The Metamorphosis Towards Smart Replenishment - How to Make Material Supply Intelligent
The world is changing. Over the past decade, several factors have contributed to increasing volatility, uncertainty, complexity, and ambiguity in metals supply chain ecosystems (also known as the VUCA world). Not even to mention disruptions brought by global financial crises or pandemics, which may play an increasing role in the short to medium term future. And last but not least, climate change and the need for all supply chains to become greener and more sustainable also applies to metals manufacturers. The focus here is on material supply, which must become more intelligent. But how can we initiate such a metamorphosis? And most importantly, how do we achieve it in a sustainable way?
Local planning and scheduling improvements can already bring significant environmental improvements while increasing operations’ efficiency. Yet this is only a first step: facing this VUCA ecosystem, metals supply chains need to re-assess their strategic and tactical planning processes on a systemic level. This is required to build up sufficient resilience and flexibility to prevent or at least minimize material flow disruptions against increased variability.
Material supply thereby needs to become smarter - but how to initiate such a metamorphosis and how to achieve it in a sustainable way?
The first step is to recognize that two key levers can help mitigate variability. These are increased velocity or speed and increased visibility.
Indeed, being informed in real time or close to real time on any supply chain event, combined with the ability to react fast, will both help minimizing any implied flow disruption.
Lever 1: Increase the Velocity of Your Supply Chain
Of course, continuous improvement in production processes may help improve speed through higher productivity rates. However, the main supply chain driver for velocity is lead time. One immediately may wonder how speed improvements can be achieved in today’s more complex and extended supply chains, characterized by long purchase and manufacturing lead times.
Supply chain management best practices provide opportunities for both lead times reduction and lead times compression.
Lead Time Reduction: Carry Out Any Supply Chain Activity Faster
Lead time reduction refers to the ability to carry out supply chain activities faster. What does that mean for a metals manufacturer?
In a nutshell, rather than focusing on minimizing unit costs, you can prioritize promoting and protecting flow throughout the system.
That means focusing on factors that impede flow, which are for instance:
- capacity and logistics bottlenecks
- unplanned downtimes due to lack of proper material
- rework activities following quality issues
- unnecessary waiting time in stock (poor stock rotation)
While some unplanned production or quality events cannot be avoided, a smart production planning system can help minimize these factors upfront; through an optimized balancing of available capacity on all production units by considering existing routing alternatives, a proper sizing of work in progress (WIP) inventories, and the consideration of some critical quality and logistics constraints while generating plans and schedules.
Another critical aspect of supply chain flow promotion is the alignment of supply capacity to the demand profile. Of course this requires certain trade-offs with regards to known batching constraints such as production campaigns. Here as well, a dedicated planning system can help optimize such trade-offs, provided it is tuned according to flow-centric KPI priorities.
Lead Time Compression: Position and Leverage Decoupling Points
Lead time compression is a complementary path to increasing supply chain velocity, and it refers to the splitting of the overall lead time into smaller decoupled independent lead time segments.
This can be achieved through the establishment of strategic decoupling stock points in the supply chain. This is indeed a strategic decision as it implies, at least for certain demand segments, a transition from a pure make-to-order (MTO) to a make-to-stock/finish-to-order (MTS/FTO) manufacturing process.
And one may rightly ask: is investment in additional stock not going in the opposite direction of achieving a leaner and more sustainable supply chain? The answer is no, but only on the condition that this investment is done in the right way. That means to first take a systemic approach and realize, from a global perspective, that investment in additional inventory at certain key locations can in fact lead to an overall decrease of total WIP in the supply chain. Which brings us to these complementary questions: which products (stock keeping unit/SKU) require inventory buffers? Also, how can these buffers be sized and replenished?
As you can see in figures 3 and 4, best practices exist to answer those questions. Regarding location, typical decoupling position candidates are entry and exit points of the plant, especially when purchase lead time is high and when vendor managed inventory (VMI) levels need to be guaranteed for certain finished SKUs. Potential for decoupling inside the plant also exists but will depend, on the one hand, on the complexity of manufacturing routes (e.g. the presence of converging or diverging production process steps), and on the other hand, on the possibility to standardize semi-finished products.
