Demand Driven Performance - DDPSC03

03. Configuring and Managing Supply Chains for Effective and Efficient Performance (DDPSC03)
03a. What are the key components in configuring a supply chain to nullify the effects of supply and/or demand variability?

First, recognize and acknowledge that the most significant effect of variability, whether in supply or demand, is a resulting time delay in satisfying demand, whether from stock or direct delivery. In the supply process itself, these time delays show up in queuing of work in front of various resources. On the demand side these time delays show up in the batching of demand information before it is transferred, and in the shifts in timing and subsequent grouping of customer purchases, which are often the result of supplier incentives, such as sales, promotions, and volume discounts.

Second, understand the key interdependencies associated with both workflow and information flow, in order to effectively and efficiently incorporate time and/or inventory buffers into the manufacturing and/or product delivery process. Time buffers prevent supply side time delays from reaching the customer, where as inventory buffers absorb delays in information flow while preventing demand changes in timing and/or quantity from adversely affecting customer service.

Third, as we discussed in DDPSC01 it is the linkages that enable the extent of organizational alignment. The more organizational misalignments there are, the greater the variability in performance for the links making up the supply chain.

Given that the linkages are governed by the policies, measures, and information exchange used by each of the links, the amount of time and inventory buffers required to nullify the effects of variability can be further reduced by addressing the appropriate changes in specific policies, measures and information exchange.

03b. What are the key interdependencies associated with work flow and information flow that enable the effective and efficient configuration of a supply chain from suppliers through to customers?

There are three primary flows that describe all product conversion and distribution processes, and serve to define the relevant interdependencies in each of those processes. The first primary flow is the most basic building block, which is a straight line, point-to-point flow containing a series of process steps for product conversion, such as transforming a piece of steel into a machined part, with holes for connecting to another part; or, product distribution, such as the steps of picking, packing, loading, transporting, receiving and storing of product.

The second primary flow is where a number of straight line flows converge into an assembled sub-component, such as the transmission or engine for a car or an assembled end item, such as the car itself.

The third primary flow is where a number of straight line flows diverge from a common point, such as product being shipped from a regional warehouse to a number of different retail stores; or, in a fabrication process a number of different parts are cut from the same sheet of steel.

Using these three primary flows, the major process steps defining resource and material interaction (for the purposes of conversion to a product or distribution of a product geographically) through any supply chain can be easily mapped out and understood, regardless of size or complexity. In turn, protecting performance through the use of the correct type of buffers can also be determined.

Time Buffers. Straight line flows utilize time buffers to account for the times delays resulting from variability, both process and queuing, as the parts or products make their way to convergent or divergent points in the flow.

Inventory Buffers. When the time to get through some part of the supply chain exceeds the time the customer is willing to wait to receive a part or product, inventory buffers are used to preposition parts or products, which are then replenished in accordance with actual consumption or sales and the time it takes to reliably replenish the inventory buffer.

Once the primary work flows are defined, with the appropriate time and inventory buffers in place, it becomes much easier to assess the impact of information flow and exchange on time to reliably replenish, actual customer demand versus batch demand information, and the resulting impact on the size of the inventory buffers.

Next: Policies, Measures, and Organizational Alignment Issues (DDPSC04)

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