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Re-engineering SC to Differential Strategies

“Supply chain excellence cannot be achieved without synthesized supply chain. Supply chain synthesis required design, planning and execution

 

—James A. Tompkins”

INTRODUCTION

The business organizations world over have realized that the business processes to satisfy the demand of the customer are of critical importance to them. They realized that functional approach to business process would no more help in developing competitiveness. Due to this recognition, there was paradigm shift in their outlook and thinking. They experienced that, today, the competition is shifted from products to supply chains, that is, supply chain of one company competing with that of the other, to deliver superior customer value. Hence, to effectively and efficiently manage any business, supply chain has become of critical importance to manage and offer superior product proposition to its customers. One of the biggest challenges organizations are facing today is the need to respond to ever-increasing volatility in the market with cost-effectiveness. To tackle various supply chain issues, firms have successfully adopted innovative strategies to unleash the hidden potential through the supply chain linkages.²

Manufacturers add value by converting raw materials into consumer or industrial products. The value creation is by producing and marketing product service bundles to users or middlemen in supply chain. The range of products a firm manufactures evolves from its technological capability and marketing strategy. Firms overcome manufacturing competencies based on market opportunities and willingness to take risk. A trading partner will view a firm initiating manufacturing operations to produce automotive parts differently from one that produces soaps and detergents. While the products produced are clearly different, the real differentiator between firms is found in competencies related to knowledge, technology, process and strategy. The capabilities and competencies that are exhibited by a manufacturing firm are dynamic and are continuously modified in the eyes of supply chain partners as it conducts business and develops new products, and performs promised value-added services. Thus the combination of products, services, capabilities, and competencies represents a firm's value proposition and provides dimensions to its supply chain opportunities.

MARKETING NEEDS

Brand Support

Many manufacturers spend a great deal of promotional money to create brand awareness and acceptance among prospective buyers resulting into being identified by their product brands. The measure of a customer's purchase preference based on a manufacturer's reputation, product quality, and supply chain capabilities is known as brand equity. However, the stronger a firm's product brand image among buyers, the more leverage the manufacturing organization will have in determining supply chain structure and strategy. For instance, Intel dominates how chip is sold, distributed and used for. As the products are independent of customer acceptance, a firm that brands and markets a particular line of products may not, in fact, be engaged in either the actual manufacturing/assembly or in the performance of supportive logistics services. Today, it is common practice for an organization to outsource some or even all manufacturing and logistics operations required to market a specific product. However, the type of manufacturing process, cost in operations and distribution determines the attractiveness of outsourcing. Logistical requirements in terms of inbound materials and finished product distribution are created by the location of manufacturing operations and those of suppliers and customers. However, the power to determine the range of value-added services, physical product movement requirements, timing and characteristics of flow along the supply chain is directly related to the demand of the brand in the market.

Flexibility

The effectiveness of manufacturing processes can be defined in terms of the relationship of cost per unit to volume of output. The traditional perspective is to treat volume in terms of the well-established principle of economy of scale. Economy of scale results from efficiencies generated by specialization of process, workforce, fixed asset utilization, procurement economies and limited need for process changeover. Economy of scale is extremely important in manufacturing situations, wherein fixed cost is high in machinery to convert raw materials to finished products. For example, the continuous processing industries like refineries, paper and steel gain competitiveness through economies of scales. In such industries, high capital investment coupled with high cost of change over tends to results into long production runs. In terms of logistical support, two considerations related to volume, influence supply chain design. First, supply chain operations must accommodate the frequent production runs and tune both inbound and outbound logistical requirements accordingly. Secondly, plan the warehousing and material handling needs to the lot size produced during a specific manufacturing schedule.

Variety

In addition to volume production to achieve economies of scale, other requirement from manufacturing set up is flexibility in product varieties. Here manufacturing processes are characterized by relatively frequent product runs and high repetition of small lot sizes. The manufacturing processes that feature variety, can rapidly switch production from one product to another while retaining efficiency. These processes are referred to as having economy of scope. It means that a manufacturing process can use varied combinations of materials, equipment and labour to produce a variety of products.

Variety refers to the product variations that the firm can manufacture in a given manufacturing process. The achievement of economy of scope in such situation is directly related to the speed and cost of changeover from one product to another. In terms of logistical support, product varieties calls for small manufacturing lot sizes, and flexible material requirements. The product variety through flexible manufacturing setup influences the requirements of transportation and warehousing services to accommodate the production output.