Contrarily to the world of discrete manufacturing, metals supply chains are indeed characterized by a diverging product structure. Therefore, the same finished product may be obtained from several alternative specifications of semi-finished or raw material products. Room for optimization therefore exists in order to design the appropriate specification for stocked SKUs, which will at the same time feed the biggest possible number of finished SKUs specifications while minimizing yield losses.
As for the sizing and replenishment of decoupling points, several industry-proven methodologies can be applied and incorporated into planning software. This assists in determining the optimal calculation of safety stocks, frequency re-ordering and order quantities in particular. Eventually, the stock buffer size will be tightly correlated to parameters such as fixed order cycle times or batch sizes, average replenishment lead time, consumption rates, and the level of demand variability experienced locally.
Lever 2: Increase the Visibility Throughout Your Supply Chain
The second key lever allowing mitigating variability is the increased visibility throughout the supply chain. While velocity is particularly applied to material flow, visibility is tightly bound to information flows.
Visibility implies, first of all, transparency which means having access to all relevant data related to end-to-end supply chain processes and events.
Secondly, the availability of such data must be provided in real time or close to real time if it is to be of use in taking the appropriate reactive action as fast as possible. This is where the digitization improvements of the fourth industrial revolution disruption can help make metals supply chains flow- and data-driven, as depicted on the figure 5.
The Road Towards a Flow- and Data-Driven Supply Chain
The road towards such a digital supply chain implies an upgrade of metals plants’ IT infrastructure, by making it ready for warehousing and leveraging Big Data (for running in the Cloud,) and possibly also opening it to partner ecosystems or platforms.
On the other hand, an augmentation of current production management and planning software systems with the addition of embedded business intelligence, data analytics and smart decision support agents can be achieved. This latter step can be taken as a starting point: before commencing investment in smart sensors and collecting additional data, there is probably much value which can already be added by leveraging existing data with the right digital tools and services.
As can be seen from the figure 5, such a flow- and data-driven supply chain would then auto-adjust itself in real time based on any occurring event; or at least it would propose to the human user a choice between short-listed alternative decisions. This will of course require plant personnel to improve their skills in data literacy and decision-making .
Eventually, promoting and protecting flow in the supply chain goes hand in hand with maximizing return on investment:
- Cash flow follows the rate of product/demand flow
- Inventories are minimized
- Service rate is consistent & reliable
- Revenue is maximized and protected
And from a sustainability perspective, committing to flow eventually provides a better control on the environmental footprint as materials and production resources used at a given point in time are in better synchronization with the actual demand, hence helping minimize the overall waste in the system.
Achieve Your Replenishment Metamorphosis Today with PSImetals Planning
Let's improve your supply chain sustainability together by:
- Minimizing your lead times through optimized supply chain modelling and capacity balancing
- Standardizing semi-finished SKUs through optimal coil, plate, sections and slab design
- Optimizing inventory replenishment through various net demand calculation strategies
- Increasing your supply chain visibility, through KPI monitoring and embedding of BI dashboards and root cause analysis
Leave the road, take the trails and join us in exploring the nature of your supply chain! Follow our “Explore the Nature of Your Supply Chain - Smart Plans for Sustainable Metals Production” campaign, which is enriched with many exciting blog articles and exclusive webinars!
Explore the Nature of Your Supply Chain - Series
Part 2: The Metamorphosis Towards Smart Replenishment - How to Make Material Supply Intelligent
Product Manager at PSI Metals
After several years implementing PSImetals Planning solutions at multiple plants, Robert Jäger spent the following 10 years in consultancy and technical sales support role, helping in the requirements analysis and the design of planning solution architectures tailored to specific metals supply chains. As product manager and building upon his supply chain expertise, Robert is now driving the PSImetals Planning product roadmap with a vision centered on smartness, adaptiveness, collaboration and sustainability. Robert’s interests include karate, music, chess and all aspects of strategic systems thinking.