T801 MSc in Manufacturing: Management and Technology.
-
Upload
thesupplychainniche -
Category
Documents
-
view
1.602 -
download
1
description
Transcript of T801 MSc in Manufacturing: Management and Technology.
Don Carmichael P5893614
T801 MSc in MANUFACTURING: MANAGEMENT AND TECHNOLOGY
Name: Don Carmichael
Personal Identifier: P5893614
Title of Dissertation: Supply chain planning systems in
manufacturing.
Date: September 1998
Don Carmichael P5893614
Project Title : Supply chain planning systems in manufacturing.
A dissertation submitted in partial fulfillment of the requirement for the MSc in
Manufacturing : Management and Technology.
The complementary fulfillment of the requirements for the MSc being the following
Diploma Courses :
Course Title Reg. Result Points
Year
PT613 Manufacturing Management 1994 Pass 30
PMT605 Project Management 1994 Merit 15
T833 Implementation of New Technologies 1995 Merit 30
PT611 Structure & Design of Manufacturing 1995 Merit 30
Systems
M866 Relational Database Design 1996 Pass 15
Don Carmichael Page i P5893614 List of Contents
List of tables iii
List of figures v
Glossary of abbreviations vi
Preface vii
CHAPTER 1 Summary 1
CHAPTER 2 Introduction to the project 3
2.1 The aims and objectives of the project 3
CHAPTER 3 Background and literature review 5
3.1 Introduction to Supply Chain Planning (SCP) 5
3.2 The manufacturing interface 15
3.3 Finite Capacity Scheduling (FCS) 17
3.4 The ‘leaner’ issues 25
CHAPTER 4 SCP packages 33
4.1 Introduction 33
4.2 Survey of SCP packages 34
4.3 Commonalities 35
4.4 Analysis 39
4.5 Future directions 39
4.7 Conclusions 40
CHAPTER 5 Survey 41
Don Carmichael Page ii P5893614
5.1 Introduction to the survey 41
5.2 The survey and the methodology 41
5.3 Results of the survey 47
5.3.1 Analysis of the results 56
5.4 Conclusions 59
CHAPTER 6 Discussion and conclusions 60
6.1 Discussion 60
6.2 What does industry want ? 69
6.3 How are SCP packages helping ? 70
6.4 Future directions 72
6.5 Main Conclusions 72
CHAPTER 7 Future work 74
7.1 The broad SCP arena 74
References 75
Appendices 79
Appendix A - The Questionnaire 79
Appendix B - Questionnaire Response Analysis 82
Appendix C - Supply Chain Planning package features 103
Bibliography 112
Fundamental Readings in Supply Chain Management 112
Production Aspects of Supply-Chains 114
Organisational Contexts 118
Don Carmichael Page iii P5893614
List of tables
The following are a list of the tables found in the main body text of this dissertation.
Table Page
Table 3.3 Areas of conflict in the supply chain [3] 21
Table 5.3.0.1 Tabular summary of questionnaire results with
respondent number versus question number with answers. (1
of 5)
51
Table 5.3.0.2 Tabular summary of questionnaire results with
respondent number versus question number with answers. (2
of 5)
52
Table 5.3.0.3 Tabular summary of questionnaire results with
respondent number versus question number with answers. (3
of 5)
53
Table 5.3.0.4 Tabular summary of questionnaire results with
respondent number versus question number with answers. (4
of 5)
54
Table 5.3.0.5 Tabular summary of questionnaire results with
respondent number versus question number with answers. (5
of 5)
55
Table 5.3.1.1 Results of MCS/CA survey as reported in
Manufacturing Computer Solutions January 1997 showing
selected issues and the number of companies seeing this as
a priority as a percentage.
56
Don Carmichael Page iv P5893614
Table 5.3.1.2 The results of table 5.3.1.1 with the
corresponding project survey question number and
percentage of respondents claiming each issue as a problem
or serious business problem.
57
Don Carmichael Page v P5893614
List of figures
The following is a list of figures found in the main body of this dissertation.
Figure Page
Figure 3.1.1 The scope of supply chain management. Supply
chain management covers the flow of goods from supplier
through manufacturing and distribution chains to the end
user. (From[13]).
7
Figure 3.1.2 A more manufacturing related order driven
supply chain. (From [3]).
14
Figure 3.1.3 The author’s own model of a single business
internal supply chain
15
Figure 3.4.1 The overall aim of manufacturing business
improvement
25
Figure 3.4.2 Suppliers organised into functional tiers 29
Figure 6.1 Number of weeks stock by country from the
European Logistics Comparative Survey 1998. [22]
66
Don Carmichael Page vi P5893614 Glossary of abbreviations
SCM Supply Chain Management
SCP Supply Chain Planning
MRP Materials Requirements Planning
MRP II Manufacturing Resource Planning (an extension of MRP)
ERP Enterprise Resource Planning (an extension of MRP II)
CBP Constraint Based Planning
JIT Just-In-Time; a method of production, developed by Toyota,
whereby only the parts needed are produced and only delivered
to the next operation when required. This cuts out wastes in
inventory, storage and over-production.
BPR Business Process Reengineering
CPG Consumer Packaged Goods; an industry sector
FCS Finite Capacity Scheduling is a process whereby a production
plan consisting of a sequence of operations to fulfill orders is
generated based on the real capacity of resources. These can
be machines, operators, tooling or anything which is a constraint
on the production process.
ECR Efficient Consumer Response
There are several companies mentioned and referenced throughout this dissertation.
These companies are the market leading developers of two types of software system
being :
Don Carmichael Page vii P5893614
• Supply Chain Planning vendors; the two leaders being ‘i2’ Technologies with the
Rhythm product and Manugistics. Other vendors, such as Numetrix and SynQuest
are recognised as contenders for third place [16].
• ERP vendors; the four market leaders are conveniently covered by the acronym
‘BOPS’ meaning BAAN (with the BAAN IV product), Oracle (with the Oracle
Financials, Oracle Manufacturing, GEMMS and CPG package offerings),
Peoplesoft (including it’s ‘Red Pepper’ supply chain optimisation system) and SAP
(with the R/3 product). Other players and leaders in the American mid-market
sector according to the authoritative industry analysts Gartner Group, are SSA
(with the BPCS product) and QAD (with the MFG/PRO package).
Preface
Thanks are extended to the authors supervisor Dr. John Wright for his help and
enthusiasm throughout the project.
Don Carmichael Page 1 P5893614
CHAPTER 1 Summary
‘The best company cannot be competitive if it is part of a supply chain which is
inefficient and ineffective’. [1]
Dr. Canadine, of the Institute of Logistics, believes that leading edge companies are
beginning to understand that competition and competitive advantage is not being
played out between individual companies but by competing supply chains.
In support of this a new breed of software vendors have developed supply chain
planning (SCP) software packages which utilise concurrent optimisation algorithms
to produce the optimum supply chain configuration and schedule. The optimum
configuration and schedule may be based on lowest cost, material or capacity
constraints, customer due date adherence or a user defined combination of optima.
This dissertation describes the basic functionality to be found in supply chain
planning systems and the often confusing coexistence of supply chain management
systems.
A survey by questionnaire across a random sample of manufacturing companies
was undertaken and the dissertation analyses the data to come to a number of
conclusions. Certainly, in the U.K, most manufacturers are still concerned with
internal issues such as cost savings within manufacturing. There is little
comprehension of the effects of each manufacturer’s (or supplier’s) place within the
Don Carmichael Page 2 P5893614 supply chain apart from specific industries such as the Automotive industry where
lean manufacturing methods have led to strong partnerships between automotive
companies and their tiers of suppliers.
The dissertation continues by exploring the reasons why the mainly American supply
chain planning vendors have experienced such explosive growth in the USA. This
growth is mainly to do with the immense potential for cost savings in the long lead
times found in US supply chains, 105 days average replenishment times as
compared to 38 days in the UK. This potential is further enhanced when
consideration is given to the vast US geography and thus the large transportation
costs. The US tends to be supply constrained, controlled by the manufacturer /
supplier, rather than demand constrained, controlled by the retailer / customer, as is
the situation in the UK. This means that manufacturers / suppliers in the US have the
opportunity to optimise their own supply chains to their customers.
The dissertation concludes by agreeing in part with some of the SCP vendors, such
as Manugistics, who believe that their biggest task in the short term is education.
The results of the author’s survey and other sources suggest that in the U.K, and
perhaps in most of the EC, SCP vendors may find that there are neither the supply
chain inefficiencies to justify the high SCP package costs nor the level of interest in
SCP systems in America.
Don Carmichael Page 3 P5893614 CHAPTER 2 Introduction to the project
2.1 The aims and objectives of the project
It is now widely recognised that companies are no longer competing against other
companies. Whole supply chains are now competing against each other.
The pressures of modern business, the global community, customers expectations of
personalisation and rapid delivery and the continuing need to reduce costs are all
changing the way companies view themselves. The challenge now is to optimise and
employ ‘lean’ principles across all a company’s relationship boundaries.
The project concentrated itself on the rise of the supply chain planning software
package, it’s roots in Finite Capacity Scheduling software products and the ‘softer’
issues of the ‘lean’ enterprise.
The aims of the project were to :
1. gather together the current academic and recognised industry analyst knowledge
to produce a picture of where supply chains are changing, and why. The focus of
this was the effects on manufacturing with special emphasis on the ‘lean’
manufacturing / enterprise revolution.
2. match this against the experiences of real manufacturers coping with the
demands placed on them by the great shift in supply chain complexity. The aim
here was to find any conflicts in perceptions and views and compare these against
Don Carmichael Page 4 P5893614
the book research results. This was achieved through the use of a survey by
questionnaire and ultimately through comparison with the results of other similar
surveys.
3. generally describe Supply Chain Planning (SCP) package functionality and then to
discuss how such a package addresses the supply chain pressures manufacturing
and distribution companies are facing.
4. detail further work required in this subject area and to surmise on the functionality
requirements future SCP packages should include.
Don Carmichael Page 5 P5893614
CHAPTER 3 Background and literature review
3.1 Introduction to Supply Chain Planning (SCP)
Supply chains are the supplier / manufacturer / distributor channels, networks and
relationships [3] in manufacturing or services supply. A good short-hand describing
some food supply chains would be the ‘plough to plate’ analogy, recently used in
British food hygiene political discussions.
The complexity and length of supply chains is increasing, as for example in the
automotive industry. The Society of Motor Manufacturers and Traders (SMMT)
‘Passenger Car Logistics Survey’ [4] results show that by the year 2000 the average
number of components or sub-assemblies car manufacturers believe a car will be
assembled from is nine. This will have a massive impact along the automotive supply
chain from Tier 1 (direct to car manufacturer) suppliers to Tier 3 (electrical sub
components for dashboard assemblies, for example) and beyond. Design,
manufacturing and assembly responsibility will be passed down automotive supply
chains through closer and closer partnerships with suppliers. This, along with other
‘lean thinking’ ideas, was predicted in Womack et al’s ‘The Machine That Changed
The World’ [5]; the lean production book.
Manufacturing and supply planners are now having to consider a complex supply
chain network as opposed to a single supplier / customer relationship [6]. The flow of
Don Carmichael Page 6 P5893614 information up and down supply chains is becoming more important than anything
else.
‘The economy is changing structure. From being organised around the flow of things
and the flow of money, it is becoming organised around the flow of information [7].’
This statement by Peter Drucker is emphasised in the report on ‘ICL’s Logistics
Strategy’ in the ‘International Journal of Logistics Management’ [3].
ICL believe the most important feature of their supply chain is the flow of information.
Excess inventory (stock) is seen as an undesirable result of imbalanced processes
and the cost of that inventory is seen as being greater than the cost of managing the
flow of information effectively. ICL’s predominant emphasis within their logistics
strategy is to develop Information Technology (IT) applications that enhance logistics
performance. Information must be substituted for inventory as the main trade-off for
achieving customer service all along the supply chain.
Figure 3.1.1 below is a good demonstration of a possible simplistic internal supply
chain showing all of the potential inventory stocking points within one company and
thus all of the points where excess inventory can be held. If this is multiplied by the
network of different companies making up supply chains, one can see how big a
potential problem excess inventory can be.
Don Carmichael Page 7 P5893614
S u p p lie r s
O rd e r s
P r o c u r e m e n t M a n u fa c tu r in g F a c to r y D is tr ib u t io n C u s to m e r E n d u s e r s
R a w m a te r ia l
In -p ro c e s s
D is tr ib u t io n S e ll in g p o in t
Figure 3.1.1 The scope of supply chain management. Supply chain management
covers the flow of goods from supplier through manufacturing and distribution chains
to the end user. (From[13]).
On top of all the above, business transactions are becoming faster and faster [8].
Customer requirements have become more sophisticated. Product life cycles have
reduced dramatically in most industries and competition has become global.
In the past, focus on output value (local optima, as Goldratt puts it [9]), led to
performance measures such as those based on standard hours, direct labour
efficiency, factory output value and overhead recovery on direct labour. It was
identified that the focuses on inventory and customer service were missing.
This is highlighted when it is noted both that :
Don Carmichael Page 8 P5893614 1. ICL identify 80% of their costs as being material (other sources seem to average
material costs across all manufacturing to about 58%) and that
2. customer service features highly in modern supply chain techniques such as
Efficient Consumer Response (ECR) [10].
The major task for ICL is the management of material within an efficient international
logistics chain.
If companies such as ICL have identified the need for both an efficient logistics chain
and IT applications to enhance the logistics performance, it is perhaps a surprise to
learn that only 20% of U.S logistics professionals believe that IT systems are well
integrated with the logistics processes in their company [11].
This is not to say that U.S logistics professionals are against IT; most respondents of
the KPMG survey [11] said that they thought IT was an ‘important tool’ and would
‘significantly improve logistics’. It can be seen that even in the U.S, who tend to be
ahead of the UK in the take-up of IT systems, there is still a requirement and a
market gap for IT systems to fully support supply chain logistics.
At this point it is worth resolving the difficulties and confusion that may arise from
using ‘supply chain’ terms and ‘logistics’ terms.
During the literature review for this dissertation several sources defined the link
between supply chain terminology and logistics thinking. ‘Supply chain’ terminology
Don Carmichael Page 9 P5893614 is a fairly recent invention as opposed to ‘Logistics’ terms and terminology, which is
much older coming from the Napoleonic campaigns.
Greenwood in the Institute of Logistics journal [12] believes that
‘if we analyse what the experts are calling supply chain management we find that
they are really talking logistics but driven by the requirement of the decade’.
Greenwood believes that supply chain management would be called ‘Demand Chain
Management’ if the process were more fully understood. Further, Bowersox believes
that the issues of logistics and supply chain management are practically
synonymous [2]. The American magazines Distribution (January, 1996) and
Purchasing both define Supply Chain Management (SCM) as interchanges or
combinations of logistics processes.
Many Manufacturing Resource Planning (MRP II) systems (especially those that
have migrated into Enterprise Resource Management (ERP) systems to handle
multiple currencies, multiple companies and multiple sites) are now calling their
products Supply Chain Management (SCM) systems. As an example, the MRPII
product the author used to work with, MFG/PRO by QAD, now calls itself a Global
Supply Chain Management system.
