Everyone should read this recent article in Strategy + Business on Virtuous Connections that presents a case study on how local “fixes” that don’t take into account dependencies can actually result in global “breakdowns”. The article, which presented a case study from a large chemical manufacturer, described how numerous attempts to “fix” existing supply chain issues resulted in the creation of additional supply chain issues that were even worse and more costly.
For example, the article describes how:
- they focussed on pallet standardization, only to find no performance improvement because being able to load a pallet faster doesn’t help much if the products aren’t ready when you need them;
- they installed a system-wide network that couldn’t handle the volume of incoming orders because management underestimated the range and volume of the company’s channels; and
- they tried outsourcing warehousing, which made matters worse because their software didn’t integrate with the 3rd party’s software.
But when a more holistic view was taken and Supply Chain focussed on:
- segmenting customers by strategic importance, which allowed reps to give customers a more realistic picture;
- eliminating rogue stock-replenishment processes by replacing them with new, standardized processes dictated by a properly selected and calibrated inventory system; and
- including risk constraints in schedule production that took into account order complexity, which greatly increased schedule predictability,
the results were astonishing. Inventory on hand decreased by 20 percent, shipment costs stabilized in a period of rising fuel prices, and stock-outs fell by 50 percent — resulting in exponential gains.
When they failed to look at the big picture, intended “improvements”, including the selection and integration of expensive new systems, had disastrous consequences because their “side effects” were never taken into account. But when they analyzed the system as a whole, even minor changes had major positive impacts. You need to look at your supply chain as a whole, and select systems that allow you to analyze the supply chain as a whole. Otherwise, that “fix” might introduce a fatal flaw!