The Hidden Gem in Supply Chain Planning

The Hidden Gem in Supply Chain Planning

By Stijn Sweere, Supply Chain Entrepreneur, former Global Supply Chain Director at International Flavors & Fragrances

Stijn Sweere, Supply Chain Entrepreneur, former Global Supply Chain Director at International Flavors & Fragrances

One could argue, that from a cost perspective roles like Production, Transportation, Ingredients planners, Customer service representatives and so on make up less than 1% of sales, so efforts to reduce non-value added activities should be focused elsewhere. While I disagree with this statement, there is also something larger at play.

When I started my career many years ago, my manager told me that to be considered world class in manufacturing, at least 20% of the activities should be value adding from the perspective of the customer. When looking at actual manufacturing organisations, the reality is that only 1-5% of activities can be considered as value adding. It requires significant effort to increase this to the level of 20%.

Today Lean manufacturing techniques that drive out waste have become commonplace in most manufacturing environments.

In this article, the focus will shift  to value adding and non-value adding activities in the administrative functions that typically support a manufacturing/ distribution environment.

A straightforward method can be used to determine the time required for these administrative functions:

• What are the typical steps that are executed on a daily basis? (from the process flow)
• How much time is needed on average per step?
• How many times does this process repeat itself (# of orders / transactions)?
• The outcome of this exercise will likely account for <20% of the time actually spend in a day.

When the day-to-day reality is reviewed more carefully, it appears that most time is spent on activities that are not mapped on the process flowchart. What is the other 80+% of time spent on?

A parallel could be drawn with the 7 wastes (Muda) from the Lean Manufacturing methodology. However, these 7 wastes do not seem to be directly applicable to an administrative process like for instance planning.

Non-value adding activities in administrative roles have some of the following root causes:

• Inconsistent, scattered or incomplete information for decision making.
• Irrelevant Information flows (E-mail overload, false positives from ERP systems).
• Reprocessing information (from systems or previous E-mails).
• Unclarity in roles and responsibility. (double handling or ignoring issues)

So what is constituted as value adding then?

They fall apart in 3 key activities:

• Process information for decision making (Input).
• Make the actual decision itself (Action).
• Communicate the decision (Output).

Almost everything else adds no or minor value from a customer’s perspective.

An organization, however, does not “just” lose 80+% of their administrative staff hours. There is more at stake.

You might all remember the graphic of a boat on the water with rocks beneath the water level (see figure x). The rocks represent the “hidden” problems and the water level represents some sort of buffer (For example:  Work In Process level (WIP) or Inventory). The concept conveyed is that if you reduce for instance your WIP level in manufacturing, the hidden problems (both known and unknown) will show up and you will be forced to fix them otherwise the boat (your production process) will come to a halt. WIP reduction projects should therefore always be executed in a way where the WIP is reduced gradually, to account for (especially) the unknown problems that will show up.

What if the same concept applies to our administrative processes? That would mean, we are not only wasting 80% of a person’s time, energy and passion on activities that do not add value; we also allow the “rocks” to exist. These problems beneath the water level are not merely the source of non-value added time, they can also cause value to be destroyed. ( Mistakes in planning can lead to excess inventory, expedited shipments, write offs and so on). As in manufacturing, some of these issues in the administrative world are well known and some of them will only show up once you start to attack the “wasted” time by redesigning your processes and systems

Today most managers, consultants and software systems aim to improve ‘the known 20%’ of value adding activities. When you ask a planner what they do in a regular work day, they will probably talk to you about ‘the known 20%’. Wouldn’t it be interesting to ask them about ‘the other 80%’?

Be amazed by the answer and decide to harvest this hidden gem, reduce cost, increase on time performance, reduce inventory and last but not least make a meaningful change to your employees work life as they will feel the shift from non-value added to value added in their day-to-day work life.

Work In Process (WIP)

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