Maslow’s hierarchy of needs is a well-known psychological principal that describes an individual’s journey toward spiritual enlightenment. Gaining insight into your supply chain takes on many similar characteristics. It is a journey and not a destination. With apologies to Maslow, please read on.
Basic Needs—Information Consolidation
At Maslow’s hierarchy-of-needs bottom is the idea of the things you need to survive. For manufacturers, this is basic information, such as whom are my suppliers and what are they shipping me. This is where you begin your journey. The applications that allow you to achieve this level may include your enterprise resource planning (ERP) application, potentially your product lifecycle management (PLM) system and other internally focused programs.
For large organizations, though, this can be difficult, especially if they have grown through acquisition. I heard of one very large, global food producer that found after it implemented an ERP, it was purchasing the same ingredient from the same supplier at eight different prices. So, depending on your size, getting out of this level can be non-trivial.
Psychological Needs—Measurement and Action
Once gaining systematic control over this basic information, it is time to gather more supply chain information. One typical project centers around supplier base rationalization. To that end, you need to have additional metrics beyond on-time delivery and invoicing to do this. In most cases, operations staff have institutional knowledge about their supply chain, but do not have the data to really know why it is. They know that things work well with Supplier A, but not so much with Supplier B, even though they provide the exact same material that meets specification.
To move through this phase, manufacturers can look at the following additional metrics to measure their supplier community:
- Corrective actions per 1,000 shipments.
- Number of out-of-specification shipments.
- On-time delivery.
- Conformance to industry regulations, such as ISO-9001 or the Food Safety Modernization Act (FSMA).
- Compliance to your specifications.
- Material-oriented statistical process control (SPC) violations.
With this information, you can rationalize your supplier base, achieve some pretty good financial returns and focus your efforts on achieving the next phase. Financial returns come from lower on-hand inventory, fewer supplier material-oriented disruptions, improved collaboration and improved pricing from higher volume contracts.
Spiritual Enlightenment—Operational Excellence
Upon rationalizing your supplier base, it is now time to really gain financial and operational benefits. Many of the financial benefits realized from the previous phase are one-time costs. Using the data that was amassed, manufacturers can begin to use the supplier data to significantly improve manufacturing processes.
This phase involves tying the information from the supplier community to ongoing operations to see how the various incoming material characteristics affect processes. What may be realized is that the information that you thought was relevant, while important, does not answer key questions. You may need to find other information to answer more complex questions about the relationships between materials and processes as it relates to yield and productivity.
Every business is different when it comes to these journeys. These results, though, come through data analysis driven through detailed root cause analysis techniques and can add quite a bit to your bottom line. They don’t come overnight, but do have pretty interesting results as it relates to operational improvement.
People don’t gain spiritual enlightenment overnight. Individuals need to understand what makes them tick and what is important to them. Your journey toward operational excellence invariably goes through the supply chain, and involves gathering and using data to gain insight into operational excellence.