Supply Chain Analysis Paves The Way to Unclog Operational Bottlenecks
From the June 2001 edition of Managing Logistics
Effective control of the flow of components and materials to the manufacturing or assembly line is a key to cost-effective manufacturing. And while managers have historically looked to suppliers to facilitate this, they may be even wiser to consider internal events.
"External events have internal consequences," says Daren L. Dance, vice president of technology for Wright Williams & Kelly (WWK), a business decisions company based in Pleasanton, California. (925-485-5711).
He says management must understand the risks and other internal consequences of supply chain issues, even if those issues are outside their control. "With a clear understanding of internal risks and consequences, management is better positioned to structure effective supply chain solutions and validate customers' demand forecasts."
A new tool from WWK called Critical Path Supply Chain Analysis is a methodology that identifies the supply chains with the highest potential to interrupt manufacturing and explores the risks of interruption. This methodology becomes the foundation for a corrective supply chain solution.
Are Customers the Problem?
Some indications that supply chains have problems include:
- Growing inventories of components and materials;
- Growing costs for expediting or accelerated delivery of components or materials shortages;
- Growing costs for return or restocking of un-needed components or materials; and
- Growing costs of scrapping obsolete inventory.
- According to Dance, many of these problems can be solved by improved demand forecasts from customers.
And if that forecast is not improved, managers must ask themselves the following questions, says Dance:
- What is the risk that my supply chain will not deliver as expected?
- What is my risk if demand changes?
- What are the best alternatives if problems occur in the supply chain?
The Path to Supply Chain Analysis
The first step toward Supply Chain Analysis is to determine the total time that each point in your network requires for processing its portion of the supply chain. This will help identify bottlenecks and other interruptions to the manufacturing process.
Next, consider your cycle time variability. Here you need to plan for a cycle time that will achieve a high probability o meeting the needs of the supply chain.
The manager of a semiconductor company shares how he used Supply Chain Analysis to identify bottlenecks in the manufacture of boardtests. For each stage in the supply chain, WWK considered cost, yield, variability and cycle time. Each stage also included transportation and handling to the next stage.
The manager worked with WWK to address the following questions:
- How much lead-time must be provided to insure sufficient supplies of tested boards?
- How many wafers should be fabricated to provide sufficient supplies of tested boards?
- How much time could alternate sources save?
- At which stages would alternate sources be most beneficial?
- How much time could accelerated transportation methods save?
- What is the average cost per good board shipped?
Uncovering the Bottlenecks
WWK found that wafer tests, assembly and the final board test posed the greatest bottlenecks to the semiconductor company's supply chain. Cycle time results for the 15-month duration of this simulation showed that the minimum and average cycle times are stable, but the maximum cycle time is highly variable, even with stable demand. Thus, these maximum cycle times represent the source of most of the company's supply chain and forecasting problems.
Dance says that cycle time variability for the company had a large cost. Even though the median cycle time was about 1,200 hours, supply chain management would need to plan for a cycle time of about 1,700 hours to achieve a high probability (90%) of meeting the needs of the supply chain. That works out of a cycle time that is nearly three weeks longer and represents nearly $500,000 in finished goods inventory.
Delivery on the material with cycle times greater than 1,700 hours will account for much of the expediting headache and cost for this supply chain. Even if a planning cycle time of 1,700 hours is used, there is still a one in ten chance that a just-in-time board assembly manufacturing operation would be halted for lack of material. Reducing this risk requires a minimum inventory in the warehouse of about 1.2 million units, representing over $11 million.