For a recent report, McKinsey tracked the progress of a group of Industry 4.0 “Lighthouses,” i.e. operations that had successfully undergone or were undergoing digital transformations in the spirit of the Fourth Industrial Revolution. So far, these manufacturers have been fairly successful at creating a smarter end-to-end value chain, and their agility, productivity, and waste reduction have by and large shown real improvements as a result.
In much of the world, we’re stuck in the grey doldrums of late winter—but let’s think back to the recent holiday season for a minute. Specifically, let’s imagine that you’re trying to send a last-minute gift to a friend via FedEx, UPS, or another package delivery company. You’re hoping that the package will get there before the holidays, so you do some research into your best shipping options: you’re hoping to figure out which company offers the best ratio of on-time or ahead of schedule deliveries to competitive rates, which carriers have the best track record on lost or damaged packages, and who has the best tracking options.
Think back to the last birthday party you planned. How did it go? As the organizer, you were responsible for everything from getting invitations in the mail through to making sure you had enough drinks and cake for everybody. Then there’s ensuring that everybody got themselves home safely after the festivities (whether it was kids being picked up by parents or adults who may have needed a cab). But what happens next time when 10 of your invitees take it upon themselves to invite 10 additional people, not on the list? Demand for drinks and cake just shot up and you’re not ready for that. Or are you? This is an extremely simplified, yet apt, analogy for the role a production planner plays in keeping the business running smoothly and ensuring that when demand does spike there won’t be any disruptions.
Sometimes, shipments get delayed—it’s just a fact of life, and it's the cost of doing business when you enter the global supply chain. Often, the cause of the delay will be fairly obvious on the outside: a hurricane blocks off a shipping route that usually goes through the Gulf of Mexico, or a strike in France brings all shipping through French ports to a halt. Just as often, however, the reason for the delay seems completely mysterious: despite ideal traffic, weather, and trade conditions, your cargo just doesn’t make it to the right place at the right time.
IT managers and logistics managers have more in common than you might think. Both require transparency and the real-time data it enables in order to be effective in their roles. Both also thrive in the decision-making process and all the back-and-forth with stakeholders that it entails. At the same time, there are of course glaring differences. IT teams work with end-user computer hardware, software, and networking technologies every day, while logistics planners interact with their own hardware with the sole intent of making goods move smoothly on their journey to the customer. Both are customer service oriented, it’s just that the IT manager’s customers are within the same company while the logistics manager’s customers are outside client companies. It’s that root level focus on customer satisfaction that drives both roles.
Sales and operations planning (S&OP) is one of the most popular methods that businesses employ for creating a smarter, more responsive supply chains—and with good reason. S&OP can help you identify and take advantage of strategic opportunities that you otherwise might have missed, all through the careful collection and analysis of supply chain data that your value stream is producing anyway. It’s not a panacea—nothing is—but it’s a great start for manufacturers and other businesses who are seeking a leaner and more flexible way to administer supply chain activities.
Supply chain forecasting lies at the heart of the balancing act between current supply and future demand. At a fundamental level, it’s the process of combining historical purchasing data with customer buying trends to develop a prediction of what sales flows will look like at a given time in the future. The ability to generate an accurate demand forecast is challenging enough in and of itself, but when you mix in the inherent risks and outside challenges of your end-to-end supply chain—you start to see how easy it can be to get things wrong. Think of it like this, if you’re having a party and invite 12 people, what do you do when each of them unexpectedly brings a friend? Did you get enough cups? How about food? Do you have a contingency plan for the quick delivery of extra supplies? That’s a simplified example, we know, but the fundamentals remain the same—you must have all the data at hand to overcome whatever challenges present themselves and create the most accurate forecast possible.
Where does risk come from? Is it an external force? Something from within? Or is it what happens when you’re not prepared for an unexpected event? In our experience, it’s the combination of all three of these forces, acting on your weekend plans, your work project, or your supply chain. How do you address these risks? Reactively, by waiting for the disruption to occur and then working feverishly to repair the damage and return everything to normal operation? Or proactively, by defining plans and processes so that when a disruption happens, you and your team can follow the established steps to return to normalcy? Again, we would posit that it’s in finding the right balance between these options, allowing you to proactively plan for any contingency you may have to react to, that you’ll find risk management success.
The actual production of automobiles on the factory floor has been getting more efficient for decades. In the ‘80s, it would take General Motors about 40 labor hours on average to produce a new vehicle—today, that number is much lower. Since 2007, Toyota’s average labor time per vehicle has dropped from 29.4 hours to 17-18 hours. This is an encouraging trend from a planning perspective. And yet, we know that in reality the process of getting any single car made starts well before the stamping and welding. After all, the 30,000 or so parts that make up a typical car have to get produced first, and even then there are long lead times involved in the sales and planning process before the materials and time get allocated to a particular vehicle.
It’s a popularly quoted statistic that supply chain inefficiencies can waste as much as 25% of operating costs, which only goes to show how much an impact you can have on your bottom line by working to reduce waste. This is, of course, easier said than done: supply chain waste comes in myriad forms and is notoriously difficult to root out. Why? Because every decision you make across the entire value stream has the potential to introduce unforeseen costs down the road.