APICS CEO Abe Eshkenazi recently wrote an interesting blog post about EU’s Struggling Economy Has Far-Reaching Implications. At the end, he said “Operations and supply chain management professionals play key roles in uncertain times like these. They need to be efficient with assets, add as much value as they can to value chains, and forecast and respond as accurately as possible to changes in supply and demand. Doing this adds value back into the global economy, creating more prosperity that could pay back existing debt.” This statement captured very well some of the trends that I have observed about how global manufacturers are coping with unexpected turbulence.
Here are three ways that global manufacturers can add value back into the global economy by increasing operational agility:
- Invest in Insurance to Reduce Disruptions
I do not mean to imply more insurance policies are being bought from financial companies. I am talking about investing in traceability and containment solutions as well as increasing supply chain stock in order to reduce exposure to unlikely disruptive events. As mentioned at Toyota: Rebuilding and Fortifying a Global Supply Chain, Toyota is asking its supply chain to increase inventory and even experimenting with cross-OEM standardization of parts. Companies like GM have increased their investment in quality containment (GM Shanghai implements quality containment), which is a way to limit liability and costs during a recall.
- Expand capacity by increasing efficiency
This includes investing in equipment that is more flexible or exploring how to best add capacity through more efficient operations, such as better training of multiple skills to employees. Better information flow can also help by letting organizations react faster to unexpected events, thereby improving productivity. Squeezing out more capacity from existing equipment can improve flexibility without significant capital investment. An example is L’Oréal, which has been improving their OEE across their global supply chain (group OEE improved by 10 percentage points).
- Increase visibility to operational detail
Turbulence in today’s complex global supply chain is often causedby a butterfly effect of tiny events in operations. Executives may not need to know about every minor event involved in daily decision-making processes, but, if they have the infrastructure in place to do so, then they are empowered to make better decisions when dealing with unexpected turbulence. A black box approach to suppliers or manufacturing operations is hardly optimal, and can often result in disaster. I recall a time when I was a quality engineer for a manufacturer that made hard disk drives (HDD). One day a crack appeared in a glass furnace that supplied many glass disk manufacturers, which in turn supplied many HDD manufacturers and a few large PC manufactures. That crack in a single furnace obstructed the multi-billion dollar PC supply chain for days. Other than putting efforts to strategically mitigate such risk, it is almost unavoidable to have such constraints in today’s complex supply chain.
Ironically, many of the investment decisions to help better navigate a turbulent world lack a clear ROI to justify the investment, at least based on a traditional evaluation process using an analysis derived from historical operations data. This is because most of the above mentioned disruptions are unprecedented. Yet, in the turbulent world, the capability to make forward-thinking decisions outside of a traditional analytical framework might make the difference between winners and losers.
How does your company make decision regarding investment to deal with unexpected events? How well are you faring in these turbulent times? Does your company deal with it on a tactical basis (assume these events will just come and go) or do anything strategically? Please share your experiences.