Filling The Gap

Filling the Gap
Rethinking supply management in the age of global sourcing and lean
By Paul D. Ericksen, Rajan Suri, Bash’shar El-Jawhari, and Aaron J. Armstrong • Has your company jumped onto the global sourcing bandwagon? Have you launched a drive to “lean up” raw material, work in process (WIP), and finished goods (FG) inventories? If so, you’ve probably noticed something you didn’tanticipate. Specifically, order fulfillment—that process that used to run so smoothly—is getting difficult to manage. And in today’s environment this can be a big problem. If you are unable to deliver products to the market in a flexible and timely fashion, your competition will get the sale instead. At-a-Glance For many manufacturers, order fulfillment—being able to deliver product to market quickly andflexibly—has been dramatically affected by lean initiatives, global sourcing, and asset reduction. A key reason for this impact on order fulfillment is that the Toyota Production System was based on an inward-looking methodology—and supply chain dynamics have changed considerably since its introduction. What’s needed is a way to fill the gap: an extension to current practice that focuses onmanufacturing critical path timebased proactive supply chain management.

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Managed properly, global sourcing and asset reduction are initiatives that can lead to significant financial improvements. But both are double-edged swords since they also pose significant order fulfillment risk. Few companies involved in rolling out these initiatives, however, have acknowledged this by changing theirapproach to supply chain order fulfillment. Why does this blind spot exist? The answer can be found by examining the gold standard of modern manufacturing practice— the Toyota Production System (TPS), now popularized as lean manufacturing. Although original equipment manufacturers (OEMs) have successfully applied TPS principles, many still experience relatively high rates of failure in orderfulfillment. In other words, in spite of being lean, they still find themselves unable to get the right product to a customer when that customer is ready and willing to buy it. This is because OEM supply chain dynamics have changed significantly (see table 1) whereas TPS was developed primarily as an inwardlooking strategy. TPS was based on a highly localized supply chain in which suppliers held excessassets in support of lean OEM customers, as in the keiretsu model. Today, even if suppliers remain willing to prebuild inventory in support of OEM operational needs, the distance involved with global sourcing prevents this strategy from being an effective solution. Most OEMs try to tackle this issue by beefing up their logistical and warehousing functions, but this represents a partial solutionat best (see table 2).

If beefing up logistics and warehousing represent only stopgap measures, what is the answer? First, it must be recognized that the inward focus of the TPS represents a significant gap, and OEMs that want their products to be considered world class need to look outside of their own factory walls in planning to be lean. Second, we must acknowledge that current supplymanagement practice does not provide the extended enterprise perspective necessary for understanding the lean supply chain. What is needed is an extension to current practice—which we will explore here. MCT: a key metric Poll a group of supply management professionals on what is meant by supplier lead time and you will hear dozens of definitions. This should raise a red flag about this term, especiallyin a world where order fulfillment is paramount. On closer examination there is a second concern. Distill the definitions into a single one and you’ll likely come up with a traditional definition along these lines: the amount of time from when an order is transmitted to a supplier until that order is received by the customer. The problem is that nowhere does this definition address how the...