This example shows how reducing the response time of the supply chain reduces the variation in supply and provides better control.
The example product was made in a single factory and shipped worldwide through a number of distributors to supply a market with a steady daily demand. In other words, the true demand was completely flat. The stock and ordering policy of the distributors adds variation which is reflected in variation of the factory’s output. At the start of the period shown in Fig 3, the manufacturing response time was 18 weeks which coincides with the time between peaks of supply. It can also be seen that the supply quantity varied by +/- 30% representing quite a strain on factory management (feast and famine). Batches of the same product were made every 6 weeks and manufacturing lead time was 12 weeks for some of the components.
Fig 3
During the middle of this period, the factory was changed so that lead time for the most-awaited component was reduced to 8 weeks and batches made for shipment every 3 weeks. The right part of the graph shows that the peak to peak time reduced to 11 weeks (the new response time) and the amount of variation reduced to +/- 15%. In this new regime, everyone was much happier and felt more in control. A fringe benefit (actually probably ultimately worth more in Sales) was that the customers received fresher product and could keep it for longer before it reached the end of its shelf-life.
A further observation is that the reduced variation did not happen as part of a conscious effort on anybody’s part. It seems that the distributors “sensed” the greater responsiveness of the factory and adjusted their ordering and stock policy unconsciously. In other words, it is human psychology that puts the variation into the demand (“I don’t trust the factory to deliver when they say, so I will order a bit more, in case”. Followed a few months later by “I seem to have far too much, I’d better cut back drastically on my orders”). Greater responsiveness leads to greater trust and a more realistic ordering pattern.
Fig 4
It is worth also mentioning that manufacturing cost was held neutral, whilst inventory came down. The chart shows on the same timescale how the inventory level of 3 of the components reduced as implementation progressed.
by James La Trobe-Bateman, reMODEL Consultants International Ltd
