DAILY NEWS Oct 26, 2012 7:00 AM - 0 comments

The supply chain is not a game of perfect

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By: Scott McLendon, vice-president product management & marketing, Allied Electronics Inc.
2012-10-26

The famed sports psychologist/author Dr. Bob Rotella wrote the book, “Golf Is Not a Game of Perfect.” He was right. It’s safe to say that golfers don’t hit a perfect shot every time they swing the club, but they aim to play the best round possible as measured by their score (the lower the better in golf).

A few keys to shooting low scores on the golf course are to minimize the really bad mistakes, hit each shot with a clear mind and a specific target, and try to sink every putt no matter the distance. Likewise, when it comes to successful supply chain management, “Supply Chain Is Not a Game of Perfect,” and similar aims apply in order to provide the best possible service to the customer.

In the middle

As authorized distributors, we live our lives ‘in the middle.’ We are a conduit for our authorized suppliers to get their products to the consumer. Maybe we like being tossed around like cats in a Steve Martin skit. (Wait, did I just date myself?) I joke, but we value our position and strive to provide superior service 100% of the time.

The challenge is that we live in a time of global products and markets. Markets today react to slight changes, in either supply or demand, more rapidly than ever. Authorized distribution plays an invaluable role in seamlessly supporting customer needs in the ever-changing sea of supply and demand. A key value proposition we provide as an authorized distributor is to make sense of all this rapidly changing, sometimes conflicting, information and to somehow smooth it out so that our customers still get great service.

To help us do that, we have a series of proven processes. Our forecasting tools are better, and in general, manufacturers, distributors and end customers communicate more effectively than ever. So, why can’t we all have a 100% service level all of the time for every customer? Let’s take a look at the hiccups of forecasting, lead times and communication.

Forecasting: What’s the weather like today?

It would be useless to check the weather forecast for a big event happening six, three or even one month from now. Why, because the weather changes continuously. Sure, there may be weather patterns, but all patterns are broken every now and then.

As you can imagine with our rapidly changing market, predicting appropriate inventory levels is a challenge for the entire supply chain. As an authorized distributor, it is our job to work with both the manufacturer and the customer to deliver the required quantity of products on time, every time. To determine our inventory levels, we attempt to forecast customer needs.

Unfortunately, we’ve all experienced forecast modifications. Depending on the economic climate, it seems to be either, “I know I ordered 100 pieces, but now I need 1,000,” or “I know I ordered 1,000 pieces, but now that’s 10-year’s worth of product, and I don’t want them.”

Forecasting is at best an approximation and at worst an utter disaster. I would argue that for most of us, a forecast longer than 90-days is just a guess - maybe an educated guess if you’re really good.

To compensate for ever changing demand profiles, supply chain planners need flexible forecasting tools that allow them to stratify SKU’s beyond the traditional ABC Pareto methodology. As an authorized distributor, we have to be diligent in identifying our customer’s critical products, stratify them into higher service classes and utilize optimization tools to ensure on-time delivery.

Fluctuating lead times:

It will be how long until we get that?

Fluctuating lead times also prevent us from living in 100% service level utopia.

In recent years we’ve seen manufacturer’s lead times vary tremendously. Not too long ago, one of our suppliers had 149 week lead times. Really? That’s almost three years. Why not just say, “We don’t have a clue when we can ship this stuff to you.” What caused this extensive lead time? Lead times are greatly dependent on production capacity and raw material availability.

During the 2009 recession (some may argue that it’s still ongoing but technically it’s not), many manufacturers of component parts reduced their global production capacity. When demand returned with a vengeance in 2010, many manufacturers were slow to bring capacity back online - resulting in exponential lead time increases and in some cases allocation of finished goods inventory.

Due to global competition and a host of other economic pressures, it’s no longer acceptable for authorized distributors to be purely reactionary leading to potential ‘stock-outs’. It’s imperative that distributors and manufacturers alike make the proper investments in business intelligence technologies allowing them to predict and respond to ever-changing delivery performance in a proactive manner. Predictive technologies now allow supply chain planners to detect lead time changes early enough to take appropriate measures, protecting service delivery and preventing excess stock build-up in the supply chain.

Reactive communication: What…you didn’t get the update?

Distributors are in unique positions to experience both the good and bad of modern communication. The preferred method of communication these days is generally electronic, be it EDI, email or a web-based portal where information is deposited for distributors to ‘go get.’ These methods are great, but sometimes updated or new information can get lost. As a result, our communications can be reactive instead of proactive. It appears to be a ‘CYA’ mentality versus one where world-class customer service is the goal.

In a common scenario we encounter as a distributor, our supplier may say, “Hey, we changed our electronic price file to show that our lead times went from 16 to 32 weeks. Didn’t you see it?” Our Answer… “No, not until we went to expedite the parts that weren’t delivered on time.”

As our portfolio continues expanding to provide the market more products, our reliance on electronic communications will inherently increase. Our combined extended offer from our 300+ suppliers is in the tens of millions of individual SKUs. While necessary due to the sheer volume of order data being transmitted, authorized distributors need processes that enable us to easily detect and address unacknowledged orders and other dropped communications that lead to customer frustration and low service delivery.

In conclusion

Forecasting, published lead times and various communication methods are tools distributors use to help get and provide superior service in rapidly changing markets, but they are not perfect. Just like the keys to ‘not a game of perfect’ for golf, the keys to supply chain management are to minimize the really bad mistakes, work with each supplier and customer focused on clear goals and targets, and communicate proactively before hazards come into play. We may not get it right 100% of the time, but 100% of the time we aim to get it right. And, that’s a good round.

Photos

Allied warehouse is an integral part of active supply chains.
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Scott McLendon, VP product management & marketing Allied Electronics Inc.
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