Tackling supply chain challenges today requires an alternative approach to supply chain management – creating integrated value streams.
By Charles Clevenger, Principal, UHY Advisors
Given the many global supply chain challenges the manufacturing industry faces today, conventional advice to tackle such challenges often includes adding inventory, increasing lead times to customers, reducing the number of product offerings, and raising prices. Unfortunately, this “conventional advice” will likely result in customer dissatisfaction, pressure on your cash flow, and ultimately, reduced profitability.
As such, before taking “conventional advice” manufacturers should first consider:
How well do you understand your customers and their needs?
Does your knowledge of your customer translate into a successful approach to provide them with products and services, I.e., an effective operating system supported by aligned value streams?
How do you measure customer satisfaction and performance through your value stream?
Get to know your customers
The first question any manufacturer needs to answer is whether they truly know their customers, understand their business requirements and needs well enough to provide effective services, and act as a true partner. While they may not always be effective at communicating it, your customers want you to understand how they operate and which key factors lead to their success. They rely on you as their supplier to help them achieve their goals.
To create efficient value streams, it is important to start by understanding the major characteristics of their business as well as their product portfolio. Do they experience seasonality in sales? Is their product offering complex with significant optionality? How do they order product – a quantity at a time, or on a continuous basis with an ongoing forecast and schedule? What is unique about their approach to manufacturing?
Once you truly understand how your customer operates, you can build your operating systems and value streams, include your suppliers within them, and more effectively fulfill customer needs.
Design operating systems and value streams in alignment with customer needs
Building an operating system and supporting value streams to match the needs of your customers is fundamental to your company’s success. In short, it is paramount that manufacturers translate their understanding of their customers into the provision of their products and services, and integrate this understanding into their operating system and value streams accordingly. An operating system can be perfectly developed and executed, but if it doesn’t align with your customer’s requirements, it will not serve you nor your customer well.
In addition to a customer friendly operating system, it is important to communicate customer needs with suppliers. This will help build their understanding and gain their buy in and integrate them into your value stream through the development of a Plan for Every Part, or PFEP. It will also ensure you have open and timely communication when changes occur.
The plan for every part (PFEP) is fundamental to communicating customer needs, and yet, a frequently overlooked step. PFEPs can include essential elements such as details on packaging, ship quantities, and transportation methods. As such, it is only with a robust PFEP, which has all components working in alignment and harmony, that successful integrated value streams can be created.
Measuring customer satisfaction and performance resulting from the value stream
Manufacturing companies measure a lot of things – sometimes too many things. So, what is important to measure when evaluating the robustness of value streams?
Customer-focused metrics – These may be internally generated or come from your customer. No matter the source, it’s imperative to understand how your customer perceives your supply chain performance and knows you are constantly working to improve. Do you deliver products on time, in the requested quantities, and ready for use? Do you have a backlog of orders?
Supplier performance – Most manufacturers have supplier scorecards, but rarely do they measure on time delivery performance (the right product, at the right time, in the right quantities). Without this regular and consistent feedback, your suppliers will not know if they are meeting your expectations (and those of your customer).
Inventory levels – Don’t forget to look inside. Your overall inventory levels may seem fine, but if you have a bimodal distribution of product on hand (too little of some items, far too many of others), then you have a disconnect in your value stream. Freight costs might appear fine, but your suppliers are not shipping product at the right time, and you will make up for it with premium freight.
Create an integrated value stream to offset global supply chain challenges
For those manufacturing companies facing growing consumer backorders, an inability to predict product availability accurately, unexpected or increasing inventory levels, or a bimodal distribution of inventory, these challenges may signal supply chain issues. To successfully tackle such issues, companies must create an integrated value stream that understands customers and builds an operating plan to meet their expectations. Doing so will allow for the elimination of conventional challenges, customer excitement, and ultimately, operational excellence.
Charles Clevenger is a principal in UHY Consulting, providing operational excellence solutions that strengthen and transform organizations. With over 35 years of industrial experience, and 20+ years of executive level global experience, his specialties include complex supply chain, procurement strategy and structure, operations management, and total value management analysis, and solutions.