Your business needs: On-time delivery

Many companies regard customer service levels as an inevitable compromise between their supply capacity, the allowable inventory carrying cost and the customer-requested lead times. This means in practice that the customer will receive the service level that you can afford. Customers may try to tip the balance by demanding even shorter lead times as well as requiring that you hold vendor-managed/-owned stocks in an effort to guarantee the supply speed & reliability they want.

The financial need to keep the working capital requirement as low as possible is not going to go away (with or without sales growth), and this creates a huge amount of pressure on service level and supply chain performance. One result of this is that most companies choose to measure (and act on) the service level relative to a commit date rather than relative to the customer-requested date – even though the latter is a much better gauge of customer satisfaction with respect to service.

If you feel that you are ‘behind the curve’ on supply chain performance (either as a customer or as a supplier) then you are likely suffering from this compromise paradigm of only being able to provide what your budget will allow or the customer will tolerate. The good news is that it is a paradigm, and changing the way the supply chain process works can reset the boundary conditions of how well you can serve the customer (better service and lower cost are actually not mutually exclusive). If this reflects one of your business needs then read on…

Our answer

If you look at supply/service performance curves across the industrial segments, it is surprising how similar they appear and how little difference the actual product/service seems to make. Of course there will be technical issues in manufacturing but apparently that is not a critical driver in determining whether customers get their product on time (or not). Neither is the time allowed. Performance when the lead times are longer is no better. The workflow processes at the centre of the supply chain are all about a team focusing on and collectively hitting a date time after time.

The R&G methodology Demand Pulse focuses heavily on how the team members interact (information flow); how intermediate target dates are set (material flow triggers) and very importantly how decisions regarding workflow are made. A key component of Demand Pulse is working to close the gap between customer request and our internal promise. To do this, the approach must reconcile the customer request with the current practical capability of the supply chain to deliver, and it must seek to improve those aspects that are stopping this from occurring. Interestingly enough, too little capacity is seldom the reason.

The other side of Demand Pulse handles the finished goods, intermediate and raw material inventories. Improving service by increasing inventory is not an option. In fact we find that once we have identified the process issues affecting service, we can easily reduce inventories as we begin to improve delivery performance. The notion that a trade-off will always be necessary is a paradigm: there will always be some SKUs that need more inventory but this is compensated by a much larger number where the inventory can be reduced. If you would like to know more about Demand Pulse and how this differs from other solutions to supply chain issues, then read on…