SUPPLY CHAIN MANAGEMENT
April 1, 2000 By Pulp & Paper Canada
thirty years ago, papermakers, like other Canadian businesses, typically allowed the concerns of their internal organization and operations to drive their decision-making process. This was not an enti…
thirty years ago, papermakers, like other Canadian businesses, typically allowed the concerns of their internal organization and operations to drive their decision-making process. This was not an entirely successful management technique and in the 1980s, the concentration shifted and companies began putting their suppliers’ needs first. When this approach didn’t improve their bottom lines, management realized that they needed to re-focus. In the 1990s, the direction changed once again and mills finally gave their customers their highest priority. Today, some companies in the pulp and paper industry make decisions by considering all of these elements — organization, suppliers and their customers — thus, the era of Supply Chain Management.
Supply Chain Management is more than a buzz word. It’s a management concept that can organize a mill’s priorities and help personnel at all levels make the right decisions. Basically, Supply Chain Management is the process of keeping organizational, supply and customer issues in proportion so that customer needs are met.
Understanding the supply chain
A complete understanding of all the components in the supply chain is the first step on the road to successful Supply Chain Management. You need to know the connection between your suppliers, you and your customers — the three basic parts of your supply chain. Then it’s critical to learn how to manage the flow between your supply chain, so you can bring positive change to your organization.
Typically, the supply chain is a series of customer-supplier relationships between value-added entities. For example, a papermaker may order from Supplier “A” who in turn orders from Supplier “B.” Supplier “A” is both the supplier to the papermaker and a customer of supplier “B.” The value-added activity performed between these suppliers and the papermaker is illustrated in Fig. 1, which also illustrates the perceived overlap between entities.
“Traditional” thinking used to be that Supply Chain Management was meant largely for vertically integrated organizations that needed to control their internal flow of material and information. However, some companies have fine-tuned this concept to more closely meet their needs.
Suppliers meet customer needs
With the realization that suppliers are an integral part of the organization, ABB extended the model to include its suppliers. As shown in Fig. 2, where purchasing handles the day-to-day supplier transactions, supply management can deal with contractual / behavioral supplier issues. At ABB, Supply Chain Managers are in place to optimize and implement processes, and to manage material and information flow toward their customers. Customers are then able to use this to maximize their assets and make better decisions.
One of Supply Chain Management’s key concepts is bringing customers and suppliers closer together so that the needs of the customer are better known by the supply chain and, hopefully, better satisfied. This is a change from traditional management styles and requires that information flow, which is often relegated as a “sales problem,” be considered a product of the company and, consequently, a concern for a supply chain manager. The reasoning behind this is that there are times when a customer’s need to have information relating to products or services can be just as important as the material or service itself.
To bring the customer and supplier closer together, papermakers need to understand their own supply chain and identify any areas that are obstacles or bottlenecks in the material/information flow and eliminate them. Mills need to address these problems to make their processes more efficient.
Strengthening the flow
The supply chain flow can be illustrated by comparing it to the old-fashioned “bucket brigade” process of putting out a house fire. In our example, the customer is the one whose house is on fire, and the suppliers are the ones with the buckets full of water. The goal is to keep water moving swiftly down the line so that the fire can be put out. The chain needs to work quickly and efficiently and keep the customer/home owner informed. The main goal — saving the house — has to be at the forefront of everyone’s minds. The process just has to work and work well.
If one bucket handler/supplier is arguing with another about, for instance, the type of bucket being used, this can waste time and the house can burn down. In “real life,” arguments in organizations over issues such as equipment purchases or planning strategy are well intended and an important part of customer focus. However, internal squabbling can lead to sub-optimization, the turf wars that can negatively effect mills and their customers.
Sub-optimization occurs when managers or other personnel try to make their own segment of the process better and more efficient. Often, this has an unintended negative effect on other supply chain links. For example, a mill engineer decides to stop gathering certain quality data he found non-essential to save himself one hour per week. On the surface it might look like a good thing. But, if you examine the effect on the entire supply chain, you might find that this change caused the paper machine operators an extra 45 minutes per week and a supplier two hours more per week. Acting as the “caretaker” for the supply chain on behalf of the customer, the supply chain manager needs to demonstrate that this change (although helpful to engineering) in effect makes the supply chain less efficient by one hour and 45 minutes per week. The optimized decision would be to ensure that they once again gather this information. To do this well, two things must be in place: documented processes and a solid infrastructure.
Documenting processes creates both a record of what the organization is doing and a process culture. A process culture provides everyone with the discipline to get “in step,” making an organization more controllable. Internalization of a process culture enables any organization to make rapid changes so it can meet the desires of the marketplace quickly and effectively.
After processes are documented, an infrastructure needs to be in place to guarantee implementation of improved systems. This is a job for the supply chain manager, who can see that processes are in place and being used properly, and ensure a smooth flow of material and information. This same methodology needs to extend beyond the corporate borders and into the processes of the sub-suppliers (at least the key or strategic ones).
To deliver a product with greater efficiency and be able to respond to customer needs with greater effectiveness, information technology comes into play. However to ensure that the right tools are selected, only after sound processes and solid infrastructure are in place should papermakers really think about the information technology (IT) tools to support them.
Supply Chain Management can take your mill to the next level by helping you understand your customer’s needs and manage your priorities — two basic goals of most businesses. With its customer and process focus and its optimization of material and information flow, Supply Chain Management delivers on both counts. In the end, customer decisions aren’t based just on price. The papermaker that makes their supply chain the most effective will be the one who has the happiest customers and wins the orders.
Ken Hagy is Regional Supply Chain Manager, ABB Automation Inc. Columbus, OH
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