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How your company is missing out when underestimating the importance of the internal supply chain

Sven Legler
Sven Legler Published at

 

Wondering why your supply chain does not deliver as expected despite efforts to improve it? Are you still missing your on-time delivery targets and not understanding why? It could be that you are missing an important part – the internal supply chain.

There are various definitions of supply chain available. Most refer to a connection of processes from raw material suppliers to manufacturers, through to wholesalers and retailers before delivery to the consumer.  The objective is to efficiently meet customer demand with on-time-in-full deliveries and to earn money on the way by adding value as the product moves across the different steps.

The better these steps are connected, the better the company performance and the higher the customer satisfaction. When it comes to optimising, initial focus should be on the internal supply chain. A firm’s internal supply chain refers to the chain of value-creating activities or functions within the company that conclude with providing a product or service to the customer. [1]

How effective is your supply chain at converting input into output and where should you start improving?

To improve, transparency is paramount! Do you fully understand your internal supply chain? What time standards are applied to the production steps and how well do you meet your customers delivery expectations?

At R&G we start with the “end in mind”, your on-time delivery performance measured against the day (or time) when the customer expects the delivery. In many cases we see that this measurement is already tempered by measuring the OTD performance against the date promised to the customer, which already includes corrections based on internal inefficiency and delays. Furthermore, we look at each individual delivery, no averages per week or even month. By this, you see the real picture of what the customer is experiencing. How good do you meet customer expectations and how well do you perform against your own promises? Typically, the OTD performance of the date promised to the customer is much better than the OTD performance against the customer expectation! (see below).  

Not only that, but performance to the promised delivery date is rarely at satisfactory levels.  There are many reasons for this, such as raw material availability, production scheduling or quality issues. Consequently, opportunities for improvement can be identified.

But improvement does not stop there! Assuming, the customer expects the delivery on the 23rd December 2020, do you know when the full order must be in the warehouse to meet that date?  When does production need to start and therefore, when does the raw material need to be ordered for delivery at site?  

By using meaningful standards for product groups, target dates for each of the steps can be determined by working backwards through your internal supply chain.

Once you have these standards, actual performance can be measured against these targets, providing inspiring insights of how well the internal supply chain is managed and where the biggest delays are! The model can even predict if orders are at risk of being late and provide the opportunity to act before they become late!

In the depicted example, the customer expects the delivery of product A on the 23/12. When applying agreed standard times (the company only works weekdays), production needs to be finished on the 15/12 and the order must be confirmed on the 07/12 to meet that date. Measuring the actual performance of that order shows, that due to delays in order confirmation (1 day) and production (2 days) the delivery was 3 days late. The analysis provides focus as to which steps contributed to that delay, making it easier to formulate improvement actions.

Sustainable improvement of the internal supply chain requires transparency, otherwise it is a matter of trial and error, wasting valuable time and resources. R&G provides this transparency through data analysis and the concept of backward imaging.  This generates insights to identify targeted improvement actions that deliver meaningful and measurable results. If you are interested in how this can help you to better manage your supply chain, please contact us.

[1] Nurturing internal supply chain integration, C Basnet et all, Operation and supply chain management Vol5, No1 Jan2012, pp27-41, ISSN 1979-3561

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