Many companies have taken the opportunity afforded by the downturn to get to grips with complexity. Portfolios have been cleaned up, and the variance of products reduced - all of which is good news. But the impact to the bottom line has, for the most part, been quite limited. There is a growing realization that, to stay competitive, the capability to embrace and manage complexity must be enhanced

How can you achieve a step change in your ability to manage complexity?

Complexity is becoming an increasing issue as customers and consumers become more demanding. For many companies, the last 18 months have seen a renewed focus on product portfolio reduction, but this has generally been less successful than expected, with high levels of supply and manufacturing complexity still very much in evidence.

As a result, many companies are beginning to look at complementing the focus on complexity reduction with an improved ability to manage existing operational complexity.
The key lies in moving closer to the ‘sell one make one’ approach - if you could effectively manufacture and supply according to the rate of sale, and simplified your supply systems, where would the complexity be?


How do you successfully close the gap, whilst still protecting the economics of supply?

An optimum supply chain balances the underlying differences in demand and what customers value (‘characteristics of demand’) with what is feasible and economical from a supply perspective (‘conditions of supply’).

Our recent European Logistics Survey identified that in practice supply chains tend to be based around one of three types:

Type 1: low-cost, high-volume production – typified by consumer goods companies;
Type 2: bespoke, made-to-order production – typified by one-off projects such as ship-building;
Type 3: highly agile production – typified by the high-tech industry.

If you have critical mass, and a relatively homogeneous demand, then achieving the right balance between these three types is relatively easy, but those companies which lack these tend to struggle. What those companies need is a hybrid supply chain that supports more than one type

Segmented Value Streams
In our experience, the solution lies in adopting a segmented value streams approach.

The principal behind this is to find the best operating model for each segment of demand, in a way that supports the operation of a single integrated supply chain. This is defined in terms of volume, variability of production cycle and service, and considers issues such as availability, the ability to change an order and lead time.

The first step in developing segmented value streams is to understand the characteristics of demand and the conditions of supply by asking key questions such as what service level is required and how stable or predictable is the demand?

By answering these questions we can define the different value streams and determine the optimum configuration for the hybrid supply chain.

The second step is to work out how the different value streams interact with each other, and to build an integrated hybrid supply chain which is capable of meeting the various needs of the different value streams.

This means developing the service offers for each value stream around the supply capability and constraints, and only then developing the integrated supply approach.
Each value stream will have an optimal operating point with maximum efficiency and minimal cost base.

Challenges
While this sounds simple in theory, there are a number of core challenges that need to be overcome to make the operation work effectively, such as capacity management and planning.

Capacity management is typically based around fulfilling routine demand in the most efficient way, whilst offering up the opportunity to fulfil non-standard demand at marginal cost.

For planning, the key is to maintain integrity in the plan, and to use techniques like family-based planning wherever possible. This can ensure sequence optimisation, and reduce the effective batch size.

Specific material-to-line plans need to be developed for each category, reflecting its rate of movement and its level of variability – extending the segmented approach to components as well as finished products

These plans should be integrated with key suppliers, production processes and formal supply policies. Finally, a sales & operations planning process is implemented, covering both supply- and demand- balancing, as well as new product development and performance management metrics need to be aligned with the overall supply chain strategy.

In Conclusion
Whilst it isn’t usually possible to realise that ‘sell one make one’ dream, segmented value streams mean that, through better alignment of supply and demand links, it is possible to: successfully bring product complexity reduction programs to their full potential, and achieve a step change in organisation’s ability to manage complexity in manufacturing .

Both financial and non-financial benefits for many companies that have taken this route, in terms of top-line and bottom-line performance, customer service and others, have been far greater than expected.

LINK: www.atkearney.co.uk