Supply Chain Matters in Manufacturing

This article first appeared in the Greater East Tamaki Business Association’s Focus magazine this Autumn which has a focus on Manufacturing. NZPICS is pleased to be able to contribute to lifting the knowledge base of operation management and supply chain professionals everywhere.

”I never thought I’d work in the supply chain profession. I studied financial economics at university, and even after I gained a supply chain role, I still thought it was not as critical as IT or finance. How wrong I was!

03B88161Supply chain, loosely defined, includes supply chain (S&OP) planning, warehousing and logistics, and inventory management. This article specifically addresses supply chain planning.

For outsiders, supply chain planning is a function that magically makes things happen; if we need more stock to sell, there will be more stock. If there’s something we don’t want to sell anymore, stock will disappear. When things don’t go this way, supply chain planning typically gets blamed.

Supply chain planning isn’t that magical, it also contributes greatly to any business, especially a manufacturing company’s bottom line.

Waste is the enemy in manufacturing. A major waste is excess stock of raw materials and finished goods. Excess stock typically comes from poor planning i.e. buying more materials than needed for a lower price, longer productions runs than necessary to increase efficiency, and poor understanding of the product life cycle. Good material and production planners can reduce those wastes by optimising the purchase and run size, helping the plant run more efficiently.

Another waste is lost sales. When a company is out of stock or suffers from DIFOT (delivered in full, on time) misses, not only are normal sales lost, so are customer confidence and company credibility. Good demand planners with commercial acumen could reduce bias in the demand plan, while good supply planners with excellent ability to deal with ambiguity can balance inventory levels to mitigate out of stock and excess stock risks.

When supply chain planning looks beyond the short term, and concentrates on a demand and supply plan for mid to long term (typically 7 to 24 months) it can:

  • Highlight mid to long term capacity constraints, giving the business time to plan ahead, build more capacity where opportunities are, and decommission lines where demand has fallen;

 

  • Show possible warehouse space constraints, then the business can decide to use a 3PL (third-party logistics provider) or build more space. Capital projects take time, so a long term plan can make sure money is well spent;

 

  • Help with building cost analysis. Accurate cost recovery work depends on robust demand and supply planning, which affects the accuracy of COGS (cost of goods sold), as well as pricing, which will in turn affect a company’s market competitiveness.

 

For decades, the finance function has been the initiator and builder of the annual budget, but this trend is changing. More businesses have realised a budget built on a well-reviewed demand plan is the better way to get robust numbers. Supply chain planning is now the key participant and initiator of the budget process.

Supply chain planning needs quality planners to achieve the above, and the attributes described don’t always come naturally. Even with supply chain tertiary education, you will still need professional training on the practical knowledge, as well as specific skills. For me, this need has been met by my APICS education provided by NZPICS. Organisations who support their employees to gain these supply chain skills also gain from their investment.

Author: Stuart Sheng is S&OP Development Manager with Fonterra Brands NZ Ltd, has his APICS CPIM and CSCP and also instructs for NZPICS.

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