A Strange Discovery in the Supply Chain: How a Lean Analysis Stopped Supply Chain Risk

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The late quality guru, W. Edwards Deming, advised graphing the process variables and the process outputs over time on a run-chart to identify uncertainty and variability. When the run-charts are used together they locate the times and cause of poor results.

If you want immediate control over a process then track the process variables – those factors that influence the result – so they are observable as they change. If the change is bad you have time to react and correct it before it does too much damage. If you want pre-emptive control of a process then trend the variables of the process inputs before they enter the process. By ensuring the inputs into a process are correct you can be more certain the process they feed will behave right. If you only want to know how well a process performed, then monitor its final output; the product from the process.

Unfortunately monitoring the final output puts you in the position of asking, “What happened?” when something goes wrong. Just like the company in this example, who had no idea what had changed to cause a spate of raw material stock-outs. But by tracing the replenishment process on two run-charts it was possible to highlight process fluctuations and identify their underlying causes.

The stock replenishment process involved the ocean shipment of raw material from a manufacturer to the company. For some months prior the investigation the company had been running out of stock across a range of products. The impact on the company’s business was the inability to supply products on-time to their clients because their warehouse replenishment process could not maintain adequate raw material stocks. They were using-up safety stock and not getting resupply quickly enough to meet Client orders. Annoyed Clients told them of the problems being caused in strongly worded correspondence and angry telephone calls. The company did not know why they had the stock-outs.

The investigation began by collecting data on products stocked-out over the previous two years. Table 1 shows the frequency plot spreadsheet of products that had suffered stock-outs. The company was suffering increased numbers of stock-outs over an increasing number of products. The frequency table proved and confirmed the seriousness of the situation.

Supply chain risk reduction: Raw materials stockout table

 

The next step was to find what was causing the lack of supply. It was necessary to look at the history of deliveries from the manufacturer. Historical records of delivery dates are in Figure 1, which is a run chart graph of the delivery dates. It shows a great deal of variability in the deliveries over the most recent months. Lately they were up to two weeks overdue, when they should have been arriving weekly.

Supply chain risk reduction: Ship departure dates

 

Figure 2 is a graph of the numbers of sea containers in each delivery. It shows variability in the amount of product sent on each shipment. Instead of having their normal deliveries of ten to eleven sea containers, the company was receiving varied shipments from four to twenty-seven containers per ship.

Supply chain risk reduction: Containers sent per ship

 

Further inquiries found that the regular national shipping line used for raw material deliveries had one of its two ships in for a two-month maintenance outage. Where once there was regular weekly shipment, now the only ship left on the run was fortnightly. To get product to the customer during the maintenance outage the manufacturer had started booking transport with international shipping companies. These ships had irregular departure schedules and only took numbers of sea containers they needed to fill the empty bays left after meeting prior commitments. Sometime they took few containers and other times they took many. The consequence of the irregular departure of the international carriers with either small or large amounts of product was the stock-outs suffered by the company.

The disruption of regular delivery to the company was the result of a special-cause event—the ship repairs. A special-cause event is an extraordinary occurrence in a process not attributable to the process. Had there been no ship repairs the deliveries each week would have been normal. The ship repair was outside of the control of the replenishment process, but it impacted badly on the company and its customers.

The long supply chain from one side of the country to the other side was at serious risk of irregular disruptions by parties over which the company had no control. The business process should have identified this risk and instituted supply chain schedule monitoring. Preventing the ship repair was out in the company’s control. But protecting against late raw material deliveries was their responsibility. Had they monitored the actual shipping dates of their sea containers (they only monitored the scheduled shipping dates) they would have known the deliveries were already running late and could have used other reliable modes of transport, such as bulk rail, to replace the failed ship. As soon as on-time delivery by ship was not possible it should have been flagged and the rail should have been booked. It was a business process failure that a supply chain risk analysis would have identified had one been done when the process was first designed. The supply process input of on-time shipping date was easy to monitor and would have protected the company against unknown supply chain failure.

This is our speciality—making Lean work in your company by removing the supply chain inefficiencies you have, and turning what was waste and loss into new, handsome profits for your business. Contact Us now and start working on your great and successful Lean future today.

 

My best regards to you,

Mike Sondalini
Managing Director
Lifetime Reliability Solutions

 

Past clients include:

Lifetime Reliability manufacturing consultants did lean manufacturing improvements at Smorgon Steel workshops, Perth, Western Australia
Smorgon Steel Reinforcing
Perth, Western Australia
Lifetime Reliability manufacturing consultants did lean manufacturing improvements at P&H Minepro workshops, Perth,	Western Australia
P&H MinePro Manufacturing Workshops
Perth, Western Australia and Cairns Maintenance Workshop, Queensland, Australia
Lifetime Reliability manufacturing consultants did lean manufacturing improvements at Imdex workshops, Perth, Western Australia
Imdex Limited
Perth, Western Australia
LRS Consultants (Australia) did lean value stream mapping for Bosston Autobodies, Perth, Western Australia
Bosston Autobodies
Perth, Western Australia
LRS Consultants (Australia) did lean value stream mapping at Park Body Builders workshops, Perth,	Western Australia
Park Body Builders Workshops
Perth, Western Australia