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.

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.