Improve your supply chain

A study of global chemical industry best practices provides insights on how.

By Christopher F. Lange

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For many companies, production data or triggers are available during the production run and there’re near-real-time links to the order-promising function. Here again, the 2007 findings show improvement from 2005, when it was more common for companies to have to wait until the end of a shift or even the next day to see what was going on in manufacturing.

Inventory target setting and deployment. When it comes to managing inventory, 50% of respondents said that their supply chains are predominately demand-driven, while 46% said their supply chains are a balance of production- and demand-driven. Only 4% of the participants’ supply chains are predominately driven by production constraints.

It’s encouraging to see that 57% of respondents used statistical techniques to determine inventory levels while another 36% target a predetermined number of days. Meanwhile, 36% of participants have a process for regularly monitoring and correcting inventory levels. Forty-six percent indicated that, although they regularly monitor inventory levels, resolving imbalances is a challenge because of demand or supply variability. Eighteen percent said that they only conduct periodic initiatives to correct inventory levels.

The critical commercial connection


A number of issues around the impact of front-end commercial decision-making on the supply chain were uncovered by the 2005 Accenture supply chain study. As a result, this year’s study included a separate section that explored the commercial end of the supply chain and practices such as customer segmentation, SKU (Stock Keeping Unit) management and pricing.

The activities of the commercial functions — such as sales and marketing — may seem somewhat beside the point for those involved in manufacturing but, in fact, they are highly relevant. The decisions made in sales and marketing affect the entire supply chain — and they are, unfortunately, often made without input from manufacturing. Indeed, in the 2005 study, it was clear that at many chemical companies commercial decisions are made by the sales and marketing functions and largely “inflicted” on manufacturing and supply chain operations.

The 2007 study looked at a number of commercial-function activities that have an impact on manufacturing operations, including:

Policies. The research showed that policies that directly affect chemical companies’ manufacturing operations often aren’t clearly documented or enforced (see Table 1). This makes it difficult to optimize manufacturing.

 

Out of Order

Issue

Policy not documented,  % of respondents

Policy not enforced, % of respondents

Order lead time

30   

37

Order minimum

30

44

Order changes

52

67

 

Customer segmentation. Many respondents reported that their companies don’t have a solid grasp of the profitability of sales to individual customers. That lack of understanding typically leads to problems such as providing too high a level of service to too many customers, which in turn translates into schedule variations, excessive changeovers and special services being provided without an appropriate premium being charged.

SKU management. Only about half the respondents said that their companies balance the production efficiency objectives of manufacturing with commercial needs to determine the SKU portfolio. Fifteen percent said that commercial needs drive the portfolio, while 30% noted that efficiency goals do so. Participants who said that they used a balanced approach to SKU management reported that, on average, 96% of their portfolio was profitable, compared to the 91% average profitability among respondents who didn’t balance manufacturing efficiency with commercial needs.

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