THE IMPACT OF WORLD-CLASS MANUFACTURING PRACTICES ON SMALL MANUFACTURERS - by
David K. Johnson

Focus on System-wide Optimization

The goal of supply-chain integration is to optimize the performance of the entire supply-chain. Most supply-chains are a combination of local optimums that result as each member of the supply-chain optimizes their individual performance. Unfortunately a combination of local optimums rarely results in system-optimization. Often for the entire supply-chain to function efficiently individual members must function sub-optimally. This creates a problem when determining the allocation of profit pools. Traditionally functioning at a sup-optimal level has not been rewarded even when necessary to provide system-wide optimization. In order for supply-chain integration to succeed, those who benefit from other supply-chain member’s inefficiencies must recognize the source of the benefits and therefore be willing to compensate the company for its inefficiencies.

Application of Lean Production

Lean production techniques increase flexibility, enabling individual supply-chain members to respond to changes in demand. Flexibility reduces the impact from the bullwhip effect. As individual members of the supply-chain become more responsive to change, required inventory buffers can be reduced, which increases demand visibility. Lean manufacturing and supply-chain integration are for this reason mutually supportive.

Quality

Poor quality introduces variation into the supply-chain, intensifying the bullwhip effect. If a supplier is incapable of supplying quality parts, the customer is forced to either order more than is needed (just in case), or run the risk of stock out. Both of which increase variation in demand and amplify the bullwhip effect. Improvement in quality allows for inventory buffers to be reduced, improving supply-chain agility and visibility. The close customer / supplier relationships that often result from supply-chain management practices also support quality by reducing variation attributed to multi-sourcing. , For these reasons, supply-chain management and quality are mutually supportive.

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Copyright © 2005. David K. Johnson. All Rights Reserved.