By their very nature, Just-In-Time (JIT) manufacturing strategies require companies to walk a fine line between having too much and too little inventory. For example, when a company fails to quickly adjust to increased demand, or when a supplier encounters distribution problems, the business runs the risk of supply interruptions or excess inventory. Over the years, JIT initiatives have generated a lot of success due to its shared visibility, coordinated pull-based flow, alignment between schedules across workstations, consensus driven management, mitigation of variability and elimination of non-value added work. Unfortunately, the benefits of JIT programs have been limited to within enterprise boundaries. Most manufacturers have simply shifted the burden of inventory to their suppliers rather than achieving continuity of flow across the value chain. But why?
The problem lies in the limitations of the practices that work so well within the plant. Unfortunately, JIT initiatives cannot be extended out to the broader value chain due to the limitations of current enterprise systems used by manufacturers, their suppliers, partners and the lack of connectivity that exists between them.
The first problem is lack of visibility across manufacturers and the suppliers across the tiers. Inventory is used as a hedge to compensate for this, but redundant inventories across enterprises tie up unnecessary working capital and further decrease visibility across the supply chain. So the vicious cycle continues.
Another obstacle is that enterprise systems for supply chain planning are distinct from those for supply chain execution. Historically, technology vendors were organized around each discipline, and these silos created a misalignment between supply chain planning and execution. However, JIT programs require tight coordination between planning and execution. While companies have managed to bridge these gaps through internal processes and workarounds, these disconnects become insurmountable across enterprise boundaries.
A third driver is the variation in manufacturing processes. Variations within factories, such as batch and sequential flow, are managed through approaches such as coordinated schedules and optimized cellular layouts to minimize impact on total lead time throughout the plant. However, there is little coordination of flows between supplier tiers and physical plants, which often result in the manufacturer levying severe penalties on suppliers for supply disruptions and any hope of streamlining getting thrown out of the window.
Last but not least are the challenges around real, open and effective communications. Much of the value of JIT programs comes from empowering every associate and engaging teams to drive continuous process innovation. Such open communication and collaboration is not possible with isolated systems between manufacturers, suppliers and other partners.
A New Paradigm – The Value Network
Over the years, many have argued that JIT programs do not require sophisticated technologies. This is because within the four walls of a factory, visibility, alignment, collaboration and communication can indeed be achieved without relying much on technology. However, it is technology that makes possible today’s paradigm of a global village of connected, informed and continuously engaged communities. The same technologies used internally can in-fact transform the way manufacturers, suppliers and partners work together to effectively implement JIT strategies across the value chain. The right network can leverage the same concepts for information sharing, coordination and communications related to business across the supply chain.
Real-time Visibility Across the Value Chain
Today’s network, which is a multi-party and multi-echelon platform, provides inventory and order visibility as far forward and as far backward in the supply network as the partners agree to share. Businesses can see their current and projected views incorporating the planned, confirmed and in-transit inbound and outbound orders. This enables manufacturers and suppliers to clearly view and understand what is planned and being executed within their partner facilities, and allow them to see one or multiple levels downstream and upstream to predict potential problems. Also, logistics can be coordinated to ensure supply matches demand and capacity is planned.
With this extended visibility, the network can also leverage big data. This modern network lends itself to the collection of big-data, enabling businesses to model predictive patterns such as seasonality of certain product demands, early warning indicators for disruptions, and so on. In turn, this enhances overall production planning, capacity planning, raw materials and component orders, staffing and aligns production planning with logistics.
Continuous Pull-based Incremental Planning and Execution
The JIT manufacturing philosophy involves the elimination of waste and continuous planning to achieve improvement in the execution of all manufacturing activities. A network tightly couples the planning process with execution, creating a real time sense and respond system. Whereas traditional solutions periodically re-calculate all plans in long batch planning cycles, a network continuously optimizes decisions incrementally, event-by-event in real-time. This results in a more effective way to manage deviations in plan versus execution, and providesthe ability to analyze the impact, determine the best solution, and then execute a coordinated response across business partners. Alternatively, and if required, the network can enable users to escalate to the issue to the right parties to collaborate on solution. The result is a more responsive and cost effective value chain.
In JIT-based operations, day-to-day activities are driven by continuously replenishing the customer-demand-driven finished goods inventory targets. These targets “pull” or drive the production plan, the use of production assets, labor and even the reordering of raw materials from suppliers or warehousing/distribution operations. In essence, JIT requires production to be tied more directly to short term customer demand optimization patterns. In the absence of JIT, the best price may result in buying materials in bulk quantities and taking delivery all at once.
Beyond order/shipment visibility and management, a network adds incremental value to meet existing or new business requirements. Further, the network platform tightly integrates functions across what were traditionally four distinct supply chain application areas: Order Management, Demand Management, Supply Management and Logistics Management. Done right, a network can drive a true streamlined, pull-based process that spans demand sensing at the point-of-sale to supply pulls across multiple tiers of the value chain with coordinated logistics.
Planning and execution coordination can extend to the value chain by continuously adjusting priorities and plans based on the matching of supply to changes in demand. Imagine the increase in customer service if you can identify a critical need for product at a customer distribution center and proactively and cost effectively expedite the shipment before the customer even calls. This is what streamlining of flow beyond the enterprise looks like.
Effective Communication and Collaboration
The network can also extend the reach of effective communication between trusted partners. However, today’s businesses are multi-party and global in nature, which can, complicate communications. In parallel, social networking has become a powerful force, driving rich real-time communications. A network platform can leverage the same concepts for business communications across the supply chain. Currently, there is a new concept of Business-Centric Social Apps that are capable of integrating social networking tools — such as chat, Wikis and blogs — directly into the business process flows. This means that a network member can chat online in real-time with a supplier, customs broker, freight forwarder, and carrier about the status and location of a purchase order. Also, that chat is recorded and attached to the purchase order for the life of the transaction. In addition, these systems provide visibility only to the organizations and users that are a party to the transaction. This unprecedented ability for secure, persistent, unstructured communication around business transactions provides companies and their partners with a greater ability to collaborate and coordinate.
Increasing the Value Across the Entire Supply Chain
The arrival of JIT thinking drove an increase in limited runs and a decrease in large batch runs; consequently, JIT shifted the constraints upstream. A network solution can overcome the challenges of visibility, alignment, collaboration and communication to extend the benefits of JIT beyond the enterprise to the entire value chain, creating an unprecedented ability to collaborate with trading partners. Unlike other solutions, manufacturers, suppliers, multiple transportation providers, customs brokers, and trading partners can all interact securely, on each transaction as needed, within a network. Specifically, they can interact only for the portion of the transaction that is meaningful to the specific participant, such as a single leg of a multi-leg shipment for a specific logistics provider, etc.
The adoption of a network in JIT manufacturing smoothes production, increases cost effectiveness and drives efficiency. This next generation of technology can propel an industry to move the entire frontier of value. Supply chains that delay in moving to a network will carry higher inventory costs, be less agile, and may not be able to satisfy customer demand in the new world meaning your earlier JIT efforts may have in fact just ran out of time.
Sameh Shamroukh is Vice President of Solution Consulting at One Network Enterprises.