Productivity is a fundamental pillar of economic growth and at a country level it is widely acknowledged as a useful measure. However, it seems a number of organisations focus on this as a primary measure and could be missing significant opportunities to improve their profitability by giving equivalent attention to other important measures. This wasn’t explored in the recent excellent article from McKinsey on digital supply chain transformation that I shared, so I thought I’d start to cover it with this blog.
Have you ever wondered what’s inside those ever increasing large warehousing and logistics facilities that you see as you drive up and down the motorways ? I have and some of them undoubtedly house sophisticated cross docking operations serving our ever increasing demand for internet retail. Others though contain inventory – lots and lots of it. These are products that have been made ahead of customer demand. So rather than ‘just in time manufacturing’ we appear to have ‘far too much’. In a recent report the UK Warehousing Association (UKWA) have highlighted a critical shortage in capacity and are strongly advocating we build more facilities, this will enable us to store even more of the stuff that customers don’t yet want.
A few years ago I was involved in a piece of work in the automotive sector whereby car dealers nationally were seeking to free up space to accommodate a growing vehicle range. They could either heavily invest in new buildings or figure out how better to use the space they had. An analysis of the inventory in the parts departments revealed that nationally around 30% of the products would never sell. Removing these products freed up significant space. I have seen this picture repeated across multiple sectors.
The cost of storing inventory will find its way across the supply chain, impacting all organisations. It may be felt by manufacturers as cost down pressures from their customers as they struggle to be competitive in whichever markets they serve. Those organisations that are embracing true end to end (raw material supply to end consumer) value stream thinking will ultimately take more market share as they drive both effectiveness and efficiency. There are many organisations in the UK that are part of a supply chain with suboptimal performance where there is no dominant partner to establish a value stream vision and develop a program portfolio to drive change. Instead each one is focussed on their functional silo, delivering productivity improvements against performance measures that may actually be detrimental to overall supply chain performance.
There are many reasons for excess inventory in a supply chain – an obvious one is poor forecasting capability, another is variability in demand. How much though is down to a lack of visibility and collaboration across the supply chain ? I believe it to be significant. A performance measure of On Time in Full from a consumer perspective has the capability of binding all of the organisations in a supply chain to a common purpose enabling greater collaboration and ultimately reduced cost through better planning and aligned operations.
If this resonates with you or if you have an alternative point of view I’d be delighted to hear from you.
Have you ever wondered what’s inside those ever increasing large warehousing and logistics facilities that you see as you drive up and down the motorways ? I have and some of them undoubtedly house sophisticated cross docking operations serving our ever increasing demand for internet retail. Others though contain inventory – lots and lots of it. These are products that have been made ahead of customer demand. So rather than ‘just in time manufacturing’ we appear to have ‘far too much’. In a recent report the UK Warehousing Association (UKWA) have highlighted a critical shortage in capacity and are strongly advocating we build more facilities, this will enable us to store even more of the stuff that customers don’t yet want.
A few years ago I was involved in a piece of work in the automotive sector whereby car dealers nationally were seeking to free up space to accommodate a growing vehicle range. They could either heavily invest in new buildings or figure out how better to use the space they had. An analysis of the inventory in the parts departments revealed that nationally around 30% of the products would never sell. Removing these products freed up significant space. I have seen this picture repeated across multiple sectors.
The cost of storing inventory will find its way across the supply chain, impacting all organisations. It may be felt by manufacturers as cost down pressures from their customers as they struggle to be competitive in whichever markets they serve. Those organisations that are embracing true end to end (raw material supply to end consumer) value stream thinking will ultimately take more market share as they drive both effectiveness and efficiency. There are many organisations in the UK that are part of a supply chain with suboptimal performance where there is no dominant partner to establish a value stream vision and develop a program portfolio to drive change. Instead each one is focussed on their functional silo, delivering productivity improvements against performance measures that may actually be detrimental to overall supply chain performance.
There are many reasons for excess inventory in a supply chain – an obvious one is poor forecasting capability, another is variability in demand. How much though is down to a lack of visibility and collaboration across the supply chain ? I believe it to be significant. A performance measure of On Time in Full from a consumer perspective has the capability of binding all of the organisations in a supply chain to a common purpose enabling greater collaboration and ultimately reduced cost through better planning and aligned operations.
If this resonates with you or if you have an alternative point of view I’d be delighted to hear from you.
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