STARTING THE PROCESS OF CHANGE AND PLAN

With this background awareness, the firm can start to design the way it wants
the business to work � the new processes and supporting information technology
� with a set of metrics to judge the impact of the changes, not just on each
function but across the whole product family supply chain. No two companies
approach these changes in the same way, but the effects of moving from level
1 to level 2 are marked and produce similar results. We will look at each of
the major processes in turn, beginning with Plan.
The Plan process is perhaps the one that shows the most marked change from
level 1 to level 2. This is the first step along the integrated supply chain, as
functions begin to plan their activities jointly.
Specific functions and
business units, with few integrated processes, carry out demand and supply
planning at level 1 internally. Production plans and inventory plans, for example,
would be carried out plant by plant � based on local forecasts of
demand and buffered at each stage by inventory. Often, purchasing decisions
would be taken on the basis of local purchasing performance measures (least
unit cost, for example), with little consideration of the impact of that decision
on the overall performance of the internal supply chain.
Level 2 shows a marked difference. Now the upstream activities are planned
against the same demand forecasts as those produced through the downstreamside,
customer-facing activities. Inventory is planned strategically across the
whole chain, balancing holding costs against usability and lead time. Ideally,
inventory would be held as far upstream as possible, because that makes it most
flexible in its end use, and as far downstream as possible to meet customer lead
time targets. Somewhere in the middle is a balance point at which RONA is
maximized
The upstream processes were de-bottlenecked, by managing changeovers in
a more effective way. This change entailed some capital investment. It allowed
the team to move away from steady manufacture, in large batches sometimes
running for many weeks, toward short cycle manufacture, responsive to demand
in the rest of the chain. This change minimized the necessary stock build.
The team came up with preconceived ideas about what process changes
would and would not be allowed. The most significant of these concepts was
the belief that the board would not approve the capital expenditure needed to
de-bottleneck part of the active ingredient plant, at a cost of perhaps �500,000.
This disbelief was put aside by using the RONA model, which showed that the
payback from the investment would be cash positive throughout the effort and
would also have a positive impact on both the inventory and RONA in the
supply chain.
Inventory could now be managed across the whole supply chain, taking
account of the capacities and lead times throughout the linked processes. The
right levels of raw materials, upstream intermediate materials, and finished
goods could be held in the right balance and adjusted as the seasonal demand
changed. The overall level was reduced dramatically, resulting in a much leaner,
more responsive supply chain. Local initiatives were put into the context of the
whole chain to avoid double-counting stock and capacity buffers. Once again,
planning across the stages in the internal supply chain made a dramatic difference
in the way the operations were perceived, with a huge positive impact on
RONA for the product family.