BY Jovy J. Jader
Supply chain collaboration: It's not a choice
02/05/13
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September 07, 2010
Eliminate, Simplify, Integrate
BY Jovy J. Jader
Improving product availability
Go to a hardware store and you’ll most likely see hundreds of different items stacked on seemingly endless shelves.
It is typical practice for hardware retailers to keep stock of hundreds, sometimes thousands, of tools, parts, and construction materials. A number of these could be fast-moving items, such as light bulbs and padlocks, and some could be considered slow-moving, like the assortment of nuts, bolts, and screws.
Hardware store owners keep this much variety on stock because their business thrives on product availability. When a customer comes to buy materials, they often would prefer to get all that’s needed from one place. It follows that the store that has the most items available would attract more customers.
Indeed, business is not only about generating demand but also fulfilling it. It thus seems logical, offhand, that firms should have complete stock a hundred percent of the time.
But making products available entails costs—from the design, manufacture, storage, to the delivery of an item. This makes firms sensitive to investing in capacity or to keeping more inventories to anticipate unforeseen demand.
On the other hand, companies also know that product unavailability could mean lost sales, and can in time lead to the permanent decline of an item’s popularity. Unless a product has characteristics unmatched by others, impatient customers will not hesitate to switch to competing brands if their first choice isn’t on stock.
Executives would attempt to balance product availability against anticipated market demand by trying to match supply with the present need, and have extra capacity act as a buffer for unforeseen increases on the latter.
The responsibility of this ‘matching’ rests with all of the firm’s management arms. Each division, notably sales, marketing, administration, and operations, has a role to play in the process: from analyzing and generating customer demand to sourcing raw materials for production to seeing the finished product stacked up on retail shelves. The following ideas serve as a suggested guide in sustaining product availability at least cost versus demand:
Go S&OP. Sales and Operations Planning (S&OP) means having a synchronized scheme that would enable the firm to supply the right products at the right quantities in a manner that meets revenue and cost objectives.
Make records accurate. Computer data that shows a product to be on-stock at warehouse A when it really is in warehouse B will most likely have an adverse effect on the company’s customer order. Mix-ups of this sort are often traced to poor record keeping or unclear procedures. Data is the lifeblood of management planning and it is vital to have a clear and accurate information flow.
Gain control. The systems that produce and deliver a product should be reliable, which requires them to first be in control of their processes—a simplistic condition that many firms today unexpectedly fall short on. In a lot of instances, this dilemma can still be traced to the lack of information visibility (see above).
Improve continuously. A firm with a well-mapped system will allow managers to define its operational limits. Once a company knows what its systems are capable of, managers can begin to identify the causes that hold back those capabilities and improve against them. Such changes will set the stage for prompt delivery. With reliable and flexible operating systems comes reliable and flexible responsiveness.
Build rapport. Suppliers, freight-service providers, and contractors are essential partners in business. This is because any system’s effectiveness wholly depends on how well one’s ‘partners’ deliver. Availability would be doubtful if a company can boast of 90% manufacturing efficiency but only 50% transport reliability.
Product availability does not necessarily mean having an item on stock all the time, but having it available in the periods when the customer is most likely to request for it. It is a matching game that entails preparing a product nearest to when the buyer will seek it. It requires planning (S&OP), clarity and accuracy in policies and data, consistent control, continuous improvement, and constant rapport.
Jovy Jader is a management consultant and regional speaker on supply chain management. He has directed and implemented supply chain management projects both local and international which have resulted to company-wide improvements in inventory, total cost, customer service, response time, quality, and on-time delivery. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers. Should you have questions or comments email to jovy@highimpactasia.com
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