Zero Tariff an Advantage

Before anything else, I would like to greet everyone a HAPPY NEW YEAR! If you have stopped by and happen to take a look if I have a new post, thank you! Appreciate it, though I see that only a handful have actually visited this site. I have been inactive in posting my thoughts in this blog, hopefully this year I get to post more articles and thoughts on Supply Chain and Leadership.

I have read this in one of the link in facebook prior to the new year that ASEAN 6 has lifted the tariff on selected commodities surrounding the affected countries (Philippines, Indonesia, Thailand, Singapore, Brunei and Malaysia). The local newspaper today have it in their post that ASEAN scraps duties on 8,000 products. I think that this is a good indicator for the economy as each country can take advantage of this and leverage on its benefits. I hope that the savings that can be generated from this move will be passed on to the consumers and not to be taken advantaged by corporations/businessman. Industry that will be affected by this move must take advantage in marketing their products, increase export opportunities in order to strengthen the local production base, and take advantage of the low cost of importation on selected items to support local production and consumption.

Definitely this would also challenge local production to be at par with imported products as they can come in cheaper than before. This would strengthen competition and would require local base to improve their product quality and reduce cost. What are your thoughts?

Trim Down

Its been 9 months since my last blog. I have been busy eliminating waste in our Supply Chain. Inventory was the main focus area as it is one of the major indicator that affects the bottomline. Improving the NITO (Net Inventory Turn Over), is not an easy task as it requires a lot of preparation in order to realize the result on a specific time frame. High inventory creates a lot of problem in the operation such as;

1. High Carrying Cost

2. Lack of visibility in the inventory sytem

3. Wrong ordering

4. Obsolescence due to wrong timing

5. Material shortage

6. Poor warehouse management

7. Double handling

8. Low productivity

Let me share with you the key actions that was made in trimming down the inventory, most of you may find this basic, and have been implementing a more advanced approach, but this has helped in reducing inventory and improving the flow of goods in the pipeline.

1. Implemented a Lean Supply delivery involving selected suppliers - to make this work, you need to choose suppliers within the area that is capable of implementing lean delivery. Inventory level was cut down from 2 days to 4 hours stock (2 hour lineside, 2 hours marketplace).

2. Rationalized ordering parameters - transit leadtime, safety stock, ordering leadtime was reviewed and revised resulting to 2wks - 1month stock level from 3-6 months stock.

3. Re-layout of warehouse footprints - fixed location was finalized and route delivery was improved.

4. Implemented Just In Time delivery - direct delivery to the line was implemented. From a lineside inventoy of 1 day, it was not trimmed down to 2 hours.

5. Implemented a daily cycle count - this have drastically improved the material inventory accuracy from 67% to 95%.

6. Process standardization - alongside with the changes in the way we operate, our processes were streamlined in order to effectively manage the operation.

In our current economic situation, it is vital for us to trim down in all aspect of the operation in order to survive. Indeed, Supply Chain is one area that needs to shape up in order to keep us competitive and strong.

Why Inventory is always off?

It has always been a problem on why inventory always has a variance, be it a positive variance or a negative variance. No matter how often you do your cycle count, your inventory system ends up messy after some time. This creates a big problem in your whole MRP system and it screws up your ordering patterns and end up having excess or shortage materials, which later results to customers complaining because you were not able to deliver their requirement on time. Having a bad inventory status can be too painful as it becomes cost to your company as well as more unsatisfied customers. So why is inventory always off?

NO CONTROL.. if there is no CONTROL in the way you manage your inventory, it will never be corrected. Bad inventory are caused by a lot of factors, let me share with you some key issues that affects inventory accuracy.

1. WMS vs. Business Process alignment – If your information flow is not aligned with material flow, it will create a gap in your system transactions. Your processes must have controls in addressing discrepancies found prior to or during the transaction of your inventory in the system. If discrepancies are not resolved immediately, it will pile up and for all you know it you lose control in managing your inventory in the system.

2. Process Discipline breakdown - if your staff is not following the procedure, then you are in trouble. A failure in transacting an inventory be it input or output, will mess up your inventory system. It is always important to analyze problems that occur in the process and come up with an effective action to prevent it from recurring. Training and communication with members of the team is key in order to understand the impact of any process deviation.

