BY Jovy J. Jader
Supply chain collaboration: It's not a choice
02/05/13
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July 12, 2011
Eliminate, Simplify, Integrate
BY Jovy Jader
Striving for 100% operations reliability
Traditionally, manufacturing operations are measured in terms of schedule achievement or actual, rather than planned, production quantity.
But this approach also has kept managers from the ability to pinpoint the causes of production shortfalls due to unforeseen downtime, rate losses, or yield loss. Significant improvements can be gained from identifying and focusing on the factors that influence the manufacturing process.
Line efficiency or reliability is determined by measuring the work station’s actual production against its operating capacity. The latter is defined as the output a work station is capable of generating while its machine is running “normally”—a qualification which makes the term’s meaning vary with each firm.
Companies tend to measure the reliabilities of their work stations in totality. For instance, if there are five assembly lines running in parallel in a factory, managers monitor each line’s efficiency, but not that of its components, which can be a number of independent processes or steps that are sequential in a series.
Their reluctance to look into these details is understandable, especially if the manufacturing line is complex. Making chemicals, for example, can involve several processes merging into one and then splitting into others. In this scenario, managers may prefer to limit their measuring systems to the whole process and attempt to identify and address the causes inhibiting a production line’s overall reliability.
But the components’ performance is just as crucial. For instance, even if each step in a 10-step process has a reliability of 99%, cumulative efficiency would only reach 90.4% at the most (after multiplying 99% ten times). In other words, such a production line would likely be down almost 10% of the time.
A 10% loss can cost a firm a lot of money. This could translate to up to 36.5 days in a year, or more than a month’s worth of lost production and overhead expense.
The reliability concept extends to the supply chain which, after all, isn’t solely concerned with procurement-manufacturing-logistics. With it having numerous and complex ‘links’ of its own, a supply chain function’s reliability can be a paramount determinant to the success of the firm’s operations, especially in supporting strategic profit and growth targets.
Operations reliability is a parameter that makes visible the opportunity cost of reduced inventories and waste. A supply chain that’s 100% reliable allows for better synchronization between demand and output, which can consequently up customer service and satisfaction. Less than 100% reliability means greater need for inventories, redundant equipment or work stations, and rework.
In the printing press industry, for instance, most orders come with very tight deadlines. This requires for every component in a printing supply chain to be almost perfectly reliable. Any shortfall or delay may mean hefty penalties and termination of future contracts.
Some printing press firms invest in imported equipment to ensure continued production should a machine break down. Interestingly, a firm I’ve worked with had logistics functions that seemed constantly close to abrupt failure, despite its machines continuously running at a flawless pace. As a result, printing materials would always be in short supply and would cause frequent production schedule changes.
The finished product’s delivery also hinges on the dependability of contracted truckers. Reliability thus could not be confined to the printing press equipment but should be extended to the entire supply chain.
Every supply chain link plays an important role in ensuring that a firm not only satisfies its customers’s demands but also does so at minimal cost in terms of less inventory, capital redundancy, and rework. A company may never reach 100% perfection in overall reliability but every incremental improvement toward that goal would have its rewarding benefits.
Jovy Jader is a 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, 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 e-mail to jovy_esi@yahoo.com.
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