How can SMEs in consumer goods Manage Complex Supply Chains
Complex Supply Chains are typical of growing SMEs in consumer goods. To serve more customers and develop new products fast means adding complexity to the supply chain that results in high costs, wastage, and increased overheads. In this post, how to manage complex supply chains while keeping costs under control
Signs of complex supply chains
Typical signs of complex Supply Chain are:
High overheads: When onboarding new clients, launching new products or selecting a new supplier, the overheads go up; but it does not have to be this way.
Companies that are in the growth phase should expect to see the overheads increasing only if running at full capacity. When this does not happen is because, despite having the bandwidth to deal with increased volumes, the complexity is so high that increasing costs to serve customers is the only option to ensure good customer service
Low OTIF service level: soon after a new launch: Under complexity current processes that work for some customers do not apply to new ones. Companies that after launching a new product or onboarding a new client see the service level going down, are affected by a complexity that requires different processes for different customers
NOTE: it is common to have different processes or even different Supply Chain strategies for customer segments or sales channels, but similar customers should be managed with similar processes.
Too much overtime: Companies with complex Supply Chains require the Supply Chain team to put extra time to manage the end-to-end flow of goods. If the team or the supply chain manager is often required to work extra time, it is a clear sign that supply chain and operations are too complex
Waste of time, resources, and inventory: Company running complex Supply Chains end u wasting time, resources, and inventory.
Waste: the main symptom of complex supply chains
Depending on the type of business and industry, a certain degree of waste is common. Lean experts identify 8 types of waste as describe in this Wikipedia article here.
At this stage we can simplify the waste categories into three main types that help understand the efficiency of a business process:
It is not easy to benchmark waste of inventory: depending on the company size, industry, and product category. To lose 1% of inventory in one year might be OK for one company or a critical loss for another, as a benchmark, companies operating in the grocery retail target 0.05% of yearly losses on the average inventory hold.
Loss of inventory can happen at every stage of the supply chain: Production, assembly, picking and packing and across the logistics.
The higher the complexity of supply chain operations, the higher the chances of losing stock due to:
Human errors like miscounting inventory or mishandling goods
Machinery faults like a production or assembly line running at a low efficiency
Low quality of materials that result in discarding inventory not suitable for production
Transport lead time that impacts the remaining shelf-life of product – mostly applicable to Food & Bev and pharmaceuticals
Waste of time is a core element of Lean, but there is no need to apply strict lean principles to understand how the waste of time across the supply chain and overall business operations can impact a company’s costs.
Time can be wasted in many ways, the most important being:
Low-value activities: When members of staff are engaged in activities can be handled by simple technology, they waste time; waste of time that is translated in increased costs of wages. Things like downloading and reformatting data, generating reports, manual data entry are all activities that can be automated with simple automation like what described in this blog post here
Changeover time: Defined by the time it takes to a user to move from one task to the next one in a business process. By designing smooth workflows companies can virtually eliminate the changeover time enabling end-users to move from one step of the process to the next one, or even from one process to another, smoothly.
Companies waste resources when these are over or underutilized resulting in either higher consumption, therefore a shorter lifespan or an earlier depreciation, or a waste of money due to equipment not running at optimal capacity; here are some examples:
· Warehouse equipment overloaded or running for too long between maintenance checks leading to early deterioration or faults
· Production lines underused means high costs of production per batches due to fixed costs of energy consumption, operators wage and maintenance
Should Supply Chain complexity be tolerated or addressed?
A common misconception about complexity is that for some companies this is inevitable. One of the main differences between the best-performing FMCG companies and emerging SMEs is that companies with the best-performing supply chain do not tolerate complexity, therefore they apply lean principles to the Supply Chain to simplify processes and procedures. In this article from PR newswire, a survey conducted in September 2020 describes how manufacturing and fulfilment complexities only continue to grow – and 91% of supply chain professionals cannot stay ahead of these challenges.
It is now common knowledge that with growth comes complexity, and with complexity come inefficiencies, wastage, and high costs; so why so many Supply Chain leaders tolerate complexity and try to manage chaos instead of simplifying things?
Because the price they pay for working under complexity that is known is seen to be lower than the cost of change.
Stop trying to manage complexity
Large enterprises in FMCG know well that complexity cannot be managed unless of a massive increase in overheads and headcount. Companies operating in food production have the highest degree of lean operations and supply chain and industry leaders go as far as having internal Lean teams overseeing end-to-end supply chain and operations.
Streamline workflows and simplify processes is a must for any SMEs in the growth phase. Companies that can eliminate complexity of business operations while growing have an early advantage on their competitors in addition to setting the foundation for lean operations to be developed organically Instead of finding themselves with high complexity to be addressed while already running large teams.
Easy does not mean simple
The main result of projects designed to tackle supply chain complexity is to make processes easy to manage, not reducing the supply chain to simple processes. Let’s clarify:
The reason why most supply chain and operations leaders prefer managing complexity is that they understand the importance of all elements, tasks and the data required to provide satisfactory customer service while enabling the company to complete the sales process.
When companies make the mistake of trying to transform complex processes into simple steps, they risk losing control of essential elements of the supply chain. Without such elements, the supply chain might fail to provide satisfactory support for the delivery of the business strategy.
The right approach to complexity is to transform processes into easy-to-manage work cells that are made of clear steps, decision-making rules, quality and performance indicators, and clear guidelines for troubleshooting and problem-solving
Tools to reduce complexity
There are a few different tools that SMEs in consumer goods can use to reduce complexity. Case studies and articles are widely available to consult, yet case studies alone might not provide the right solution to small and medium companies that must be flexible enough if they want to succeed and grow.
In such a scenario case study about large corporations that are running lean supply chains might net help an SME much.
The following main tools though can be used to set the foundation for a lean approach to small and medium enterprises that are serious about waste reduction:
Design smooth and lean workflows as a way of operating that enable fast changeover times and provide clear guidelines for problem-solving
Adopt the concept of self-directed teams where the traditional manager’s role is obsolete. Such teams possess the knowledge and the tools to initiate the change necessary to improve their work and the manager is facilitating -not directing- the transformation phase while providing support and coaching.
Enable usage of simple technology that integrates with the company’s core system to drive automation. By letting technology take care of low-value activities users have more time to drive improvements, engage with colleagues, customers and suppliers for a team that is driving real value to the organization.
SLAs & KPIs
Start collecting and analysing data to monitor the efficiency of business operations. What can be measured gets done
Risks to avoid
Common risks to avoid when transitioning from traditional supply chain and operations management to lean:
Imposing decisions from top-down
It is very hard to drive any business change when this is imposed on teams from the management. C-suites should be facilitators and team coaches who set the vision – the why a change is necessary – and what are the desired benefits. It is up to teams of end-users to come up with the right tactics to fulfil the strategy.
Chasing fast-wins in isolation
Businesses in FMCG are large ecosystems, they exist in relation with customers, sales channels, 3rd parties’ warehouses, hauliers and couriers and many suppliers. Any attempt to drive change must be envision the entire organization. Failing to do so might result in temporary improvements that create more complexity down or upstream the value chain.
Where to start from
There are no written rules on where to start tacking supply chain complexity, companies that succeed in such projects use different methodologies. Here is the framework I use when consulting my clients:
Start with moving from traditional teams to self-directed teams
Design leaner workflows
Increase the adoption of technology to drive automation on low-value activities
If you want to know if your company is ready for lean supply chain book a free 30 minutes no-commitment readiness assessment and strategy call here.