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For companies that are manufacturing, distribution or purchasing centric, now is the time to embrace supply chain visibility. You may be asking why visibility is so important and why a consulting company like enVista is so adamant about selecting and implementing supply chain visibility solutions. The answer lies in data synchronization across multiple trading or logistics partners, near time data and information flow that mirrors physical inventory flow, and the need to minimize variability. As organizations continue to extend their supply chains to other countries to lower costs, variability is increased due to the unknown variable of time. The fact is that time is every company's worst enemy. Everyone is fighting the variability of time and trying to develop their supply chains to meet or exceed customer expectations. I like to think of this as "delivery with integrity"; meaning, delivering the order to the end customer before or on the delivery date. But how can you possibly promise the order to the end customer on the promised delivery date if you don't have VISIBILITY that is end-to-end, or what I call source to consumption?
Not only is supply chain globalization making it the opportune time to focus on end-to-end visibility, but solution providers are now offering low-cost solutions for end-to-end visibility, data analytics, decision support and event management. More importantly, they are providing the solutions in a (SaaS) model or on demand. I like to think of these solution providers as a logistics utility company. They are providing data synchronization across multiple trading partners and channels, visibility to both inbound and outbound work in process, and finished goods inventory.
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My name is Isaac Edwards and I am the National Director of Distribution for a Sporting Goods Retailer. If you remember, the last supply chain business problem I was challenged with was how to fulfill three different sales channels (retail, internet and catalog) from our Indianapolis Distribution Center. I spoke to the Oracle at length about the challenges of order allocation. He actually helped us select a Tier-1 Order Management System that allows our merchant, buying, and allocation teams to define and more importantly to develop their own allocation rules. The OMS solution we selected has a business rule and work flow rule engine that can be configured and customized by a super user without actually touching any software code.
If you remember, Oracle stated, “if you want to control your outbound flow and improve your inventory turns, you need to monitor, control and have visibility to your inbound inventory." He also stated that the more variability you have with your inbound supply, the more critical it is to proactively manage the variability and provide visibility to exceptions to your buyers and allocation planning team. In addition, the longer or more extended your supply lines, the more you are at risk for variability. If you think about it, the Oracle is right, you cannot plan and allocate what you don’t have visibility to.
Our CMO has been chartered to improve our inventory turns without impacting fill rates to our stores. When we designed our new Indianapolis DC, we designed it with a strategy of pushing 60% of our merchandise through a put-to-store process or broken case flow through. We have our material handling solution, voice data collection and WMS configured and ready to go, but our current Legacy system could not pre-allocate using DISTROs. You will recall a DISTRO is an order. It can either be a replenishment DISTRO or Purchase Order DISTRO. Think of a DISTRO as a sales order with no Header Information.
It is simply a unique order id, SKU number, quantity, store number, and priority.
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"Lean" is most broadly described as an attack on wastes. Wastes (Muda) are anything that consumes resources and incurs costs that does not add value. Something only qualifies as adding value if it's concluded that the customer is prepared to pay for it. The Seven Wastes are:
- Defects - wasted effort to create something the customer rejects. This forces added waste management processes (i.e., more waste).
- Over-processing - using anything (materials, resources, unwanted features) that's more expensive than needed by the customer.
- Over-production - production or acquisition that is more than needed, generally to hide production problems, becomes inventory.
- Inventory - raw materials, work-in-process, or finished goods. If value is not being actively added, even for a short period of time, this is waste.
- Conveyance - no added value. Each time product is moved, quality is threatened and there is risk of loss. Ideally, manufacturing steps are adjacent, enhancing quality.
- Waiting - time wasted by workers waiting for resources or waiting for a pull signal [covered later]. Waiting often leads to additional non-value-added processes to manage that waiting.
- Motion - of the worker or equipment. Motion that does not add value is waste. There are also quality / wear / safety implications.
While some may argue HOW wasteful some of these areas may be in their enterprise, the list makes intuitive sense. So why do I suggest that inventory is the first of these wastes?
- History: Lean purists may resent this, but I suggest that Lean evolved from at least two prior disciplines: "zero inventory" and then "just-in-time." These focused on inventory and lead time reduction. I will show later how these are really two sides of the same coin.
- Controversy: Some may argue more forcefully about the benefits of carrying inventory, and many rely on it as their primary mechanism for enhancing or protecting customer service. People have a natural tendency to "squirrel" as the solution to supply-demand imbalances. Think about the last time you went to your kitchen cupboard and found you were out of something you wanted. Did you tell yourself you were never going to let that happen again? And how, I wonder?
- Importance: It could be argued that defects (i.e. quality) is a more important category, but it turns out that inventory reduction and quality improvement often go together. Businesses have had decades of "solving" quality problems by carrying "safety" stock. This, of course, doesn't solve problems; it hides them. Lean proponents argue that removing the crutches that inventory provides exposes and forces businesses to address the real underlying problems -poor manufacturing quality, poor supplier quality, supplier delivery performance, and even erratic customer demand (perhaps self-inflicted by fire-sales, promotions, quantity discounts, etc.).
In this paper, we will focus on the Lean inventory model. There are many, many aspects of Lean we won't address here or that we will merely touch on. Great texts are available that cover the topic well. Check Lean.org for some references. We'll look at the history of inventory models leading up to Lean, as well, for added perspective.
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