A personal view, by Mark Greatrex, product and services director, Lakeview
From the earliest days of manufacturing, the emphasis has been on managing the organisation’s supply chain in meeting the twin needs of running an efficient production operation and meeting customers’ delivery requirements.
However, over the past decade there has been a growing, if slow, shift in best practice thinking away from supply to demand as the focal point of a truly
effective business.
For today’s market-leading manufacturers therefore, there is no longer an exclusive focus on capacity plans, finished goods stock levels, material supplier schedules and minimum batch quantities. Though still important, they are now assessed in the context of what market demand is likely to be over the next six to 12 months, or over as long a horizon as the individual business can sensibly project.
Matching supply to demand
Since the mid-1990s, the principles of demand chain management have gained an increasing foothold in enterprise manufacturing businesses, though it must be said the concept has yet to have a similar impact at SME level.
So why should demand chain management be recognised as, in effect, an example of leading edge supply chain thinking today?
First, by focusing on customers’ existing and future demand, the business is likely to provide a greater level of order fulfillment – delivering in full and on time
more often. This has become of critical importance in a harsh economic climate in which more demanding customers are insisting on measurability of performance in the form of strict KPIs – and are more likely to ‘vote with their feet’ and change supplier if these high-level service requirements are not met.
Equally importantly, internal efficiencies also benefit, as supply can be modelled on a more accurate view of demand, enabling pressure to be put on production and raw materials suppliers to match these precise requirements.
This is a radical departure from the traditional way of thinking – that of setting minimum batch or order levels supported by a volume of finished stock and raw materials holding which allows the business to feel ‘comfortable’.
The problem with this less informed and more inflexible stance is that it risks costly overstocking and obsolescence on the one hand, and an inability to respond to rapid changes in ordering patterns on the other. With demand chain management, by contrast, the manufacturing unit is able to provide improved
delivery performance, while at the same time cutting stockholding, production and purchasing costs.
An evangelist for change
As with any major change, there are typically two main hurdles to overcome if the business is to successfully adopt a demand-led approach in this way. In order to overcome the inertia of a production and stock control operation satisfied with the status quo, an internal senior level ‘evangelist’ will be required to describe the
change, promote the benefits and drive it through.
And this will need to be supported by the right systems and processes, which in this case means the implementation of an appropriate demand forecasting and MRP solution. This needs to provide visibility of both the demand forecast and supply situation and then in response create suitable works orders for finished goods and purchase orders for materials and sub-assemblies.
Critically, the forecasting process needs to be capable of ensuring that the demand history is both clean and accurate, as it is pointless trying to base
future requirements on flawed data, and be capable of ‘intelligently’ learning from the past. This will need focus from your planners and sales people working
closely together – often a weak team in many traditional businesses.
At the same time, the production planners need to work with a software partner in understanding and implementing the forecasting/MRP system. This too is
central to any project’s success as, in our experience at Lakeview, third-party consultancy support – together with the internal project ‘champion’ – is at least as
important in effectively embedding the concept of automated forecasting and planning based on a common platform throughout the business.
First steps
For any company looking to adopt a demand chain management approach, there are a number of key issues to consider from the outset. An implementation
plan will be needed to address such questions as whether forecasts can be secured from key customers and if the current computer system and database can provide a true demand history over the previous two to three years, taking into account distortions by, for example, and problems of availability.
Adopting Pareto’s 80/20 rule, it is important to start with the highest volume customers and products. However, this should be undertaken with some caution: any proposed change should initially be tested in parallel with the existing system in order to ensure that customer service levels do not dip during the early
phase of implementation. It is also sensible business practice to select the right
combined consultancy and service partner. They should be experienced in your particular marketplace – SMEs, for example, have markedly different IT requirements to their enterprise competitors – and be able to provide
strong reference customers to support this.
Finally, how important is demand chain management? In a commercial environment, in which most markets are more competitive in terms of price and service and customers more demanding and promiscuous than five years ago, it is not perhaps too fanciful to suggest that the adoption of a demand-led approach will become a business-critical issue, to the point where it becomes
a case of ‘adopt or die’.
Productivity doubles at DMS Technologies
For more than 20 years, DMS Technologies has supplied batteries and other bespoke power systems to a broad range of industries, including aviation, defence, transportation and telecommunications. Seven years ago, following a period of consistent growth, the company realised the need for a more flexible financial and manufacturing control system if it was to sustain its strong sales performance.
Since implementing a Lakeview solution DMS Technologies has doubled its turnover, yet now manages the enlarged business with a smaller accounts team than previously. At the same time, Lakeview has provided a level of service support which, believes managing director, Malcolm Winter, “is as good as you’ll get.”
Challenge
In looking to overcome the drawbacks of the previous accounting system, DMS Technologies wanted a management system which would provide better manufacturing control. “We recognised that a full-blown MRP system would be inappropriate for our size,” confirms Winter, “and, after researching the market,
we identified a suitably scalable software solution for our accounting and manufacturing needs.”
DMS Technologies typically manufactures around 300 different products from more than 2,000 parts. In supporting this process, the new management system
enables manufacturing to maintain tight control over bills of materials and all other aspects of the procurement and assembly process.
Solution
The standard solution offered most of the functionality required, with little customisation needed. For example, its inherent ability to drill down and ensure complete records of materials was particularly important, as DMS Technologies required full traceability to meet both customer requirements and its ISO9001
quality standard.
“When we implemented the new system, there was great emphasis on training our staff to get the most from the enhanced management capabilities offered,”
he recalls.
“Changing over from our previous solution was the most complex task the business had undertaken. Yet the combination of Lakeview’s flexible, easy-to-use software development approach and comprehensive
training and support meant that the two-month period of parallel running went smoothly and staff were able to derive real benefit from our investment almost from day one.”
At the outset, some modifications were made to the reporting and documentation tools to meet specific works order requirements, including detailed picking list and quality information, together with inspection
status card data.
Once established, DMS Technologies added additional functionality such as fixed asset register. “However, in extending our investment in this way, our goal has
remained the same,” says Winter, “namely to put in place a cost-effective accounting system with extended manufacturing capability which meets the needs of a company the size and type of DMS Technologies.”
Results
Since implementation, the now 40-strong company has doubled in size to nearly £6 million annual turnover, yet the new management system allows DMS Technologies to continue to manage and grow without a similar increase in staffing.
The initial software purchase was DOS-based, with the subsequent transition to a Windows-based system smooth and seamless. Similarly with hardware, DMS
Technologies has purchased two replacement servers and associated support, which Winter describes as, “an object lesson to other, much larger, IT suppliers.”
