787 Dreamliner , the revolutionary in the history of passenger flights said Boeing, the aircraft manufacturer. Planned in 2007 and expected first delivery in May 2008, but, it almost took 2 years extra to roll out the first plane for testing. The design was really revolutionary, where they planned to use carbon fibre as a replacement for aluminium in the plane bosy design. It was also conveyed that, 787 dreamliner will use 20% less fuel, resulting in saving millions of dollars an year for the airliners.
But, Boeing outsourced almost 60% of the total manufacture process, which included the core business area of Boeing to its 50 strategic partners located all over the world. Everything was fine, until the Alcoa, a supplier, told that it could not meet the deadline of fasteners to Boeing. This resulted in a huge confusion, and Boeing planned to use temporary fasteners for testing and there was a complaint that the Boeing 787 Dreamliner's battery is over-heating, Thus after many issues the first model was rolled out three years late.
Thus a valuable lesson from this failure is "Too much outsourcing is always a risk" and "One fastener can stop your entire produciton"
Author’s Note: Over the last few weeks, I have been using this
space to write about the lessons I learn from organizations with respect to their
supply chain management, but not limited to it. I have also been attempting to
convey my learnings as a narrative, and a story of sorts. So, if you want to
learn something informative whilst having some entertainment, go ahead and read
away! Also, if interested, make sure you catch-up on my remaining blogposts as well. Click here! 😊
Shanmugeshwari, MBA
Amrita
School of Business, Coimbatore
IMPORTANCE OF
SUPPLIER COLLABORATION
COVID-19 has amplified the importance of supplier collaboration.Companies
have long-viewed collaboration with suppliers as the key to value
creation in the supply chain. This has been considered more critical than
having a global procurement network that helps with scale or spend analysis
that helps reduce costs.
Greater collaboration between suppliers helps both the
Top-Line revenue contribution and the Bottom-Line cost control.
Top-Line growth comes from,
Access to new technology
Insights about the market
Access to supplier's business network and logistic
infrastructure.
How does this help the Top-Line?
Faster New product development
Help and assistance in entering newer geographies sustainably.
Getting access to the supplier's capacity during
disruption or capacity shortfall.
Similarly, the Bottom-Line is affected by shared capital
expenditure and jointly manages customer demand. These can be done by:
1. Most favored customer pricing
2. Having visibility of the upstream supply chain
3. Jointly reducing redundant SCM activities
4. Jointly securing low-cost manufacturing.
Along that line, when P&G
and Kimberly Clark had their earnings call this April, both finished strong and
with some realistic supply chain lessons for us.
Toilet paper comes in two varieties, consumer and commercial - the raw material,
quality, packaging, and suppliers for both these varieties are different. Due to a shift in consumption during the quarantine, the household consumption of toilet paper rose by 40%, which
is a huge leap for a product whose demand is primarily a constant one.
It took
time for the information to move up and manufacturers to respond to the real
demand spike.
For a bulky
low-value product, retailers relied on continuous replenishment and did not store
inventory.Shifting commercial toilet paper to household consumption would need
new retail
relationships,
contracts between suppliers, distributors and stores,
change in packaging
and labeling
and new truck transport routes.
Companies
responded by running production 24*7, reducing assortments, simplifying
packing, re-routing vehicles, directly shipping to retail and making innovations in the product as
below!
Thus, supplier collaboration can help companies always deliver
sustainable growth ranging from recessionary phases to periods of successive
boom.
I am Sheerapthi Ramiya, 2nd Year
MBA from Amrita School of Business, coming back with this week's read ! Hope my
readers are doing well and I hope you enjoy :)
No this isn't a game you play at pubs or bars or house parties. It does not involve drinking beer at all ! I understand that the topic would be of interest to some of you readers *wink wink*, but don't worry because I can assure you there will be beer in the end if you go through my blog.
We all have been reading pages and pages on supply chain management, discussed the various players in supply chain, how they function, the LOPS (Logistics, Operations, Procurement and Sourcing) in supply chain, various strategy fits, etc. and its not going to end there. What if you wanted to see how supply chain works in action but you cant go to a factory because its a large scale thing which cant be brought in front of your eyes.
Let me introduce you to the Beer game !
The beer game was invented by Jay Forrester at MIT in the 1960s. It was a result of his work on system dynamics. The beer game lets the players and the spectators experience the supply chain and its hiccups. I bring it to light because this game demonstrates a phenomenon what is called a "Bullwhip Effect" in Supply Chain Management which will be explained as we go further. The game also demonstrates the might of information sharing, supply chain management, coordination and collaboration in a supply chain.
The Beer Game, like any other business simulation game, is a role play simulation. Four Players are involved in the game representing 4 stages of a beer supply chain. They are
The task of this game is to produce and deliver beer. The goal of this game is to minimize the total cost of supply chain. This goal can be achieved by carrying minimuminventory with you. Of course any game comes with set of rules, but for this game there are only two rules - You shouldn't run out of inventory and The players cannot communicate with their teammates . Each player must decide how many cases of beer to order from its upstream player, given the order quantity it received at that particular time period.
The only strength we need to have for this game is COORDINATION throughout the supply chain. The 4 players will have their vague idea of what the future demand will be. Each player has control over their part of the supply chain. But even without having the information of demand, there is a way to understand how the demand is. The players can Influence each other by increasing or decreasing the order quantity. And this influence will have an effect on the other players in the supply chain too!
But then again, coordination ,with the added influence, may not go as you expect it to go. This is the point were the "Bullwhip"phenomenon happens when things go wrong in your supply chain.
The Bullwhip Effect
The Bullwhip Effect was first identified by Jay Forrester in his book 'Industrial Dynamics', but he couldn't coin a name for it. The term "Bullwhip Effect" was coined around 1900 when Procter & Gamble disturbing and amplified order patterns for baby diapers in its supply chain. The Bullwhip Effect is a well known result of lack of coordination in supply chains. Even when the demand for beer is stable, small variations in the demand will dramatically amplify as we go upstream in the supply chain. A clear visualization of this effect can be observed below.
The Bullwhip Effect hence produces a lot of inefficiencies which become greater as we go upstream in the supply chain. Problems with demand forecasting, low levels of trust within the supply chain, high stock levels, poor capacity utilization, etc lead to growing costs in the supply chain.
I have attached a YouTube video where a group of students play the Beer Game in action. Do have a look. We should definitely play this when we are back at ASB! (For those who are not able to see the video below use this link: https://youtu.be/qxpgM8paegQ )
In the end, we can agree on how flow of information, systematic thinking, coordination and collaboration among various players in the supply chain is very important. Even though this effect is not something new, it is still a situation which needs attention in supply chains.
I thank all of you who made it to the end of my blog. I would also like to thank Hema Maam for giving us this opportunity in finding interesting reads in the field of Supply Chain. Cheers to you all and have a great day!
