Author’s Note: Below is an excerpt from Moving Up the Supply Chain Maturity Curve: The Process Industry Executive Agenda for 2016 and Beyond, a white paper published earlier this year by Elemica with research conducted by Adelante SCM. Although the research focused on the process industry, the content and recommendations we make apply to companies across all industries that want to make their supply chains more flexible and responsive.
“Complexity is arguably the most insidious, hidden profit drain in today’s business world,” writes John L. Mariotti, former president of Rubbermaid Office Products Group and Huffy Bicycles, in his book The Complexity Crisis. He goes on to say:
Businesses must compete in more complex global markets than ever before. Most companies are seeking double-digit growth in markets growing at low single-digit rates — or not growing at all. This quest for growth has led to runaway complexity caused by the proliferation of products, customers, markets, suppliers, services, locations, and more. All of these add costs, which go untracked by even the best of modern accounting systems. Complexity also fragments management focus, wastes time and money, and ultimately reduces shareholder value. The problems grow, but they remain under the radar of management attention.
Somewhere along the way, companies decided that it’s better to deal with complexity instead of getting rid of it, which is why so many supply chain process maps and IT systems look like a Rube Goldberg drawing.
How do you reduce supply chain complexity, or at least slow its growth? Mariotti states that you first have to measure it, and he outlines several metrics and techniques in the book, including ranking customers by annual sales, profit, and gross margin percentage. “Among those lowest volume and least profitable customers is where complexity usually hides,” according to Mariotti.
Added complexity often results in added waste, and the most common forms of waste from a lean supply chain perspective include:
- Transportation: unnecessary (non-value added) movement of parts, materials, or information between processes
- Waiting: People or parts, systems or facilities idle waiting for a work cycle to be completed
- Overproduction: Producing sooner, faster or in greater quantities than the customer is demanding
- Defects: A process that produces anything that the customer would deem unacceptable
- Inventory: Having raw materials, work-in-progress (WIP) or finished goods that are not having value added to them
- Movement: How much do you move materials, people, equipment and goods within a processing step?
- Extra Processing: Extra work performed beyond the standard required by the customer
Lean is often associated with discrete manufacturing processes, but the discipline has been adapted and implemented in the process industries too, as documented in the book “Lean for the Process Industries: Dealing with Complexity” (Productivity Press, May 2009) by Peter L. King, a consultant who spent more than 40 years at DuPont and led many of its lean initiatives.
Mr. King recently wrote a follow-up book titled, “Value Stream Mapping for the Process Industries” (Productivity Press, April 2015), where he states that a “[Value Stream Map] creates an understanding of the operations that are creating value for the customer [and] if the Value Stream Map is created by a team representing all process areas and all functions, it builds a strong cross-functional understanding of the overall process and its interconnectedness.”
King’s statement underscores the importance of taking a customer-centric (“outside-in”) view of your supply chain processes, as well as the importance of collaborating across functional groups and trading partners. Unfortunately, many companies in the process industry still have a limited view of their value streams — that is, their view usually doesn’t extend past their manufacturing processes or four walls. Adam Russell, former group leader and Six Sigma master black belt for Eastman Chemical Company, highlights this problem in a March 2012 article in Chemical Processing:
The chemical industry boasts plenty of people with good analytical and problem-solving skills. Take, for instance, Six Sigma black belts. They’ve done a good job of optimizing plants, units and processes. But even the most talented black belts and their managers usually have limited visibility of the value streams they seek to improve. Few people in an organization comprehend even at a high level all the activities along the value chain; many don’t even remotely grasp what takes place beyond the physical boundaries of their company. Yet, understanding end-to-end value streams is essential [emphasis mine]. It’s impossible to progress toward Lean without some level of sharing. This is a daunting but necessary task. As Jim Womack of the Lean Enterprise Institute says, “For every product or service there is a value stream, the challenge lies in seeing it.”
The bottom line is that in order to move up the supply chain maturity curve, companies need to find ways to eliminate waste and complexity from their supply chains. The good news is that leading practices in Lean and Value Stream Mapping for the process industry are well documented in various books and publications, such as those cited above. The main challenge is recognizing and accepting the fact that maintaining the status quo is no longer a viable option; in fact, it’s a risky one.