Wednesday, June 17, 2015

Finding the weak link in the supply chain ..- HBR June 2015 - a review

Running out of stock of inventory, especially critical items, is a nightmare for Operations Managers around the world. Is there a way out by assessing the right metrics ?

Let us look at two interesting metrics ..

Time to Recover (TTR) is the time taken by the supply chain to recover from a disruption of supply. This is a very vital metric for the supply chain. The new metric which the authors suggest is Time to Survive (TTS) which is the time period for which the existing inventory supply will last, before the system fails.

Even though the metrics look very simple, early literature which made mention of Time to Recover, gave an indication of the time it would take to recover from any inventory disruption in the supply chain. Any firm will overcome a disruption in inventory by being able to recover from a stock out, for which the vital metric now is of supply. The replenishment time for each supplier is that way important. If the supplier is not able to supply the items on time, a stock-out will result and the industry can come to a halt. 

Without having to depend on the dynamic nature of the supply chain through the supply, inventory replenishment, transportation modes, safety stock policies  etc, if the existing inventory on hand is just enough to cover the time period by which recovery is bound to happen, the supply chain is safe and can escape a stock-out situation. But if the TTS is less than the TTR, an inventory stock-out situation would result.

TTS > TTR, no inventory stock out
TTS < TTR, inventory stock out and business process disruption is the result.

The example of Ford Manufacturing where a complete analysis of the TTS and TTR scope of the different inventory items and suppliers was provided. This gave a clear idea of which stocks had a critical relationship between TTS and TTR. These critical stocks (TTS was a week or less of time for stocked items) gave an idea to Ford of the criticality profile of inventory items with it.

In the analysis, it was found that
1. for 202 suppliers, Ford never maintained inventory with the result that any supply / supplier disruption immediately impacted the Ford assembly line. TTS < TTR
2. There were 14 suppliers for whom Ford maintained one week worth of inventory and hence the TTS for those 14 suppliers were one week. ( if TTS > TTR, there would be no risk of stockout in the SC)
3. There were 147 suppliers for whom any disruption in supply would not matter much as Ford had inventory stocks of more than 52 weeks (a year) with it.  (TTS >> TTR, hence very low or zero risk)

Finding the weak link in your supply chain is an interesting article in the latest issue of Harvard Business Review, June '15. The author of the paper, David Simchi Levi, formerly from North Western University in US, presently with MIT, is the author of the book on Supply Chain and published by McGraw Hill. Through this paper Prof Simchi Levi brings a new metric of Time to Survive (TTS) to supply chain literature besides the one existing of Time to Recover (TTR). The paper lacks serious quantitative rigour but has some eye catching results thrown out of an analysis conducted on the Time to Survive studies in Ford Motor Co. which exposes the criticality or otherwise of stocks in an assembly line.

The paper through a study of Ford inventory profile helped understand the criticality of items in stock needed in the assembly line, to keep a tab on items which needed immediate replenishment and other items which could wait before replenished by the suppliers.

In short the paper highlighted the inventory supply criticality profile from a service viewpoint (stock-out situation) as different from all earlier inventory studies which looked at the economic or commercial perspective of holding stocks / inventory

Future scope : Further studies to relate the inventory supply criticality with both cost, service and quality implications and deriving newer and effective metrics to control both the service and cost aspects of inventory need to be taken up.

The paper looks at the very important assembly line but does not mention the applicability of this analysis in a project or batch setup. In this world of global manufacturing and supply chains spanning continents, it makes sense for future research to analyse in detail the impact of leadtime disruptions on the total lead time of a component. Necessity of more relevant and specific supply chain metrics which will help understand specific inventory functions and their dynamics better is felt, this paper is a humble effort in that direction.

George Easaw 2015

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