It is important to distinguish between two clearly definable IT systems solutions that
address supply chain issues :
Don Carmichael Page 10 P5893614 1. the MRP II/ERP products, ‘relabeled’ as SCM products. For example, BAAN IV
(Series), Oracle Manufacturing, SAP R/3 and SSA’s BPCS, are ‘transaction’
systems; handling, for example, purchasing, sales and forecasting, shop floor
production, quality and inventory transactions.
2. true Supply Chain Planning (SCP) products, aimed at planning the supply chain
as a whole. The system vendors here, such as Numetrix [13], Red Pepper,
Manugistics and SynQuest believe that their products are the true supply chain
management products.
The key to the real definition, for these SCP vendors, revolves around the system’s
ability to understand, integrate and optimise the complete supply chain from
supplier’s supplier to customer’s customer; to create the optimal sourcing, production
and distribution plan. The aim of these SCP products is to react to the speed of
change of business across the supply chain and create, for example,
• the best splits across suppliers considering supplier capacity and availability.
• the least ‘total acquisition’ cost distribution solution.
• the best customer service level that can be achieved with the current demand plan
and workforce resourcing rules.
Keith Burgess, a consultant with KPMG’s Supply Chain Management Systems
Group, [14] defines the goals of advanced supply chain planning systems as being:
Don Carmichael Page 11 P5893614
• rapid optimisation of the total supply chain,
• making available ‘what-if’ functionality – to test the effect of possible events on
the total supply chain,
• the ability to cope quickly with unforeseen problems,
• flexible scheduling – allowing for more than the first-in-first-out (FIFO) approach
adopted by most MRP systems, and
• the ability to provide accurate and flexible information about the supply chain.
These products logically sit above MRP II/ERP systems but require these transaction
based systems to enact, record and feedback the optimised demand, supply and
production plan.
Most MRP II / ERP packages still rely on the Materials Requirement Planning (MRP)
algorithms, invented in the 1960’s and defined by Orlicky [15], as the only constraint
planning mechanism. However, the recognition of the importance of SCP products
by the MRP II/ERP product vendors has arrived by a number of announcements
reported over the last few months via the AMR Alert on Supply Chain Management
Email series [23] being that :
Don Carmichael Page 12 P5893614 • Peoplesoft bought the SCP vendor Red Pepper to use a basis for a full ERP
offering.
• BAAN announced a constraint based planning (CBP) module, based on a product
BAAN bought called MOOPI.
• SAP announced a new module developed in-house within SAP called the
Advanced Planner and Optimiser (APO) within SAP’s Supply Chain Optimisation,
Planning and Execution (SCOPE) Initiative.
• Both BAAN and SAP announced strategic alliances with the three top SCP
product vendors ‘i2’ Technologies, Manugistics and Numetrix [16].
Confusion still exists over the definition of supply chain management. Even
Advanced Manufacturing Research (AMR), the leading industry analysts along with
Gartner Group, still call SCP products SCM systems [16].
For the rest of this dissertation the author will try to avoid any confusion by using the
term ‘Supply Chain Planning (SCP)’ system to differentiate these supply chain
optimisation products.
White in Control [17] defines Supply Chain Planning (SCP) as
‘a constraint- based ‘decision support’ or planning tool that includes the following:
Item Forecasting; Promotion and Event Planning; Item Inventory Planning;
Don Carmichael Page 13 P5893614 Replenishment Planning, incorporating Distribution Requirements Planning (DRP)
and various Continuous Replenishment Strategies; Manufacturing Planning and
Scheduling’.
White sees Supply Chain Planning as the keystone to Supply Chain Management.
The dissertation will investigate the effects that recently available Supply Chain
Planning (SCP) software packages will have on manufacturing issues. This will be
achieved by :
• book research,
• a survey by questionnaire,
• and an investigation into the general functionality of a range of these packages
As the dissertation confines itself to the effects of SCP on manufacturing, the scope
of what is meant by manufacturing should be defined. Bowersox [2] defines
manufacturing support within logistical integration as being
‘… managing work-in-process inventory as it flows between stages of
manufacturing’.
Figure 3.1.2 shows a more order related view of a supply chain and where in-
process inventory sits within this environment.
Don Carmichael Page 14 P5893614
The overall concern is not how production occurs but the what, when and where
products are manufactured. Bowersox believes that whereas physical distribution
must accommodate the uncertainty of consumer and industrial demand,
manufacturing is under the control of the manufacturing enterprise.
From Supplier Throughmanufacturing
And distributionchain
To the end user
Supply chain
Pro-curement
order
Rawmaterialinventory
Shoporders
In-processinventory
MPS orders
Finishedfactory
inventory
Factoryorders
Distributioninventory
Distri-butionorders
Sellingfrom
inventory
Cust-omerorders
Supplier Customer
Figure 3.1.2 A more manufacturing related order driven supply chain. (From [3]).
Figure 3.1.3, below, is a simplistic version of the supply chain diagrams used by the
author to explain how information and inventory flow through a business.
The company is the box split into information flow from right to left and material flow
from left to right. To the right hand side of the box is the direct customer and to the
left the supplier. The planning function is basically a balancing function to take the
demand, in whatever form it is presented (sales orders, forecasts, planned inventory
levels etc.), and convert the demand into
Don Carmichael Page 15 P5893614 1. What to make (produce, convert, pack, assemble etc.) and
2. What to buy
The box is used to demonstrate that a company is one unit and not a series of
departments. Information generally flows from the front of the business to the back
and materials the opposite direction.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Planning
What-to-buy
What-to-make
INFORMATION FLOW
MATERIAL FLOW
ValueAdded
Purchasing
Supply Dispatch and Distribution
Demand
Figure 3.1.3 The author’s own model of a single business internal supply chain.
3.2 The manufacturing interface
Dr. Canadine, the Director-General of the Institute of Logistics [1], calls
manufacturing a ‘micro-logistics’ process, an individual section of a much larger
supply chain. Micro-logistical thinking, says Canadine, has led to the development of
Kanban, Just-in-Time, MRP and MRP II. Thinking of a manufacturing ‘interface’ is
Don Carmichael Page 16 P5893614 actually unhelpful as organisational boundaries are the enemy of the cross functional
thinking that is required to optimise and understand supply chains.
In Hill’s book ‘Manufacturing Strategy’ [28] there is much to convince the reader that
business, marketing, manufacturing and thus all supply chain strategic issues all
have to be considered at once. The traditional view is of business plans being split
into sales / marketing plans and then handed to manufacturing to consider how the
production targets can be met.
There is a ‘macro-logistics’ strategic level where the design and control of the supply
chain takes place and where issues such as :
• the location of markets,
• where to place manufacturing capacity,
• which components to outsource and which to manufacture,
• and how to resource service and maintenance
are considered.
So, in conclusion, manufacturing has to be considered as part of the whole supply
chain and not spilt off as a separate entity as it is in ‘traditional’ logistics thinking
within some companies.
Don Carmichael Page 17 P5893614
3.3 Finite Capacity Scheduling (FCS)
Production planners invariably claim to have picked the optimum production plan
considering customer due date adherence, optimal throughput, mix and optimal cash
usage. In manual production planning environments which require anything more
than simplistic optimisation rules using ‘rules of thumb’ and experience, humans
cannot, or rarely, actually achieve optimisation.
A series of highly graphical software products have been developed to enable
complex optimisation to be achieved. These are called finite capacity scheduling
(FCS) products (or finite schedulers) with product names such as Preactor, CIM
Leitstand, FI-2, and ‘i2’-Rhythm, SAP-APO for the supply chain variants .
As of the middle of 1996 it was reported in an Aston Business School manufacturing
technology survey [18] that about 19% of respondents used FCS products.
One vendor of FCS products defines FCS as :
‘a process whereby a production plan consisting of a sequence of operations to fulfill
orders is generated based on the real capacity of resources. These can be
machines, operators, tooling or anything which is a constraint on the production
process.’
The reason FCS came into being was that most manufacturing planning systems
assume sufficient resources are available when required, i.e. resources have infinite
Don Carmichael Page 18 P5893614 capacity. An MRP system typically takes the orders for products, breaks them down
into component parts and calculates when to start making them based on the
individual lead times. No account is taken of the current available capacity of
resources.
At the same time that the production order start times are calculated, the materials
needed are ordered to arrive in time for the work to start. If there is a delay in
production upstream of a particular operation then the materials will be ordered too
early. With no concept of bottlenecks available to the planning system, resources
become overloaded, queues of work get longer and work in progress increases.
Because jobs must join the queues at each process step, orders take longer to make
progress, expected lead times are too optimistic and deliveries are late.
FCS software tools are commonly integrated or interfaced into the MRP II business
systems. An FCS tool requires information on resource and work centre capacity,
shift calendars, the current usage of that capacity and the Master Production
Schedule (MPS), or list of production orders. The FCS generally either
• returns an optimised version of the MPS back to the MRP II system for execution
or
• takes control of the MPS where the execution system is linked directly to the
FCS.
Don Carmichael Page 19 P5893614 Here, the execution system is the shopfloor control and feedback mechanism
initiating and recording production actuals.
Simpler FCS systems consider all constraints or bottlenecks in production as ‘hard’
constraints. This means that if the right machine, operator and tooling have to be
available at the same time to produce a particular production order then the FCS
system has to determine a time when all three resources are free. It is worth pointing
out that the more constraints defined for a FCS, the more complex the calculations
become. Each constraint can be thought of as a dimension of calculation.
More complex FCS systems and certainly those built into the Supply Chain Planning
systems considered in this project have the concept of ‘soft’ constraints built in.
In the author’s experience, if manufacturing planners are asked how they resolve a
scheduling conflict if a rush order arrives and tools, for example, are not available,
they tend to suggest buying in additional tooling. Thus tooling, in this case, can no
longer be described as a constraint, merely a cashflow ‘penalty’ for having to
purchase the tools.
The machine or plant required to run the rush order was a ‘hard’ constraint but the
tools were a ‘soft’ constraint. It can be seen then that the optimal plan across a
series of resources may be a compromise that produces the least penalty.
Don Carmichael Page 20 P5893614 The penalty may be simply in cash terms say or if we now consider the FCS
functionality (or ‘simultaneous constraint optimisation’ as the SCP vendor Red
Pepper calls it) in SCP systems, the constraints and thus penalties could include :
• Promise dates,
• Request dates,
• Inventory shortages,
• Aggregate capacity,
• Safety stocks,
• Excess stocks and
• Raw material shortages.
On top of these ‘hard’ and ‘soft’ constraints there are other scheduling complexities
that the better products have to consider such as sequencing environments, colour
sequencing for example.
This is where the optimal plan for producing a product made in different colours is
usually to produce the lighter coloured products first and then the progressively
darker colours thus minimising the cleaning time between colours.
Other constraints can include
• Shelf life,
• Ramp up curves and
• Scheduled maintenance.
Don Carmichael Page 21 P5893614
Impact of objectives on …
Functional objectives
Inventory
Customer
service
Total costs
High customer service
Low transportation costs
Low warehousing costs
Reduce inventories
Fast deliveries
Reduce labour costs
Desired results
Table 3.3 Areas of conflict in the supply chain [3]
In the above table 3.3, the arrows point upwards for increases in inventory, customer
service and total costs and downwards for resulting decreases in the set objectives.
The darker arrow signifies the main desired impact of a functional objective, for
example, the desired impact of a functional objective to reduce labour costs will
reduce total costs but will also have the effect of increasing inventory and decreasing
customer service.
The table is trying to demonstrate the essential conflict of management objectives
and measures across organisational boundaries across the supply chain.
Don Carmichael Page 22 P5893614
Some SCP packages attack some of these conflicting objectives by presenting users
with a mechanism to tell the SCP package the weighting the business places on
particular management objectives. Thus, if the business objectives of customer
service should be considered more important than excess stock then the SCP’s
optimisation engine will determine that there is a higher ‘soft’ penalty for customer
service and will therefore produce a stocking plan that may require more stock than
absolutely necessary because there is a lower ‘soft’ penalty for excess stocks.
Within the SCP product ‘Red Pepper’, there is a screen called the ‘ResponseAgent’
Control Panel where the user moves a pointer up and down a meter representing 0
to the left and 100 to the right to signify the weighting to be applied to :
1. Request Dates,
2. Promises Dates,
3. Inventory Shortages,
4. Aggregate Capacity,
5. Safety Stocks,
6. Excess Stocks and
7. Raw Material Shortages.
The ‘ResponseAgent’ tool uses all the meter readings to determine the relative
penalties to be applied to each objective (or constraint as ‘Red Pepper’ call it) and
then optimises all the constraints concurrently.
Don Carmichael Page 23 P5893614 Appendix C covers the detailed scheduling features of one SCP vendor’s package.
The reason only one package is covered at the detail given is that the vendor,
Numetrix, was the only company willing to detail the constraints covered.
As a comparison, another SCP vendor, Logility, limits it’s description of the
constraints covered to
‘equipment capabilities, intermediate storage limitations, shop calendars and
production constraints such as synchronisation of multi-step operations, product
sequencing, changeovers and inventory policies.’
This comes back to a reoccurring theme with all SCP vendors in that they all
complain that there is a broad lack of understanding of the SCP issues, benefits and
product capabilities and yet hardly any of them will release information at a detailed
enough level to examine the exact capabilities of each product.
In the SCP vendors defence, they are competing in a extremely fast-moving and
growing marketplace where functionality evolves almost weekly. Most SCP vendors
seem to sell by :
• fighting for the opportunity to develop a proof of concept pilot at the sales
prospect’s plant,
• using reference sites (current SCP customers) with proven demonstrable benefits
realised through the SCP products.
Don Carmichael Page 24 P5893614 It may be that giving away too much information at the start of the sales cycle allows
prospects the opportunity to perform direct functionality comparisons which the SCP
vendors are unwilling to take part in.
Don Carmichael Page 25 P5893614
3.4 The ‘leaner’ issues
Through-put
Produc-tivity
Quality Morale
Inventory WIP Operating Costs
IMPR
OVE
RED
UC
E
Figure 3.4.1 The overall aim of manufacturing business improvement
The main objectives of a manufacturing business improvement exercise are shown
in Figure 3.4.1.
However, Figure 3.4.1 shows the utopian view of the business objectives. As we
have seen, there are internal and external conflicts which may mean that a reduction
in inventory, say, increases overall operating costs. One reason for this may be
because the resulting reduction in customer service levels mean that more cost is
required to replace the lost customers.
So far this project has dealt with the ‘hard’ or more technical issues surrounding
SCP. For supply chain planning to be effective, the ‘soft’ issues, i.e. relationships
Don Carmichael Page 26 P5893614 with the customer / consumer and the supplier, need to be developed. To achieve
the utopian view in Figure 3.4.1, business improvement needs to address both the
hard and soft issues simultaneously. This section deals with the ‘soft’ issues by
examining the lean production revolution and the focus on relationship and value.
In ‘The Machine That Changed The World’ [5], the lean production book, Womack et
al. stress how important organisation, communication and relationships throughout
the supply chain were to Eiji Toyoda and the production ‘genius’ Taiichi Ohno (the
originators of the Toyota Production System which ultimately developed into lean
production ideas).
In considering an alternative to the mass-production method of car manufacture,
Ohno and others at Toyota saw many problems with the traditional supply chain
relationships :
• component suppliers had little incentive to improve or optimise their parts as the
design information on the rest of the vehicle was seen as proprietary.
• ‘organising suppliers in vertical chains and then playing them against each other
in search of the lowest short-term cost blocked the flow of information between
suppliers.’ Suppliers were unable to share organisational and process /
technological improvements.
