Synchronising supply chains in a volatile world

Published: 31-Jan-2014

Rising volatility in world markets has brought new challenges to supply chain management. Camelot CEO Dr Josef Packowski and consultant Melanie Lenhardt explain the growing need for a lean approach by the pharmaceutical and other process sectors

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Supply chain management (SCM) requirements have changed significantly over the past few years. The latest buzzphrase when managing global supply chains is adaptation to increasing global complexity and volatility. Growing pressure from financial markets and the difficulty of increasing operating margins and working capital in this environment require efficient planning and execution of global value-added processes. As a result, more companies are relying on lean supply chain planning approaches, such as LEAN SCP from the Camelot suite of solutions, which simplifies existing planning processes and improves the synchronisation and variability management of supply chains.

A recent survey of supply chain managers clearly demonstrates the urgent need to adapt existing SCM concepts to the new reality: three-quarters of top managers consider market volatility as the biggest challenge to their supply chains, followed by supply chain complexity. Adapting to the new Volatility, Uncertainty, Complexity and Ambiguity (VUCA) in world markets is a major strategic target for most companies. In this context, global SCM can be key to a company’s success.

If the chemical supply chain cannot respond quickly to fluctuations, supply bottlenecks will quickly threaten many downstream industries

Traditional planning approaches fail in today’s VUCA world: For companies in process industries, increasingly frequent, ever-widening market fluctuations associated with the high level of complexity involved in global value creation processes, bring with them unknown problems and challenges.

Production processes in the chemical industry are generally characterised by long production times. Manufacture of chemical materials often takes months. If the chemical supply chain cannot respond quickly to fluctuations, supply bottlenecks will quickly threaten many downstream industries. In the pharmaceutical industry reliability of supply is paramount: it is simply unacceptable to allow poor supply chain planning to threaten the supply of essential drugs.

In recent decades, to ensure optimal responsiveness and efficiency in supply chain processes, companies in the process sector have established global planning departments and invested heavily in their planning systems.

Companies in the process sector have established global planning departments and invested heavily in their planning systems

The challenges of today’s VUCA world increasingly show the major flaw of Advanced Planning and Scheduling (APS) and Enterprise Resource Planning (ERP) systems that form the planning backbone of the global value chain: they work effectively only when extremely reliable forecasts, especially regarding market trends and customer demand, are available. A supply chain manager at one of the world’s largest pharmaceutical manufacturers commented: ‘Can you tell exactly which wedding or family reunion you will be at in 12 months? Certainly not. But our planning systems, however, expect to be able to set production and scheduling decisions 12 months ahead.’

Key planning elements

Three planning and management concepts in particular are emphasised to align planning processes in process industries effectively with the requirements of VUCA.

Cyclic Planning with Rhythm Wheels: Many companies have achieved great success incorporating lean manufacturing principles when designing their manufacturing operations to achieve greater efficiency. With cyclic planning and control of entire supply chains it is now possible to transfer these ideas to global value-added processes. In process industries it is especially important to devote attention to the optimal design of set-up procedures and campaign sizes, as well as to orient them in accordance with rapidly changing market demand. Without optimal set-up sequences – e.g. shifting from bright to dark colours or from high to low concentrations – companies risk production losses and cost increases.

To reduce inventory and increase the utilisation of capital-intensive equipment, companies increasingly rely on ‘Rhythm Wheels’. These models make it possible to plan efficiently a variety of products at a plant or production asset, while at the same time smoothing capacity load to avoid costly production peaks. Figure 1 illustrates the nature of Rhythm Wheels. It continuously repeats a given production sequence.

Each wheel spoke symbolises the production of a certain product. The Rhythm Wheel arranges the products in an optimal order to utilise assets and operate more cost effectively. When planned according to Rhythm Wheels, production processes can even be aligned with fluctuating market demand. The lengths of the wheel’s spokes – and thus production volumes – are continuously synchronised based on a pull-logic according to existing stocks and customer orders.

