Most companies still believe that the optimization of supply chains has to do with improving the quality of forecasting, that perfect forecasts are possible, and that this represents best practice and is the right way to go. But the real problem in supply chain management today is not how to increase forecast accuracy and thus reduce uncertainty but rather how to eliminate altogether the need for certainty in planning.
Overall, manufacturing supply chains do not fare well in the modern world, characterized by volatility, uncertainty, complexity and ambiguity. À heated debate is going on, right now, on how to plan supplies. Some experts advocate that traditional methods should be improved, through yet more complex systems and forecasting, while others are in favor of lean approaches.
Contemporary supply chain planning systems involve large amounts of safety stock which are not used to offset the frequent changes in demand. This “dead inventory” is responsible for the elevated levels of working capital. The efficiency of traditional systems, including ERP, is seriously questioned.
Oftentimes, the production of goods with a stable market share is fluctuating with ever increasing amplitude. This phenomenon, known as the “bullwhip effect”, can compromise the work of many supply chains. The bad news is that these problems cannot be solved through additional finetuniung of the systems. We have to look for a new direction in supply chain planning.
Lean principles, “kanban” and other similar methods, have become popular in many industries as alternatives to traditional planning. Initially they were applied in the production of automobiles but today they have been adapted for use in a number of manufacturing industries.
When lean is applied to the overall supply chain, some companies report that it oversimplifies things. But lean achieves stable flow in response to what customers want. Lean develops a controlled dynamic adaptation of the target inventory levels in response to changing conditions along the supply chain. It may seem close to mind but it is, in fact, a radical paradigm shift from today’s planning process and its support systems.
The theoretical basis of managing volatility and fluctuating supplies is defined by cyclic schedules and product wheels. These new elements are the key to coping with variability and stopping volatility from creeping up the supply chain.