SUPPLY CHAIN CONSTRAINTS

Product volume and variety determines the nature of logistical support. However, the three primary constraints that influence manufacturing operations are capacity, equipment and setup changeover.

Manufacturing Capacity

Manufacturing capacity decides how much product can be produced per unit of time. The relevant measure of manufacturing capacity is a firm's ability to reach and maintain a specific level of quality output in a predictable time period from a (installed) process or machine having fixed rated capacity. However, in the ‘flexible demand’ market situation responsiveness can be achieved through flexibility in a combination of manufacturing, procurement, and logistical operations of the firm. The major constraints will be the basic maximum capacity beyond which the increase may not be possible.

Equipment constraints are related to flexibility concerning the use and sequencing of specific machines to perform multiple manufacturing tasks. However, some manufacturing requirements are more easily accommodated across a family of machines and by using variable work sequences than are others. In many situations, a specific machine or work task tends to constrain or act as a bottleneck to the overall manufacturing process. Likewise, logistical capability to accommodate different patterns of equipment utilization may serve to increase or reduce the flexibility of the manufacturing process.

The manufacturing setup constraints are directly related to product variety. Today manufacturing management is progressed to speed up both process changeover time and the time required to reach required capacity through modular manufacturing units.

Lead Time

Manufacturing lead time indicates an elapsed time between release of a work order to the shop floor and the completion of all activities to get products ready for dispatch. The manufacturing process consists of both operational and inter-operational time. Operational time is the combination of setup and running or actual production time. In any manufacturing situation, the greater the amount of total lead time accounted for by actual production, the inherently more efficient is the conversion process. Manufacturing processes also encounter unexpected losses of time. Manufacturing efficiency is negatively impacted during periods when a process, line, or machine is idle due to queuing, waiting, or under breakdown. On the other hand, logistical delay on the part of a raw material or component supplier can result in manufacturing failure to meet the planned output. As a general rule, firms that compress manufacturing lead times and control or eliminate unexpected performance variance (in manufacturing or logistical operations) can achieve flexibility to accommodate customer requirements with low-cost manufacturing.

Logistical operations committed to supporting manufacturing can impact operating efficiency in a variety of ways. Lot-size efficiencies related to manufacturing frequency and repetition are dependent on reliable logistical support. The decision to produce large manufacturing lot sizes directly creates a need for logistical support. Economy of scale drives procurement best practice and average inventory investment across the supply chain. The decision to focus on ‘variety in manufacturing’ impacts the logistics requirements by adding complexity of frequent changeover. Hence, logistics is critical in achieving high levels of lead time performance or logistical failure can increase manufacturing lead time by introducing unexpected delays. Thus, the management of raw material and finished inventory stocks is a prime responsibility of logistics.

SUPPLY CHAIN DIFFERENTIALS

Many firms having diverse product range, but the supply chain for all the products is same. The question is how a single supply chain can deliver different value propositions for different products in different markets. The marketing people have different strategies for different brands and markets, while in majority of the firms, for other functions like production, finance, purchase the entire product range is undistinguished by the portfolio of products. This may not work as the products in the different stages of product-life cycles need different support from the supply chains. For example, a premium product with the high image building promotional support and uncertainty in generating volumes will certainly require a different supply chain configuration than for a low-priced high-volume product targeted to generic markets. The high profile building product certainly requires support of product availability. The demand generated due to huge spendings on promotion will be a loss for the company if product is not available in the distribution channels. Thus, in the above two cases the approaches required by the company for two different products meant for two different markets will differ. Hence, differential supply chain strategies come into picture. In other cases, for successfully marketing a consumer durable product in a small niche market, a 100 per cent service support is a must to keep the customer satisfied to endorse a word-to-mouth certification. The firm cannot afford to lose the customer as the opportunity cost will be very high. Under these circumstances, the setting up of a higher buffer stock inventory in the supply chain is a must. However, this level will be decided considering the low volume sales of the product. In addition for higher degree of responsiveness the firm will have to engage customized transportation, which may cost more that the normal truckers. Further, down the supply chain the procurement and production department should take special care to schedule the procurement and production for this product. Thus, the premium brands will get both differential and preferential treatment as compared to other brands. The supply chain differentials may be based on the various strategic approaches, such as business-driven, product-driven, customer-driven or may be a combination of these to achieve the desired objectives in the given business environment.

