What does it take to deliver what your customer needs, in the quantity he needs, on time, every time? It should simple. It really is the most fundamental requirement of any manufacturing or distribution business. So why do so many businesses find on time, in full delivery so hard to achieve?
Even if you think you are doing well, you might be kidding yourself. On time in full delivery (some companies call it DIFOT – delivery in full and on time) is perhaps the most abused metric in business (next to profit of course!). Due dates get shifted, tolerances get allowed and lead times get imposed on customers. If you want to know how good your business’ delivery performance is, there is only one person to ask – your customer. Chances are, you may get an unpleasant surprise when the customer's perception of your service does not accord with you own. Meeting the customer’s expectations – the exact expectations, not what you think they should be, then becomes the starting point of improvement.
Most companies I see fall in to one of three categories:
- Achieving poor delivery performance.
- Customers are dissatisfied with your delivery performance, even when your own metrics show you are performing well.
- You achieve good delivery performance at an unacceptably high cost to your business or by imposing long lead times, penalties for poor forecasting or other restrictions on customers.
So how do you improve on time in full performance, without sending your business bankrupt? This is a big topic, that I address in my latest book, “On Time In Full: Achieving Perfect Delivery with a Lean Supply Chain” (Productivity Press, 2017). However, in this article I am going to address what I think are some of the underlying drivers of poor delivery performance so that you can identify these in your own business.
Long Lead Times
Lead time is the enemy of good delivery performance. This includes the lead time to process an order, the lead time to replenish goods from your suppliers, the lead times to manufacture and distribute your goods, and the lead time to pick and pack an order. Every day that you add to lead time will add inventory and will increase the risk of failing to deliver on time.
So how do you reduce lead time? The key to reducing lead time is to really understand it. You do this using a value stream map. You will develop a future state map that will highlight the practical steps you can take to reduce lead time in across your whole supply chain. These might include creating continuous flow in your manufacturing operations using lean techniques, addressing the root causes of supplier lead times, eliminating waiting time at ports and cross docks, and taking links out of your distribution chain.
Understanding Demand and Supply at the Right Level
Achieving on time in full delivery is as simple as getting an accurate forecast, isn’t it? It would be, if such a thing as an accurate forecast actually existed. We have as much chance of forecasting the demand for our products as we have of forecasting the weather. Many businesses try to have an accurate forecast down to the level of individual SKUs out to the full replenishment lead time of the business (often three to six months). I would argue that you will never ever get a forecast that is accurate to this level, this far out. Therefore you make do with an inaccurate forecast and paper over the errors with inventory. I spent fruitless years trying to make this work with a series of ERP systems, and I have also heard many a committed but frustrated supply chain manager cry “If only sales could give us an accurate forecast.”
You do need a forecast; it’s just that you need to be realistic about at what level you can forecast and what you can do with a forecast. When you think about the weather, it is useful to know that January will be colder than September and that July will usually be hot and dry. This information allows you to make long-range plans about travel, clothing, gardening and any number of things. Likewise, a high-level monthly forecast of your demand at the level of value streams or (at most) key product families is extremely useful in helping your business achieve on time delivery. This kind of forecast allows you to plan your capacity and labor. It also enables you to engage your supplier in long-term discussions about how much they will need to supply.
What I am talking about here is a sales and operations planning process, or S&OP for short. Many supply chain experts present S&OP as a “high level” tool, something you might think about once the basics are in place. I disagree. I see S&OP as one of the fundamental building blocks of an effective supply chain. S&OP is often made very complex with dozens of meetings and huge decks of metrics. However, at its most fundamental it involves three key steps that any business can do:
- A Demand Review: This is a meeting between sales and supply chain about what are the expected changes in demand over the next 12 months compared to the previous month’s forecast. The output of this review is an agreed high-level monthly forecast and a list of the assumptions behind that forecast.
- A Supply Review: This is a meeting between operations and supply chain to discuss the ability of the business to meet the forecast that sales has agreed to. This will highlight the need for increases in production capacity and labor required to meet the forecast demand. It should also highlight the ability of key suppliers to meet this demand. The output of this review is a set of recommendations for investments, hiring (or downsizing) and supplier actions to meet the forecast demand.
- The S&OP Meeting: This should be a final review and sign off of the forecast and supply recommendations involving the key leaders in the business. It needs to look out over the whole 12 month forecast horizon, with a focus on the next six months, rather than focus on the next month. It is good to review past month’s performance, but make sure the main focus of the meeting is on the future and not the past.
A simple S&OP is quite easy to set up and will really transform how you plan for your business.
Effective Product Management
It is easier to ensure on time in full delivery of 100 products than it is 10,000. Many businesses I see show poor discipline in product management allowing for a proliferation of product lines and a “long tail” of slow-moving items with erratic demand. The fewer products you have, the easier they will be to manage and the better on time delivery you have. Of course, if you NEED 10,000 line items to service your market, that is just a reality you must cope with; however you should always challenge the “tail.” To improve product management there are some simple steps you can follow:
- Every product or group of products in your business must have someone responsible for product management. This person should be responsible for deciding which products get introduced and which are deleted and when.
- You should always analyze your sales and inventory to know which products are contributing to revenue and profits and which are not. Those that aren’t should always be challenged as to whether they should remain or be deleted.
- Before any new product is introduced, a business case should be prepared outlining what this new product will deliver to the business and including what products might be replaced by the new product.
- Your business needs a robust process for the ramp up of new products and the run out of old products to minimize obsolete stock when products are upgraded.
This is only a brief introduction to the factors that drive on time in full delivery. However, hopefully it provides you with a bit of inspiration to start looking at your own business. Remember, there are no perfect answers for your supply chain. There will always be a compromise between inventory, cost and delivery. Supply chain is a highly contested area, with experts zealously promoting one solution or another as “the answer.” My suggestion is start with the problem – on time in full delivery – and then pragmatically select the tools and techniques that give your business the best outcome. Whether you have a “Class A” supply chain or are truly “lean” is less important than whether your customers get what they want, when they want it in the quantity they want every time.
Tim McLean is a lean consultant, author and presenter. Tim’s two books, Grow Your Factory, Grow Your Profits: Lean for Small and Medium Sized Manufacturing Enterprises and On Time In Full: Achieving Perfect Delivery with Lean Thinking in Purchasing, Supply Chain and Production Planning have both been published by Productivity Press. Tim will be in the U.S. from October 9-12, so if you are interested in learning more please go to txm.com/contact-us.