Supply Chain people all around the world are struggling. They were struggling before the pandemic. And they are still struggling. Many businesses are challenged by supply chain. The job is chaotic at best and what ends up happening is that supply chain personnel are trying to manage that chaos. Let’s look at why.
- The systems that we use for supply chain are based on precision and prediction. Now normally, those words don’t work together. And we know that. So why do we think Supply Chain is so different that they can guess at the answer and remain precise?
- There is no standard process to determine how much to buy and when to buy it. Everyone, even those in the same company, use intuition and experience to “outsmart” our systems by manipulating the output because they know that precision can’t work in an imprecise world. In our companies where we claim to be “process driven”, how embarrassing is that?
- There is a management focus on reducing cost. But reduced cost is an outcome of the actions that are being taken. Reducing cost is not the action on which to focus, it is the outcome. At home, you don’t negotiate your electric company rates, you reduce your use of electricity and see the resulting decrease in your bill.
- There is a management focus on reducing inventory. The above focus on cost has led people to believe (wrongly) that lower inventory amounts result in lower inventory cost. But the reality is that as your inventory reduces there is a point at which the cost of expediting, the cost of penalties, and the cost of missing customer shipments causes total costs to increase. Zero inventory does not equal zero cost.
- The guesswork continues with guessing how much inventory should be held. Until there is an established target inventory level, you cannot know whether you have too much or too little. And therefore, you can’t know whether to increase or decrease your inventory of any particular part number. Again, having a standard method to dynamically determine the target inventory level, by individual part number, is missing in the traditional supply chain tools.
- Each of these points becomes more and more impactful as we increase the distances and the time periods considered in our supply chains. But moving production facilities and suppliers to be close to you is not a very realistic and quick solution. If for no other reason than your customers are not necessarily close to you as their supplier. If we focus on points 1-5 first, then point 6 might just be a much smaller task.
It’s time to Stop Managing Chaos. The solution starts with re-thinking the systems we’ve been using for more than 50 years. And that leads to the methodology called Demand Driven Material Requirements Planning.
If you’re frustrated and unable to see the path forward, it starts with inventory management and fixing the inadequate systems you’ve been forced to work with. Once you see the solution that I’ll present to you, you will never be able to “unsee” it.
The fact is that there is a solution and it’s a thought-ware solution. Contact me for a no-obligation conversation about Demand Driven MRP.
John Melbye, DDPP, DDLP, CSCP