3. Fixed Location – sometimes people think that a material is missing, but in most cases it is found somewhere else.. This happens because materials have no fixed location in the warehouse. Key is 5S, “a place for everything, and everything in its place.." One cause of wrong count is that materials are not accounted properly due to multiple locations. This must be addressed. How can you believe that a material is missing? It can't be!

If inventory is always off, there is a need to go back to the drawing board, streamline your process, and clean up your inventory system. Establish a strong inventory control system. Cycle counting is not mere counting, you must establish a process on how to perform and manage any variances.

Supply Chain Fundamentals

In operations, most managers are sometimes put in a situation where they had to be assigned to a new role in the organization. This is one of the major strategies in People Development, where some managers are trained to handle new roles that are aligned to their Career Objective. One of which is managing the Supply Chain. Common questions asked are; How do I manage the Supply Chain? What do I need to consider? What would be my focus?

Below are basic fundamentals of managing the Supply Chain that would help you get started in managing your new role in Supply Chain. As SC is complex, you may want to consider focusing on the following areas.

Purchasing / Procurement - get the right sourcing from a qualified supplier, manage per commodity, monitor price changes, and strengthen supplier management. As Suppliers are key to your business, it is also important that you develop a good working relationship by finding the best solution that will benefit both your company and the supplier.

Inventory - Identify your inventory stock level, manage inventory accuracy, review ordering parameters such as safety stock, ordering lead time, frequency of delivery, replenishment status. Inventory Control is key in the operations, a wrong assumption in the ordering parameters will definitely lead to shortage and excess materials, which are both costly to the company.

Warehouse and Material Handling - establish a reliable receiving and picking process, any deviation in the management of stocks that comes in and out of the warehouse will greatly affect your inventory. Best to consider setting up your cycle count process to manage it properly. Need to set up your material flow, consider (kanban, kitting, sequential, lot delivery). Also look into packaging improvement to get rid of double handling aside from improving the cubic efficiency. Fixed locations must be reviewed and designed to follow a layout that efficiently route your materials.

Transportation – manage your inbound and outbound logistics. As transportation cost is a large portion of the supply chain cost, it is important to rationalize the best option in your imports and dispatch. Possible issues to control are frequency of delivery, consolidation, optimize cubic utilization, and develop the best route for your goods.

Planning – need to structure Ordering Process Cycle by considering the service levels among suppliers. Need to work closely with sales and demand planning regarding forecast. Sales and Operations Planning process must be established as well.

It is imperative that all business processes are in place and controls are set. Of course setting up the Key Performance Indicators in each area is a must, as measuring your performance is Key in controlling your operation. The way we manage our supply chain will directly impact on the Organization’s profitability.

Supply Chain Transformation

Nowadays, businesses in different industries are focusing on reducing their cost with the uprising of several commodities such as copper, aluminum, steel, and other prime commodities. With the uncertainties in the fuel prices, companies are focused in finding ways to offset the additional cost in the business. And as many of us know, Supply Chain is one big chunk where cost reduction opportunities can be found.

A lot of companies are engaged in transforming their Supply Chain. Continuous efforts are being exploited to ensure that the cost effective means of managing the business are realized. In a recent news from SC digest, Dell plans to sell off its manufacturing facility as part of their strategy. Other industries have considered this to be beneficial in their cost reduction effort. By outsourcing your production to a Contract Manufacturer, you have freed yourself a large amount of overhead cost associated with running the production. The burden of productivity improvement and utilization are relieved as the CMs will have to work on it to ensure profitability on their part. Same as other outsourcing initiatives such as logistics, material handling, and procurement, it will help the company to focus on their core business. However, is outsourcing really an advantage? Definitely it has benefits, but there are also pitfalls in having one if not implemented properly. It is important first hand to get a CM or provider that are experienced and are equipped in matching your quality standard. You wouldn't want to compromise your quality as you have a commitment to your customers. You have to ensure that business processes are put in place and that the agreement between you and the CM/Provider are well discussed. There are instances that after the contract has been signed, there are loopholes that are seen and would end up costly on the principal's part. Thus, depicting the objective of reducing cost.

