Achieving continuous improvement in supply chain management
Sven Thiesen, Chief Operating Officer, discusses the use of evaluation in supply chain management and its role in continuous improvement, as featured in Manufacturing Today.
The need for continuous improvement
Let’s start with a quote from Dr. Merchant, a highly influential pioneer in the manufacturing industry, who said “The technology, and the application of it, as great as it is, will be crippled if you do not also engineer the application of human resources that are to be used in that technology. Only then will technology perform at its full potential.” This emphasis on the importance of human resources applies not only to the manufacturing process itself but to all points throughout the supply chain, including the procurement process.
In many cases, both the pre-contract and contract delivery phases of outsourcing are handled by the purchasing department. This typical set up has led to the responsibility for ongoing supply chain management often residing within the purchasing department. This can be problematic. For example, what is ‘true’ during pre-contract evaluation, shortly after a contract award, and at the start of supply, may not maintain itself throughout the contract period. In such a scenario, is the procurement or purchasing function best-placed to evaluate these changes and act upon them appropriately? In most cases, the answer is no. This is where organizations need to evaluate how they build flexibility and continuous monitoring into their procurement and supply chain management processes to ensure they are realizing maximum efficiency gains on an ongoing basis. There are a number of considerations when looking to achieve this.
Adding value through evaluation
The ‘US Manufacturing 2016 and beyond’ report highlighted the importance of implementing evaluation capability throughout the supply chain – whether in-house or externally. A director of Corporate Engineering Technology Labs at an international firm related how, when considering outsourcing, a company needs to know how to make items in-house, or have the capability and resources to evaluate the making of them by others. For companies that outsource without the expertise to manufacture or evaluate themselves, the potential for negative impacts on quality is likely to occur more frequently and on a larger scale, with wider adverse commercial impacts.
One way to prevent this, or indeed overcome it, is by establishing subject matter experts (SMEs) as an integral part of the pre- and post-contract supply chain management process. These SMEs have the relevant technical understanding or information knowledge to both establish parameters in the early stages of outsourcing, but more importantly, identify opportunities where modification of the supply chain process would lead to efficiency gains. Adding in expertise in this way, which can be through relevant personnel at the purchasing company, or a qualified external resource, ensures continuous improvement through a more flexible program.
Given the shrinking of the US manufacturing workforce – with an estimated 10,000 skilled workers leaving their jobs weekly – the issue of losing, or rather hanging onto, know-how is a key one if the SME route is to be implemented successfully. In fact, understanding the impact of loss of knowledge on long term success and cost reduction emerged as one of the main concerns of US manufacturers who were questioned as part of the qualitative research project.
The ability to make either wholescale changes or simple refinements throughout the outsourcing contract period can only be achieved if there is appropriate ongoing engagement by the purchasing company. Avoiding over dependency on contract writing and, instead, adopting a business relationship with the right supplier at the outset will enable this to happen. This level of expert engagement builds in a flexibility which will not only generate savings, but also avoid affecting supply chain timing requirements, or worse, the buying customer’s reputation, should substandard items reach the end-user.
The positive impact on quality and reputation should not be underestimated and this is where organizations need to think realistically about the true cost of an outsourcing contract. This means that while rigorous due diligence and cost evaluation are carried out before the contract, such calculations may not take into account the benefit of ongoing engagement. If a non-SME procurement route is taken, the lack of ongoing monitoring and expertise could result in inferior quality products. It could also mean that extensive purchasing company resource is required in order to become familiar with any process issues, which again may not be reflected in the true cost of the contract. This can result in a false belief that the outsourcing contract made financial sense but in reality the total cost is hidden. Getting the right amount of ongoing engagement between qualified personnel throughout the supply period should be a priority.
Continuous and appropriate monitoring of supply contracts has a positive effect on innovation too. It is not the case that in eliminating waste, the tools of lean manufacturing compromise an organization’s ability to innovate. The opposite effect can be argued and, far from being restrictive, lean methodology, deep machining expertise and analytical tools are all enablers of innovation. By building a robust foundation around these lean principles, manufacturers are empowered to innovate more freely. The efficiency gains delivered allow resource to be freed-up – both in terms of time and space – and reallocated to innovation programs that help secure a competitive future for the company.
Finally, our report also asked US manufacturing firms to look to the future and identify key challenges and success factors. The role of Big Data and evaluation analytics emerged as key to unlocking maximum value from supply chain management. Technology will continue to evolve and transform the toolbox of skills required and available in the future, throughout all aspects of the supply chain.
Improvement in the manufacturing environment must be on two fronts – the management of the manufacturing process itself and in the supply chain and procurement function. It is this latter element which has been the focus here and the importance of engaging the right level of expertise, such as subject matter experts, to ensure continuous evaluation and continuous improvement of the supply contract is achieved.
To download the full research report from OPTIS, please visit: https://goo.gl/1Lgoaa.