Don Carmichael Page 27 P5893614
The car assembler ‘might ensure that suppliers had low profit margins, but not
that they steadily decreased the cost of production through improved organisation
and process improvement’.
• if the car assembler knew little of the component suppliers production techniques
then it would be difficult to improve quality beyond specifying maximum levels of
defects. It would be difficult to raise the quality level if most other suppliers
achieved similar levels. Of course, quality of the components impacted the quality
and perception of the finished good, in this case the car.
• the coordination of day-to-day supplies from the supplier proved to be very
difficult. Because of the inflexibility of suppliers’ tooling and the uneven demand
from the car assembler, the suppliers built up large stocks into warehouses
resulting in high inventory costs and the ‘routine production of thousands of parts
that were later found to be defective’ when assembled into the cars.
Toyota’s answer to the inflexibility of their own and their supplier’s tooling
changeovers developed ultimately into the SMED (Single Minute Exchange of Dies)
techniques which allowed rapid changeovers from production of one type of part on
a press, say, to another. This technique was certainly critical to the whole ‘Just-In-
Time’ or kanban system of which so much has been written.
The kanban technique is a ‘pull’ system whereby a customer buys a product and
only a minimum quantity of the product or components (the aim being a single
instance of a product) is made at each stage to replenish the product pulled from the
Don Carmichael Page 28 P5893614 stage in front. The mechanism to control this was the product container carrying the
parts to the next stage. As this technique was to be used across the whole supply
chain, almost all inventories were eliminated at Toyota’s and Toyota’s suppliers
plants and warehouses and the full fragility of the ‘JIT’ supply chain was exposed.
Because there was no or minimal buffer stock between each supplier and process,
as soon as a single process failed the whole system came to a stop. The idea was
that any quality or process failure should have been anticipated.
Certainly, Womack’s book [5] reports that lean manufacturers using these
techniques rapidly focus on process and component quality and generally achieve
quality figures 3 times better than traditional mass production plants.
Toyota’s answers to the ‘softer’ issues being supplier organisation, communication
and relationship problems, resulted in the development of a new lean-production
approach to component supply.
This new approach meant that suppliers would now be intimately involved in
Toyota’s product development, have interlocking equity with Toyota group members,
rely on Toyota for outside financing of capital investment projects and accept Toyota
people as their own personnel.
The suppliers were organised into functional tiers, whatever the legal or formal
relationship. First tier suppliers became an integral part of the product development
team and were given overall performance and cost specifications for major sub-
assemblies. The supplier was given free reign on the engineering decisions and was
Don Carmichael Page 29 P5893614 expected to interrelate with the other tier 1 suppliers. Tier 1 suppliers were expected
to form tier 2 supplier organisations or associations which would concentrate on the
fabrication of the individual components making up the major sub-assembly.
Automotive Supplier 1
Tier 1 Supplier
Tier 1 Supplier
Tier 2 Supplier
Tier 2 Supplier
Tier 2 Supplier
Automotive Supplier 2
Figure 3.4.2 Suppliers organised into functional tiers
In Figure 3.4.2 above the Automotive suppliers are seen at the top of the supply
chain and their suppliers organised into :
• Tier 1 suppliers who supply major sub-assemblies direct to the automotive
supplier;
• Tier 2 suppliers, usually specialist manufacturers, who supply the Tier 1
suppliers.
• Tier n suppliers exist beneath this structure (not featured in the Figure 3.4.2
above); ultimately, down to the raw material extractors, rubber plant for tyres, ore
for metals etc.
Don Carmichael Page 30 P5893614 A point to note about Figure 3.4.2 is that Tier 1 suppliers will often be supplying
multiple car assemblers. In Toyota’s case, Tier 1 suppliers, which may be part
owned by Toyota or have previously been Toyota in-house assembly operations, are
encouraged to perform work for other industries or assemblers. This would generally
be seen as producing higher profit margins.
Womack’s ‘lean manufacturing’ book [5] reports that Nippondenso, a $7 billion
company, is the largest manufacturer of electrical and electronic systems and engine
computers. Toyota holds 22 % of its equity and Nippondenso does 60% of its
business with Toyota. Another 30% of the equity is held by the Toyota supplier group
of companies, and 6% by Robert Bosch, the giant German components firm.
The cross ownership that proliferates within Toyota’s supply chain has some
parallels outside Toyota such as Ford’s purchase, or part ownership, of the Eastern
European Autopal headlamp manufacturing plants.
Toyota also shares personnel with it’s suppliers and helps out with workload surges.
In summary, it can be seen that Toyota, as the original lean manufacturing company,
has developed very high levels of communication, resource and fiscal interaction
with it’s suppliers. Toyota’s suppliers can be seen as sharing Toyota’s destiny.
Of course, it must be remembered that although automobile manufacturing is an
important business activity it cannot be seen as representative of all industries, types
of production or manufacturers place within the supply chain. Toyota, in common
Don Carmichael Page 31 P5893614 with other car manufacturers, lives at the top of the supply ‘food chain’ and therefore
has the opportunity and power to change their suppliers and supply chains. Without
the help of the ultimate car assembler, it can sometimes be difficult for Tier 2
suppliers to develop the levels of communication and relationships required to
achieve a lean supply chain with their own suppliers.
The Odette ‘Passenger Car Logistics Survey’ [4] showed that Tier 2 or 3 suppliers
can often be larger than the direct, Tier 1, suppliers. An example here could be a
dedicated dashboard assembly supplier to two or three automobile assemblers with
a company like Lucas, say, supplying the instrumentation to the dashboard
assembler.
It is interesting to note the similarities between Lean Manufacturing principles (as
derived from the Toyota Production System), Value Engineering and business
process re-engineering.
A definition of business process re-engineering (BPR) from Thomas Gunn’s real-time
enterprise book [8] is:
‘The improvement of business processes by a cross-functional team that first seeks
to understand and document the entire process, then simplifies and removes the
waste from it, then applies information systems to improve the speed and quality of
the process as well as improve it’s flexibility and the productivity of the people
associated with it.’
Don Carmichael Page 32 P5893614 It seems a core principle in Value Engineering, Lean Manufacturing and BPR is the
reduction of waste and the concentration on the value added functions.
Don Carmichael Page 33 P5893614
CHAPTER 4 SCP packages
4.1 Introduction
Investigating the functionality of Supply Chain Planning (SCP) packages proved very
difficult. Most SCP suppliers are willing to provide high level glossy brochures and
impeccable references but have no detailed system or functionality descriptions. The
reasons for this appears to be that the SCP sales environment is highly competitive
and functionality is rapidly expanding, especially with the two market leaders
Manugistics and ‘i2’.
A SCP sales cycle involves the use of reference sites and paid proof of concept
projects. These projects are short-term, limited implementations of the product within
the customers own site. The SCP software package will be configured to represent a
limited version of the customer’s supply chain and manufacturing environment and
then loaded with a sub-set of the customer’s business data so that the concept,
feasibility, justification and potential cost savings can be demonstrated. The
customer can then decide whether to commit to the whole project.
As a result of the above, SCP vendors feel they do not have to provide highly
detailed system descriptions.
Don Carmichael Page 34 P5893614 4.2 Survey of SCP packages
As of late 1997 the main SCP suppliers competing in Europe were:
• ‘i2’ -Rhythm – primarily focused on the Electronics sector
• Manugistics – focused on the Consumer Packaged Goods (CPG) sector
• Numetrix – focused on the Process sector
• ‘Red Pepper’ / Peoplesoft
• SynQuest
• American Software
Materials gathered and analysed include the sales literature from Manugistics,
Numetrix with it’s ‘Supply Chain Visibility / Integrator’ and ‘i2’ with the ‘Rhythm’
product (the big three according to AMR [16]) with the addition of SynQuest
materials.
It was initially thought that there could have been difficulty in getting even access to
SCP system vendors high level glossy brochures. However, the author’s employer is
an MRP II systems house, and thus a potential partner for SCP vendors. The author
has been able to use this influence to source a set of product literature for each of
the major SCP packages.
Don Carmichael Page 35 P5893614 4.3 Commonalities
All SCP packages extend finite capacity scheduling (FCS) concepts into supply
chain and distribution concepts, for example by being able to consider a single
machine capacity bottleneck and it’s impact across a whole supply chain. All the
packages are capable of simultaneous optimisation against a range of factors
including set business goals; particular service level commitments, inventory value
limits, supply limitations and overtime constraints. Some packages talk about using
‘life’ type random algorithms to produce the best optimisation across all constraints.
The better packages have extended their functionality into Transportation
Management, Demand Management and specific ‘improvement’ algorithms for
particular industry sectors. This may mean specific sequence dependant
optimisation algorithms for paint mixing plants say, where if a darker colour follows a
lighter coloured paint less cleaning time is needed than when a lighter colour follows
a darker where a complete clean-down is required.
The more sophisticated packages cope with ‘soft’ penalty optimisation where the
‘best’ plan may be the one where the least amount of overtime payments are made.
Most packages appear to have sophisticated graphics that can visually show the
effect of different ‘what-if’ distribution plans and their effect on cash-flow and
machine capacity. Certainly, most packages allow users to graphically describe
machines, interdependencies and geographical locations of plants and warehouses.
This capability was ably demonstrated by SynQuest at the CIM 97 show at the
Birmingham NEC.
Don Carmichael Page 36 P5893614 Most SCP packages were originally built on UNIX computer operating system
platforms. The reason for this is that SCP packages achieve their characteristically
rapid and near ‘real-time’ scheduling responses by utilising fast stand-alone
computers with huge amounts of Random Access Memory (RAM) memory. In the
early days of SCP developments, UNIX was ideally suited for this. Additionally,
UNIX, in most of it’s versions and variants, had a graphical user interface that can be
used on UNIX workstations.
Most SCP products are ‘client server’ products. This means that there is a powerful
central ‘server’ computer (or computers) performing the intensive calculations and
data transactions for the multiple graphical ‘client’ workstations (or more usually
Personal Computers). This can be imagined as a star configuration with many
‘clients’ connected to the central ‘server’ computer. As the client computers are,
themselves, moderately powerful, some of the computing load is offloaded from the
server onto the client. This is especially the case for intensive graphical tasks.
The reason for the large computer memory requirement is that SCP products place
as much of the business data (sales orders, stock values and transportation
networks etc ) as possible into memory so that the disk drives (which are mechanical
and thus slower than electronic computer memory) are used as little as possible. The
idea is that all of the SCP calculations are performed in memory.
Nowadays, almost all SCP vendors have a Microsoft NT platform offering (although
vendors such as Numetrix have struggled to develop an NT offering). Because
Microsoft NT is usually supplied on high powered PC (personal computer) hardware,
Don Carmichael Page 37 P5893614 and is therefore a mass produced commodity item, there is a cost advantage in
buying ‘NT based software packages for potential SCP customers.
One SCP supplier, American Software (with their product Logility), did have an
AS/400 offering that only seemed to be available in the U.S. American Software also
have a Windows 95 version of their product but this can only be used in specific
scenarios where there are a limited number of transactions.
In SAP’s case, with it’s SCOPE (Supply Chain Optimisation, Planning And
Execution) initiative, the SCP product was designed and developed for NT and is
intended to run on it’s own networked server NT box. The actual SCP product within
the SCOPE initiative is called the APO (Advanced Planner and Optimiser) module.
SAP have developed a memory based environment for the APO module called
‘liveCache’ which manages the large amount of NT memory required.
None of the SCP vendors would quote typical prices for their solutions, reasoning
that the price depended on a series of factors including the number of users, the
scope, the level of integration with an ERP package and who was asking. However,
on further inquiry a common consensus was that SCP vendors generally target
companies with a turnover greater that £200 million. Their argument being that
companies with a turnover less than this figure would find the costs of buying,
implementing and integrating a SCP product excessive.
Don Carmichael Page 38 P5893614 Companies with a turnover higher than £200 million would possibly be outside the
definition of SMEs (Small to Medium size Enterprises) used by ERP vendors. It is
probably fair to say that, at the present, SCP vendors are only targeting large
companies.
Don Carmichael Page 39 P5893614
4.4 Analysis
The claim for all the SCP packages is that they can and are reducing millions of
pounds from supply chain costs including warehousing, transportation and lost
business. This is achieved by optimising the supply chain in almost real-time by
reacting to major events as they occur, e.g. by re-routing stock or re-planning
transportation routes to meet the company’s defined service levels.
A key issue is the comparison of supply chain optimisation with improvement
methodologies such as those based on ‘lean’ principles. SCP products cannot
reorganise the factory layout, investigate set-up reduction techniques or improve
supplier relationships. SCP products are as helpless as MRP products in that they
are software based and therefore can only work with the information they are given.
SCP systems cannot compete with ‘lean’ solutions and, on occasions, can actually
stop companies from taking the steps towards a ‘lean’ enterprise in instances when
they are seen as a ‘panacea’. An ideal solution would be one where SCP systems
could co-exist with ‘lean’ solutions.
4.5 Future directions
Already, leaders in the ERP / MRP II marketplace have seen the potential of SCP
and are at least partnering with the SCP vendors and, in the case of SAP, writing
their own SCP product to sit on top of their ERP business systems.
Don Carmichael Page 40 P5893614
PeopleSoft, who didn’t have an ERP product based on MRP principles previously, is
now trying to change the paradigm by publicising their belief that Enterprise
Resource Planning (ERP) systems are dead, to be replaced by Enterprise Resource
Optimisation (ERO) systems based on SCP technology (in PeopleSoft’s case Red
Pepper).
In the short term, SCP systems will really only appeal to larger companies with big
budgets and lots of resources. In the longer term though, medium sized companies
may feel the pressure to purchase SCP systems in order that their customers, the
larger companies, can include them in their supply chain optimisation calculations.
4.7 Conclusions
SCP systems are expanding everyone’s view as to the potential for cost savings and
control over the speed and uncertainty of modern business.
One conclusion from the analysis could be that supply chain planning systems are
providing a ‘crutch’ for companies who cannot face or do not believe in going down
the ‘lean enterprise’ route.
Don Carmichael Page 41 P5893614
CHAPTER 5 Survey
5.1 Introduction to the survey
Originally, the research part of the dissertation was to have been a series of
interviews with logistics and manufacturing professionals currently dealing with
supply chain issues. Thus the research would have been qualitative rather than
quantitative. However, the literature review turned up a number of surveys examining
supply chain issues in the manufacturing context and the focus of the research part
of the project changed to a questionnaire based approach.
The first of these was a survey by Benchmark Research for Computer Associates
[19], the second a survey by Warwick Business School [20] and the third a 1995
survey by AT Kearney, UMIST and the Institute of Logistics [21]. As these surveys
had already explored similar areas, it was felt that constructing the author’s own
questionnaire would allow the author the opportunity to both compare and contrast
the results obtained in the other surveys and build upon and focus upon the
manufacturing related supply chain issues.
5.2 The survey and the methodology
Before building the survey questionnaire, the author investigated the possibility of
using his (then) employer, Largotim’s resources to provide the logistics and funding
for the 1000 questionnaires that were felt to be required to gain an adequate
response level to the survey. The Sales Director at Largotim agreed but decided that
Don Carmichael Page 42 P5893614 it should be a joint questionnaire; the employer would add certain questions of
interest to the MRP II business onto the supply chain questionnaire. Some of these
questions were to investigate the requirement for third party software additions to the
MFG/PRO business system package. MFG/PRO, from the U.S company QAD, was
Largotim’s MRP II offering.
