Whilst struggling to get my engineering degree, I was strongly encouraged to take a class in psychology. In that class, one of the more interesting discussion points was around Maslow’s Hierarchy of Needs. In a nutshell, Maslow’s Hierarchy of Needs is a well known psychological principle that describes an individual’s journey toward spiritual enlightenment. Gaining insight into your supply chain takes on many similar characteristics. It is a journey, and not a destination. With apologies to Maslow, please read on.
Basic Needs – Information Consolidation
At Maslow’s bottom is the idea of the things you need to survive. For manufacturers, this is basic information such as who are my suppliers and what are they shipping me. This is where you begin your journey. The applications that allow you to achieve this level may include your ERP application, potentially your PLM and other internally focused programs.
For large organizations, though, this can be difficult, especially if they have grown through acquisition. I heard of one very large, global food producer that found that after they implemented an ERP, they were purchasing the same ingredient from the same supplier at eight different prices. So, depending on your size, getting out of this level can be non-trivial.
Psychological Needs – Measurement and Action
Once gaining systematic control over this basic information, you can gather more supply chain information. One typical project centers around supplier base rationalization. To that end, you need to have additional metrics beyond on time delivery. In most cases, operations staff have institutional knowledge about their supply chain, but, do not have the data to really know why it is. They will know that things work well with Supplier A, but, not-so-much with Supplier B, even though they provide the exact same material that meets their specification.
To move through this phase, manufacturers can look at the following additional metrics to measure their supplier community:
- Corrective Actions / 1000 shipments
- Number of Out of Specification Shipments
- Conformance to industry regulations such as ISO-9001, FSMA, IATF-16949 or other industry standards
- Compliance to your specifications
- Material oriented SPC violations (this is a good one…)
With this information, you can rationalize your supplier base, achieve some pretty good financial returns, and focus your efforts on achieving the next phase. Financial returns come from lower on hand inventory, fewer supplier material oriented disruptions, improved collaboration and improved supplier pricing from higher volume contracts.
Spiritual Enlightenment – Operational Excellence
Upon rationalizing your supplier base, you really gain financial and operational benefits. Many of the financial benefits realize from the previous phase are one time costs. Using the data that GSQA holds, manufacturers use the supplier data to significantly improve manufacturing processes.
This phase involves tying the information from the supplier community to ongoing operations to see how the various incoming material characteristics affect efficiency and outcomes (this is one of the tenets of Industry 4.0). What may be realized is that the information that you thought was relevant, while important, does not answer key questions. You may need to find other information to answer more complex questions about the relationships between materials and processes as it relates to yield and productivity (check out my Moneyball LinkedIn posting).
Every business is different when it comes to these journeys. These results, though, come through data analysis driven through detailed root cause analysis techniques, and can add quite a bit to your bottom line. They don’t come overnight, but, do have pretty interesting results as it relates to operational improvement.
People don’t gain spiritual enlightenment overnight. Individuals need to understand what makes them tick, and what is important to them. Your journey toward operational excellence will invariably go through the supply chain, and will involve gathering and using data to drive operational excellence.