Customer Segmentation

Customers are traditionally segmented on industry, trade and usages, demographics, etc. and the same level of service is extended to all. The new approach should be segmentation specific based on the need or benefits or value of the customer and supply chain should be appropriately designed to service each segment. For example, TOYOTA has different supply chains for standard and customized models to satisfy the needs of different customer segments. In non-differentiated industrial product like steel sheets, used for fabrications in a variety of industries, the steel maker offers a product differentiation by applying rust-proof coating on the sheets and sells it at a premium price. But this creation of separate supply chain for such premium product is dictated by the long-term profitability of the particular segment and the investment pay backs. Some firms adopt to innovative logistics solutions to provide cost-effective delivery schedules to its customers or offer VMI (vendor-managed inventory) solution to their profitable customer, may call for configuring of a separate supply chain on the part of the supplier to support the customer to reduce his inventory level.

Postponement

This is nothing but product differentiation closer to the customer. A leading PC manufacturing company was catering to global markets having different voltage standards for powering electric equipments for different countries. The supply chain was configured in such a way that at the parent manufacturing location in Europe, only bare PCs without power packs were made and at the warehouses in the destination countries, the PCs were fitted with power packs suitable for the voltage system prevailing there. Thus, by configuring suitable supply chain the parent company could reduce the inventory over 50 per cent and could bring flexibility in production to counter the demand fluctuations in different markets.

Benetton, a major supplier of knitwear in Europe, having longer manufacturing lead time for manufacture of sweaters to address the issue of responding to changing tastes of consumers, revised the manufacturing process by postponing the dyeing of the garments until after the sweater was completely assembled. Thus, the colour choices could be delayed until after more forecasting and sales information were received, resulting into lower surplus inventory.

Strategic Procurement

This calls for drastic change in the role of the purchase function; it traditionally has to fulfil the requirements of the production department. Under the new role, the purchase department to achieve its major goals requires the following:

• Reduce the cost of raw material
• Reduce the cost of transaction
• Ensure acceptable quality of supplies

This is only possible by developing partnership with the suppliers. Build up supplier base with few partners through stringent vendor development process. Help them technically and financially to reap out long-term benefits of cost reduction, supply consistency and quality reliability. Treat them as extension of your manufacturing facility and share both benefits and losses. In short ‘help to get helped’.

Forecasting and Planning

In the major supply chain initiatives, there is a need for drastic changes in planning philosophy. Traditionally, forecasting was used for production scheduling, which invariably used to result into frequent changes in manufacturing plans and procurement schedules due to demand fluctuations and changes in customer requirements. The outcome used to be build up of unwanted inventories, shortages of required material and delayed replenishments to dealers leading to customer dissatisfaction. The firm had to face losses on both the fronts: fund blockages in unwanted inventories and opportunity loss in sales to customers. For an effective demand management, successful firms across the globe have to adopt the following guidelines in their planning process:

• Annual product forecasting to be used for capacity planning.
• Quarterly forecasting for resources planning (materials and manpower).
• Monthly forecast to be used for resource commitment.
• Weekly forecast for production scheduling.

This was the road map for companies who had gone for supply chain initiatives and subsequently succeeded in planning.

Technology Strategy

Basically supply chain is about management of three flows: information, inventory and cash. The complexity of these flows depends on company's product portfolio, supplier base, width and length of product distribution channel, customer base and market-product segments. Under such circumstances, these flows need to be managed by using latest information and communication technologies. IT enabling will help the company to implement the supply chain strategies effectively.

This includes the use of enterprise resource planning (ERP), materials resource planning (MRP), distribution requirement planning (DRP) and other supply chain planning algorithms. With advent of the Internet and web-based technologies, some of the firms could enhance their responsiveness to markets (both customers and suppliers end) many fold and this has helped them to reduce the planning cycle time to 40 per cent of what they used be earlier.

Waste Identification, Mapping and Elimination

Many firms use waste removal strategies to gain cost advantages. To remove the waste in the supply chain, it is essential to understand the type and the location of the waste across the supply chain of the firm. The firm may use different techniques to understand the waste. However, Cannon used ‘waste workshop’ method for waste mapping. The starting point is to identify the generic waste that exists across the supply chain. As per this method, a number of personnel are selected from across the value stream and asked to complete a workshop which covers:

• Waste power and energy
• Waste human potential
• Environmental pollution
• Unnecessary overhead
• Inappropriate designs
• Department culture
• Inappropriate information

The waste is mapped, analysed and interpreted to take appropriate steps to eliminate or reduce it. Scores are given to each waste to understand its gravity in terms of its impact on supply chain effectiveness and efficiency. Methods are then identified to eliminate the wastes. The programme is then scheduled with fixed time table.