These questions can be clearly seen in the second part of ‘Appendix 2 - The Supply
Chain Questionnaire’. Questions about desktop integration have only an indirect
relationship with the supply chain systems issues. The questions relating to project
timescales (‘How soon will this be addressed’, 1-5) were related to the employer’s
wish to see if any new business could be developed with the questionnaire
respondent.
This issue of the dual purpose of the questionnaire should be emphasised as it may
have made the questionnaire too complex and unfocused and thus resulted in a
lower quality and quantity of response.
As the author was trying to compare and contrast some previous research by
Robertson, Swan and Newell from the University of Warwick [20], some of the style
of questions were based on the same problem scale as that research, from 1, not a
problem, to 5, a very serious business problem. These can be seen in the second
part of the questionnaire in ‘Appendix 2 - The Supply Chain Questionnaire’.
In building the questionnaire, the author received help from one of the Largotim
marketing team to ensure the questions were unambiguous and without the author’s
Don Carmichael Page 43 P5893614 bias as to the desired answers. The format of the questionnaire was based on an
insurance questionnaire from Barclays Bank which had been extensively market
researched while being developed.
Since the Initial Report the main complication affecting the project plan had been the
extended negotiations and efforts required to get the questionnaire through the
employer’s marketing department. One of the reasons why it seemed difficult to gain
agreement on the format and logistics of the survey became evident only at the
beginning of May, when it was announced that the author’s employer had been
bought out by a large American corporation. This had been distracting the attentions
of the senior management at Largotim.
Other reasons for the delay centered around the legalities of running the prize
competition being used to leverage a higher rate of returns. Largotim’s marketing
department believed that 4% was a good response rate to this type of questionnaire
and that the addition of the prize could boost the response up to 10% giving about
100 responses from a mailshot of 1000. As Largotim provided manufacturing and
business systems to one of the bigger Formula 1 racing teams, Williams Grand Prix
Racing, the prize offered was two tickets to a test session at Silverstone as a guest
of Williams and Largotim.
This was the first time the employer had actually run a competition open to external
scrutiny and there was some hesitancy as to how prize competitions should be run.
Don Carmichael Page 44 P5893614 The database used by the author’s employer was a ‘random’ one bought from Dun &
Bradstreet two years ago. The age of the database was a concern as names,
addresses and job titles of the questionnaire’s target audience would not be
particularly accurate. The targeted audience was Managing Directors, Operations
Directors and Senior Production Managers. The ‘randomness’ of the database
contacts could not be validated as the marketing department could only be certain
that the database held at least five thousand manufacturing companies which they
believed were represented across all business sectors and across all regions of the
UK in equal proportions. This could not be tested and so should be taken into
account in the analysis of the results.
The questionnaire was tested by two of the author’s best customer contacts. The
contacts, one being an IT Manager in a Tier 1 automotive supplier and the other a
Business Analyst in a large communications company, were initially informed of the
intended purpose of the questionnaire analysis and were then given the chance to
comment on the both the format and the questions within the questionnaire.
Initial responses from the two ‘testers’ revolved around issues on the complexity of
the questionnaire and specific questions which were felt to be missing. One of the
‘testers’ felt that question 2 on the questionnaire, regarding the use of third party
warehousing, needed to split into three questions looking at the proportion of third
party warehousing being used. In retrospect, of course, this type of feedback only
added to the complexity of the questionnaire.
Don Carmichael Page 45 P5893614 The complexity issue was again raised with the Largotim Sales Management but
there was a lack of interest. The Marketing Manager was keen to progress with the
mailing of the existing questionnaire, more as a method of completing the task which
she was beginning to regret she had agreed to.
Following an update to the questionnaire based on the two customer responses, the
contacts were then asked to fill in the questionnaire. The results were then analysed
to see if any further improvements could be made to the questionnaire. Their
responses were mapped onto a single spreadsheet designed by the author to allow
ease and accuracy of results recording and then later ease of analysis.
After some experimentation a template version of the questionnaire was built. The
template version included more and clearer numbering to improve the accuracy of
the recording of the returned questionnaires onto the spreadsheet.
Finally, once a covering letter had been designed, a Freepost address set-up and
the mail merge addresses loaded out of the marketing database, the mail shot
began. This happened on Wednesday 14th May.
Because of the prolonged design and planning period for the questionnaire, it was
decided that a window of only one and a half weeks should be allowed for
responses. This was managed by emphasizing a closing date for the prize
competition as the 23rd May. It was felt by members of the marketing department that
if the respondent did not fill in the questionnaire either the day of receipt or the day
after the likelihood was that the questionnaire would probably be binned or put to the
Don Carmichael Page 46 P5893614 bottom of an in-tray. As a reply paid (Freepost) envelope was included with the
questionnaire there was minimal effort required from the respondent after the
questionnaire was filled in, i.e. folding into the envelope and posting into a mail tray.
Don Carmichael Page 47 P5893614
5.3 Results of the survey
Unfortunately, there was a very low response rate to the survey. There were 21
responses from the 1000 questionnaires posted. There were various reasons
hypothesized as to the reasons for this but they could be summarised as the :
• complexity of the survey
• length of the survey
• negativity of the questions
• short response time
• lack of profile of the company sending the questionnaire
• age and inaccuracy of the mailing list
• requirement for the respondent to give their name and address
• lack of telephone follow-up
A major psychological factor was the questionnaire’s requirement for respondents to
rate the severity of particular business problems. From the respondent’s viewpoint
this could have been seen as a reflection on the individual or possibly a criticism of
the respondents company. This would give weight to the argument that the questions
should have been phrased in a more positive manner.
In addition to the above, some companies have a policy of not filling in
questionnaires. On investigation, most of these companies believe that time
consumed by individuals interpreting then researching, investigating and finally filling
Don Carmichael Page 48 P5893614 in the questionnaire does not warrant the effort or any expected research gains.
There was also the suspicion that these particular companies trusted neither the
promises of anonymity given in the questionnaire nor the authority or standing of the
company requesting the information.
This may have been different if the questionnaire had been compiled by say one of
the ‘Big 5’ consultancies and the research perhaps destined for a focused
benchmarking tome.
The randomness and suitability of the mailing list has been questioned elsewhere in
this project but it is worth noting here that the best surveys, analysed by the author,
used mailing lists from two sources:
• either the Institute of Operations Management’s membership list;
• or a Management Consultancies client list.
The competition part of the survey produced a number of negative affects being that
some of the potential respondents were sceptical about a questionnaire purporting to
be anonymous and yet seeming to trick the respondent into giving their name,
address, title, company and telephone number.
Also, some respondents did not believe the legitimacy of the Williams Grand Prix /
Silverstone prize draw. Largotim, being a mid-range MRP II vendor and thus not
Don Carmichael Page 49 P5893614 having a vast marketing budget or market presence, was probably not associated
with Williams Grand Prix.
On reflection, the author’s experience is that many sales ‘pitches’ start with a
telephone caller asking if the respondent would mind taking part in some
independent research questionnaire. These generally turn into sales ‘pitches’ once a
few qualifying questions have been answered and the respondent either realises
they are speaking to, or the telephone caller reveals themselves as, a telesales
person
The likely motive of the Sales Management who influenced the format and agreed
the logistics of the questionnaire was to use the contact list generated and a brief
analysis of a few qualifying questionnaire responses to drive a telesales campaign.
The reader can rightly assume from this that the Marketing department reported
directly into the Sales Management and thus there was never any intention of
guiding the questionnaire to simply produce some focused yet anonymous research
that might be fed into the MRP II research and development program.
Don Carmichael Page 51 P5893614
Question Nmbr I II III IV V VI VII VIII
Response Format Nmbr Nmbr Nmbr Nmbr Nmbr Option £ Option
Respondents
1 2400 700 10 15 30 Globally 220M Industrial/Electronics
2 1400 700 8 8 8 Globally 80M Automotive
3 550 3 9 0 0 Internat. 72M Process
4 5250 2100 3 2 5 Globally 640M Industrial/Electronics
5 400 150 2 2 2 Globally 50M Medical
6 135 135 10 17 17 Inernat. 150M Industrial/Electronics
7 1700 1200 4 4 9 Globally 150M Industrial/Electronics
8 2250 1400 9 3 4 Internat. Food & Beverage
9 1814 290 17 17 Globally 291M Industrial/Electronics
10 180 180 1 1 Internat. 7.5M Automotive
11 800 200 4 Internat. 100M Consumer Packaged Goods
12 1100 125 1 1 47 Nationally 39M Food & Beverage
13 1000 650 4 2 3 Nationally 120M Consumer Packaged Goods
14 312 304 3 3 3 Internat. 57M Industrial/Electronics
15 430 400 1 3 2 Internat 230M Food & Beverage
16 140 135 1 1 1 Globally 10M Industrial/Electronics
17 750 420 4 4 4 Nationally 280M Food & Beverage
18 2500 200 16 16 Nationally 1500M Medical
19 500 220 1 2 Globally 200M Medical
20 275 190 1 2 1 Globally 20M Industrial/Electronics
21 410 390 3 0 1 Nationally 40M Automotive
Table 5.3.0.1 Tabular summary of questionnaire results with respondent number versus question number with answers. (1 of 5)
Don Carmichael Page 52 P5893614
Question Nmbr 1a b 2a B c 3 4 5 6 7 8 9a 9b 10 11 12a 12b 13
Response Format Mfg % Dist % Y/N Nmbr % Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Option
Respondents
1 90 10 Y 5 20 N N Y Y Y Y N Y AS400
2 95 5 N N Y Y Y Y Y Y AS400
3 100 0 N Y N Y N Y N Y N N N N N Mainframe
4 70 30 N N Y Y Y N Y N Y UNIX
5 75 25 N N N Y Y N N N UNIX
6 85 15 N N N Y N N N N UNIX
7 100 0 N N N Y Y Y Y Y UNIX/NOVELL
8 95 5 Y 4 25 Y Y Y N Y Y Y N N N N N Windows NT
9 100 0 N N Y Y N N N N N Mainframe
10 100 0 N N N Y Y N N N Windows NT
11 100 0 Y 2 10 N Y Y Y Y Y Y AS/400
12 50 50 N Y Y Y N Y N Y Y N Y Y Windows NT
13 8 20 N N N Y N N Y N N AS/400
14 100 0 N N Y Y Y N N N Y AS/400
15 84 16 Y 4 5 N Y Y N Y Y N Y UNIX
16 40 5 N N Y Y Y N Y N N AS400
17 80 20 N Y - - - - N Y N N N Y N UNIX
18 0 100 N N Y Y N N N N N UNIX/Windows NT
19 0 20 Y 1 100 Y N Y N Y Y Y Y N N N Y Windows NT
20 10 90 N N N Y Y Y N Y Windows NT
21 95 5 Y 1 5 N Y Y N N Y UNIX
Table 5.3.0.2 Tabular summary of questionnaire results with respondent number versus question number with answers. (2 of 5)
Don Carmichael Page 53 P5893614
Question Nmbr 14a b 15a b 16a b 17a b 18a b 19a b 20a b 21a b 22a b 23a b
Response Format 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5
Respondents
1 3 2 2 5 3 2 4 4 4 3 2 4 2 4 4 4 2 4 2 5
2 5 1 5 1 2 2 2 1 4 1 4 1 5 1 4 1 4 1 4 1
3 1 1 1 1 1 1 6 1 6 1 1 1 1 1 1 1 6 1 1 1
4 1 1 1 1 2 2 1 1 1 1 3 3 2 2 3 4 1 2 1 1
5 3 4 1 1 1 1 2 1 2 5 1 5 2 5 6 5 1 1 2 1
6 2 5 2 2 1 2 2 2 2 5 2 5 2 5 1 5 1 1 2 5
7 3 2 1 6 1 6 3 2 1 3 2 3 2 3 3
8 3 3 3 4 1 1 2 2 1 1 1 1 2 2 6 5 1 1 2 5
9 3 4 3 4 2 5 1 5 1 5 1 5 1 5 1 5 2 5 1 5
10 3 4 4 4 3 4 3 4 4 4 3 4 3 4 3 4 3 4 4 4
11 1 1 4 2 1 1 1 1 1 1 6 1 3 3 1 1 2 2 1 1
12 1 1 1 1 1 2 1 1 2 3 2 1 3 3 2 2 1 1 1 2
13 2 3 1 1 1 1 3 4 1 1 1 1 1 1 1 1 2 3 3 4
14 3 4 2 2 3 1 2 4 1 1 3 4 1 1 3 4 3 2 1 1
15 4 2 3 2 1 1 3 4 3 2 4 2 2 4 4 2 2 2 4 2
16 4 2 3 2 1 1 1 1 2 2 1 0 1 0 6 0 3 4 3 3
17 4 4 4 4 2 5 4 5 4 3 3 5 2 5 3 5 3 3 3 5
18 6 5 3 4 2 2 3 2 3 2 3 2 6 5 6 5 3 2 3 4
19 3 4 2 3 1 5 2 2 2 1 6 6 6 2 2 2 3
20 2 2 1 1 1 2 1 1 2 2 1 1 1 1 1 1 6 6 3 2
21 1 1 2 4 2 4 1 1 1 1 1 5 6 5 6 5 3 2 2 5
Table 5.3.0.3 Tabular summary of questionnaire results with respondent number versus question number with answers. (3 of 5)
Don Carmichael Page 54 P5893614
Question Nmbr 24a b 25a b 26a b 27a b 28a b 29a b 30a b 31a b 32a b 33a b
Response Format 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5
Respondents
1 3 3 1 5 1 5 3 4 3 4 1 5 1 5 1 5 4 2 3 3
2 1 1 2 2 6 5 4 1 4 1 4 1 4 1 4 2 4 2 4 1
3 1 1 6 1 6 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
4 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1
5 1 1 2 1 6 5 1 1 2 2 3 1 1 5 2 5 2 5 6 5
6 1 1 2 2 1 5 2 5 2 2 2 5 1 5 1 5 2 5 2 5
7 6 2 2 1 2 2 3 2 2 2 6 1 3 2 6
8 1 1 1 1 6 5 1 5 1 1 1 1 6 5 6 5 6 5 6 5
9 6 5 2 4 6 5 1 5 1 5 2 2 1 1 1 1 1 5 1 5
10 3 4 3 4 6 5 2 2 3 2 3 2 1 5 3 2 3 2 4 2
11 1 1 6 6 6 1 1 1 1 1 1 1 1 1 1 6
12 1 2 2 2 1 1 1 1 2 3 1 2 2 2 1 1 1 1 1 2
13 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 4 1 1 1 1
14 3 4 2 2 1 1 1 1 2 2 2 2 3 4 1 1 3 4 1 1
15 5 2 1 1 3 2 3 2 3 1 3 1 1 5 1 2 1 2 1 2
16 2 2 1 0 1 0 3 2 3 2 4 2 1 0 3 3 3 3 3 3
17 3 2 2 2 1 1 1 1 3 2 3 2 1 1 3 4 4 2 2 5
18 4 2 3 2 2 5 3 2 3 2 3 4 6 5 2 2 1 1 2 5
19 2 2 6 2 2 6 3 4 6 6 6 6 6
20 1 1 1 1 2 3 3 2 3 2 1 1 2 1 2 2 3 2 2 2
21 2 5 1 1 6 5 6 5 2 2 2 2 2 2 2 1 2 2 22
Table 5.3.0.4 Tabular summary of questionnaire results with respondent number versus question number with answers. (4 of 5)
Don Carmichael Page 55 P5893614
Question Nmbr 34a b 35a b 36a b 37a b 38a b 39a b 40a b
Response Format 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5
Respondents
1 4 4 4 4 4 4 3 3 3 4 4 3 4 2
2 4 1 4 2 4 1 4 2 5 1 4 1 5 1
3 1 1 1 1 1 1 1 1 1 1 1 1 1 1
4 2 5 2 2 1 1 1 1 1 2 2 2 1 1
5 6 5 2 5 4 2 1 5 2 5 6 5 2 5
6 1 5 2 2 2 2 3 3 2 5 2 5 2 5
7 6 3 2 4 2 6 2 3 6 2 3
8 1 1 1 1 3 2 3 2 1 1 1 1 6 5
9 1 1 1 1 1 2 6 5 1 2 1 1 1 1
10 2 1 3 4 4 2 3 4 3 4 6 5 3 2
11 6 6 3 4 1 1 4 4 1 1 2 5
12 1 1 1 1 1 1 1 1 2 2 2 2 1 1
13 1 1 1 1 3 4 1 1 1 1 1 1 1 1
14 1 1 3 4 3 2 3 2 3 2 2 2 3 3
15 5 3 3 2 3 2 3 2 4 2 3 2 4 2
16 1 0 2 4 3 2 4 2 4 3 2 2 3 2
17 1 1 1 1 4 4 2 5 3 2 3 5 4 2
18 6 5 2 2 6 5 6 5 3 2 6 5 6 5
19 2 1 3 3 3 5 1 5 3 4 2 3 1 5
20 6 6 3 2 2 2 2 2 3 2 2 2 3 2
21 6 5 2 2 2 2 1 1 1 1 6 5 2 2
Table 5.3.0.5 Tabular summary of questionnaire results with respondent number versus question number with answers. (5 of 5)
Don Carmichael Page 56 P5893614
5.3.1 Analysis of the results
Tables 5.3.0.1, 5.3.0.2, 5.3.0.3, 5.3.0.4 and 5.3.0.5 above show the results of the
survey in tabular form.
