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Are
you plagued with orders left unfilled, excessive lead times, supplier
unreliability's and demand continuing to outstrip supply? If the
answer to above questions is yes than you have too much chaos in
the supply chain
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The
chaos results from over-reactions, unnecessary interventions, second-guessing,
mistrust, and distorted information throughout a supply chain. The
well-known "bullwhip" effect, which describes increasing
fluctuations of order patterns from downstream to upstream supply
chains, is an example of such chaos. This increased chaos will of
course lead to higher costs and inefficiencies through over-ordering
and "squirreling" of inventory. The existence of
chaos in a supply chain also means that it is difficult to make
optimal decisions at each stage in the supply chain.
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| Chaos
in supply chain results due to: |
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| Lack
of Visibility |
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Chaos
in a supply chain increases when end-to-end pipeline time, i.e.
the time it takes for material to flow from one end of supply chain
to the other, is long. Associated with pipeline length is the lack
of visibility within the pipeline. Hence, it is often the case that
one member of a supply chain has no detailed knowledge of what goes
on in other parts of the chain. The key to improved supply chain
visibility is shared information among supply chain members.
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Lack
of Control
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In
addition to visibility, supply chain confidence requires the ability
to take control of supply chain operations. Paradoxically, most
supply chains do not have a great deal of control once the order
is released. Hence, even if a supply chain manager has visibility
of some part of the pipeline, he/she often could not make changes
in a short time. For example, even if information is obtained on
demand changes or on yield shortfalls, the supply chain manager
may be helpless, since the suppliers may not be flexible enough
to respond to late changes, or there are no expediting options available,
or the production line is inflexible and production schedule changes
are not feasible, etc.
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Here are a few key levers to
Reduce Chaos: |
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| Information
accuracy, visibility and accessibility. Throughout
the supply chain, key operational metrics and status reports
such as inventory, demand, forecasts, production and shipment
plans, work in progress, yields, capacities and backlogs should
be accessible easily by key members of the supply chain. Such
information should be accurate and timely, rendering it useful
for all parties for planning and re-planning purposes. Thus,
it is important that the key indicators are tightly managed
and that any updates are made as timely as possible. The accuracy
of the data should be a source of confidence to the parties
using the data.
Alerts
for out of control conditions.
Any time when deviations from the plan have occurred, then
the appropriate parties in the supply chain have to be alerted.
Here, intelligent controls are needed to determine if the
deviations are normal, random events, or if they represented
some systematic or unexpected changes that warrant attention.
The parallel to statistical process control can be drawn here.
A process control chart should be sensitive enough to detect
out of control conditions, but not overly sensitive so as
to cause the system to be overly nervous, with a lot of unnecessary
changes and corrections.
Responsive
corrective actions. Each
member of the supply chain should have contingency plans and
the tools to make corrective actions when out of control conditions
have been detected. For example, if the shipment schedules
have deviated from plan due to traffic conditions, then there
should be clearly defined contingency plans for the logistics
carrier to take appropriate actions, e.g. expedite shipments
may be used, alternative supply source may be tapped, or product
offerings to the customers may have to be changed.
Two things have changed
the landscape of supply chain management in the last few years.
The first of these is the availability
of the technology and the software to enable the capture
and sharing of information across a supply chain - increasingly
using extranets. The second, even more fundamental change,
is the increasing willingness of members of the supply chain
to put aside the traditional arms-length relationship with
each other and in its place move towards a closer,
partnership-type arrangements
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| Conclusion |
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While
supply chain chaos tends to paralyze most supply chains, the
case is not hopeless. Successful companies are the ones that
break the chaos spiral by restoring supply chain confidence
throughout the chain. The benefits are
much more than cost reduction, but also, as we argued earlier,
the reduction of chaos leads to increase in sales and market
share, penetration to new markets, and speedy new product
introduction.
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| ©
2000-10 DecisionCraft Inc. |
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