Supply chain waste is costing companies (and ultimately consumers) billions of dollars each year. According to a study done in the United Kingdom, by Zencargo, these inefficiencies are costing UK businesses more than £1.5 billion ($1.98 billion) each year. In the United States, supply chain waste is costing companies even more. So, what can be done?
In other blogs, we have talked about what creates waste. The American Society for Quality (ASQ) suggests that waste falls in the categories of the acronym DOWNTIME – Defects, Overproduction, Waiting, Non-Utilized Talent, Transportation, Inventory, Motion, and Extra-processing. But what steps can be taken to eliminate waste in these areas? Take a look at these five factors that affect your operations’ efficiency and can help you reduce waste.
The first thing you need to do to reduce waste and improve efficiency is to break information silos using coordination and collaboration. These two elements are the pillars that support the entire supply chain. Coordination and collaboration refer to communicating information to all necessary stakeholders and ensuring they are on the same page. Poor communication with both internal and external stakeholders is a root cause for each form of waste and can lead to costly mistakes or to poor visibility in the supply chain.
Supply Chain Redesign LLC, located in Raleigh N.C. published a report where they found that a lack of internal collaboration and information was a top supply chain pain point. They also stated that “Poor communication between business units and disjointed legacy systems prevent coordination and alignment of sourcing and logistics strategies.” This makes work more difficult and wastes time and resources getting everyone together.
Communicating poorly with external stakeholders is disastrous as well. It can limit visibility and cause a cascade of other issues. It can cause mistakes, drive up costs, limit business opportunities, and increase supply chain complexity. Marketing guru, Seth Godin, put it simply. He said, “The less people know, the more they yell.” Marshall L. Fisher, professor of operations and information management at Wharton, referenced in his paper “What Is the Right Supply Chain for Your Product,” a U.S. food industry study that stated, “poor coordination among supply chain partners was wasting $30 billion annually.”
Improving communication and collaboration may seem easier said than done, but that is not necessarily the case. There are a few methods you can implement to improve communication with internal and external stakeholders.
• Technology – implement systems to record data and present it to necessary stakeholders. This can be through communication hubs like TMSs or blockchain, or by using tools like EDI.
• Training – teach your employees how to read and interpret the data and create a system where they share the information with other stakeholders – internal and external. Also, you can make your communication standards a condition of work with your vendors.
• Incentives – these can be positive or negative motivators to ensure communication is followed through.
Wharton Business School said in article, that communication and collaboration “can mean the difference between the merely functioning and the profitable [companies].”
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Traceability ties in with visibility as well and is a great way to reduce waste. It allows stakeholders to follow a part or product through the production process and have real-time data as to its status and position. It can also help companies in a few more ways.
Before launching a new product or process, it is important to take a baseline measurement of the current system or environment. That way you can measure the impact the change caused. This is beneficial for root cause analysis for successes and failures and can help you know where to eliminate waste.
Government or industry regulations can often slow production; but keeping detailed records and tracing products to their origin can help limit waste and inefficiency. In industries like food or pharmaceuticals, safety is paramount, and if you have documentation to prove where components or products originate and when, then you can be more agile during the regulatory process. Tools like blockchain can help with this sort of documentation and are rapidly emerging in the logistics industry to help with efficiency.
Traceability also lets you monitor waste in your upstream supply chain. You can see the operations and systems of your suppliers and tailor your supply chain to work with the most efficient and effective ones. This is especially important in systems like lean management, where each step of the supply chain must be in sync with one another to move products efficiently.
Modern technology is very useful for traceability. Tools like barcode scanners, RFID tags, GPS trackers, and IoT devices make it easy to collect data and follow a product or service through its life cycle. Then you can use that data to help communicate with your stakeholders via technologies like EDI.
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Integration is highly important to eliminate waste – especially in lean systems. In this context, integration means each supply chain segment operates as a link in a chain. If a single link is weak or breaks, then the entire chain fails. So, it is vital that each segment of your supply chain operate with similar goals and expectations.
First things first – you need to have your own goals and expectations established. If you are going to run a lean management supply chain, you need to form your operations to support that. Then, it is important for your procurement teams to properly vet potential suppliers to ensure they can meet your expectations. If they can, you can integrate them into your supply chain – giving them clear instructions as to your expectations and outline what will happen if they fail to meet those expectations.
Next, monitor your vendors and track their performance. Your compliance team can verify if your vendors are meeting your standards and if not, you can follow your outlined protocol.
Lastly, you will either need to take corrective action for vendor non-compliance or find a new vendor.
It is vital for efficiency that each segment of your supply chain have the same goals and “pull the same direction”. If some members do not comply, they foul the works for the remainder of the operation and create waste.
If you are upstream from the client, it is important to make your operation adaptable to meet your clients’ needs and expectations. It is important that your operation integrate into their system if you want to be a part of their system. Otherwise, you will not add value and will create waste.
Often, for logistics, companies are adaptable by utilizing two types of flexibility – macro flexibility and micro flexibility.
• Macro Flexibility – This involves the ability to make large scale changes to your supply chain and involve components like supplier contracts (like carriers or manufacturers), logistics plans, facility locations, and trade routes. Depending on the size of the customer account, large scale changes like building new buildings in advantageous areas might be necessary. But, often these are big picture components that need to be analyzed to meet your customer’s needs most effectively.
• Micro Flexibility – You will often need to be flexible with day-to-day operations as well to create efficiency for your customer – this is called micro flexibility. These typically involve aspects like adding late shipments, changing carriers rapidly, or overcoming small supply chain disruptions.
Flexibility and adaptability are top down systems. Upper management needs to create an atmosphere that will allow the organization to be flexible and to create protocols for employees to follow to define problems and develop solutions. If employees are free to be flexible, they can be more agile and reduce waste.
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The final factor that can help improve efficiency and reduce waste is establish an environment of continual improvement. You should keep your operations flexible and be ready to improve where necessary. This helps eliminate inefficiencies when they occur.
First, you must have established goals that your entire organization is aware of and can work towards meeting. If you do not have a goal in mind, you are spinning in circles and are wasting time, resources, and opportunities. Find your goals and communicate them to your people. (If you are upstream in the supply chain, find your customer’s goals as well so you are in alignment.)
Next, you must realize that anyone can make a change. In fact, the Toyota Management Systems Theory states that any employee is able to make a change that affects the whole company. So, it is important to empower your employees and allow them to make the necessary changes to be effective and efficient.
Lastly, have a Quality Assurance team that can monitor products and operations against your established goals and standards. They can provide feedback about the current situation and guide the operation or product to where it should be. These can take place continually or periodically, but it is important to constantly monitor operations for efficiency and effectiveness. There are many operations your QA team can undertake to monitor your systems – depending on your industry, you will need to see what works best for you.
Taken together, these five factors can greatly increase your company’s efficiency and work to eliminate waste. Each factor builds on the others to increase visibility, keep your company focused, and work to improve every day. Working together, these factors can increase efficiency and help cut wasteful costs.
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