Supply Chain Profitability –Controllable Problems
In company after company, we have worked with over the years we have encountered numerous common problems created by a lack of awareness or communication between activities in the office and resulting problems in the distribution or manufacturing center and vice versa and similarly problems between manufacturing and distribution. Results include poor performance, increased operational costs and lower levels of customer service, all having a severe negative impact on the company’s bottom line.
Typical examples include:
1. New items are being ordered and the distribution and/or manufacturing center has not been made aware of their existence or anticipated arrival. Additionally, anticipated product arrives but key information such as ABC mover, product weight, highly valuable, perishable, or fragile, etc. is not available to ensure that the new products are handled and/or stored properly. For manufacturing, which products will the raw material be used to produce or what are key properties regarding the material?
1.1 When unexpected product arrives, it must be held aside, and this totally disrupts the operation for flow, space, and use of staff.
1.1.1 Most companies do not have space set aside to handle problem products so flow may be affected, and key space may be blocked.
1.1.2 The product will have to be moved at least one extra time, adding more to costs.
1.1.3 Time and staff resources are wasted unnecessarily, and regular operations must be neglected.
1.2 This is typical of a people vs. system-oriented operations in which purchasing staff “does not have time” or makes up some other excuse for not entering any or incomplete information about a new product into the item data base when an order is placed.
1.2.1 One solution is to set up fields in the new product entry file to capture all required data and information for each product and not let the user exit the data entry screen without completing all fields.
1.3 In a properly run DC or MC the staff will assign item types to zones and locations within based on their product type, brand, and/or physical characteristics so without key information unexpected items can still be assigned to appropriate zones and not interfere with other operations while waiting for information to assign a permanent storage location.
2. The purchasing staff has no or poor training and is unaware of the ripple effects caused by their behavior as it effects the warehouse or the company’s bottom line.
2.1 Many of my clients are plagued by excess inventory of slow moving or dead items. This often results from the purchasing department stocking up on items that are on sale, to get quantity discounts, and/or to reduce freight costs. This totally disrupts the company’s inventory plans. Often, if those companies owned 40% to 50% less stock they would be more profitable.
2.1.1 Less stock = less space; less space requires less time to complete tasks; less time = less staff; less staff = less equipment.
2.1.2 So if purchasing staff did not over-buy, costs for space, inventory, labor, and equipment would be reduced while customer service would be increased (picking, manufacturing, etc. are being done in less time).
2.2 Rules must be set for what can and cannot be purchased to gain a one- time discount and for which purchasing decisions that are a change of policy require approval from a knowledgeable superior.
3. So much extra inventory of an item is manufactured that it literally chokes the warehouse.
3.1 In a company that manufactures electrical components a required clip was not received in time, so they manufactured the same product but the version without the clip continually for weeks until the clip arrived, and this resulted in creating a multi-year supply. This caused a total blockage of key areas in the warehouse and a large increase in operational costs for moving product excessively a very long time. The excuse was “manufacturing cannot be halted and must go on.”
3.2 The company was not prepared with contingency plans or a system to address last minute problems, and they had no idea how to judge the true cost of and problems created by their “textbook” vs. creative solutions.
3.3 There was poor communication and improper chain of command. When key problems occur a system would provide for a high-level executive yo decide how to solve multi-department problems and the decision-making system should be published and distributed to all departments.
These problems can be avoided by establishing system (all jobs based on best practice) vs. people dependent operations and having a central figure versed in all aspects of the operation responsible for the coordination of overall activities with a professionally trained staff. The system should be published in a handbook which is used to train and manage all employees.