There’s a dark secret lurking in the manufacturing supply chain that will always obstruct attempts by connected technology solutions to open up visibility between suppliers and their customers. That’s the considered view of a 40-year veteran of UK manufacturing industry, who has discovered endemic failings and workarounds throughout the supply chains of automotive, aerospace and other high value-added industries. Ian Shirley says suppliers simply aren’t going to open up their systems for fear manufacturers will penalize them for the inefficencies that will inevitably be revealed:
Connecting suppliers up through the supply chain will never happen. Suppliers will always conspire never to give that information to their customers.
He believes supply chain collaboration requires a different approach, and has founded ClearChain, a cloud-based tool that helps suppliers identify and fix shortcomings in their internal processes prior to forging closer links with their OEM customers. Until suppliers no longer have to paper over internal inefficiencies by holding excessive stocks and working emergency shifts, supply chain transparency will always remain a pipedream, he says.
This is a problem that is going throughout the whole industry. When I started to see these problems you tend to only see companies that are not very good at delivering to their customers. What staggered me was that very good delivery suppliers have exactly the same problems. They’re filling their factories with stuff just in case, tying up capital, underutilizing capacity …
If an OEM manufacturer said, could I connect into your system, they would be shocked — they would be appalled at what they would see. At least 90% of high value-added manufacturing companies in the country have this problem.
Supply risk inventories
These hidden problems need fixing because they’re increasing costs and soaking up working capital, says Shirley. He blames factors such as poor demand management by manufacturers, inconsistent management of internal business processes, and poorly maintained ERP implementations.
Meanwhile manufacturers on their side are holding excessive supply risk inventories because they don’t feel able to trust their supply chain. They maintain extensive supplier management teams in an attempt to keep control of costs and delivery performance, but in reality they are powerless to tackle these hidden issues.
In early examples ClearChain has worked with, Shirley says the tool has revealed excess holdings of 30% or more work-in-progress materials, as well as identifying unused production capacity. In one example, the supplier was starting four-week production runs two weeks earlier than it needed to — and second-guessing forward orders as a result. In another, the supplier agreed to accept orders in call-off quantities of 100, even though its tooling was set up to run off 97 units at a time.
We’re not talking about tweaking things round the edges. We’re talking about major examples.
At the same time, manufacturers often use suppliers to buffer errors in their own demand forecasting, so for example they may signal that they’ll need a delivery but then decide not to call it off. While in theory the supplier could invoke a penalty clause, in reality they won’t so that they can keep the relationship sweet.
‘Combative’ business culture
While technology vendors argue that increased connectivity, integration and networking provide a potential solution, Shirley says most see this as an opportunity to impose their own vertical solutions on a manufacturer’s supply chain partners.
It’s pie in the sky that the suppliers are going to start using another ERP system, because they’re all supplying different companies with different systems.
And in any case, the real problem is what Shirley calls the “combative business culture in the supply chain management function.” Suppliers don’t want to open up their systems to manufacturers for fear that they’ll use the additional knowledge to squeeze more out of them.
People think the technology will get us closer to nirvana but what we’re doing is driving a truck at a brick wall that we can’t see because its foggy. It’s only when you see the whole picture that you start to see through this fog.
ClearChain aims to resolve this logjam by inserting what Shirley describes as a “web-mentored supply chain improvement layer.” The tool collects data from supplier systems, normalizes it, and then ClearChain’s consultants work with the supplier to identify opportunities to improve operational efficiency.
Web mentoring is about helping people find the issues, putting the stats around it and giving them the ammunition and the monitoring to make sure they’re achieving that continuous improvement.
Once the foundations are in place for business improvement, collaboration and cooperation, then stakeholders can move towards finally starting to share data should they wish to. This is a two-way street, with manufacturers incentivized to improve demand management in return for being able to look forward to trusted information from validated suppliers, says Shirley.
This collaboration issue is a major problem. You would never make this work without offering the temptation to the OEMs that the information might be available to them if they put real collaboration in place.
The natural reaction with the current culture is to go at suppliers with a big stick if they find issues — instead the OEMS should consider the issues in their own organisations that are contributing demand noise that’s making suppliers less efficient.
Out in the real world, away from the carefully engineered visions of how technology vendors believe things work, great companies are managing to perform despite, rather than because of, the systems they have in place. Ian Shirley’s dystopian portrayal of the UK manufacturing supply chain rings true and probably reflects reality all over the world and in many different industries.
What started out in the 1970s as a transformation to a ‘just in time’ supply chain has ended up with all the participants holding things together with ‘just in case’ risk management.
The high performers in this scenario are successful because their managers and teams go the extra mile to make things work, and because they’ve got effective workarounds and backup plans in place to keep them out of trouble. So even though no one knows how to get the best out of an ageing ERP system, half the company’s money is tied up in unnecessary stock, and the whole edifice would come crumbling down if some unforeseen shock put new demands on the business, everyone somehow gets by.
As Shirley has realized, this leads to a huge waste of resources that could be better employed in driving better profitability and keener pricing. I’d argue these companies also need to step up investment in preparing for faster change and better instrumentation of the factory floor. But I also agree that the culture has to become more collaborative and he’s right to identify this need to fix issues before anyone’s going to share information more deeply.
It will be interesting to see what others think of his analysis and whether ClearChain’s approach will make an impact.
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