Executive Briefings

Two Cases Illustrate How to Make Supply Chain More Agile

What would it take for manufacturing businesses to operate like the best online retailers? How can such companies turn orders around in a day, deliver them with greater customization, and replenish stocks seamlessly? These aren't idle questions for the top teams of manufacturers, because customers, across both B2C and B2B markets, are more fickle now; service demands are steadily notching upward; and economic volatility shows no sign of abating. Supply operations often struggle to keep pace, as many aren't sufficiently agile to capture fleeting upside opportunities or to mitigate fast-moving risks.

Experience in two industries, chemicals and consumer products, demonstrates how supply-chain agility accounts for divergent levels of performance among companies.

One top-quartile company is an industry leader producing a full range of chemicals used in agriculture and food processing. After regularly missing shipments as a result of raw-material shortages, executives shook up their operations and now tightly integrate planning efforts with those of suppliers: the company shares data on forward orders with them and solicits their insights into the availability of materials and capacity constraints.

The company has also invested in redesigning processes (the modularization and postponement mentioned above) so that end products can be made more efficiently and quickly from standard inputs that are always in the production stream. Thus, when demand increases for an individual product, a plant manager can access the modular base and rapidly create the final formulation with only a few more steps than would be necessary with nonstandard inputs. That capability has not only sharply reduced the number of end products the company needs to stock but simplified SKU management as well. This company has also negotiated greater labor flexibility across its plant network, easing contractual constraints on hours worked. In addition, it has trained employees in multiple areas of process knowledge, so teams can quickly shift from one site to another to meet demand peaks. Factories now run at nearly full capacity, with lower logistics costs and far fewer expensive express shipments.

A large consumer-goods company had trouble meeting demand for its fast-moving food and beverage categories. On closer inspection, it found that a lack of transparency across its supply chain was the culprit. To remedy the problem, the company charged a senior supply-chain executive with managing sales and operations planning end to end—something consumer-products companies often strive to do but rarely get right. After a successful pilot, the company extended the program to most of its suppliers, retail stores and distributors. Inventory data became more reliable, collaboration improved, and on-time order fulfillment rose significantly.

Operations executives also sought ways to lower the risks when gyrating geographic and seasonal demand patterns put pressure on the supply chain. After a review of the company’s distribution network, these executives found they could mitigate customer stockouts by outsourcing a significant portion of their warehouse operations. When regional demand for a line of new products surged, the business could easily add low-cost warehouse capacity.

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Experience in two industries, chemicals and consumer products, demonstrates how supply-chain agility accounts for divergent levels of performance among companies.

One top-quartile company is an industry leader producing a full range of chemicals used in agriculture and food processing. After regularly missing shipments as a result of raw-material shortages, executives shook up their operations and now tightly integrate planning efforts with those of suppliers: the company shares data on forward orders with them and solicits their insights into the availability of materials and capacity constraints.

The company has also invested in redesigning processes (the modularization and postponement mentioned above) so that end products can be made more efficiently and quickly from standard inputs that are always in the production stream. Thus, when demand increases for an individual product, a plant manager can access the modular base and rapidly create the final formulation with only a few more steps than would be necessary with nonstandard inputs. That capability has not only sharply reduced the number of end products the company needs to stock but simplified SKU management as well. This company has also negotiated greater labor flexibility across its plant network, easing contractual constraints on hours worked. In addition, it has trained employees in multiple areas of process knowledge, so teams can quickly shift from one site to another to meet demand peaks. Factories now run at nearly full capacity, with lower logistics costs and far fewer expensive express shipments.

A large consumer-goods company had trouble meeting demand for its fast-moving food and beverage categories. On closer inspection, it found that a lack of transparency across its supply chain was the culprit. To remedy the problem, the company charged a senior supply-chain executive with managing sales and operations planning end to end—something consumer-products companies often strive to do but rarely get right. After a successful pilot, the company extended the program to most of its suppliers, retail stores and distributors. Inventory data became more reliable, collaboration improved, and on-time order fulfillment rose significantly.

Operations executives also sought ways to lower the risks when gyrating geographic and seasonal demand patterns put pressure on the supply chain. After a review of the company’s distribution network, these executives found they could mitigate customer stockouts by outsourcing a significant portion of their warehouse operations. When regional demand for a line of new products surged, the business could easily add low-cost warehouse capacity.

Read Full Article