Although the survey conducted as part of this project was not directed to find the
same data as the European Logistics Comparative Survey [22] (see below), some
questions mimicked ‘The Manufacturing Computer Solutions (MCS) / Computer
Associates (CA)’ survey [19].
The MCS/CA survey asked companies what the priorities were for future supply
chain strategies under the following headings with the following results.
Issue % of companies as a priority Closer partnerships with customers 82 Closer partnerships with suppliers 83 Reduce number of suppliers 69 EDI links 65 IT based logistics systems 47 Table 5.3.1.1 Results of MCS/CA survey as reported in Manufacturing Computer
Solutions January 1997 showing selected issues and the number of companies
seeing this as a priority as a percentage.
The MCS/CA research was undertaken by Benchmark Research on behalf of
Computer Associates.
Don Carmichael Page 57 P5893614
The survey conducted as part of this project asked the same questions as Table 6.2
but asked for a problem rating from ‘No problem’ to ‘A very serious business
problem’ instead of a priority rating for future supply chain strategies as in the
MCS/CA survey. Unfortunately, it is difficult to make a direct comparison between
the two approaches with the MCS/CA survey asking a series of fairly neutral
questions as opposed to the survey in this document asking for potentially emotive
answers.
Issue % Survey Question No. % Closer partnerships with customers 82 32 38 Closer partnerships with suppliers 83 31 24 Reduce number of suppliers 69 33 14 EDI links 65 22 38 IT based logistics systems 47 37 38
Table 5.3.1.2 The results of table 5.3.1.1 with the corresponding project survey
question number and percentage of respondents claiming each issue as a problem
or serious business problem.
When the MCS/CA results are plotted together with the results from this project’s
survey there is very little comparison. Although 82% of the MCS/CA respondents
said that closer partnerships with customers was a priority for the future, only 38% of
this project’s survey thought that it was a current problem or serious business
problem.
Don Carmichael Page 58 P5893614 From the discussions on lean manufacturing above and in the standard lean thinking
works [5] and [23], it would have been expected that more companies would believe
issues such as supplier rationalisation to be a bigger current business problem. This
again draws back to the wording of the project survey and it’s interpretation. A
respondent could have viewed an on-going supplier rationalisation program as
neither a problem nor a serious business problem because the program was not
taking up significant management time.
Some responses to the project survey did agree with the academic and comparable
surveys.
38% of respondents thought that transportation management (Question 19) and an
equal percentage thought that transport cost reduction (Question 35) were problems
or serious problems for their business.
52% of respondents felt that maintaining a Just-In-Time / Manufacturing / Supply
environment (Question 38) was a problem or a serious problem.
We are still left with survey results that suggest we are more interested in internal
optimisation in the U.K; 62% of respondents said that manufacturing cost reduction
was a problem or serious problem. Apart from the problems with MRP II / ERP, this
was by far the strongest response in the whole survey. This could lead anyone
analysing these figures to believe that UK companies are inward looking and
disinterested in the wider supply chain issues.
Don Carmichael Page 59 P5893614 5.4 Conclusions
It was difficult to reach too many solid conclusions due to the low number of
responses to the questionnaire. Many inferences and comparisons made in the
analysis section above, could be construed as statistically invalid because of the low
numbers. Having said that, some responses did point in the right direction in
comparison with similar surveys encountered as part of the project book review.
There is evidently a greater awareness of supply chain issues and the prospects for
optimisation and cost reduction.
Don Carmichael Page 60 P5893614
CHAPTER 6 Discussion and conclusions
6.1 Discussion
In section 3.4 above, ‘soft’ issues, the advantages of lean production, lean supply
chains and the virtues of JIT replenishment were discussed.
One major goal of a lean environment is to reduce the lead time for replenishment. If
one thinks of a supply chain with a manufacturing/processing facility, multiple
distribution centres, warehouses and eventually retail outlets and then imagines the
storage potential of not only these locations but the transportation media between
them, one can see the opportunity for a vast amount of stock to be either sitting on a
shelf or being transported between each location.
We have seen in the discussions above that a lean business goal is to replenish
Just-In-Time (JIT).Therefore the aim is to keep the amount of stock sitting on shelves
and being transported to a minimum.
A common measure of this is the ‘number of days to replenish’. The logic here, is
that if it takes 30 days from manufacturing/processing a product to it being sold or
consumed at the point of retail then there must 30 days worth of idle inventory sitting
in warehouses or being transported that could be sold and converted into cash. If 1
day’s sales are equal to £1 million then 30 days of stock is equivalent to a sales
potential of £30 million.
Don Carmichael Page 61 P5893614 It is important to note that for 30 days no value is added to the stock. (There is
common consensus that transporting goods does not actually add any value to
them.)
One of the aims and therefore one of the reasons for the spectacular success of
SCP packages in the U.S, is their ability to optimise supply chain routes, stocking
levels and timing to reduce the stock held or transported at each point in the supply
chain.
However, to believe that gross cost savings based on days replenishment lead time
reductions are the only aim of reducing supply lines would be an over simplification.
Shorter supply lines are capable of reacting faster to customer demand fluctuations
and reduce the effects of the rapid product obsolescence found in high technology
industries.
As Martin Christopher says in his ‘Logistics and Supply Chain Management’ book
[32]
‘The longer the pipeline from source of materials to the final user, the less
responsive to changes in demand the system will be’.
The ultimate aim of any supply chain is to retain and ‘delight’ it’s customers. Cost
reduction, as based on days replenishment lead time, is an important aim in
optimising a supply chain but it is ten times more expensive to find a new customer
than it is to service an existing one and so a whole raft of other measures and goals
need to be taken into account. Many of these other measures can be defined as
customer service objectives.
Don Carmichael Page 62 P5893614
A frequently encountered measure of the perfect order is ‘on-time, in-full’ (OTIF) [32].
With it’s logical extension, the phrase ‘and error free’, these three service level
measures have to be taken into account when optimising a supply chain. It is no
good leveraging significant cost savings from a supply chain only to find that the
number of partial order shipments is increasing. The resulting reduction in service
level can easily result in a lost customer; especially in the automotive industry, for
example.
SCP packages do take these other factors into account by allowing multiple
optimisation goals. In the case of the ‘Red Pepper’ product, the user is presented
with a control panel, on screen, with a series of ‘antagonistic’ constraints and a
‘volume type’ level meter against each constraint.
These constraints are:
• Request Dates
• Promise Dates
• Inventory Shortages
• Detailed Capacity
• Aggregate Capacity
• Changeovers
• Safety Stocks
• Excess Stocks
• Raw Material Shortages
Don Carmichael Page 63 P5893614 The ‘Red Pepper’ user sets levels of priority to each scheduling objective and then
the optimiser tries to simultaneously optimise all constraints. If all the constraints
cannot be simultaneously solved the ‘Red Pepper’ optimiser will violate the lower
priority constraints first.
The SCP vendor ‘i2’ claims that over $100 million has been removed from their US
client’s supply chains by, among other techniques, reducing the number of days to
replenish (i.e. the number of supply days).
Michael Blackledge [24], a member of the ‘Institute of Logistics: Supply Chain Focus
Group’ believed that some of the results of the survey undertaken as part of this
project would point to a major difference between UK and US supply chains.
The analysis of the survey results (as unreliable as they are because of the very low
response rate) certainly points to Michael’s beliefs that supply chain issues in the UK
are not as important, as recognised or as developed as in the US.
62% of respondents, all in the UK of course, said that manufacturing cost reduction
was a problem or serious business problem (question 36) as opposed to figures of
29% each for logistics management and supply chain management. The last two
figures were from two catch-all questions in the survey (question 17 and 18).
It seemed, early in the project, that there were differences of opinion within industry
as to the commonality of logistics management and supply chain management; and
whether, in fact, they were the same, so both questions were asked.
Don Carmichael Page 64 P5893614 There is another problem here, of course, in that the questionnaire did not
specifically ask the respondents about their understanding or belief in the benefits of
optimising their supply chains. Perhaps, therefore, the supply chain management
and logistics questions were too broad. A further question on IT based logistics
(question 37) found that 38% of respondents believed this to be a problem or serious
problem for their business. Again, this question was probably too broad to focus in
on a IT based approach to optimising supply chains.
It may be that the higher figure of 52% for those believing maintaining a Just-In-Time
/ Manufacturing / Supply environment to be a problem or a serious problem (question
38) points to companies looking at supply chain issues but without seeing a
requirement for an IT led solution to the optimisation of the supply chain.
The figures above, giving 62% of respondents believing manufacturing cost
reduction to be a problem or serious problem, still show that internal and inward
looking cost reduction programs are still more of a worry to UK businesses than cost
reductions across the whole supply chain where bigger cost savings are usually
available. In the above example of the manufacturing company with a 30 day
replenishment lead time to their retailer, the potential savings on the £30 million of
idle stock in the down stream supply chain to the retailer would probably out-weigh
any potential internal manufacturing efficiency savings.
On the up-stream supply chain to the manufacturers suppliers, the cost reduction
potential is also huge. For a manufacturer, an average figure of 53% is often quoted
for the amount of final goods cost resulting from bought in raw materials or sub-
assemblies. Obviously this figure varies enormously across industry sectors, from
Don Carmichael Page 65 P5893614 those where there is a low value added factor, such as a retailer where bought-in
costs can be > 80% of the cost of sales for an item, to those which add a high level
of value to an item (craft based industries, perhaps).
Rather than a disinterest in SCP, the analysis from the questionnaire may simply
show that UK industry has still to recognise the impact or be convinced of supply
chain optimisation.
This feeds back to the statements being made by supply chain planning system
vendors, such as Manugistics, who state that they believe there is a major
educational requirement in the UK; the supply chain good news message has still to
get across.
Interestingly just as the research for this project was being completed an article
reporting the ‘European Logistics Comparative Survey 1998’ [30] appeared in the
Institute of Logistics’ journal ‘Logistics Focus’ based on joint research with Deloitte &
Touche Consulting. The research was based on a pan-European sample of over 600
logistics users and operators in nine countries.
Don Carmichael Page 66 P5893614
02468
1012
Weeks Stockholding
Bel
gium
Den
mar
k
Ger
man
y
Spai
n
Fran
ce
Italy
Net
herla
nds
Swed
en
UK
Number of Weeks Stock by Country
19951997
Figure 6.1 Number of weeks stock by country from the European Logistics
Comparative Survey 1998. [22]
Figure 6.1 shows the average number of weeks stockholding within a supply chain
per country in 1997 against the same survey’s results in 1995. Note that no survey
figures were collected for Denmark and Sweden in 1995. It is worth noting that
whereas the UK managed to dramatically reduce the number of weeks stockholding
in the intervening period, other countries, such as Belgium, Germany and Italy
actually experienced the reverse effect, with weeks stockholding actually increasing.
Studying Figure 6.1 reveals that rather than languishing behind the rest of Europe,
the UK has shown the greatest improvement since the 1995 survey.
The results of the European Logistics Comparative Survey 1998, summarised as
Figure 6.1 above and in the following quotes, rather pointed to the fact that there is
Don Carmichael Page 67 P5893614 actually a much higher level of interest in supply chains and optimisation than the
survey conducted as part of this project showed. Again, this could be down to the
low response, negativity of the questions, complexity and length of the questionnaire.
The report’s findings included the following statements:
‘Reduced lead-time is viewed as the most important service level target by
respondents to the survey and is also the most frequently applied measure. This
supports the view that customers are demanding quicker response times and
increasing customisation of products at ever later stages in the supply-chain, thus
putting pressure on service providers to harness information technology and refine
processes in order to meet these requirements and maintain competitive advantage.’
According to the report over 80% of those companies who had implemented
integrated software systems stated that logistics performance had improved as a
result.
In the US, supply chain management, planning and optimisation systems are
producing spectacular results. All of the top supply chain planning packages, ‘i2’,
Manugistics and Red Pepper (Numetrix is a Canadian product) are designed,
developed and owned by US companies. Blackledge, who finished his MBA project
in Vancouver, believes the reason for this US focus is that in general US
manufacturers control the supply chain whereas in the UK it is the customers and
specifically retailers who control the supply chain.
Don Carmichael Page 68 P5893614 There are well documented exceptions, of course, to this US manufacturing supply
chain control. Gunn’s book ‘In the Age of the Real-Time Enterprise’ [8] cites how US
retail companies Kmart and 7-Eleven have produced excellent results by taking
control of their supply chain.
There are geographical and political factors to be taken into account in comparing
the UK with the US. North America is a vast continent with significant transportation,
distribution and warehousing factors to take into consideration across potentially vast
supply chains. In a recent logistics article [16] it was stated that the
‘European average for replenishment of inventory levels is still only 28 days, well
below the US average of 105 days’ .
In Field’s ‘Distribution Focus : Efficient Consumer Response (ECR)’ article [10],
which concentrates on supply chains from the retailers backwards to distribution
centres and manufacturers, the ‘multiple’ grocer Somerfield stated that spectacular
gains in stock reduction and service are unlikely
‘because supply chain inefficiencies are not present in the UK’.
This statement hides the fact that ECR techniques were used to reduce stock at the
Somerfield distribution centres by 11% - 25% by half of the suppliers/manufacturers
using the technique.