End-to-end synchronisation along the supply chain: Value chains in the chemical industry are typically extended across a variety of production stages and often spread across several plants around the world. To ensure cost effectiveness and alignment with markets, supply chain synchronisation is important. Only effective synchronisation can relegate production delays or even failures to the past.

In this context, Rhythm Wheels can achieve significant improvement; they not only optimise processes to determine the load on a production machine, they also help to achieve effective global timing mechanisms for production processes along all parts of an international supply chain.

As indicated in Figure 2, all steps along the supply chain should be closely co-ordinated – and, ideally, mesh like gears. Traditional planning concepts, however, have always failed in this respect. Unless production orders are adapted to local conditions, effective synchronisation of upstream and downstream production is nearly impossible. By establishing a stable production meter with Rhythm Wheels, complex production networks in the chemical industry can be successfully synchronised, thereby reducing lead times and increasing responsiveness.

Figure 2: Operations are synchronised by the synchronisation of supply chain parameters

Figure 2: Operations are synchronised by the synchronisation of supply chain parameters

Variability management on the capacity and inventory side: In many process industries, it has been common practice to counteract demand fluctuation primarily through adjustments of production plans. However, so-called safety stocks – (the name suggests they are meant to absorb the impact of market volatility) – were previously considered only for establishing a red line such that tapping into such stocks would spread panic through planning departments. In the VUCA world, the consequences of such one-sided variability management, however, are no longer acceptable. While stocks and thus capital costs continue to rise, production peaks can be met only by maintaining costly excess capacity and incurring overtime costs in the workforce.

LEAN SCP helps companies manage variability efficiently. By adjusting cycle times in production, capacity can be utilised consistently to actively counteract production peaks – in capital-intensive companies in process industries this is a key competitive advantage. If actual demand is significantly above expectations, stocks are actively used in planning. Planning cyclically with Rhythm Wheels makes it possible to match production capacity with stocks more efficiently (see Figure 3).

Figure 3: Market demand variability is managed on two sides

Figure 3: Market demand variability is managed on two sides

Industry results and trends

Through better variability management it is possible to improve significantly the management of stocks, service levels and lead times, addressing a major challenge of the VUCA world. The results shown in Figure 4 are based on six industry cases reported by Packowski in 2013. Due to concerns with confidentiality, the results from the various cases, which involve leading companies such as Novartis, AstraZeneca, Eli Lilly and PCI, a BASF company, were averaged.

Based on these further experiences of various consulting projects by Camelot Management Consultants various specific factors that facilitate the successful implementation of LEAN solutions, in various process industries have been identified.

Chemicals: Industry leaders in the chemical industry such as BASF, Dow Chemical and DuPont all rely today on cyclic scheduling with fixed production sequences. A central motivation for introducing the new planning system for manufacturers of both speciality and basic chemicals, in addition to generally simpler planning processes, is above all more efficient synchronisation of highly complex global production processes.

Pharmaceuticals: Due to similar challenges related to production processes, global pharmaceutical manufacturers tried very early on to adopt cyclical planning with the help of Rhythm Wheels that had been used in the chemical industry. A key milestone for companies such as Novartis and AstraZeneca, however, was the development of so-called High-Mix Rhythm Wheels, which enable cyclic planning in packaging plants that produce a variety of SKUs.

Consumer goods: Continuous production processes and batch production are also essential features of the consumer goods industry, which is why, when facing the challenges of the VUCA world, the industry has been re-thinking global supply chain planning. Industry giants such as Procter & Gamble, Coca-Cola and Nestlé rely on LEAN concepts to align supplies with customers sustainably and efficiently. Custom-tailored IT solutions are essential to ensure rapid response in the market.

Figure 4: A step-change in variability management improves key supply chain metrics

Figure 4: A step-change in variability management improves key supply chain metrics

In summary, cyclic planning, synchronisation and variability management on the capacity and inventory side are the key elements that help meet the new supply chain planning challenges that arise in today’s dynamic and volatile business environment.

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