Other problems with inventory reporting include a lack of timely supplies or inaccurate supplier data, Morel said. In addition, there may be recurring forecasting problems. These can be caused by multiple versions of sales and demand forecasts; forecast padding and bias in order to hit budget numbers; and problems in receiving timely and accurate customer forecasts.

2. Poor on-time customer delivery.

"Poor on-time customer delivery is often a direct result of poor lead-time calculations," Morel explained. "In addition, manufacturers should compare different machines that have the same processing capabilities to see if there are any processing-time differences that aren't being accounted for in their supply chain analysis."

3. Supplier inconsistencies in the speed and accuracy of order fulfillment.

"Inaccurate supplier data is an ongoing concern that needs to be constantly monitored by manufacturers," Morel said. "However, there is a flip side, when poor or late order data is given to suppliers from the manufacturer; that should raise a red flag as well."

4. Increases in the volume and costs associated with expedited orders.

"Expedited orders often have quality control issues, which lead to an increase in rejections," Morel said. "This can often be traced to insufficient lead times, which supply chain management tools can help erase."

5. Increases in the volume and costs associated with obsolete inventory.

"Product or material age is a critical factor in managing inventory, but many times it is not properly factored into supply chain inventory assignment decisions," Morel said. "For example, rust formed on steel coils that have aged in a manufacturer's inventory causes additional processing  known as pickling  and that raises the costs associated with inventory management."

6. Increases in the volume and costs associated with customer returns.

Simply put, if the number of customer returns is increasing, more time needs to be devoted to producing quality products.

7. Increases in the volume and costs associated with unnecessary restocking.

"This is often caused by poor visibility into the manufacturing process because of inadequate supply chain optimization systems," Morel explained.

Strengthening the Weak Links

There are several steps that manufacturers can take to strengthen these weak links, according to Morel. First, they should determine the total time that each point in their network requires for processing its portion of the supply chain. This helps identify bottlenecks and interruptions to the manufacturing process.

Manufacturers should look at processing time components such as queue time, run time, cool-down time and move time. They should also consider freight time and supply time, as well as any variances in all of these times. Another factor to consider is cycle time variability, Morel said.

Manufacturers should also consider all of the factors "outside the norm" that influence the supply chain process, such as unexpected downtimes. For example, union negotiations can affect machine run-times as workers are distracted or involved in work actions.

Once those steps are taken, Morel recommends that manufacturers look at extending their supply chain visibility outside of the company through the use of enterprise strategy and manufacturing planning systems (not coincidentally, one suspects, Strategic Systems offers just such a system, called SmartSTRATEGY). Supply chain optimization software can provide process manufacturers with recommendations on facility and equipment rationalization, manufacturing planning, inventory planning and distribution planning.

"Managers from interrelated manufacturing processes can use these reports for developing optimal scenarios for equipment utilization, product distribution and inventory planning," Morel said.