Don Carmichael Page 69 P5893614 6.2 What does industry want ?
The European Logistics Comparative Survey [22] results point to the fact that
reduced lead time is viewed as the most important service level target. European
companies and perhaps US companies, because of the greater transportation
demands, are concerned with traffic congestion, the use of integrated transport
solutions and the impact of road pricing.
Customers are demanding :
• quicker response times
• increasing customisation of products at ever later stages in the supply-chain
It is accepted that to maintain competitive advantage and answer the customer’s
demands, information technology solutions together with process re-engineering /
refinement projects are required.
As mentioned above, although the survey conducted as part of this project was not
directed to find the same data as the European Logistics Comparative Survey (see
above), some questions mimicked ‘The Manufacturing Computer Solutions (MCS) /
Computer Associates (CA)’ survey [19].
Drawing on the data represented above in Table 5.3.1.1, it clear from the MCS/CA
survey that the following issues were significant priorities for future supply chain
strategy.
Don Carmichael Page 70 P5893614 • Closer partnerships with customers
• Closer partnerships with suppliers
Although not polling as high as the above, the following issues still polled two thirds
of all respondents.
• Reduce number of suppliers
• EDI links
Lastly, polling about half of all respondents, IT based logistics systems is still a high
priority.
It can be seen from the above, that relationship and lean enterprise issues figure
higher than the IT support required for those issues. The IT support for relationship
and lean enterprise issues being EDI and IT based logistics.
6.3 How are SCP packages helping ?
In the last section we have seen how competitive pressures are forcing
manufacturers (and retailers) to examine the lean issues first. Only after this are the
IT mechanisms to achieve this investigated. This is to be expected. Respected
figures such as Brian Small of Ingersoll Engineers have always said ‘simplify,
integrate, computer integrate’.
Don Carmichael Page 71 P5893614 It is interesting that just the knowledge of the existence of SCP packages can be the
catalyst for some companies to investigate the effectiveness of their supply chain
relationships and planning and optimisation techniques. In one sense, this is the way
it has always been for Western companies where computerisation has lead business
improvement programs (such as the implementation of a MRP system). Traditionally,
the East (especially the Japanese, the source of lean principles) developed
essentially manual improvement methodologies that did not rely on IT as the
catalyst.
SCP packages can be seen as the answer to unstable business environments with
their real-time visibility and optimisation of current inventory positions at factories,
distribution facilities and retail warehouses. Supply chain plans are re-synchronised
on changes to demand and supply by SCP packages with the aim of dramatically
improving customer service while minimising investment in inventory assets.
Lean manufacturing, lean enterprises and lean thinking rely on stability of demand
throughout the supply chain. Lean environments are very bad at handling severe
instability.
Don Carmichael Page 72 P5893614
6.4 Future directions
Even though the dissertation points in part, to a lack of demand for SCP, the main
SCP vendors have offices in the U.K, are expanding, and winning business and the
major ERP/SCM vendors are partnering these SCP suppliers.
Rover demand 6% year on year cost savings across the board from their suppliers.
This means the suppliers must force the cost savings back through the supply chain.
It appears that businesses face a choice of routes; to computerise their way out of
the chaos caused by a quicker, more global, more competitive, more personalised
business environment or use ‘lean’ enterprise techniques to achieve what may
appear to be similar ends. The arguments about stability of business being the
deciding factor on the route may not be as valid as they appear.
6.5 Main Conclusions
This dissertation has discussed and distinguished between ERP vendors who have
relabeled their products as supply chain management systems and SCP vendors
who provided the true supply chain optimisation products.
Although the survey results were not as encouraging as they could have been, they
can still be seen to have pointed towards a lack of comprehension by businesses
about their own supply chains. The SCP vendors are starting to address this and
improve their profile in the marketplace almost daily.
Don Carmichael Page 73 P5893614
It is also reasonable to conclude that there will not be the spectacular supply chain
cost savings to be made in the UK and Europe that there are in the US, largely
because UK supply chains are customer rather than manufacturer led.
The dissertation investigated the ‘lean’ enterprise approach to the same problems
that the SCP products are targeted at.
Don Carmichael Page 74 P5893614
CHAPTER 7 Future work
7.1 The broad SCP arena
Advanced Manufacturing Research (AMR) reports that SCP customers have been
buying piecemeal solutions (i.e. Northern Foods buying both Manugistics forecasting
and Numetrix supply chain integration products). AMR believes that the market will
move to buying integrated SCP packages such as Manugistics version 5 (or SAP’s
new SCOPE SCP offering). The common belief is that, just as in the ERP world, the
strength of having an integrated SCP package outweighs the efforts required in
integrating best of breed packages from different SCP and, say, specialist
forecasting vendors.
Therefore any future work would involve following the trend towards integrated
supply chain packages encompassing SCP and ERP technology together. This
should also concentrate on comparing and contrasting the divergent paths of ‘lean’
solutions with SCP.
It was only recently admitted that there a was still a role for MRP systems,
performing mid-range planning functions, in lean environments. Would it be possible
that SCP tools could help with ‘lean’ principles ?.
As Bowersox [2] says, there is very little work in the area of SCP into manufacturing.
SCP system designers are leading the way and creating the requirements by
generating the market.
Don Carmichael Page 75 P5893614
References
Sources used in compiling this report :
1. Canadine, I., ‘Customer Driven’, Engineering, (October, 1995).
2. Bowersox, D. J., and Closs, D. J., ‘Logistical Management, The Integrated Supply
Chain Process’, McGraw-Hill, (1996).
3. Christopher, M., (editor), ‘Logistics, The Strategic Issues’, Chapman & Hall,
(1992).
4. Odette ‘Passenger Car Logistics Survey’ as presented at the SMMT Industry
Logistics Conference, (16th October, 1996).
5. Womack, J. P., Jones, D. T., and Roos, D., ‘The Machine That Changed The
World’, Rawson Associates, New York, (1990).
6. Sherman, R., ‘Synchronising the supply chain’, Management Consultancy,
(February 1997).
7. Drucker, P. F., ‘The Economy’s Power Shift’, Wall Street Journal, (24 September,
1992) as reported in [8].
8. Gunn, T. G., ‘In the Age of the Real-Time Enterprise’, Omneo, Oliver Wight
Publications, Inc., (1994).
Don Carmichael Page 76 P5893614
9. Goldratt, E. M., ‘It’s Not Luck’, Gower, (1994).
10. Field, C., ‘Distribution Focus: Efficient Consumer Response: A Stock Answer’,
Computer Weekly, (20 February, 1997).
11. The National Logistics Practice, KPMG Peat Marwick LLP, ‘Logistics Trends’, in
‘Materials Management & Distribution’, (December, 1996).
12. Greenwood, P. N., ‘Continuous Flow Manufacturing in a Quickened
Marketplace’, Logistics Focus, 5, (2) pp. 9-11, (March 1997).
13. Interview with Paul Rollett, UK Sales Manager, Numetrix, (4th November, 1996).
14. Burgess, K., ‘Supply Chain Planning, Are You Ready For Brain Surgery?’,
Control, 24, (1), pp.20-22, (February, 1998).
15. Browne, J., Harhen, J., and Shivnan, J., ‘Production Management Systems, A
CIM Perspective’, Addison Wesley, (1988).
16. ‘The AMR Alert on Supply Chain Management’, a weekly Email report sent to
subscribers by Advanced Manufacturing Research summarising recent
announcements, developments, news and analysis on Supply Chain Management
companies.
17. White, G. E. J., and White, A., ‘The Arch of Progress’, Control, 23, (4), pp.18-20,
(May 1997).
Don Carmichael Page 77 P5893614
18. Burcher, P. G., Lee, G. L., ‘A Survey of the Implementation of Advanced
Manufacturing Technologies in the U.K’, Control, 23, (9), pp. 13-16, (November,
1997).
19. Manufacturing Computer Solutions and Computer Associates, ‘Manufacturing for
Profit - the series, Supply chains: improving performance right up the line’,
Manufacturing Computer Solutions, pp. 14-15, (January 1997).
20. Robertson, M., Swan, J. and Newell, S., ‘The Spread Of Technologies To
Support Operations Management’. Control, 23, (2), pp. 24-27, (March 1997).
21. AT Kearney, UMIST and Institute of Logistics, ‘Strategic Advantage and Supply-
Chain Collaboration’, Institute of Logistics Technical Paper, (1995).
22. Deloitte & Touche Consulting Group, Institute of Logistics, ‘European Logistics
Comparative Survey 1998’, as reported in ‘Logistics Focus’, (March, 1998).
23. Womack, J. P., Jones, D. T., ‘Lean Thinking: Banish Waste and Create Wealth in
your Corporation’, Simon & Schuster, New York, (1996).
24. Interview with Michael Blackledge of Summermere Consulting and a member of
the ‘Institute of Logistics Supply Chain Focus Group’, (5th February, 1997).
25. Salvesen Logistics, ’Total Logistics Solutions’, Management Consultancy, pp. 9,
(February 1997).
Don Carmichael Page 78 P5893614
26. ‘Softworld for the Supply Chain’ show at the NEC, Birmingham. (12-13 March,
1997).
27. Fox, M. L., ‘The Future is Now: Consumer Demand-Driven Supply Chain
Management’, APICS - The Performance Advantage, (June 1995).
28. Hill, T., ‘Manufacturing Strategy’, Macmillan, (1993).
29. Willmott, K., ‘Getting The Picture’, Logistics Europe, (April, 1997).
30. Numetrix, ‘Planx/Schedulex Considerations/Constraints’, (9th May 1997),
provided by Numetrix as additional information to the Numetrix standard
information pack.
31. Jones, D. T., Towill, D., ‘New Directions in Logistics Research’, Control, 24, (2),
pp.15-19, (March, 1998).
32. Christopher, M., ‘Logistics and Supply Chain Management, Strategies for
Reducing Cost and Improving Service’, Financial Times Pitman Publishing,
(1998).
Don Carmichael Page 79 P5893614
Appendices
Appendix A - The Questionnaire
The supply chain questionnaire is formatted to fit on both sides of a single sheet of paper when mailed.
Supply Chain Management Questionnaire
Thank you for taking the time to complete this questionnaire. The purpose of this survey is to establish trends, perceptions and types of companies operating within the supply chain. For this questionnaire, manufacturing is defined as the collection of activities that directly convert, machine or process product to add value whereas distribution or logistics activities are defined as those that add value by moving, transporting or warehousing for instance or perhaps brand management. The names and contacts of companies taking part will not be disclosed. The results of the questionnaire will be published by BDM Largotim Limited and will be available on request. Company Profile
I. Number of employees in your group or immediate division (if applicable) II. Number of employees at your site III. Number of manufacturing sites within your group / division IV. Number of distribution sites within your group / division V. Number of sales sites within your group / division VI. Is your company operating Globally, Internationally, Nationally or Locally VII. Annual turnover VIII.Primary industry your company operates in (please tick one option)
Food & Beverage Process Consumer Packaged Goods Automotive Medical Industrial / Electronics Other (please state)
1. What percentage split across Manufacturing and Distribution / Logistics would you describe
your site’s activities ?
a. Manufacturing % b. Distribution / Logistics % Please tick where applicable 2a. Does your company use third party warehousing ? Yes No b. If Yes how many third party warehousing partners /alliances ? c. If Yes what is the proportion of third party warehousing ? % 3. Does your company contract out logistics to a third party ? Yes No If the answer to Q3 is YES, please complete questions 4 to 7. If NO continue to Q8
Don Carmichael Page 80 P5893614 4. Does the third party company have personnel at your site ? Yes No 5. Does the third party company handle outgoing logistics ? Yes No 6. Does the third party company handle incoming logistics ? Yes No 7. Does the third party company handle transportation planning ? Yes No 8. Does your company have a dedicated supply chain management
department ? Yes No
9. Is forecasting used in your organisation ? Yes No If Yes is demand aggregated (families of parts) ? Yes No 10. Do you use optimising computer tools to plan production bottlenecks ? Yes No 11. Do you use infinite planning techniques such as Rough Cut Capacity
Planning (RCCP) or Capacity Requirements Planning (CRP)? Yes No
12. Do you use finite planning techniques? Yes No If No would finite planning techniques add value to the planning process? Yes No 13. What systems architecture does your company plan to use for its primary
business system?
a. UNIX b. AS/400 c.Windows NT d. Mainframe e. Other (please state) :
Please place an appropriate number in both A and B, relating to the scales detailed below.
A relates to B relates to ‘Severity of business problem’ ‘How soon will this be addressed’ 1 = No problem 1 = Already resolved 2 = A minor irritation 2 = A current project 3 = A problem 3 = Within the next 6 months 4 = A serious business problem 4 = Between 6 months and 24 months 5 = A very serious business problem 5 = No current plans to address this problem area 6 = Not applicable
A B
Mark box A with 1-6 and box B with 1-514. Manufacturing Resource Planning (MRPII) /Enterprise Resource Planning 15. Executive Information Systems / Decision Support Systems / Business Intelligence 16. Internet / Intranet 17. Logistics Management 18. Supply Chain Management 19. Transportation Management 20. Export Management 21. Finite Scheduling Systems 22. Electronic Data Interchange 23. Supplier Rating 24. Warehousing Management 25. Desktop Integration 26. Contract Management 27. Sales Promotions and Marketing 28. Internal quality 29. Supplier quality 30. Supplier capacity 31. Closer partnerships with suppliers 32. Closer partnerships with customers 33. Reduction in the number of suppliers (supplier rationalisation programme) 34. Outsourcing transportation and logistics 35. Transportation cost reduction
Don Carmichael Page 81 P5893614 36. Manufacturing cost reduction 37. IT-based logistics systems 38. Maintaining a Just in Time/Manufacturing/Supply environment 39. Internal organisation supply chain planning (Distribution Requirements Planning) 40. Due date adherence
To enter the prize draw please complete the following details. The winner will be contacted directly by BDM Largotim Limited. Name Title Company Tel Address
Don Carmichael Page 82 P5893614
Appendix B - Questionnaire Response Analysis
Analysis of Questionnaire responses.
Of the 1000 questionnaires mailed there were 21 responses giving a response rate
of just over 2%. 4% is an average response rate for this type of questionnaire. The
low response rate is indicative of the age, and thus the accuracy, of the mailshot
database being used (over 2 years old) and the complexity of the questionnaire
itself.
In an early section the reasons for the complexity of the questionnaire, the
unfocused questions and the low response were discussed.
The following is a series of tables analysing the questionnaire responses in detail.
1. Breakdown of the number of survey responses by industry sector.
Industry sector No. % Automotive 3 14% Process (include. Food & Beverage, CPG and Chemicals) 7 33% Medical 3 14% Industrial / Electronics 8 38% Table B.1 Responses by industry sector
Don Carmichael Page 83 P5893614 2. Breakdown of organisation market size.
Market size No. % Global 9 43% International 7 33% National 5 24% Local 0 0%
Table B.2 Responses by respondents view of the market size of their company.
3. Breakdown of the average number of Manufacturing, Distribution and Sales sites
across market size.
Market Manufacturing Distribution Sales Global 5.1 3.9 8.3 International 5.3 3.7 3.9 National 2.4 4.6 14.2 Local 0 0 0
Table B.3 Breakdown of the average number of sites within a company.
For the purposes of the questionnaire, the Manufacturing function was defined as the
collection of activities that directly convert, machine or process products to add
value. The Distribution function was defined as those activities that add value by
moving, transporting, warehousing together with the brand management and
logistics functions.
