We are all naturally in favour of greater transparency. We think that if everyone could see the progress of production and levels of stock in the
warehouse, as well as shipments and stocks in every warehouse along the
supply chain, we should all be better off. We should be able to adjust our
actions to changes elsewhere in real time. Add to this the Finance
Director’s dream of being able to control everything from a central point
and you have the promise of RFID –
radio tags on every product telling
you where they are at any time.
But this dream could so easily turn into a nightmare. Just think what
happens now. You have plenty of stock in your finished goods warehouse
and yet you are always short of the one product the customer desperately
needs. So you get on the phone to get production to change their plan
and make some of this product in a hurry. Production time and efficiency
is lost because you change the plan. People have to scurry round to chase
materials and the production of other products is delayed. As a result you
are short of those products and the cycle begins all over again.
In this situation it is easy to blame fickle customers for changing their
minds. However there is a more insidious form of variation in orders that
is encouraged by greater transparency. If your planners have visibility of
all the stock in your finished goods warehouse what is their natural
reaction to a run of demand for one product? They change their plan to try
to restore stock levels, even if it does not breach the lower limit for stock
of this product.
There is a natural human desire to try to adjust things to the average,
even though the point of the warehouse is to absorb variations in demand
so these waves do not flow upstream. Why do they do this? Because
experience tells them that they never know exactly when production will
make another batch of this product – it may not happen for another
month or more if the plan gets changed and the next production run gets
rescheduled, as it almost certainly will. So better change the plan now
rather than wait until you are out of stock.
Transparency will not actually solve this situation, and could make it a lot
worse. Part of the answer is to set the upper and lower stock levels to
absorb the variation in demand and stick to them, so these fluctuations
are not passed upstream. The other answer is to move away from batch
thinking in planning and production and begin to relate the rhythm of
production more closely to demand, moving from producing every product
once a month to twice a month, and then to every week and maybe twice
a week and eventually every day.
Levelled orders creates the stability that is necessary to start the
traditional lean journey in production – improving the capability and
availability of each step so you can link them to create flow and then
accelerate the rate of flow by improving the frequency. The end result is
that production can actually make every product frequently and reliably.
But this is not the end of the story. Sorting out production alone is not
enough – you must also sort out your planning logic and behaviour. Just
as you eliminate big batches in production you must no longer batch
information – it needs to be passed on without manipulation and released
to production in small batches frequently. This probably means no longer
using your MRP system for production and shipping instructions.
But it probably also means not letting your planners see the stock levels in
the inished goods warehouse! We recently witnessed just such a situation
– where lanners were only alerted when stock levels breached the upper
or lower limit. Even then they learnt not to react too quickly, as they knew
that spikes and troughs in demand have a habit of going into reverse very
quickly and production is anyhow going to replenish that product in the
next period. Doing nothing proved to be the best course of action and
eliminated most of the plan changes.
Imagine this story repeated at many points up the supply chain. Rapid
replenishment turns out to be much more important in improving supply
chain efficiency than transparency.
Yours sincerely
Professor
Daniel T Jones