Being Demand-driven is another strategy that executives are looking into. Focus is directed more on making sure that what is built is based on what the customer wants, more of a pull system rather than push. Lean Manufacturing is popular in most industries (especially in the Automotive Industry), and has proven to be effective in reducing inventory costs, optimizing packaging utilization, reduction of cycle time, increased productivity and other improvements driven by lean concept. However, is pull system applicable all the time? I will dwell on this issue in another topic. In another news, Kimberly Clark rethink its Supply Chain, which I think is leading them to the right direction as they continue to be flexible and obtain better cost savings. As Mark Jamison (VP of North America Customer Supply Chain for Kimberly Clark) said, "Our vision, ultimately, is that we want use POS to completely drive our replenishment production planning process." This is an example of applying Lean Supply Chain. Ultimately, if implemented smoothly, this vision will provide better result in their operation.

It is always best to look at how your Supply Chain is managed, and how it will be aligned with the current condition in the industry and in the economy. As in Manufacturing, Kaizen, is being observed all the time as there is no permanent in this world but Change. So be prepared in making your Supply Chain flexible and adaptable to the current situation.

On the right track

Individuals with a very clear career path plans ahead on how they would want to achieve their goal. Part of it is being able to manage different areas in the organization that he sees fit in helping his career mature, and opening an opportunity to develop new skills. In order to be on the right track, you should have a basic approach in managing your new assignment. I have been in this scenario many times and here the top 3 areas that I consider in running a new department (in a perspective where the overall company objective has been reviewed and understood).

1. Organizational Structure - important to understand the roles and responsibilities of each function, align their expertise on the current role, rationalize resource allocation, and look at any redundant function. The objective here is to ensure that you have the right person, right skill, and right function in order to yield optimum results. It is important to have a well structured team in order to be more effective in achieving its objectives.

2. Develop/Review Key Performance Indicators (KPI) -establish your KPI that will align to your company's overall objective. Specific measures in your key processes must be defined to address your performance objectives. All metrics must be cascaded to your team for common understanding. Make your KPI visible to your team members, and review it every day and take action on areas not meeting the target. If you want to be on the right track, it's best that you define where you will focus to achieve your goal.

3. Review Process Gaps - understanding your process is a good way to start on where you will focus your attention. Perform a Value Stream Mapping in order to identify process gaps. Perform Root Cause Analysis, and develop preventive solutions. Always review your processes based on the need and trend of your business.

There are other ways to approach in managing a new role, this works for me. I guess key is to set foot on the right direction and be clear on your objectives. At the end of the day it is the result that matters.

Putting Inventory Control in the Organization

A question was posted in LinkedIn on where to put Inventory Control in the organization, should it be under Finance, Planning, or Warehouse? Below was my response to this question.

Inventory Control Group being an integral part of the Materials Department is part of the Operations Group. However, this group must be independent in the sense that they serve as the auditing body of the Team. Putting it in Planning group will compromise the inventory and the way ordering is being managed, Putting it in finance is not a good idea as Finance does not have the resources to manage inventory, and it is outside of their scope, reporting to Warehouse group will also create bias as integrity in cycle count will be compromised. It is best to create an Inventory Control Group, reporting to the Materials Manager. The basic role of the Inventory Control Group would be:

1. Manage cycle count
2. Perform Variance Analysis
3. Monitors Material Accuracy
4. Audits business processes affecting Inventory such as, receiving transactions, picking transactions, managing of defective parts, warehouse processes, and others.
5. Ensure that MRP system inputs (inventory) is correct.
6. Monitor inventory status and ensure compliance to Net Inventory Turn Over.
7. Coordinate with planning and warehouse operations re discrepancies found in the process affecting material accuracy.

Depends on how your business is run, you can opt to do a cycle count based on parts classification. Others do a monthly four wall count, while others go for a daily cycle count, based on the complexity of the product and the amount of parts being managed.

To add up, Inventory Control by all means is something that is very critical in the operation. It is important that system transactions from the time materials are received until it is delivered to production, and shipped to customer must be accurate. As the saying goes, "garbage in, garbage out".. We wouldn't want to mess up the inventory, otherwise, you'll end up having excess and shortage disrupting the whole operation.