The National organisation Sales sites is distorted by a single ‘Food & Beverage’
company having 47 sales sites. This may be that the company sells from vans or is
including sales outlets not owned by the company; corner shops or garages for
example.
Don Carmichael Page 84 P5893614
Without this anomaly factored in, the average number of National Sales sites comes
down to 6.
4. Breakdown of the average number of Manufacturing, Distribution and Sales sites
across all market sizes.
Type of site No. Manufacturing sites 4.2 Distribution sites 4 Sales sites 8.8
Table B.4 Overall average number of sites across function.
Again the number of sales sites is distorted by the single ‘Food & Beverage’
company having 47 sales sites.
Without this anomaly factored in, the average number of Sales sites across all
market sizes comes down to 6.
5. Percentage split across Manufacturing and Distribution
This question asked respondents ‘what percentage split across Manufacturing and
Distribution / Logistics would you describe your site’s activities?’. The purpose of the
question was to find the mix of manufacturing and distribution activities found in the
respondent’s companies. Businesses with a low added value content, an assembly
and packaging company for instance, may have described themselves are more of a
distribution company than a manufacturing company.
Don Carmichael Page 85 P5893614
0
1
2
3
4
5
6
No. of companies
0 10 20 30 40 50 60 70 80 90 100
Manufacturing as a % of business function
Figure B.5.1 Percentage spread of the Manufacturing function across respondents.
Figure B.5.1 shows that more companies thought of themselves as predominantly
manufacturing organisations. This is signified by the higher number of companies in
the 80, 90 and 100% bracket. The 100% bracket is where companies thought of
themselves as purely manufacturing companies, undertaking no distribution
activities. It must be remembered that all of these responses may have been
misinterpreted by the individuals answering the questionnaire and the answers may
be biased by their view of the company. A Manufacturing Director will more than
likely emphasise the manufacturing function of the company above any distribution /
logistics functions.
Don Carmichael Page 86 P5893614
0123456789
10
No. of companies
0 10 20 30 40 50 60 70 80 90 100
Distribution as a % of business function
Figure B.5.2 Percentage spread of the Distribution function across respondents.
Figure B.5.2 shows that very few companies thought of themselves as purely
distribution / logistics organisations (one company each in the 90 and 100% bracket).
What is interesting here is that few companies thought of themselves as both a
manufacturing and distribution company in equal weighting.
Perhaps the popularity of third party logistics has forced many companies to
reevaluate their strengths and concentrate on either the manufacturing added value
or the distribution. There are some companies such as Ronson who see themselves
as primarily a brand management company who happen to undertake their own
distribution .
6. Business Issues
For each set of figures below, the questionnaire question number is followed by the
title. A breakdown of the responses is then given where the response to the ‘Severity
of business problem’ question is ‘3’ being a ‘problem’ through ‘4’ being a ‘serious
Don Carmichael Page 87 P5893614 business problem’ to ‘5’ a ‘very serious business problem’. The actual range of
available responses was :
1 No problem
2 A minor problem
3 A problem
4 A serious business problem
5 A very serious business problem
6 Not applicable
The following analysis ignores responses of 1 or 2 as the intention was to analyse
only the business issues that were deemed a significant problem to each business.
It must again be stressed that due to the low number of responses and the negativity
of the questions the results analysis must be treated with extreme caution. People
are naturally defensive about admitting problems within their own business;
especially if they own the problem. Instead of asking the ‘severity of a business
problem’ a more honest answer may have been achieved where the question asked
‘how successful the company felt’ each particular issue was. This can only be noted
for any future survey.
Where a significant number of responses were ‘6’ or ‘not applicable’ these are also
reported.
Not all questions are reported here. Only the questions that were presented by the
author are analysed. Questions such as those examining how much of a problem
Don Carmichael Page 88 P5893614 desktop integration was, could have been relevant to a wider study but, in the
author’s view, were not relevant to this project. Questions on topics such as desktop
integration and export management were added at Largotim’s request to allow them
to justify the resources required to run the survey. Questions on the timing of any
project to address the issues were also added by Largotim.
14. Manufacturing Resource Planning (MRP II) / Enterprise Resource Planning
(ERP).
Severity No. % 3 8 38 4 4 19 5 1 5 Total 13 62 Table B.14 Percentage of respondents who thought MRP II / ERP was a problem or
a serious business problem within their organisations.
Unfortunately, MRP still does not get the press it deserves. Being in the MRPII/ERP
business, the author recognises that many MRP II implementations have not been
as successful as they might have been if proper training, top-level management
support and the disciplines required had been present in each implementation
project from the start.
This is worrying for SCP vendors who still need to co-exist with MRP II/ERP systems
to get the transactional data required such as inventory movements, sales and
purchase orders. SCP implementations hit exactly the same issues as ERP II/MRP
implementations and require similar levels of data accuracy and commitment.
Don Carmichael Page 89 P5893614 17. Logistics Management
Severity No. % 3 4 19 4 2 10 5 0 0 Total 6 29
Table B.17 Percentage of respondents who thought Logistics Management was a
problem or a serious business problem within their organisations.
Questions 17 and 18 were intended as catch all questions were one company may
have interpreted Logistics Management as essentially different to Supply Chain
Management.
18. Supply Chain Management
Severity No. % 3 2 10 4 4 19 5 0 0 Total 6 29
Table B.18 Percentage of respondents who thought Supply Chain Management was
a problem or a serious business problem within their organisations.
It is interesting to note that although the total figures for Logistics and Supply Chain
Management were the same, the makeup of the figures was quite different. Supply
Chain issues are obviously seen as more important than Logistics issues with a
Don Carmichael Page 90 P5893614 higher number of ‘4’ responses, ‘a serious business issue’. This relates well to the
current interest levels in supply chain terminology and issues.
19. Transportation Management
Severity No. % 3 6 29 4 2 10 5 0 0 Total 8 38 Table B.19 Percentage of respondents who thought Transportation Management
was a problem or a serious business problem within their organisations.
Nearly two-fifths of respondent felt that transportation issues caused problems for
their businesses. Transportation issues have become a much bigger proportion of
overall cost build-up in recent years because of the pressures towards rapid, Just-In-
Time delivery of Less Than Load (LTL) shipments and the subsequent increase in
transport journeys to cope with this.
21. Finite Scheduling Systems
Severity No. % 3 5 24 4 3 14 5 0 0 Total 8 38
Table B.17 Percentage of respondents who thought Finite Scheduling Systems were
a problem or a serious business problem within their organisations.
Don Carmichael Page 91 P5893614 It is interesting that Finite Scheduling Systems, which are part of the ‘push’
methodologies like MRP scheduling, are not mentioned at all in the lean thinking
texts [5], [23]. Yet, here, nearly two-fifths of respondents determined Finite Capacity
Scheduling (FCS) systems to be a business problem. This points to the conclusion
that many businesses are coping with the faster response times and smaller quantity
demands from customers by trying to schedule the resulting chaos without looking at
any ‘lean’ principles.
22. Electronic Data Interchange
Severity No. % 3 7 33 4 1 5 5 0 0 Total 8 38
Table B.22 Percentage of respondents who thought Electronic Data Interchange was
a problem or a serious business problem within their organisations.
Electronic Data Interchange (EDI) has now become quite common and not just in the
automotive and retail sectors where many EDI concepts were developed. EDI allows
businesses to rapidly communicate demand, supply and financial information up and
down the supply chain from customers to suppliers. EDI has been forced on many
companies by their larger customers, initially to reduce costs from the customer side.
A two-fifths response here possibly reflects the range of ‘standards’ and ‘modified’
EDI messages that some suppliers have to receive from their customers. Most
Don Carmichael Page 92 P5893614 communications from supermarkets are either EDIFACT or TradaNet messages with
ODETTE standards being pursued in the automotive industry.
Rapid communication up and down the supply chain is key to supply chain
optimisation.
23. Supplier Rating
Severity No. % 3 6 29 4 3 14 5 0 0 Total 9 43 Table B.23 Percentage of respondents who thought Supplier Rating was a problem
or a serious business problem within their organisations.
From the author’s own experiences within the ERP / MRP II business, it is surprising
how unsophisticated supplier rating (vendor evaluation) mechanisms are within
many businesses. This is reflected in the figures above. It can only be surmised how
supplier ratings are being used; perhaps to penalise in no-win, combative customer
supplier relationships or in relationship building with those companies using in ‘lean’
enterprise techniques.
Don Carmichael Page 93 P5893614 28. Internal Quality
Severity No. % 3 9 43 4 1 5 5 0 0 Total 10 48
Table B.28 Percentage of respondents who thought Internal Quality was a problem
or a serious business problem within their organisations.
29. Supplier Quality
There was 1 response of Severity 6 (Not applicable) equivalent to 5%.
Severity No. % 3 5 24 4 2 10 5 0 0 Total 7 33
Table B.29 Percentage of respondents who thought Supplier Quality was a problem
or a serious business problem within their organisations.
It is perhaps surprising that internal quality was seen as more of a problem than
supplier quality when many internal quality problems can usually be traced back to
the supplier. The quality problem can either be build quality or design quality which
really is a relationship issue.
Don Carmichael Page 94 P5893614 30. Supplier Capacity
There were 4 responses of Severity 6 (Not applicable) equivalent to 19%.
Severity No. % 3 1 5 4 1 5 5 0 0 Total 2 10
Table B.30 Percentage of respondents who thought Supplier Capacity was a
problem or a serious business problem within their organisations.
The figures for Supplier Capacity are surprising low. This may be because most
companies have no view of Supplier Capacity and when purchase orders are
delivered late they have to concentrate on spending more time with tools such as
Finite Capacity Schedulers (which are more of a problem in the survey), balancing
their internal capacity.
Don Carmichael Page 95 P5893614 31. Closer partnerships with suppliers
There were 2 responses of Severity 6 (Not applicable) equivalent to 10%.
Severity No. % 3 4 19 4 1 5 5 0 0 Total 5 24 Table B.31 Percentage of respondents who thought that closer partnerships with
suppliers were a problem area or a serious business problem within their
organisations.
The low levels of figures on this question could be interpreted in two ways;
• that closer partnerships with suppliers are seen as unnecessary in a combative,
hands-off environment where the threat of penalties through elaborate terms and
conditions is seen by the purchasing department as the closest the relationship
needs to get
• or that lean thinking has permeated down to purchasing departments such that
closer relationships have evolved with suppliers and are not causing the levels of
problems they once did.
Don Carmichael Page 96 P5893614 32. Closer partnerships with customers
There were 2 responses of Severity 6 (Not applicable) equivalent to 10%.
Severity No. % 3 5 24 4 3 14 5 0 0 Total 8 38
Table B.32 Percentage of respondents who thought that closer partnerships with
customers were a problem area or a serious business problem within their
organisations.
It is to be expected in customer driven companies that relationships with the
customer would be a higher priority over relationships with suppliers.
33. Reduction in the number of suppliers (supplier rationalisation programme)
There were 5 responses of Severity 6 (Not applicable) equivalent to 24%.
Severity No. % 3 2 10 4 1 5 5 0 0 Total 3 14
Table B.33 Percentage of respondents who thought that the reduction in the number
of suppliers was a problem area or a serious business problem within their
organisations.
Don Carmichael Page 97 P5893614 The responses here tend to suggest that in many cases supplier rationalisation
programs have already taken place within many businesses.
34. Outsourcing transportation and logistics
There were 6 responses of Severity 6 (Not applicable) equivalent to 29%.
Severity No. % 3 0 0 4 2 10 5 1 5 Total 3 14
Table B.34 Percentage of respondents who thought that outsourcing transportation
and logistics was a problem area or a serious business problem within their
organisations.
The very low response to this question suggests that many companies have either
already outsourced transportation using third parties such as TNT or Salverson, or
companies are happy to retain their own transport fleet, perhaps for image or
reliability reasons.
This question had intended to find out how many companies had thought about
outsourcing the management of the transportation logistics. An example would be
Technology Plc, part of ICL, who distribute Personal Computers (PCs) for the major
PC brand manufacturers. Technology Plc have third party distribution personnel in
offices on the Technology site. The responsibility for distribution is handed over as
Don Carmichael Page 98 P5893614 the PCs are kitted and loaded into cages but before they have been labeled and
loaded into the trucks and left the physical site.
35. Transportation cost reduction
There was 1 response of Severity 6 (Not applicable) equivalent to 5%.
Severity No. % 3 6 29 4 2 10 5 0 0 Total 8 38
Table B.35 Percentage of respondents who thought that transport cost reduction was
a problem area or a serious business problem within their organisations.
This question is related to question 19, on Transportation Management, and
probably reflects the same issues regarding the increasing cost of smaller and
quicker deliveries.
Don Carmichael Page 99 P5893614 36. Manufacturing cost reduction
There was 1 response of Severity 6 (Not applicable) equivalent to 5%.
Severity No. % 3 7 33 4 6 29 5 0 0 Total 13 62
Table B.36 Percentage of respondents who thought that manufacturing cost
reduction was a problem area or a serious business problem within their
organisations.
It is no surprise that the highest response figures would be for the easiest issue for
most companies to report, physically view and investigate.
37. IT-based logistics systems
There were 3 responses of Severity 6 (Not applicable) equivalent to 14%.
Severity No. % 3 6 29 4 2 10 5 0 0 Total 8 38
Table B.37 Percentage of respondents who thought IT based logistics systems were
a problem area or a serious business problem within their organisations.
Don Carmichael Page 100 P5893614 In the Deloitte & Touche / Institute of Logistics comparative survey [22] it is reported
that 80% of companies who had implemented integrated software systems stated
that logistics performance had improved as a result.
The results of this survey could point to the fact that many companies have
implemented such IT based systems and are gaining benefit, or that many
companies are still not convinced of the benefits of IT logistics solutions.
38. Maintaining a Just-In-Time/Manufacturing/Supply environment
Severity No. % 3 7 33 4 3 14 5 1 5 Total 11 52
Table B.38 Percentage of respondents who thought maintaining a Just-In-Time /
Manufacturing / Supply environment was a problem area or a serious business
problem within their organisations.
With a response of just over half this was a very positive statement on the business
problems caused by the quickening pace of business and the demand for Just-In-
Time manufacture and supply. The response seems to indicate that many
businesses have not yet adjusted to the ‘lean’ demands made upon them and are
struggling.
Don Carmichael Page 101 P5893614 39. Internal organisation supply chain planning (Distribution Requirements Planning)
There were 5 responses of Severity 6 (Not applicable) equivalent to 24%.
Severity No. % 3 2 10 4 2 10 5 0 0 Total 4 19 Table B.39 Percentage of respondents who thought internal organisation supply
chain planning was a problem area or a serious business problem within their
organisations.
The low response here indicates that many companies may only have had a single
site of operation or be unaware of the supply chain issues that are caused even
between two physical or internal divisions. With many manufacturing companies
moving towards cell based manufacture, there are supply chain issues created
between cells.
Don Carmichael Page 102 P5893614 40. Due date adherence
There were 2 responses of Severity 6 (Not applicable) equivalent to 10%.
Severity No. % 3 4 19 4 3 14 5 1 5 Total 8 38
Table B.40 Percentage of respondents who thought due date adherence was a
problem area or a serious business problem within their organisations.
