Increasing supply reliability for critical bottleneck parts

Given the increasing need for manufacturing companies to take on a global orientation, supply reliability is becoming ever more important. In this context, the term “supply reliability” refers to the sound, realistic planning and coordination of demands and capacities across the entire value added network.

At the same time, it means the ability to identify and eliminate disruptions in the supply chain early on in order to avoid production downtimes and costly special measures. As globalization progresses and increasing shares of value added are shifted to suppliers, ensuring a smooth supply of components for production becomes more and more complex. 

My experience gained from numerous discussions with customers and other interested parties increasingly indicates that even those companies which to a relatively large extent use EDI when communicating with and handling processes involving suppliers do not have sufficient transparency regarding the supply situation. Even they need to implement cost-intensive special measures on a regular basis in order to ensure that supplied parts and components reach the production site on time.

The negative effects are particularly great when the parts supplied are critical bottleneck parts which cannot be sourced from alternative suppliers. There are a whole range of reasons for these deficits.

EDI = a one way street?

The main reason is the fact that EDI communication in its current form usually takes place in one direction only. In the automotive industry in particular, there is often a rigid belief that only those components contained in the delivery schedule or PO need to be delivered. In view of this fact, a supplier may not respond to delivery instructions or orders, believing that they should only supply the components set out in framework agreements, that there is no need to pass on information if they are unable to deliver, and that this will help to limit material planning outlay.

This may work well for powerful OEMs that were able to agree painful contractual penalties with suppliers. However, the picture is different for buying companies that, for whatever reason, have less market power. As customers, they need to show a certain degree of flexibility in order to avoid disruptions – either by postponing their own demands or building up stocks.

Paradigm shift: RSVP

In order for this to be possible, it is essential to check whether one’s own demand for parts is consistent with the suppliers’ production and supply capabilities or whether there are critical imbalances. It is therefore important that suppliers respond to the requirement notification from the buying company, i.e. the delivery instruction or the PO, and that this response indicates whether and to what extent there are supply-critical deficits.

For many production companies – including global leaders – this alone represents a dramatic paradigm shift in process management. In addition to this, the fact that there are such a large number of supplied parts and components to be scheduled means that the “response” from the supplier cannot be given via any channel and in any format if the overall objective of ensuring supply transparency is to be achieved.

Admittedly, it may be an improvement if a supplier who is unable to supply part of a delivery on time contacts the buyer and planner by phone or e-mail in order to inform them of the problem. However, it is clear that this “people-based” early warning system soon reaches its limits given the limited personnel capacities available.

What is needed therefore is the integrated electronic handling of the entire process from problem identification and joint interpretation through to (timely) problem rectification on the basis of immediately usable, structured data.

However, this is very difficult to achieve in practice for two key reasons. Firstly, many of the suppliers involved lack not only the technical and financial capabilities but also the personnel required in order to ensure that their own back end satisfies the requirements for seamless electronic process management. Secondly, it would not be possible on the basis of the popular, conventional form of EDI communication to identify supply disruptions and reach a timely, consensual agreement between the buying company and the affected supplier with a view to solving the problems on a joint basis through appropriate planning.

After all, simply exchanging information and interpreting the correspondence between customer demands and one’s own capabilities in one’s own ERP systems on an isolated basis omits a key component for identifying disruptions reliably, namely a shared view of the supply situation on the basis of a standard data basis, essentially a common language.

Shared view allows timely reaction

On the basis of EDI communication alone, neither partner is able to assess whether a disruption has actually occurred and what specifically has caused it without carrying out time-consuming checks. The customer says that parts were missing during CW 35, while the supplier claims not to have identified any critical deviations based on the cumulative figures which form the basis for planning and stock levels up until that point.

Identifying and rectifying problems in this way requires a great deal of patience, time and money/reserves. Innovative collaboration approaches, e.g. the Supply Chain Monitor from SupplyOn, provide help here.

• It provides a shared view of the supply interface between the buying company and the suppliers and uses a language familiar to both sides: the part quantities over time.
• It involves all partners in the process according to their technical capabilities, either via EDI or web-based software (including upload and download).
• If a disruption is identified, a configurable alert system sends out warning messages to all relevant process participants and thus allows the disruption to be eliminated in a timely manner by taking suitable planning measures.

Have a look at how Conti does this (the publication is only available in German): Die Risiken im Blick (from Logistik Heute, 7-8/2012)