7 Ways to Spring Clean Your Supply Chain
Now is the time to dust off those metrics and spruce up your on time delivery.
March 5, 2015
Ah, spring. Old Man Winter finally loosens his icy grip. Baseball training camps wash unfettered optimism into the hearts of even Cubs’ fans. March Madness electrifies us. And garage doors across the country fling open as their owners realize, “Man, I need to do something about this mess.”
Without realizing it your supply chain might have morphed into your garage. And this spring is the perfect time to dust it off, toss out what’s not been working and make it a supply chain you are proud of.
Here are the 7 ways you can spring clean your supply chain…
1. Cycle Counting. First of all, if you’re not cycle counting – you should be. If you’re spring cleaning your supply chain – take a look at your cycle count program. Some companies don’t have the resources to cycle count every SKU in their inventory, so they cycle count only their “A” inventory. But when was the last time to you made sure the SKU’s you’re counting are still your “A” inventory? If your cycle count program was initiated more than a year ago, take a look at what you're cycle counting.
Make sure those are still the SKU’s that are -important to you – either because of value, volume or customer need.
2. Re-Order Points. When does your MRP system tell you to re-order your inventory? Those re-order points may have been set up using parameters that were input when you rolled out your MRP system. If that’s the case, are those parameters still consistent with how your supply chain functions? Re-order points are driven by customer demand, inventory policy, supply lead times and other variables. Drill into your MRP to see if your re-order points are still optimized considering today’s business environment.
3. On-Time Metrics. You may present metrics to your management that show you are delivering your customers 100% on-time. That’s fantastic. But what are your customers saying about you as a supplier? Be sure to align with your customers regularly to make sure you are meeting their expectations. If your customers aren’t giving you a scorecard to grade your service levels, ask them to start doing it. Or, even better, give yourself a scorecard and send it to them to see if they agree.
4. Safety Stocks. Your safety stock inventory is sitting there to protect you against emergencies. It’s also costing you money. Are you holding the right amount of it? Were your safety stock levels developed when your suppliers were new or having delivery issues or when your customer demand was inconsistent? And now your suppliers are more reliable and your customers’ ordering has stabilized? Perhaps you don’t need to keep as much safety stock as you did a year ago? Or, conversely, maybe the opposite is true and you ought to be holding more.
Now’s a great time to go check.
5. Supplier Lead Times. Supplier lead times are a function of how quickly your suppliers can secure raw materials and components, along with their manufacturing lead times and inventory levels. Now consider the transit time – how long does it take to get product to you? Considering all the variables that go into a supplier lead time, what are the chances a lead time is going to remain consistent year over year? This is an easy one to check. Compare the lead times you have in your MRP to a purchase order history.
Are those lead times the same as your suppliers’ actual purchase order (i.e. supplier delivery) performance? If not, spring clean them!
6. Customer Lead Times. You are your customers’ supplier. The same lead time variables that impact your supplier lead times impact yours. Do the same check for yourself that you would do for your suppliers. And spring clean your customer delivery lead times.
7. Cost of Goods Sold. Are you still paying the same for your components and raw materials that you did a year ago? Are your other manufacturing costs (i.e. router times, internal processing costs) the same as they were a year ago? If they are, shame on you! They really should be improving. And you should be updating your costs of goods sold to track those improvements – so that you’re getting accurate financial measurements of your business’ health and performance.
Yes, even that optimized supply chain you put in place might have fallen into disrepair or obsolescence since you last checked in on it. As Margaret Atwood said, “In spring, at the end of the day, you should smell like dirt.” So dig into your supply chain and optimize it (again)!