May
25
Is it Possible To Eradicate Stock Outs?
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There have been significant developments made to supply chains over the last 10 or 20 years. Gone are the days when the supplier was (metaphorically at least) beaten with a stick in order to provide supplies at the lowest possible cost. Now the emphasis is on building strong relationships with suppliers, ensuring that the relationships are effective and mutually beneficial. So does this mean that there are now no obstacles to the supply chain; indeed can stock outs now be considered a thing of the past?
Risks To The Supply Chain
Well, it may be tempting to think that with the correct strategies and with excellent supplier relationships, there will be no stock outs. After all, isn’t that the ideal that we should all be striving for? Yet in reality we live in a world where there can be events that can dramatically affect the supply chain. Although everything to do with the supply chain can be, and indeed has to be managed, there is always a risk that things can go wrong.
For example, who could have predicted that a volcano erupting in Iceland would cripple the whole of Europe by grounding all aeroplanes for 2 weeks in April 2010 with further flight disruptions experienced in May 2010? This had an effect on supply chains all over the world, because although many items are still shipped, some vital components or parts may be sent by air.
In addition other external factors, such as acts of terrorism, strikes, acts of God and so on, can seriously affect the supply chain and lead to stock outs despite the best planning and management of stock.
Historic Perspective
Historically the risk of stock outs was kept low by having slack when it came to inventory. So inventory or stock was kept on site, meaning that there was always enough to meet supply demands, even if that demand fluctuated wildly. It was similar to someone keeping a fridge well stocked, in case a sudden influx of visitors arrived.
However, along came Lean thinking and suddenly too much slack with regard to stock was a bad thing; after all, resources had to be used to house the stock, heating and lighting used to make sure it was kept in good condition and it had to be checked and protected from theft. So stock levels were dramatically reduced within many organisations; then a new risk evolved, that of stock outs!
Stock outs will always be a risk, but experts advise that the trick is to manage the risk and ensure that the risks are minimised. Yes an ‘Act of God’ may take place and create a stock out, but on the other hand stock outs should not be caused by internal methods and practices.
Risk Management
Adopting a strategic procurement plan, with robust supplier management, will ensure that the risks of stock outs are minimised, as will robust planning and due consideration of safety stock requirements – By ensuring that a comprehensive and systematic approach is taken to all supply chain issues from the geographic location of stores and suppliers through to carrying out supplier development and improvement activity supply chain risks can be better understood and managed.
May
24
Away from the day to day noise of typical business process and transactional activity – raising purchase orders, booking in materials for example – its likely that there will be a number of projects, many targeted at improving performance and efficiency, taking place within the business.
Recognizing that supply chain can not only impact profitability but be a significant contributory factor to customer satisfaction there is usually a clamour to improve, providing both better service and increased financial contribution to the business
You may have many projects underway in the supply chain function at any point in time – Supplier rationalization, improved customer scheduled deliveries, commodity programs for example. Due consideration of how these are implemented from a methodology perspective can improve not only the possibility of success but also help with the communication of company goals and strategy.
The supply chain war room
A war room is a single space or meeting room within the business, used as a visual management centre, where you can assess both the performance of your function but monitor the progress of particular improvement work streams that may be underway.
KPI’s
The building block for your war room will be a continuously updated set of measures and metrics they will define performance and clearly indicate any gaps against desired targets. In many organizations these will typically be set against QCD objectives. Under performing KPI’s will then be targeted for project/workstream activity.
Worskstreams/Projects
KPI’s that underperform (for example supplier delivery) become the focus of an improvement work stream or project – The original KPI is taken and then drilled into for more detailed analysis (for example this might be in the form of a Pareto Analysis e.g. Worst delivering suppliers) to try to ascertain the route cause of the problem.
Each work stream will be given an owner or project manager and once a more detailed assessment has been carried out of the data– a resourced action plan is developed to describe what activity will be carried out to improve the situation. Key issues are recorded and further analysis produced as required.
More than just visual management
In this way rather than just be a place to put KPI’s the war room becomes the central meeting place to discuss departmental performance and improvement– for many this might be a daily “stand up” to review the actions of the day – for other organizations it might take the form of a weekly/monthly review. Attendees may be various stakeholders from executive decision makers through to operators / buyers – anyone who is able to influence performance.
The process is typically thus
1/ Review the top level metrics
2/ Allow each work stream owner to provide an update as to their project
3/ Consider which projects might need retiring (KPI’s are back to expected levels)
4/ Consider what new projects need initiating.
Regular focused reviews of departmental KPI’s not only draw the attention to corporate objectives but also help ingrain it into the organizations culture – using visual management in a recognized context can underpin this ethos – challenging everyone to play their part in routing out waste and inefficiency.