The end-customer will see the outcome of a poor supply network collaboration
Matti Manner, COB at Jakamo
Asymmetric data creates unplanned non-value adding ‘muda’
In for-profit businesses, value propositions and business strategies aim to make end customers perceive higher value and willingness to pay for it more than the combined value creation and value delivery costs are. These costs add up from several sources and activities, which on one simple way can be divided into two categories, value-adding and non-value-adding part.
Non-value adding includes everything from stock keeping to handling, from waiting times to quality inspections or filing reports. Some of the non-value adding activities are somewhat must-haves such as shipping, filling quality records or performing safety procedures, but most of it is unplanned and creating unnecessary costs. When we take a closer look at the unplanned non-value adding activities, the majority has its roots at asymmetric data. This leads to the 7 types of muda.
- Waste of overproduction (largest waste)
- Waste of time on hand (waiting)
- Waste of transportation
- Waste of processing itself
- Waste of stock at hand
- Waste of movement
- Waste of making defective products
Muda. Muda is a Japanese word meaning “futility; uselessness; wastefulness”, and is a key concept in lean process thinking.
Network effect and ‘muda’
Modern value creation relies for the most part on ecosystem type of doctrines, where companies specialize in activities which bring them the best return on equity and competitive advantage. Typically, these are activities which allow them to differentiate themselves from the competition or by other ways to utilize their unique competitive edges in a beneficial way. The aim is to outperform the competition with these chosen means. Therefore, and especially in product businesses, in most cases, the vast majority of value creation happens outside the company’s borderlines. In the supply and value chains.
Most value chains are nowadays looking more like multi-layer neural networks than traditional chains, so we should talk about supply network management instead of a chain. Now take the complex supply network and consider the accumulated ‘muda’ within. We tend to focus too much on scrutinizing the in-house value chain when we should take a more holistic view and consider end-to-end. Designing the sales and operations planning (S&OP) precisely is not sufficient if you fail to design the information flow and collaboration within your supply network. Collaboration is the key to reduce unplanned ‘muda’ as it is the most significant enabler of a resilient supply network.
Collaboration in a supply network to build resiliency
Only when the tide goes out do you discover who has been swimming naked. Famously quoted by probably some of the lean gurus is telling that when the going gets tough, weaknesses and ‘muda’ gets visible. Since the outbreak of a COVID-19 pandemic, supply network resiliency has been sought after by almost everyone. It is the most resilient and transparent supply networks that have coped the crisis in the best way and resiliency suddenly is what all the supply leaders are striving for.
Gartner hands out 6 Strategies for a more resilient supply chain. It is suggested that the old way of looking at the lean supply chain should be replaced by a new resilience approach, where multiple sourcing locations and some excess buffer stocks before critical process steps should be considered as a cost of doing business rather than ‘the old muda’.
When we look at the 6 strategies, one can argue that without having excellent collaboration, transparent and asymmetric data, and on-time visibility in place, building resilient supply networks will cost you a lot. Having transparency and visibility over the supply network and high level of collaboration enables to build resiliency without unplanned ‘muda’ and it will be one of the major competitive edges for businesses going forward.
Ability to run the scenario and impact analysis, instantly seeing the effect of suspended sourcing channels, pace of qualifying new vendors to name a few. They are all relying on sophisticated supply network management processes and tools. This is what most supply leaders are now looking at since failing to do so will either let end-customers down or harm your business with rapidly growing cost base.
Any ideas to take this further, pls contact me and let us build on each other’s ideas and move together towards a more resilient supply network!
Chairman of the Board, Jakamo
The article was published originally in Friction Free Magazine on 14 September 2020.