The response of two-fifths is difficult to interpret here. It could be that in some cases
customer due dates are kept at the expense of high inventories to compensate for
problematic supplier due date adherence.
Don Carmichael Page 103 P5893614
Appendix C - Supply Chain Planning package features
The following issues and features are based on one supplied from Numetrix, dated
May 1997, provided as an additional part of a request for standard information on the
Numetrix products. The notes consider the Numetrix ‘Planx’ and ‘Schedulex’
products only.
It must be considered in the following text that, at the time of writing, Numetrix did
not have a demand management product. As such, the interpretation of maintaining
customer service levels within Planx/Schedulex, below, does not go beyond the
maintaining of safety or minimum stock levels. Demand in the form of forecast or
customer orders have to be input into Planx/Schedulex from an external demand
management system, possibly the sales order processing module of an MRP II/ERP
system.
Within an extended supply chain, optimisation routines would have to consider
transportation, distribution, warehousing and down-stream customer or service
provider considerations and constraints.
Planx/Schedulex Considerations and Constraints :
The constraint based planning objectives built into the Planx/Schedulex products are
designed to balance 3 main business drivers :
Don Carmichael Page 104 P5893614 1. Increase/maintain specified customer service levels (measured as ‘Available On
Time or ‘In Full’)
2. Minimise stockholding levels
3. Increase factory efficiency
In Planx/Schedulex this is achieved by applying penalty points to key element.
Planx/Schedulex will then provide the optimal solution by minimising overall penalty
costs to :
1. Increase/maintain customer service
(penalty for stock falling below safety and minimum stock levels)
2. Minimise stockholding levels
(penalty for holding stock)
3. Increase factory efficiency
(penalty for running changeovers)
In addition to these ‘soft’ constraints, which can be violated at a penalty, there are
some ‘hard’ constraints which cannot be violated such as a cooling period after heat
treatment. ‘Hard’ constraints affect the way production is scheduled.
It is usual for constraints to be set up as ‘hard’ for the immediate short term
schedule, where the constraints are more critical. For medium to long term
production scheduling the same constraints can be treated as ‘soft’ to allow more
flexible optimisation.
Don Carmichael Page 105 P5893614 Constraints
Some of the standard hard constraints modeled in Planx/Schedulex are :
• Preferred production lines by product, and alternatives.
• Preferred sequence (e.g. preferred colour or flavour sequence).
• Preferred cycle (production once per day or once every four weeks).
• Product to product specific changeovers
(also known as sequence dependent changeovers).
• Ramp up curves (gradual increase in throughput rate after changeovers).
• Batch sizing applied per product per line.
• Minimum run lengths per product.
• Availability or raw materials.
(Numetrix only recommend that the Planx/Schedulex products be given the
details of key raw materials which may be a constraint on the planning
process. Numetrix recommend materials which are neither key nor critical to
the planning process be defined as ‘soft’ constraints only.
This area is important as the planning of intermediate and raw materials has,
in the past, always been the domain of Materials Requirements Planning
(MRP) mechanisms. It can be seen here that to find the truly optimal plan both
materials, capacity and other constraints must be planned concurrently. This
is known generically as Constraint Based Planning (CBP)).
• Intermediate inventory (if a multi-stage production process).
• Minimum inventory level (can also be a soft constraint).
Don Carmichael Page 106 P5893614 • Over-stock level (can also be a soft constraint).
• Maximum level
(can also be a soft constraint; used for modeling maximum storage or a form
of shelf-life modeling).
• Staffing levels
(these can vary over time due to different shift patterns ad holiday
arrangements; staffing can also be a soft constraint or a monitored
constraint).
• Shelf life
(which can transform stock into spoilage stock if violated. Numetrix
Planx/Schedulex can provide age profiles and age histograms of inventory).
• Waiting time
(i.e. cooling period or maturing period between production stages or
operations).
• Scheduled maintenance or any period of non-availability of production lines.
• Shared resources
(i.e. labour or a palletiser resource may constrain 3 production lines so that
only 2 lines at a time can be run, but this may be any 2 from the 3 lines).
• Group storage constraints
(this is a constraint against a warehouse and not an individual product).
• Synchronised manufacturing
(this is where 2 production operations/stages are linked say, so that no
intermediate stock can be held).
• Batch constraints by family
Don Carmichael Page 107 P5893614
(i.e. where one product type is planned to a minimum run length or batch
constraint but different pack sizes can be scheduled within this production
run).
Features of the Numetrix Planx/Schedulex products
1. Capacity Planning
• Finite Capacity Planning.
• Load Smoothing.
• Selection of appropriate shift patterns
(i.e. finding am optimum solution between carrying stocks and running
overtime later in the time horizon).
• Offloading of over capacity to alternative production lines.
• Graphical calendar
(to allow the user to specify shift patterns by line and allowing entry of
holidays and non-working time (exceptions)).
• Consideration of holidays / maintenance periods by production line or by site.
2. Activity Planning
• Inputs are Forecast, Customer Orders or both.
(user-defined rules can be defined for forecast consumption).
• Components of demand
(i.e. specific customer orders with priorities which can be connected to
specific production activities).
Don Carmichael Page 108 P5893614 • Multi-stage planning
(the bottleneck is usually planned first then preceding stages backward
scheduled and proceeding stages forward scheduled).
• Modeling of by-products.
• Modeling of key raw material consumption.
• Different throughput rates per product/line combination.
• Various constraints considered when scheduled.
• Graphical ‘Gantt’ charts of sequenced production and inventory profile graphs
produced.
Don Carmichael Page 109 P5893614 3. Automatic Planning
The planning algorithms respect scheduled fixed periods by time, by specific
production lines or by individual product. The schedule is re-created around fixed
activities.
Construction Algorithms
Schedulex contains several algorithms which will construct schedules automatically
according to the constraints and penalties set up to reflect the business objectives
defined.
These algorithms cover:
• Master Production Scheduling (MPS) where production is planned per
specific time bucket (e.g. daily or weekly plan) and
• More specific algorithms to:
• plan in multiple stages (e.g. Just-In-Time (JIT) schedules).
• plan around strictly defined front-loading demand sequences which
must be adhered to.
• plan by product family grouping.
• produce multi-stage plans.
Don Carmichael Page 110 P5893614 Improvement Algorithms
Construction algorithms are used to re-plan the whole schedule and may only take
place once per day, for instance. Between these “regenerative” planning tasks (to
use MRP terminology), smaller point changes may be required to be planned into the
schedule due to updates in production, say, or the addition of a new customer order.
These “net change” planning tasks (again using MRP terminology) utilise
improvement algorithms. There would be no requirement to re-plan the whole
schedule just to adjust the existing schedule to reflect the change data.
4. Manual Planning
Manual changes to the plan can be made to the graphical “Gantt” chart display. The
user can add, move, copy, substitute and delete items, adjust quantities and
interrogate items on the schedule.
Manual planning is usually used when the planner has local knowledge over and
above the standard constraints built into the scheduling rules defined with the
Planx/Schedulex products. This functionality is also used when there are minor
changes such as quantity changes due to limited packaging or material stock
availability.
5. Reporting
The basic standard reports in Schedulex include:
Don Carmichael Page 111 P5893614 • Activity reports showing sequenced start and stop times of each activity by
production line.
• Exception reports to enable the planner to assess the quality of the plan.
• Summary reports and spreadsheet style reports by defined bucket (e.g. daily
buckets for the first week then weekly then monthly buckets showing inventory
profiles, capacity utilisation and raw material requirements.
• Other simple reports can be constructed easily. It is common to export data to
report writing tools for more complex or sophisticated reports.
Don Carmichael Page 112 P5893614
Bibliography
Fundamental Readings in Supply Chain Management
Supply chain analysis techniques are largely based on the operations literature. JIT
or lean production practice is an important subset of supply chain management.
Womack is the standard work on lean production and also examines the
organisational relationships that surround lean production. Harrison is an overview of
manufacturing organisation in design, distribution and production networks with
emphasis of the roles large and small firms have within these networks.
Arntzen, B. C., Brown, G. G., Harrison, T. P., & Trafton, L. L., ‘Global supply chain
management at Digital Equipment Corporation’, Interfaces, 25, (1), pp. 69-93,
(1995).
Askin, R. G., & Standridge, C. R., ‘Modeling and Analysis of Manufacturing
Systems’, John Wiley and Sons, Inc., New York, (1993).
Davis, T., ‘Effective supply chain management’, Sloan Management Review, pp. 34-
46, (Summer 1993).
Drucker, P. F., ‘The emerging theory of manufacturing’, Harvard Business Review,
pp. 94-102, (May-June, 1990).
Don Carmichael Page 113 P5893614 Harrison, B., ‘Lean and Mean: The Changing Landscape of Corporate Power in the
Age of Flexibility’, Basic Books, New York, (1994).
Hayes, R.H., & Wheelwright, S. C., ‘Restoring Our Competitive Edge: Competing
Through Manufacturing’, John Wiley & Sons, New York, (1984).
Lee, H., & Billington, C., ‘Managing supply chain inventory: Pitfalls and
Opportunities’, Sloan Management Review, pp. 65-73, (1992).
McMillan, J., ‘Managing suppliers: Incentive systems in Japanese and U.S industry’,
California Management Review, 32, (4), pp. 38-55, (1990).
Pine, B. J., II, Victor, B., & Boynton, A. C., ‘Making mass customisation work’,
Harvard Business Review, pp. 108-119, (September-October 1993).
Womack, J. P., Jones, D. T., & Roos, D., ‘The Machine That Changed the World’,
HarperPerennial, New York, (1990).
Zipkin, P. H., ‘Does manufacturing need a JIT revolution?’, Harvard Business
Review, pp. 40-50, (January-February, 1991).
Don Carmichael Page 114 P5893614 Production Aspects of Supply-Chains
Basic Conceptualisations of Production
Many supply-chain techniques are designed with repetitive, large scale production in
mind and largely stem from production and operations theory.
Drucker, P. F., ‘The emerging theory of manufacturing’, Harvard Business Review,
pp. 94-102, (May-June, 1990).
Hayes, R. H., & Wheelwright, S. C., ‘Restoring Our Competitive Edge: Competing
Through Manufacturing’, John Wiley & Sons, New York, (1984).
Manufacturing Theory
Supply chain analysis builds on the conceptualisation and modeling approaches to
production analysis. There are trade-offs between holding inventory and production
efficiency and this is a starting point for the more complex analysis of supply chain
systems under uncertainty.
Askin, R. G., & Standridge, C. R., ‘Modeling and Analysis of Manufacturing systems’,
John Wiley and Sons Inc., New York, (1993).
Don Carmichael Page 115 P5893614 Baker, K. R., Powell, S. G., & Pyke, D. F., ‘Buffered and unbuffered assembly
systems with variable processing times’, Journal of Manufacturing and Operations
Management, 3, pp. 200-223, (1990).
Banker, R. D., Datar, S. M., & Kekre, S., ‘Relevant costs, congestion and
stochasticity in production environments’, Journal of Accounting and Economics,
10(3), pp. 171-197, (1988).
Baudin, M., ‘Manufacturing Systems Analysis With Application to Production
Scheduling’, Englewood Cliffs, Yourdon Press, New Jersey (1990).
Conway, R., Maxwell, W., McClain, J. O., & Thomas, L.J., ‘The role of work-in-
process inventory in serial production lines’, Operations Research, 36, (2), pp. 229-
241, (1988).
Gershwin, S. B., ‘Manufacturing Systems Engineering’, Englewood Cliffs, Prentice-
Hall Inc., New Jersey, (1994).
Production-Distribution Systems
Production-distribution systems are a technical name for supply chain analysis and
stem from the literature on multi-echelon inventory theory.
Arntzen, B. C., Brown, G. G. Harrison, T.P., & Trafton, L. L., ‘Global supply chain
management at Digital Equipment Corporation’, Interfaces, 25, (1), pp. 69-93,
(1995).
Don Carmichael Page 116 P5893614
Cohen, M. A., & Lee, H. L., ‘Strategic analysis of integrated production-distribution
systems: Models and methods’, Operations Research, 36, (2), pp. 216-228, (1988).
Davis, T., ‘Effective supply chain management’, Sloan Management Review, pp.35-
46. (Summer, 1993).
Lee, H. L., & Billington, C., ‘Material management in decentralised supply chains’,
Operations Research, 41, (5), pp. 835-847, (1993).
Lee, H., & Billington, C., ‘Managing supply chain inventory: Pitfalls and
Opportunities’, Sloan Management Review, pp.65-73, (1992).
Just-In-Time/Lean Production
Womack is the standard work on lean production within the automobile industry.
Lean production techniques or JIT have spread from the Japanese automobile
industry to other industries that manufacture repetitive products. There are specific
production scheduling techniques for lean production environments. JIT systems are
not universally applicable.
Baudin, M., ‘Manufacturing Systems Analysis With Application to Production
Scheduling’, Englewood Cliffs, Yourdon Press, New Jersey, (1990).
Karmarkar, U., ‘Getting control of Just-In-Time’, Harvard Business Review, pp. 122-
131, (September-October, 1989).
Don Carmichael Page 117 P5893614
Womack, J. P., Jones, D. T., & Roos, D., ‘The Machine That Changed the World’,
HarperPerennial, New York, (1990).
Zipkin, P.H., ‘Does manufacturing need a JIT revolution?’, Harvard Business Review,
pp. 40-50, (January-February, 1991).
Design for Manufacturability/Supply-Chain
Design for manufacturability largely focuses on one part of the production process,
usually the final assembly point. It is also concerned with improving design to reduce
costs of production and improve the quality of the product.
Design for supply-chain aims to design products or families which optimise
production within the entire supply chain.
Nevins, J. L., & Whitney, D. E. (Ed.)., ‘Concurrent Design of Products and
Processes: A Strategy for the Next Generation in Manufacturing’, McGraw-Hill, New
York, (1989).
Ishii, K., Juengel, C., & Eubanks, C., ‘Design for product variety: key to product line
structuring’, In Proceedings of the ASE 7th International Conference on Design
Theory and Methodology, ASME, Boston, (1995).
Don Carmichael Page 118 P5893614 Organisational Contexts
Both supply chains and production crosses organisational boundaries so any
attempts to improve methods will have to consider the organisational challenges and
implications.
Network Organisations
Supply chains are typically arranged in a network form; a loose confederation of
organisations. Network focus can be placed at the personal, organisational and
institutional/structural levels. Harrison is a work examining the structural distribution
and comparative organisation of networks in the global economy.
Harrison, B., ‘Lean and Mean: The Changing Landscape of Corporate Power in the
Age of Flexibility’, BasicBooks, New York (1994).,
Co-ordination Theory
Economic co-ordination theory concerns the efficient transmission of information to
support economic activity. Information is transmitted either as prices as in a market
or as non-price information as in a hierarchy to support economic activity. Prices can
be used as a mechanism to speedily co-ordinate the supply chain.
Milgrom, P., & Roberts, J., ‘Economics, Organisation and Management’, Englewood
Cliffs, Prentice Hall, New Jersey, (Chapter 4), (1992).
Don Carmichael Page 119 P5893614 Incentives and Contracts
Inter organisation commercial relationships are approached through contracts and
incentive structures; often through specific penalty/performance contracts.
Partnering, an extra-contractual agreement, can be a mechanism to lubricate
contractual friction.
Aoki, M., ‘Information, Incentives, and Bargaining in the Japanese Economy’,
Cambridge University Press, New York, (1988).