When reviewing the Supply Chain design for DEP/GARD, there are various stages which add value, and some which fail to add value. Looking at figure 1. below, you will see the diagram outlining the supply chain value stream enabling DEP to delivery product to GARD. Areas which fail to add value, and have the potential to erode DEP’s ability to remain a valued supplier for GARD include the following: 1. Failure to utilize LEAN manufacturing principles causing DEP to carry excess inventory: Inventory shortages which caused shutdowns leading to DEP to abandon LEAN principals look to be primarily driven by a lack of structured supplier management. Suppliers of key raw materials were selected based solely on price, with DEP neglecting the critical service component of their supplier’s delivery capabilities. This lack of consistent and reliable delivery required DEP to carry excess safety stock, increasing their inventory carrying costs, and reducing the ability to produce on a JIT basis.
2. Manual order receipt and handling process: Orders are placed via fax and phone to the marketing and sales department, at which time orders are manually entered into the order information system. Lost faxes, order entry personnel entering an order incorrectly, or even being distracted by another priority leading to failure to enter the order at all; these are all potential failures by not having a more up to date, automated ordering processes with their customers. 3. Inconsistent timeline to complete pick, pack, and ship process at the distribution warehouse: There is a three day variation in the time it takes for an order to leave the warehouse once it is received from manufacturing.
Without additional details, I cannot comment on the cause for this long time fence, however from a high level overview, I’m using the assumption that the warehouse follows generally a similar process to perform their tasks to enable final shipment, thus a 3 day variation in the time it takes to complete these tasks seem to degrade value. 4. Twice-a-week delivery options for customers within 200 miles of DEP: This appears to show a lack of flexibility on the part of DEP in terms of delivery capabilities to local customers. Assuming a Tuesday and Thursday delivery schedule, and order that is ready to ship late Thursday (possibly missing the fleet truck leaving the warehouse), now will not ship until Tuesday the following week, adding three business days to the total performance cycle to the order. Stages which are value added:
1. Same day movement of produced finished goods to warehouse 2. Utilization of DEP fleet trucks to make deliveries to short distance customers
Upon reviewing the primary suppliers of polymer feedstock for DEP, specifically the suppliers awarded with 60% of the volume, I am able to calculate a maximum performance cycle of 25 days to deliver product to GARD. Assuming inventory is NOT available for some reason requiring an order from polymer suppliers, the longest lead time to receive polymer is 9 days from the 60% suppliers. To receive, process, and produce the material for the customer order, you then add 8 days, as this is the longest production cycle time. Orders are sent to the warehouse, prepared for shipping, and another 6 days may elapse before the order is actually shipped. Using the assumption that GARD is within the 200 mile radius, the longest time that delivery may take place based on twice a week deliveries is 2 days. This gives us a total of 25 days. Vice versa, when looking at the minimum performance cycle for this total supply chain, I calculated a 10 day cycle.
DEP has abandoned LEAN principles and stores 7 days’ worth of inventory on hand at all times. Based on this, my assumption is that inventory is immediately available to begin production of the customer order. DEP has a minimum production time of 6 days from receipt and processing of the order to completed production. Material is immediately moved to the warehouse and prepared for shipment. This process takes a minimum of 3 days to complete and ship the order. Similar to my assumption used in calculation of the maximum performance cycle, I assume GARD is within the 200 mile radius. I’m also using the assumption that DEP can make deliveries on the day an order is processed and ready for shipment, provided the order is prepared in sufficient time, thus giving a 1 day shipping time in a best case scenario.
This calculates to a 10 day minimum performance cycle. Looking at the total supply chain, it is possible to improve the consistency of the performance cycle; however, due to the fact that the production process from order receipt to finished product takes 3-6 days, the minimum performance cycle could not be improved. By simply switching to primary use of the 25% and 15% polymer suppliers, there would be opportunity to receive several of the raw materials in as low as 2 days, however if DEP were to shift back to a JIT process, this would simply add two days to the overall current minimum performance cycle (currently, inventory is already on hand), instead of improving the cycle time. For products E and F, the minimum lead time is 4 days, still negating opportunity for improvement. Automated ordering systems (online, vendor managed inventory, etc) would allow for a more consistent process and reduce opportunities for manual failure on the part of DEP, to theoretically narrow the gap from the current 3-6 days to produce finished product from the time of order placement.
Similarly, shifting to a delivery cycle of daily shipments for customers within 200 miles would also reduce variability in delivery times. If I were Tom Lippet in this scenario, there are several changes I would make, some of which I have touched on previously. Current inventory strategies may not be the most optimal in terms of cost, however Tom’s concern is of service to GARD, as pricing is already in line with market competitors. Based on this and due to the variability in supply time consistency from polymer raw material suppliers, I would not make any changes to inventory strategies. However, due to the variability in the time it takes to produce product from the time of order, as well as the variability in the time it takes to process an order for shipment at the warehouse, I would work with supply chain leadership to request a detailed value stream map of the entire internal supply chain process, to highlight the key areas causing such variability and work to implement improvement strategies to shorten these times on a consistent basis.
In terms of shipping, I again would work with supply chain leadership to analyze the cost-benefit impact of either moving to ta daily delivery route with the DEP truck fleet, or look at the opportunity to supplement utilizing common carriers where DEP trucks are unable to delivery in the shortest time window possible. In order to “sell” Richard Binish on DEP’s capabilities to deliver consistently within the service level criteria now required by GARD, I would highlight critical improvements being implemented by DEP to better align capabilities with Richards service requirements from key suppliers. Obviously, price is a common qualifying criteria component, and I would need to ensure that these improvements made within DEP’s supply design did not raise costs to the point of eroding margin or requiring a price increase to the level of pricing ourselves out of the GARD business.
Product quality is also critical, but we already know that DEP product is in line with competitors in terms of quality, thus making it somewhat of a “commodity” product. Price and service will be the critical components. I will need to visually show demonstrated improvement in delivery service since these improvements were implemented as compared to historical service to GARD. Assuming that these improvements were successful, there theoretically should be a much higher demonstrated performance level within a tighter service window. In closing, Supply Chain management plays a critical role in the overall commercial success of a business. Setting proper service expectations and maintaining levels within that range is critical to maintaining share with key customers. Analyzing gaps in those performance expectations from a customer against actual capabilities, and actively working to close the gaps should be an ongoing process.