In India, a lot of service firms in hospitality industry have taken energy wastage very seriously and have gone in for reducing energy consumption for making their service operation supply chain better cost-effective. Why all this? For an improved competitive position such as ‘going green’ is good for business and attracts more customers.

The Orchid, a leading five star hotel in Mumbai, Maurya Sheraton in New Delhi, and Taj Group's Lake Palace Hotel deploy waste reduction strategies to reduce supply chain operating cost and attract more customers to eco-friendly environment.

Performance Control

Without any performance control measures in place, for a system however great it is, the entire planning will be a futile exercise. For smooth operation of any system, the deviations have to be noted on a regular basis and actions initiated to avoid the loss. However, this responsibility lies with persons involved in operating and managing the supply chain. Hence, the firm should design performance measurement system based on fair appraisal, incentives, rewards and penalties for those who are involved in supply chain operation and management. For collaborative supply chain operations, the rewards and penalties should be fairly shared to have a win-win situation.

Transparency and Information Sharing

When ‘outsourcing’ is the buzzword today, multiple partners are involved to bring effectiveness and efficiency in supply chains. The success of the supply chain largely depends on the healthy relationship amongst the collaborating partners. The relationship in turn depends on mutual trust and transparency in sharing information to manage the three flows of the supply chain. The firms needs to resolve the sensitive issue of information sharing which varies with the industry, technologies used, intellectual property rights, etc.

MANUFACTURING STRATEGY

Both the marketing and technological forces are critical elements in manufacturing strategy formulation. A firm's prevailing marketing practices may serve to ground manufacturing strategy in terms of customer acceptability. Technology drives strategy to a manufacturing process that is competitive. For example, a manufacturer having a process dominated by economy of scale may desire to improve process flexibility. But for that significant investment will be required to increase frequency and repetition.

The changing nature of the market and available technology serve to alter a firms existing strategic posture. For example, the steel industry, which was long dominated by processes, is highly dependent on economy of scale. However, after witnessing market acceptance of a wide range of new steel-based materials combined with value-added services, the nature of basic steel production has also undergone a change. New process methods are being perfected that has reduced long-time dependence on high-scale manufacturing processes. The combined impact of this change in market and process has shifted the old mindset of steel producers. The manufactures are now shifting to new technology and method such as ‘cellular manufacturing’ and ‘digital manufacturing’.

Cellular Manufacturing

In a traditional manufacturing firm, all the workmen are housed under one roof to put maximum hours to get targeted output. For mass production there was a need for skill and facilities to speed up product flow. However, with advancement in technologies the need for work force with right skills coupled with knowledge was felt. This gave rise to a new concept with coordinated approach of people, processes and products in places of production.

With the focus on managing each part of the factory methods to design, deploy, and evaluate the efficiency of each individual manufacturing process became the norm. The concept of plant within a plant and product-specific cells got evolved.

In the new factory design, the focus of manufacturing cells is to reduce throughput times and lessen inventories to meet market responses. The other benefits are improved resource utilization, better quality control, reduction space and improved work enrichment. In a cellular manufacturing design, the cells are classified as follows:

• Product-focused cell: A single dedicated product focused cell with multiple sequential processes to have large volumes.
• Group technology cell: These are ‘mixed model cells’ with multiple processes catering to groups of similar products, if the process is not sequential.
• Functional cell: These are functional cells, which handle a huge variety of unrelated process/parts. The examples are painting or heat treatment processes.
• Project cell: The cells that produce a wide variety of products using a wide variety of processes. They handle processes with permutation and combination to produce desired output. These cells are having both the product and process focus. The examples are a tool and die shop.

The key factors that affect the design of an efficient cell can be grouped broadly as the number of processes required, number of products that fit into the cell, market segments/requirement, and degree of automation.

There are other components, which are considered during the design of the work cell, namely manufacturing performance, product demand (also referred to as market/customer requirements), relation between demand variability and operational flexibility and asset care (equipment characteristics and improvement).

