When in unfamiliar territory in this day and age, we automatically reach for our smart devices to map out directions to our destination. We conduct a search for the place we want to go, tap the map icon and head off in the right direction. Mapping out directions for a supply chain is not so simple.
Several years ago I was involved in a situation where the senior business team decided to reallocate advertising and promotional dollars from my team’s brand to another brand in an attempt to increase earnings. Those of us at Headquarters knew this maneuver signaled a significant reduction in the amount of product needed over the next few months.
Since the resulting change was a ‘system-driven’ exercise, it was a few weeks before the new production forecast was available and published. By that time the new plan was in the system, my team had moved on to other battles and the impact of the funding strategy change was a distant memory. A month later I got a call from the Plant manager who was directly affected by this change. It was not a pleasant call… and rightly so. His staffing was based on the ‘old’ forecast and now he had to lay off people that he had hired recently.
Using colorful language not suitable for publication, he let me know that I made a big mistake. We called these discussions ‘leadership moments’. I vowed from that day forward to keep the plant and the rest of the supply chain ‘in the loop’ when it came to changes in the business strategy. To do this, I needed a mechanism to clearly communicate the impact of changing business conditions to the rest of the supply chain. In today’s lingo, I needed an ‘App’ to point supply chain operations in the right direction.
Efforts and courage are not enough without purpose and direction. John F. Kennedy
There was never any doubt the plant would do whatever it took to achieve the production targets we established months before. Unfortunately making product based on an outdated production plan, was not what the business needed. As a result of my ‘leadership moment’, we developed a very effective way to communicate the state of the business, along with specific information to the supply chain by using a process called the ‘Operational Review’.
Most organizations have a way to show Management their production capacity plan, however multi-colored charts are only part of the story. A good operational review process has several elements that will encourage greater understanding between the business team at Headquarters, and the supply chain.
Here are the basic elements of the Operational Review:
1. Production Capacity Review
- Periodically updated visual depictions (charts or graphs) of each manufacturing line showing the production capacity and the volume currently planned for the line: These charts will identify production capacity concerns in the near future and whether there is capacity to grow the business.
- Updated charts showing inventory projections that take into account sales forecasts: These charts are usually expressed in a ‘days of supply’ format. The purpose of these charts is to give an indication of current and potential customer service concerns.
2. Performance Metrics Review
- Updated summaries of the inventory value (working capital) versus targets: These summaries will show how well the production plan is performing against the forecast. For example, higher than expected inventory value may indicate the sales forecast is not meeting expectations. However, if lower than expected sales are not the root cause of the increased inventory, then further investigation will be needed to find the source of the issue.
- Information regarding customer service: Customer Service problems should be discussed to determine how and when they would be resolved. For example, if customers say they are running short on product, yet the overall inventory is above the agreed target levels, then the supply chain will need to determine what is creating this imbalance, and report back to the business team.
- Production performance metrics presented by the plant showing the actual production results versus the production schedule: This is sometimes called ‘output reliability’ or ‘schedule reliability’.
3. Discussion of Events Impacting the Business
- The Sales Forecast and Promotional Sales calendar is shared with the plant: This information will help the plant determine the amount of resources needed to meet the expected demand.
- Future projects, such as packaging or graphics changes should be discussed well in advance: This discussion will help with production planning and minimize material write-offs.
- Plans for future innovation projects, such as line extensions and new products should be discussed with the plant as soon as possible: Innovation projects should result in incremental business, and the plant will need to plan for the additional resources.
A key consideration when establishing the Operational Review process is deciding who is to be involved in the discussion. One of the purposes of the Review is to provide purpose and direction to the troops in the field. It was my experience that the person at Headquarters who has responsibility for providing the tactical direction to the plant is a key member of the Headquarters team, and the Production team, and is in the best position to be the facilitator of the discussion.
The majority of the information at the meeting will be intended for the Plant Manager and their production staff. However, the plant staff will also be asked to provide information for the review. A very important function of the meeting is for Headquarters and Production to gain a mutual understanding of the current and future challenges the business faces. It may be helpful to include other support functions on the team, such as Procurement and Quality.
Another factor to consider is the frequency of the meetings. We found that a monthly meeting was appropriate, however this could vary depending on the industry. Having pertinent and timely information to share is important, and most companies utilize a monthly business cycle.
Sometimes the path you’re on is not as important as the direction you’re heading. Kevin Smith
It was always my experience that when Management at the plant was well informed regarding the direction of the company, the trickle-down effect of this knowledge was always positive, even if the news was not always good. When plant management, supervision, and the line workers had a clear understanding of the direction of their business, they were more likely to make good business decisions. In the bigger picture, everyone wants to feel that they are contributing to the success of their company, and not coincidentally, their own success.
A steady and honest flow of information between Headquarters and Production regarding the direction of the business is always a good thing. Implementing an Operational Review process is an ‘app’ that can ensure everyone is going in the right direction.
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