All over the world, there are still millions of people employed in manufacturing and distribution companies, but as the worldwide economy shakes out—especially in these challenging economic times—we increasingly find that that the real competition is between supply chains more than products.

We’re all in the service economy now, baby.

It really makes little difference what your product is. The Internet-empowered consumer—whether he’s a buyer for a major distribution chain or Jane Doe making a purchase from home—is seeking “value” with, perhaps, hundreds of options from which to choose.

“Value” to these smart buyers means a combination of functionality, usability, reliability and economy with speed. While the four basic attributes certainly apply to the product itself, the empowered consumer is also seeking reliability, economy and speed in delivery of the product, as well. These latter attributes all apply to the supply chains responsible for getting the products into the consumer’s hands.

Supply Chain Variability

When it comes to quality in manufacturing, variability (deviations from quality standards) is an enemy and needs to be driven out of the production environment as much as possible.

Unfortunately, many supply chain managers—having “grown up” in the manufacturing environment—are still expending huge amounts of time, energy and money trying to drive variability out of their supply chains. But in today’s world, we need to face up to the fact that change is omnipresent.

Today’s empowered consumer is not voluntarily going back to less variety in available product. “The long tail” is here—and here to stay. If anything, today’s consumer is demanding more “mass customization” and increasing variety in product and service offerings.

In the supply chain, variability is not the enemy! If anything, it constitutes the basis for improving profit opportunities for those who embrace it.

Today’s supply chain managers, if they are going to improve profitability, must embrace the omnipresence of change and variability and spend their limited resources of time, energy and money on increasing supply chain agility and resilience. More money poured down the rat-hole of attempts of “driving out variability” or “improving forecasts” is likely to be counted as loss.

The difference between managing your supply chain (or any other service) and managing manufacturing is that, in providing services, dynamically shifting customer expectations require an acceptance of change and variation and the building of systems that readily accommodate variation without breaking down, bogging down or failing completely.

Supply Chain Agility – Accommodating (even planning for and expecting) Change

Supply chain agility is all about expecting, planning for and accommodating change. In order to achieve agility, at least three factors come into sharp focus:

1. Faster feedback – It is much easier to accommodate change if your supply chain participants are getting feedback every day about actual demand for the products they provide than if they are hearing about demand only through orders that flow in a few times a month. If end-user demand has been pretty steady for weeks at x-units per day, everyone from the raw materials gatherers to final assembly firms in the supply chain will be better prepared to respond if they know that average daily demand by end-users has tripled in the last week, rather than simply getting huge new orders at the end of the month. Remember, many of those “huge new orders” will be magnified way out of proportion by the bullwhip effect.
2. Less inventory in the supply chain – Large amounts of inventory clogging up the supply chain means that you are more likely to have too much of the things your customers are not asking for and too little of the things your customers want right now. It also means that resources—like shippers and manufacturers—are more likely to be tied up building or transporting the wrong stuff. This, in turn, means that these resources have less capacity to be building and transporting the right stuff.
3. Smaller production and transfer batches – Whenever and wherever it is possible to do so, production and transfer batches should be driven smaller. Doing so will reduce lead times (automatically) by freeing up resources to respond more rapidly—making the right stuff at the right time. Prices can always be negotiated based on aggregate consumption over time—not the size of the transfer batch (e.g., shipment). A good place to start is to cut present batch sizes in half—just to see what happens. The results will almost always be good (except in cases where increased set-up times between batches create a new bottleneck in the system). The increased system Throughput will generally outpace any incremental costs incurred due to the reduced batch sizes, as well.

What’s your opinion? We would be delighted to hear from you. Please leave your comments here, or feel free to contact us directly.