Part 1 of "The New Supply Chain" blog series Mike Loquercio, Manufacturing and Supply Chain Management Expert
For those of us in the supply chain field, we may or may not have sophisticated systems that provide big data relative to sales, markets, items, transit times, on-time delivery, shipped in full, and all the other metrics that help assess the health of the supply chain.
Depending upon your products, customers, and your manufacturing footprint, the most recent crisis may have taxed your supply chain to its limits or maybe you have a business continuity plan (BCP) that encompasses all the challenges.
Periodically we get a chance to practice our BCP with natural disasters, power outages, or local or regionalized impacts. We are facing an unprecedented event that will impact the global supply chain and all bets are off.
It’s also not a bad idea to talk to your vendors and providers — where are they with BCP and impacts? What’s their practical ability to supply? you might be pleasantly surprised or significantly challenged.
Let’s start with some of the basic concerns and follow the process:
Demand/Replenishment needs – whether you call it a demand forecast, sales plan, operating budget, or distribution requirements – what does your customer need over what period of time and where – this is a version of lean Takt time. The foundation of any supply chain whether you have a fully integrated ERP or not is the concept of “drum, buffer, rope” – right out of the Goal if you are familiar with the book! Whatever you think the future demand signal should be – it will be completely different – nothing can predict the next 4-12 weeks – trust your experience and your relationships with your customers.
This is also the perfect opportunity to rebuild, reinvigorate customer relationships and communications. Often times it’s not the supply chain group that acquires your product – it’s the buyer arm or the procurement group which may have different KPI’s that drive buying behavior.
Capacity – more than likely the customer demand will exceed your available capacity at the work center and product level. Explore using any and all safety stock available – the replenishment targets are really not relevant right now – it’s all about OH inventory with your customer and their customer and so on. At some point, all the safety stock in the pipeline will be consumed or allocated – you will probably move to first come first serve!
Ramp up alternate capacity or less than optimal capacity if possible – alternate tooling/processing is your best friend. Be creative, think out of the box and include the shop floor – they are the resources with the most creative solutions!
Labor – how are you protecting your work force to ensure that you have the assets in place to manufacture product? What new health precautions must you have in place to insure a very crowded shop floor or warehouse doesn’t violate social distancing. Many companies right now are getting creative with on shift support and all non-essential people are working remote.
Raw Materials – start with the basics – PPE – what’s your protocol in your industry for usage? Can you even get enough PPE to sustain any replenishment plan? What’s reusable and what isn’t?
Packaging – as simple as the brown box or carton – you can’t ship product without those packaging materials. What options do you have with vendors, how many alternate vendors do you have approved? Can you ship from another location in the network to the site with needs? There are alternates to packaging – large WIP containers both paper and plastic (TOTES), large sacks, etc. Are those viable options for your customer to receive product. In the CPG space, almost all the product is place on a shelf, end of aisle display or some type of carton shipper or display. Consider substituting as best as you can, will your customer relax packaging requirements – plain brown box with a label or item number to speed up replenishment lead time and potentially provide safety stock?
Take the time to explode the replenishment plan back through your bill of materials and into your vendor’s supply chain. Have conversations with your vendors about availability, lead times, safety stock, etc. – they struggling with the same issues.
Distribution – where does your product need to be, what are your assumptions about the availability of transportation – IMDL, truck, ocean, last mile, etc. Can you assume the same transit times in your replenishment model?
Warehouse & Transportation – if your available warehouse space is tight – you will be challenged. Can you forward deploy any inventory to the customer, the distributor or a regional distribution center where last mile final delivery is a better solution? Not all freight will be treated equal during a pandemic – essential products and supplies will receive the highest priority and therefore the highest allocation of available resources – this is just like the freight market and FEMA loads after hurricanes and tornados.
As part of the replenishment cycle – your operating capacity – take the time to scrub your assumptions for Operating Equipment Effectiveness (OEE) – uptime x rate (speed) x material yield. A great plan with bad data assumptions fails every time!
This is also an opportunity to repurpose slow moving and obsolete inventory (SLOB); there are financial implications but you might have the opportunity to offer alternate products or recycle into raw materials. It’s free money right now if you can take advantage of the opportunities. If you remember Hurricane Katrina – anyone in the plastics food packaging container industry either used or converted any case of product available.
Like any replenishment project plan – Plan – Do – Check – Act – stay on course and mange the exceptions to the best of your abilities. Your supply chain will be stressed tested like never before and the variability in the demand signal will be off the charts. Many products will be ship what you have every day that you can and we won’t worry about demand signals or forecasts.
Stay the course, build a reasonable replenishment plan, clearly define expectations with vendors, providers, customers, and more importantly your employees.
Share the day to day success stories, help them understand how important their contribution is to the national supply chain. Back to my brown box example – no corrugated boxes equals no shipping of product!
About the author
Mike has spent over 30 years in the food and food packaging space working as an engineer, operations and multi-plant manager along with supply chain and logistics roles. He has worked with CPG companies - Walmart, Target, and Costco along with food service, grocery processor and distribution accounts. He also has extensive order to cash business systems implementation experience with SAP/JDA.
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