The important element contributing to the success of cellular manufacturing initiative in an organization is the human factor. The influence of morale, dedication, and acceptance to change of the personnel involved in and affected by changes is wholly acknowledged by the community at large. Cellular manufacturing is not much different in this case and personnel management plays a prime role in sustenance. The human factors that influence the design and deployment of work cells are leadership, commitment, change adoption, teamwork and interpersonal skills, and total employee involvement.

Cellular manufacturing lays importance on operator skill enhancement as operators may be required to perform fixed, floating or circulatory tasks. If the operations follow the fixed task (one operator one equipment), the cell needs to be inherently balanced in terms of workload to maintain parity across processes. The more commonly accepted tasks are the floating (one operator, several equipments) and the circulatory (one operator, one product, namely all operations). Operator mobility and ergonomics are also considered to eliminate wasteful movement and fatigue. The existing supervisors focus more on scheduling and availability of resources.

During the implementation of cellular manufacturing systems, care must be taken to maintain trusted and dedicated team and maintain a positive attitude towards the work in spite of the ups and downs encountered in implementation. An operator in a work cell is generally more skilled and knowledgeable and thereby the compensation could be restructured accordingly. Incentive programmes that recognize or reward incremental improvements help in sustaining continual improvement.

The benefits of a well-planned and implemented cellular manufacturing are improved asset utilization, reduced lead times, improved product quality, better space utilization, lesser blocked capital in inventory and improved work space. Cellular manufacturing initiative makes the plant operations lean and flexible. These small focused cells work in unison towards the common company goal of increasing profitability, reducing lead times, enhancing product quality and thereby attaining customer satisfaction.

Digital Manufacturing (DM)

Digital manufacturing is a software technology. It optimizes manufacturing processes, manage production process information, and support effective collaboration among engineering disciplines by using software. It takes into consideration a holistic view of product and process design. It enables product design to be sensitive to process constraints and capabilities.

It encompasses OEMs and the suppliers. It cuts excess planning time and being first to market helps companies to be competitive. Organizations using digital manufacturing are achieving substantial benefits and return on investments. It supports process planning, factory modelling, visualization and collaboration, simulation of operations, ergonomic and human factor analyses and optimizes the manufacturing process design. Digital manufacturing software supports functions cover the following:

• Translating designs to manufacturing platforms
• Process planning
• Production operations and process planning
• Assembly sequencing
• Task detailing
• Quality measurement and reporting
• Manufacturing documentation and shop floor instructions

DM mitigates risk, provide virtual plant tours, deploy machinery, validate processes before release to manufacturing, reduce floor space and redesign of equipment layout, identify bottlenecks, collisions, and worker issues before they happen, improve resource utilization, programme machines and cells offline, eliminate prototypes, and reduce rework or scrap. DM solution providers often combine individual functional capabilities to provide full industry-oriented solutions for manufacturing operations. DM solutions are used in automotive operations, automotive power train, airframe assembly, shipbuilding assembly and electronics.

Digital manufacturing is a software for the virtual process of designing, optimizing, simulating and executing a manufacturing process. The process is executed with high degree of predictability. The product design is also done with digital manufacturing software. The processes which performed in silos give unpredictable results. However, with digital manufacturing these can be performed sequentially and seamlessly. Currently, digital manufacturing is used by leading global players in automotive sector for simultaneous product and process development to achieve reduction in cost and time. In the entire process, at every step there is digital access to global capacity and capability resulting into getting predictability. The benefits received are as follows:

• Sustained profit
• Reduction in product launch costs and time
• Re-use of existing processes
• Re-use of best practices
• Compress cycle
• Continuous improvement in product design

Digital manufacturing is a virtual process tool helping manufacturers to bring products to market faster with improved quality and reduced costs of operation. With a 3D vision of the entire manufacturing process the firms create products, define production process, simulate the factory, and test results before committing to resources. It helps to:

• Reduce the number of tool design changes
• Shorten manufacturing planning process
• Reduce inventory
• Optimize plant layouts
• Save facility costs
• Improve labour utilization
• Reduce number of machines
• Reduce tools and work centres

A key to success in digital manufacturing lies in comprehensive integration, process re-engineering, and worldwide availability of data. In a typical automobile manufacturing factory, due to digital manufacturing, the production time was cut by 40 per cent and overall production cost reduced by 13 per cent.

