For too long UK manufacturers and their customers have been obsessed with cutting costs. This has resulted in adversarial relationships within supply chains, seriously damaging our ability as a nation to compete on the world stage.
The UK can be a manufacturing powerhouse once again. It will, however, require a fundamental shift in the way UK manufacturers relate to the supply chain.
Currently, under pressure to reduce costs, manufacturers produce in large batches in order to be “efficient”. This creates huge queues, felt as long lead times. Buyers are then compelled to predict the future, or forecast, because lead times are so long. The queues are then further exacerbated by producing these guesses months in advance. This leads to yet longer lead times and a greater need to forecast: a beautifully vicious cycle.
Senior managers must appreciate that it is not companies, but whole supply chains, that compete. Until the end-consumer has bought a product, then no one has really sold anything. The biggest waste is actually producing products that do not sell, primarily caused by this false belief that it is possible to predict the future.
One buyer for a prestigious department store recently told me that his job was to be “a better guesser” than the next man. He is, in essence, the best soothsayer in town. The fact that I can never buy what I want in my size, while his store has mass sales every couple of months, proves he is still not good enough.
Each element of the chain will find costs go down, as they are no longer producing items that are not required
It is time to drop the voodoo of working to forecast. Manufacturers, their suppliers and their customers must rid themselves of this addiction to fortune-tellers. Instead, work together to create responsive, synchronised supply chains, producing in line with actual demand at the point of consumption.
Each element of the chain will find costs go down, as they are no longer producing items that are not required. This synchronisation also has the effect of revealing “hidden” capacity. Sales will naturally increase as you make what the end-customer actually wants to buy.
This promised land of milk and honey is in fact very simple to reach. Break the efficiency mindset, drop the security blanket of forecasting and persuade customers to share actual consumption data freely and swiftly. This is simple, but not necessarily easy.
If UK manufacturers can work with their supply chain partners, they are faced with a golden opportunity as the world economy recovers. With the spare capacity they will reveal and the short distribution times to Europe, they can claim the lion’s share of additional business by responding quickest to their customers’ needs.
Lower stock levels release working capital
Camvac Limited is one of the world’s largest manufacturers of vacuum-coated transparent and metallised films and laminates, supplying food, beverage and industrial packaging companies all over the world.
Recently Camvac’s managing director Steve Jackson set his management team an ambitious challenge: to significantly reduce stockholding, while improving due date performance, which was already around 90 per cent – enviable by most manufacturers’ standards.
One of the major drivers of their initial stock levels was working to customer forecasts. His team tackled the challenge by switching from a forecast-driven mode of operation to a synchronised replenishment mode of operation.
Camvac had to persuade key clients to provide them with actual stock and consumption data on a daily basis. This information was actually readily available and establishing the replenishment system required minimal investment.
In a matter of months, Camvac’s stockholding fell from 939 tonnes to 592 tonnes – a 37 per cent reduction. This enabled them to release more than £1 million in working capital, while at the same time their delivery performance actually improved from 89 per cent to 97 per cent on time, in full.
Through closer collaboration with their customers, Camvac’s team managed to create a significant win for themselves while improving ongoing service levels.