Executive Briefings

SanDisk's Journey to Redesign Its Supply Chain

Several years ago SanDisk realized that its build-to-forecast model was causing excess inventory and poor on-time delivery. The company decided to transform to a pull supply-chain model based on actual demand and postponement. Kehat Shahar, vice president of operations and supply chain planning at SanDisk, talks about this journey.

SanDisk began its supply chain transformation project about seven years ago. "Everyone knew we were performing pretty badly, and losing customers as result," Shahar says. "In addition, levels of inventory and inventory turns were not favorable, so everyone knew that we had to improve both of those metrics."

The agreed upon strategy was to move from a build-to-forecast model to a model based on postponement, he says. “Forecast accuracy is very hard to achieve in our industry,” says Shahar. “It is a fast-growing industry with a lot of products and it is hard to predict what product mix customers will end up ordering. When we were building to forecast, we ended up with a lot of products customers didn’t order and not enough products that they did want. So we understood that we needed to shorten the order cycle time and react faster to real demand, whether in the form of actual orders or commitments to a forecast.”

For this to work, SanDisk had to convince their factories to change the historical practice of freezing the production plan six weeks out. In the first phase, that fence was reduced to two weeks and over time it has continued to drop. Today the production plan is frozen only half a week out. SanDisk also made gradual improvements in its postponement strategy, which began as a simple delay in production after a base level of inventory was reached until more orders arrived. Later the program was refined and customized for different customer segments. “It took us four to five years to go from a simple postponement model to where we are today with supply chain segmentation,” Shahar says.

The most difficult part of this project was convincing manufacturing facilities in Asia to agree to a much shorter lead time, Shahar says. “We got a lot of pushback at the beginning, but what brought everyone around was showing them the financial benefits to the company of reducing inventory versus the potential cost of not using the factory as efficiently as it had been used with our previous model. Also we showed them the financial implications of losing customers because of our poor levels of service. This convinced them.”

The overall success of this program is demonstrated by the fact that SanDisk today is managing with the same level of inventory it had when it started its journey, though its business has increased fourfold. On-time delivery also has improved significantly. “The benefits are very clear,” says Shahar.

To view the video in is entirety, click here

SanDisk began its supply chain transformation project about seven years ago. "Everyone knew we were performing pretty badly, and losing customers as result," Shahar says. "In addition, levels of inventory and inventory turns were not favorable, so everyone knew that we had to improve both of those metrics."

The agreed upon strategy was to move from a build-to-forecast model to a model based on postponement, he says. “Forecast accuracy is very hard to achieve in our industry,” says Shahar. “It is a fast-growing industry with a lot of products and it is hard to predict what product mix customers will end up ordering. When we were building to forecast, we ended up with a lot of products customers didn’t order and not enough products that they did want. So we understood that we needed to shorten the order cycle time and react faster to real demand, whether in the form of actual orders or commitments to a forecast.”

For this to work, SanDisk had to convince their factories to change the historical practice of freezing the production plan six weeks out. In the first phase, that fence was reduced to two weeks and over time it has continued to drop. Today the production plan is frozen only half a week out. SanDisk also made gradual improvements in its postponement strategy, which began as a simple delay in production after a base level of inventory was reached until more orders arrived. Later the program was refined and customized for different customer segments. “It took us four to five years to go from a simple postponement model to where we are today with supply chain segmentation,” Shahar says.

The most difficult part of this project was convincing manufacturing facilities in Asia to agree to a much shorter lead time, Shahar says. “We got a lot of pushback at the beginning, but what brought everyone around was showing them the financial benefits to the company of reducing inventory versus the potential cost of not using the factory as efficiently as it had been used with our previous model. Also we showed them the financial implications of losing customers because of our poor levels of service. This convinced them.”

The overall success of this program is demonstrated by the fact that SanDisk today is managing with the same level of inventory it had when it started its journey, though its business has increased fourfold. On-time delivery also has improved significantly. “The benefits are very clear,” says Shahar.

To view the video in is entirety, click here