Digital manufacturing accrues many benefits to the manufacturer. These include process acceleration, product improvement and scrap reduction. However, it is difficult to quantify the above benefits, but it has positive impact on a company and its products. Digital manufacturing is the next industrial revolution and it will change the basic premises of manufacturing.

STRATEGY TO MARKET REQUIREMENTS

The varieties of marketing strategies are being evolved ranging from mass, segmental and focused, or one-on-one. These strategies are differentiated in terms of the required degree of product and service offerings. In mass marketing, limited product/service differentiation is offered. However, the one-on-one marketing strategy is built on unique or customized product/service offerings for each and every customer. The marketing flexibility and agility to accommodate specific customer requirements is directly related to manufacturing capability. Thus, a firm's manufacturing capability drives the feasible range of effective marketing strategy. Hence, for competitiveness, a manufacturing firm must be able to integrate manufacturing capability into its customer value proposition.

Inventory

The most common inventory strategies are make-to-stock (MTS), make-to-order (MTO), and assemble-to-order (ATO). MTS strategies are used to exploit economy of scale that results from long production runs of standard repetitive products. Large finished goods inventory is manufactured to meet future customer requirements. The logistical requirement to support MTS is warehousing capacity to store finished product and to facilitate product assortment for specific customers. When flexible manufacturing is introduced to speed up switchover, the inventory lots produced are smaller in quantity. However, warehouses are still required for temporary storage and to facilitate product assortment, as in MTS the products are not directly shipped to customers.

In contrast, MTO manufacturing strategies seek to manufacture products to customer specification in relatively small quantities. Logistical capacity may be required for temporary storage and to achieve outbound transportation consolidation, but most products produced in a MTO environment are shipped directly to customers.

In ATO strategy, the products and components are manufactured in anticipation of future customer orders; however, the products are not fully assembled or customized until a customer's order is received. Such final assembly reflects implementation of the principle of postponement in manufacturing. In ATO products, finalization is being performed in distribution warehouses. Hence, for implementation of an ATO strategy the warehouse operation needs to be integrated in the manufacturing process to perform customizing and assembly operations.

Supply of Critical Parts

Speed to market is a key supply chain differentiator, especially in the supply of critical parts, where customers expect delivery within hours. This is required by OEMs to speedily settle warranty claims with their end customers, for protections against downtime losses. In addition, to face pressures to reduce inventory levels and associated investments, OEMs and other companies need greater visibility, not only to parts availability, but also to pipeline supplies. It is a great challenge when supply networks are numerous and geographically spread.

Total Cost Concept

The marketing and manufacturing strategies of a firm drive the logistical service requirements. For example, MTO manufacturing strategies typically require less finished goods inventory than MTS and ATO strategies. However, MTO strategies typically require component inventory support and may result in high-cost market distribution. In light of such cost trade-offs, the design of a logistics support system should be based on the total cost concept. Total cost of operations consists of production/procurement, inventory/warehousing, and transportation. All of the above costs are impacted by manufacturing strategy. As such, total cost management represents the foundation for formulating a market distribution strategy.

The cost of manufacturing and procurement declines as quantity increases, reflecting economy of scale associated with MTS. Inventory and warehousing costs increase, reflecting the impact of larger manufacturing lot sizes. Transportation cost per unit decreases as a result of shipment consolidation. In contrast, MTO strategies reflect high per unit manufacturing and procurement costs which are, in part, offset by lower inventory and warehousing costs. In the MTO strategy, transportation cost per unit is higher, reflecting small shipment and/or premium transportation. The total cost management results from functional integration of manufacturing, procurement and logistics. From the perspective of integrated management, it is important for manufacturing firms to design a supply chain strategy that achieves lowest total cost across the entire process.

Interfaces

The efficient and effective coordination of manufacturing strategy with the procurement of materials and components ultimately relies on logistics. Resource inputs must be procured and made available when needed for manufacturing operations. Whether the manufacturing strategy is MTO, ATO or MTS, logistics links the supplier base with manufacturing processes. Clearly, the more seamless the interface, the better the opportunity is for achieving lowest cost of ownership and, ultimately, lowest total cost of manufacturing. Such operations only emerge when there is high-level supplier integration in both operations and in design. Just-in-time, materials requirements planning, and design for logistics represent three approaches in achieving desired coordination.

