SPONTANEOUS SUPPLY CHAINS
By Dr. David M. Anderson, P.E., CMC
The ultimate supply chain is able to "pull" parts and materials on-demand without delays or inventory. With such a spontaneous supply chain, manufacturers can build unforecasted products to-order and ship them immediately.
Spontaneous supply chains1 avoid the need to generate forecasts, count inventory on-hand, generate purchase order inputs through MRP systems, place purchase orders, wait for parts to arrive, expedite those that are late, receive (and maybe inspect) materials, warehouse, group into kits for scheduled production, and distribute within the plant.
Most supply chain management programs simply accept the unnecessary proliferation of parts and materials, which greatly complicate supply chain management. This unnecessary proliferation comes from three sources: (1) too many older, low-volume products that have too many unusual parts; (2) lack of part and material standardization, which is usually caused by too many arbitrary decisions; and (3) too much outsourcing with too many suppliers and too many "links in the chain."
The first step in establishing a spontaneous supply chain is supply chain simplification. The forthcoming book, "Build-to-Order & Mass Customization," devotes four chapters to this subject. These will be summarized below followed by an overview of how spontaneous supply chains are established.
Use Product Line Rationalization to Reduce Part Variety by up to One Half
Product line rationalization eliminates or outsources products and product variations that are problem prone, have low sales, have excessive overhead demands, may really be losing money, and are incompatible with new operational environments and corporate strategies, such as lean production, build-to-order, and mass customization. Eliminating the most unusual products will also eliminate the most unusual products from the supply chain. In older companies with a lot of old "dead wood" products, rationalizing them away could cut supply chain complexity by half or better!
Cutting Part Variety to a Few Percent with Standardization
Standardization of parts and raw materials is a very effective way to substantially simplify supply chains. A good standardization program can cut part variety down to a few percent of an original proliferated list!2 This is because proliferation are caused by arbitrary design decisions, simply because product designers do not have a list of standard parts available. Most of the supply chain simplification will come from new products designed around standard parts lists. Some reduction can be realized on existing products by making "better than" substitutions.
Cutting Raw Material Variety to a Few Percent
Raw material supply chains can be simplified by ordering very standard sizes and then have the in-house to cut-to-shape on-demand. Standard sheets of metal can be cut programmably on laser cutters as they are needed; similarly, standard bar stock and tubing can be cut programmably on CNC lathes and machining centers. One of Dr. Anderson’s clients, the Hoffman division of Pentair, reduced incoming raw material variety from 600 sheets to 6 standard sizes.
Removing Too Many "Links in the Chain" with Selective Integration
Some supply chains are overly complicated by too much outsourcing. Unfortunately, this outsourcing has complicated the supply chain with more "links in the chain," more transfers, and longer lead-times, especially when there are sequential "tiers" through which materials and parts must pass on the way to the assembler.
Outsourcing slows down supply chains if any of the following conditions exist, which are quite common for outsourcing: (1) If suppliers are too far away, then the shipping time would slow down any attempts at rapid responsiveness and build-to-order. And even if the supplier could build batch-size-of-one parts on-demand, those parts would have to be "batched" into a daily or weekly shipment; (2) If outsourced parts are made in batches, this would not only take too long, but it would also be contrary to the inventory-less aspect of build-to-order; (3) If production has to wait for the outsourcers to finish other jobs, then there will be delays.
Achieving significant improvements manufacturing and supply chain responsiveness may require selective integration to bring in-house (or outsource to a fast local supplier) parts that have unacceptable delivery times.
Spontaneous Supply Chain; Pulling Without Forecasts or Inventory
Spontaneous supply chains can be established by:
In a build-to-forecast environment, Purchasing’s role was to order parts based on MRP data and expedite any parts shortages due to forecast errors, inventory count errors, and late deliveries. In build-to-order and mass customization environments, Purchasing’s new role is to: encourage standardization of parts and raw materials for current products and help new product development teams aggressively standardize new products; identify standard raw materials and parts available from multiple sources; arrange breadtruck replenishment; arrange steady flows of standard parts and raw materials; nurture supplier/partner relationships with the focus on delivery; establish kanban and pull signal arrangement with suppliers. Most of the spontaneous part and material resupply will be automatic or manually triggered by production personnel, not by MRP and purchasing.
Dr. Anderson is a California-based consultant specializing in training and consulting on build-to-order, mass customization, lean/flow production, design for manufacturability, and cost reduction. He is the author of "Build-to-Order & Mass Customization, The Ultimate Supply Chain Management and Lean Manufacturing Strategy for Low-Cost On-Demand Production without Forecasts or Inventory" (2008, 512 pages; CIM Press, 1-805-924-0200, www.build-to-order-consulting.com/books.htm) and "Design for Manufacturability & Concurrent Engineering; How to Design for Low Cost, Design in High Quality, Design for Lean Manufacture, and Design Quickly for Fast Production" (2008, 448 pages; CIM Press, 1-805-924-0200; www.design4manufacturability.com/books.htm). He can be reached at (805) 924-0100 or email@example.com; web-site: www.build-to-order-consulting.com.
1. David M. Anderson, "Build-to-Order & Mass Customization, the Ultimate Supply Chain and Lean Manufacturing Strategy for Low-Cost On-Demand Production without Forecasts or Inventory," (2008, 520 pages, CIM Press,1-805-924-0200; www.build-to-order-consulting.com/books.htm).
2. Dr. Anderson used these standardization techniques at Intel’s Systems Group to reduce an approved parts list from 20,000 parts down to a standard parts list of 500 parts! For one category, 2,000 resistors and capacitors reduced down to 35 standard values.