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The Objective and The Challenge of Improving The Supply Chain
The Objective and The Challenge of Improving The Supply Chain
The Objective and The Challenge of Improving The Supply Chain
What blocks the flow of products according to the true wish of the market?
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One of the two key obstacles to fast flow is batching, meaning the grouping of
many pieces and working on them together as they move from one work station to the
next. Naturally every batch serves many customers. Batching is in the center of
attack by Lean, once called Just-in-Time, in order to come closer as possible to the
idea of one-piece flow.
Batching is caused by either long setups or by certain resources that work on a
whole batch, like ovens or transportation vehicles. One of means of Lean to
dramatically reduce the batching is by reducing the setup time. Another mean
is using more resources with lower capacity, for instance, smaller trucks for more
frequent deliveries. The common concern is that these means would add cost.
A different key obstacle of the flow is lack of enough capacity, which causes long
wait time. The first obstacle, batching, clearly impacts the second, the lack of
capacity. When the batches are smaller capacity is spent on more setups, which seems
like cost is wasted. TOC clearly shows this is not necessarily the case. But, it is
certainly possible that too many setups would turn the specific non-constraint resource
into a bottleneck, causing huge delays.
TOC has the right tools to deal with the obstacles, and by that maintain good flow,
without becoming too orthodox, through sensible management of capacity and
considering the real impact on cost and on the demand.
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The two obstacles seem to be a major problem because of their impact on the flow
of products and services and through that on the organization goal. But, when we
examine the goal there is even more critical obstacle that makes the life of all
managers so difficult:
The common way most businesses deal with uncertainty is using forecasts to
predict the future. The problem with forecasts is that they are, at best, partial
information. In Probability Theory every stochastic behavior has to be expressed, at
the very least, by two parameters. The most common are the predicted ‘average’ and
the standard deviation. Forecasting methods use past results plus previous forecasts
to generate the estimation of the average result and the ‘forecasting error’, which
estimates the equivalent standard deviation for the coming forecast. The big problem
of using the forecasts is that when looking for the demand in far away weeks the
estimation of the ‘forecasting error’ becomes messy. Actually the whole notion of the
forecasting error is problematic because when the error is relatively big, like when
you look for the weekly forecast of one SKU at one location three months from now,
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then the burden on the decision maker is quite significant. Pretending the forecast
determines accurately the demand seems like a good solution.
The personal fear of every decision maker of being proved wrong dominates
the current practice. The usual response is that the forecast was RIGHT but the
execution wrong – this provides a way to blame somebody else.
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If reality would have been deterministic then the two obstacles of flow would
not matter and optimized solution for capacity utilization, using the optimal batches
could have been provided by good, but routine enough, software algorithm. This is, of
course, not our reality.
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These are the key core insights of TOC for managing a supply chain. The process
needs to be much more detailed, but this is certainly beyond this post.
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What comes from handling uncertainty in such a way is being superior to most
competitors in the eyes of the market, which could lead to very successful business.
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The TOC approach challenges the need for the ‘C’ entity above to achieve the
objective. So, the resolved conflict looks now like this:
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Overcoming the natural fear to go against the common practices could be dealt
with running a Proof-of-Concept. It has to be a good enough “proof”, and it has to
limited, so even failing would not create too high perceived loss. A former post on
Proof-of-Concept can be found at: https://elischragenheim.com/2017/02/26/looking-
for-the-right-pilot-as-proof-of-concept/