The key to JIT operations is that requirement for components and materials depend on the finalized production schedule. Once the production schedule is established, just-in-time arrival of components and materials can be planned to coincide with those requirements, resulting in reduced handling and minimal inventories.

In JIT strategy, it is necessary to deal with suppliers who have high and consistent levels of quality, as their components will go directly into the finished product. Absolutely reliable logistical performance is required, which reduces the need for buffer stocks of materials. JIT generally requires more frequent deliveries of smaller quantities of purchased inputs, which may require modification of inbound transportation. For JIT to work, very close cooperation and communication between a manufacturer's purchasing organization and suppliers is essential. In JIT operations, companies gain the benefits of backward integration without formal tie up of ownership and thus keep away from investments.

Originally, JIT was applied to manufacturing processes characterized as MTS, since the effective functioning of the system is dependent upon a finalized production schedule. However, as manufacturing strategies have evolved with more emphasis on flexibility, reduced lot-size production quantities, and quick changeovers, JIT concepts have evolved to accommodate ATO and MTO manufacturing as well. In many situations, lead suppliers are used by manufacturers to sort, segregate and sequence materials as they flow into assembly operations to reduce handling and facilitate continuous supplies.

Today, some manufacturing organizations are going further and accepting VMI system to get the full benefits of JIT. The suppliers are empowered to use the customer's premises to keep and maintain the inventory of components they supply. Vendors have full access to production schedules, and have responsibility for scheduling arrival of materials to ultimately reduce lead times and cost. In VMI, the ownership of inventory rests with a supplier.

MATERIALS PLANNING

In complex manufacturing organizations a process known as materials requirements planning (MRP) is frequently used, which is an interface between the purchaser and supplier. MRP systems attempt to accrue the following benefits to manufacturers:

• Reduce inventory
• Ensure high utilization of manufacturing capacity
• Co-ordinate delivery with procurement and manufacturing activities

Implementation of MRP systems requires a high level of technological sophistication. Software applications such as advanced planning and scheduling systems have been developed to deal with the complexity of information required, such as lead times, quantities on-hand and on-order, and machine capacities for literally thousands of materials across multiple manufacturing locations.

The logistics interface with procurement and manufacturing, as well as with engineering and marketing, can be greatly enhanced by considering ‘logistical requirement’ right from product development to distribution stages in supply chain. At least, product packaging and transportation requirements of the product need to be incorporated into the design process. For example, if inbound components are packaged in containers with a standard quantity of 25, but only 15 components are needed to meet production requirements, then, waste will occur. Additionally, product and component design must take into consideration the transportation and internal materials handling methods to ensure that cost-efficient, damage-free logistics performance can be achieved. Similar design considerations must be made for the finished product itself.

Managing supply chain requires an interface between logistics, procurement, and manufacturing strategies. The primary concern of procurement and manufacturing is a superior quality product, a prerequisite for any firm that desires to be a global competitor. In fact, product quality has several different dimensions. World-class companies have implemented total quality management (TQM) programmes in all their activities in their efforts to achieve quality from their customers’ perspective. In fact, with TQM in logistics, procurement and manufacturing operations of the firm helps in enhancing its competitiveness in the market place. Procurement in an organization is charged with responsibility for obtaining the inputs required to support manufacturing and operation. Ultimately, modern procurement professionals focus on the ‘total cost of ownership’ of acquired resources, not just the purchase price of those inputs.

Procurement strategies today involve consolidation of the volumes purchased into a smaller, more reliable, and number of suppliers. They include efforts to build up relationship to integrate supplier and buyer operations to achieve better and lower-cost logistics performance. Supplier integration in new product design represents another strategy to reduce total ownership costs.

SUPPLY CHAIN VISIBILITY

Today's supply chain is the primary processing mechanism of every manufacturing company. Its mul-tifaceted, multi-company, multinational structure makes it the most complex management challenge found in any enterprise. Supply chain management does not mean that the right resources and the right materials move to the right place at the right time. Today, it also means ensuring that the entire chain of events involved in producing goods and distributing them to customers satisfies customers, minimizes costs and maximizes profit.

Managing a supply chain requires information. However, pushing the information about partners or products into a report will not achieve the goals. What today's supply chain managers need is information visibility. Supply chain visibility is the ability to know the location and status of all physical components, from raw materials to finished goods, as they move from suppliers through various stages of production to delivery to customers.

