A CEO who was perennially frustrated with excessive inventories and lack of success with annual pushes to improve turns plotted the data over the last twenty years on a time line and marked when they had installed a massive ERP system, when they initially pursued lean, and when they went to great lengths to kanban everything.
None of these initiatives made much of a dent.
He had spent whatever was asked; and he had researched and pursued the best techniques. He looked over all of the processes and, while there was always the occasional lapse, he couldn’t figure out what else he could do to get inventory to move through the plant at anything like the double digit turnover rates he heard lean companies achieving.
The problem was that he was focusing on supply chain solutions for what was clearly and engineering and product management problem.
It didn’t much matter what the purchasing and shop floor people did in the face of a steady stream of new products designed with little regard for parts commonality.
Similarly, two other clients had acquired smaller competitors over the last few years, yet had done little to redesign the acquired products to use common components. They understood that it was necessary, but the engineers were too consumed with things that impacted ‘real’ money – cost reductions and new product roll-outs.
As a result, the increase in inventories and supply chain costs – buying, scheduling, material handling, etc… - had increased almost linearly with the acquisition. And, of course, so did inventory levels.
This is all too common.
Products are designed and components are sourced with an overwhelming bias toward the purchase price of the parts. We already have a widget that costs 25¢ but we can use a slightly different one in the new product that costs 20¢, so the 5¢ savings carries the day. Accounting doesn’t know how to quantify the cost/benefit of streamlining the supply chain, but the nickel is real. And engineering is not measured on inventory levels so the deck is stacked against supply chain optimization and flow is degraded.
Quite a bit is written about design for manufacturability, with mixed results in my experience. Engineers are getting slowly better at designing products that can be made with a least a fighting chance to assure quality. But the fact remains that the manufacturing game –productivity and cost, quality levels and supply chain execution – is won or lost in product design.
Products designed by engineers with a keen appreciation for the supply chain can be manufactured in a manner that flows easily through the entire supply chain and the factory. Products designed without such an appreciation won’t flow – period. And all the demand flow, kanbans and the slickest ERP systems won’t make them flow.
More consultants and ERP providers should tell their clients what I recently told one of mine – that I can help you polish the supply chain around the edges and help you increase flow and turns by small amounts but there is nothing I can do in your factory to change the basic trajectory your engineers and product managers have put you on. That trajectory can only be changed in your engineering department.