The Supply Chain-A Systems view
CONTRIBUTION BY STUART EMMETT – FREELANCE INDEPENDENT TRAINER AND CONSULTANT WHO TRADES UNDER THE NAME OF LEARN AND CHANGE
First of all, let’s look at a summary of what a systems thinking view tells us about the supply chain. Some of this will be well known, so others parts maybe new. However, the main message is to note and be aware of the multiple inter connections and inter dependencies.
- The supply chain is a process that has a purpose.
- The process is either, the transformations (inputs-process-outputs) into products /services; and/or, the positive and negative feedback from the output transactions that may change the inputs, outputs and/ or processes
- All of the supply chain processes have dependency, variability and interfaces (e.g. an interplay of relationships) as
- Supply chains will change in response to feedback (as shown in the well known Forrester effect on inventory amplification, for example, as shown in the “Beer Game”)
- Besides feedback, supply chains also function with the interactions in and between its parts. Tinkering only with the parts will sub optimise the whole, as the whole is formed by the sum of the parts. Additionally when focussing only on the parts, the whole is not being fully considered, (consequently, the purpose and meaning for the whole is now lost and is possibly, unachievable; effectively, the original purpose has been changed).
- The parts have to be arranged in specific known ways to make the required wholes that will achieve a specific purpose; therefore we must fully understand the connections and interactions of the parts when we look at the required wholes.
- This will involve a consideration of not only our own whole system, but also the wholes of the others and the connections to purpose, processes, structures, as well as the power and the people aspects.
The above link usefully into my earlier Supply Chain Rules 1-3 (from Emmett 2005; “The Supply Chain in 90 minutes”)
Supply Chain Rule number 1: “Win the home games first”
Many companies start into Supply Chain Management, by working “only,” with the closest suppliers and customers. They should however, first ensure, that all of their internal operations and activities are “integrated, co-ordinated and controlled.”
Supply Chain Rule number 2: The format of inventory and where it is held is of common interest to all supply chain players and must be jointly investigated and examined
The format of inventory being raw material, sub assemblies/work in progress or finished goods. This is often held at multiple places in the supply chain and, is controlled (in theory), by many different players who are usually, working independently of each other. This results in too much inventory being held throughout the supply chain.
Supply Chain rule number three is: The optimum and the “ideal” cost/service balance will only ever be found by working and collaborating fully with all players in the Supply Chain
Full benefits of supply chain management will only come when there is an examination of all costs/service levels together with all the players. This will result in reduced lead times and improved total costs/service for all parties in the network. This means therefore, going beyond the first tier of suppliers and looking also at the supplier’s supplier and so on. It represents more than data and process, it includes mutual interest, open relationships and sharing.
As a result of the above, we therefore find in Supply Chains:
- There is delayed feedback and unexpected variability, as feedback from processes can give amplified changes, or oppose a change, and/or can be time lagged or delayed with balance and reinforcing feedback patterns, (e.g. this is because in supply chains “what happens here, affects there” ) , (e.g. the all too commonly found variable in supplier lead times, that knocks on to inventory levels, customer service, cost etc)
- To manage such wider effects, that are usually “away from and out of our own box”, we need to have visibility of, and information on, the processes. Information is needed for decisions (this involves making a choice from alternatives), where, decisions will then create action (this involves doing something with the resources in a process). Visibility will also enable better management of the feedback patterns, where any uncontrolled/unknown feedback will then create supply chain volatility, variability and velocity; managing all of these correctly will then give better value.
The above link into Supply Chain Rules 4 to 8
Supply chain rule number four: Time is cash, cash flow is critical and so are the goods and information flows; fixed reliable lead times are more important than the length of the lead time
The importance of lead time in inventory is seen in the expression, “uncertainty is the mother of inventory.” The length of lead time is of secondary importance to the variability and uncertainness in the lead time. Again, an examination of lead time throughout the supply chain, involving different players and interests, is critically needed.
Supply Chain Rule number five: The Customer is the business; it is their demand that drives the whole supply chain; finding out what Customers value and then delivering it, is critical
The customer is the reason for the business – so – continually working to serve the customer better is critical. The customer is the business, after all. But who is the customer? The traditional view is perhaps the one that has placed the order/pays the suppliers invoice, but by seeing the next person/process/operation in the chain as the customer, then, this way of thinking means that there are many supplier/customer relationships in a single supply chain. If all of these “single” relationships were being viewed as supplier/ customer relationships, then the “whole” would be very different.
Supply Chain rule number six: It is only the movement to the customer that adds the ultimate value; smooth continuous flow movements are preferable
The movement to the customer, undertaken as quickly as possible whilst accounting for the associated cost levels, is really all that counts in adding value.
Supply Chain rule number seven: Trade Off by looking, holistically, with all, the supply chain players
There are many possibilities and opportunities available to Integrate / Co-ordinate / Control across the supply chain(s) networks, starting by “winning the home games first” in and between the internal functions; followed by, all of the external connections to the supply chain networks.
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