In addition, most business decisions today require collaboration, so visibility also requires that the information be shared among partners and colleagues. The visible system offers users an analytical framework within which they can work with their information. The analysis enhances visibility by providing an additional context for the information.

Today's international, multifaceted, multiple-partner supply chain makes creating a visible information environment to support it both difficult and necessary. The complexity of supply chain structures and the amounts of data they generate create the need to implement a visible supply chain.

Other pressures to control supply chain processes come from both external and internal sources. Externally, one source of that pressure is customer demand, particularly for products sold worldwide in markets that are very competitive. When operating at that scope and in such markets, visibility is essential, but gathering and managing the information that enables demand to drive the manufacturing and distribution processes is a complex job because it is dispersed widely.

Internally, cost pressures make finding low-cost suppliers and managing their participation in the supply chain a business imperative that can be executed most efficiently when the processes are managed through a visible supply chain. Implementing other cost containment programmes such as scrap minimization, efficient transportation systems and inventory reduction similarly require a visible supply chain, as do creating and managing initiatives such as distribution programmes that meet delivery goals, component quality initiatives and effective target marketing programmes. Then there is the issue of aligning the supply chain itself with corporate strategies. To maximize the contribution that the supply chain makes to overall enterprise performance means that supply chain decision-making has to be both timely and accurate, which is another ongoing source of pressure.

A visible supply chain can be implemented by using technologies that are readily available and in many cases are already in place in manufacturing enterprises. Most supply chain data is managed in a combination of the ERP system and specialized software for supply chain management (SCM). However, to plan and implement visible supply chain, key technologies must be added to the resource mix. Modern technology will make the supply chain visible, enabling production and distribution managers the ability to see both numerically and graphically what is happening in their areas of operations. This is also called dashboard technology. In dashboard technology, the decision-makers need data. No matter what methods are used to gather the data, it must be available on the manager's dashboard whenever they need it.

DIFFERENTIATION THROUGH POSTPONEMENT

Postponement is one of the strategic moves to infuse agility in companies supply chain. Amongst the many options for postponement in most cases, companies go in for manufacturing postponement. In this the final configuration of a finished product is delayed to customize the goods at the place of demand (distribution centers). With this strategy, the company postpones some value-adding supply chain activities until a confirmed order is received from the customer. The companies go in for postponement strategy because of the following reasons:

• Too many SKUs are extremely difficult for planners to plan and handle accurately.
• Demanding customers are not brand loyal and hence companies are forced to be responsive.
• Product in maturity stage of PLC and hence competition leading to market offering a variety of products.
• High level of product obsolescence, leading to inventory buildups.
• Customer service level requirements are extremely high due to competition.

The products for postponements are as follows:

• Product with short life cycles
• High variety/options to customers
• High value profile
• Standardized components and modular design

There are three design elements for implementing an effective postponement strategy such as choosing a right product, adopt standardization or modularization in products/components and find out a right stage in value chain for customer decoupling point. The success stories for postponement strategy which lead to differentiation are Dell, Mattel Toys, Sony, IKEA, Toyota, HP and Asian Paints.

REVIEW QUESTIONS

1. What are the three primary constraints that influence manufacturing operations in general?
2. Explain MTO, MTS and MTA strategies in manufacturing and their relevance to supply chain effectiveness and efficiency.
3. ‘Design of supply chain depends on manufacturing strategies’. Explain with illustrations.
4. Explain what is ‘MRP’ and how it helps in reducing the inventory in supply chain.
5. Marketing strategies have an influence on designing of supply chain. Explain.

INTERNET EXERCISES

1. Log on to the following websites and find out how sub-systems of SC get impacted with manufacturing strategies?, http://www.scmr.com, http://www.cio.com, and http://www.theprogress-group.com/vsc/manufacture.htm
2. Visit http://www.ventanaresearch.com to study supply chain visibility to ensure end-to-end optimization

VIDEO LINKS

1. Supply chain strategy—Professor Richard Wilding http://www.youtube.com/watch?v=RFtbI:UNC_gt;c-cZc&feature=related
2. Wal-Mart's supply chain strategy http://www.joc.com/logistics-economy/video-wal-arts-supply-chain-strategy

PROJECT ASSIGNEMENT

1. Select a company manufacturing non-differentiated industrial product such as (a) cements, (b) lubricating oils, (c) industrial fasteners and (d) adhesives and study their supply chains and suggest a few supply chain strategies leading to differentiation.