Designing Supply Chain Systems

The most complicated way to understand a supply chain is to look at it as a

system. (I think that this perspective is often the most useful.) Like many other

systems that we encounter every day, supply chains are made up of intercon-

nected components that can behave in surprising ways.

Your car is a good example. You expect your car to move you from Point A to

Point B. In fact, you probably take for granted that your car will take you to Point B

any time you want to go there. But your car is a system, so a dead battery, a broken

fuel pump, or worn-out brakes could bring the whole thing to a halt (or, in the

case of the worn-out brakes, not bring it to a halt).

Supply chains are systems too. The components that make up supply chains are

people, processes, and technologies. Each of these components needs to be pre-

pared and managed correctly for the system to operate as expected.

When you look at them as systems, you begin to see that supply chains have

underlying rules and patterns that are key to understanding how they work.

A good example of one of these patterns occurs when a company experiences wild

swings in inventory levels. It can be difficult for people in the company to under-

stand why these swings occur until you look at the supply chain as a system. Then

you can recognize a pattern called the Bullwhip Effect, in which inventory peaks

and valleys are amplified as they move upstream from one step to the next in a

supply chain. The Bullwhip Effect, which occurs often in supply chain systems, is

a normal, predictable phenomenon that occurs even when everyone in the supply

chain makes decisions that seem to be logical from their point of view. To fix the

problem, you need to change the system, which means understanding what is

really happening.

Popular posts from this blog

 A SIPOC analysis helps to show the dependencies between the processes in a sup- ply chain. A good way to illustrate a SIPOC is to look at the process of picking orders in a fulfillment center: » Suppliers include the receiving department, which puts inventory into the warehouse, and the warehouse management system, which keeps track of inventory. » Inputs include the products that are stored in inventory, along with instruc- tions about where to find the products in the warehouse. » Process in this case could be “Pick item from inventory.” You could also break the process down into detailed steps, such as “Print pick sheet, travel to first pick location, place item on cart,” and so on. » Outputs could include the item that is picked, where it is delivered, and how long it takes to complete the process. The outputs might also include updating the warehouse management system and creating a packing list for the shipment. » Customers in this case will be the shipping...
Read more
Image
  Controlling quality and variability Think about your imaginary fast-food restaurant and how your customers might describe the quality. Here are a few things that customers probably value in your French fries: » Ingredients that are clean and safe to eat » Food that is fully cooked » Consistent portion sizes (neither too big nor too small) » Reliable availability (prepared quickly and served hot) To meet your customers’ needs, you need to deliver high quality French fries every time someone places an order. Customers might forgive cold fries once or twice, but if they keep getting poor-quality products from you, they’re going to stop coming to your restaurant. You can measure the quality of a product  — and how much variability you have in a process to make a product — through quality control (QC) and quality assurance (QA). Quality control involves testing and measuring the outputs to make sure they’re acceptable. QC might involve pulling a few product...
Read more
Image
 Analyzing Your Customers I define a supply chain as “a complex system made up of people, processes, and technologies that is engineered and managed to deliver value to a customer.” Supply chain planning requires that you align plans with the needs of your customers. Each customer is unique, and the better you understand your custom- ers, the better chance you have of ensuring that your supply chain delivers the value they expect. Some customers have specific needs or tastes and are willing to wait  — and pay — for a custom product that’s just perfect for them. These customers would be dissatisfied with a generic product, even if it were cheaper and immedi- ately available. If you have customers like these, you probably need to have an engineer-to-order supply chain. Other customers are more interested in getting the lowest cost, which might lead you to implement a make-to-order supply chain. Still other customers need to have your product immediately, which...
Read more