SUPPLY CHAIN MOVEMENT, No.40, Q1 2021


Insight


PART 1 (OF 5): ‘AVOID OVERBURDEN’ The Wheel of Five for Supply Chain Management


Avoid overburden by managing the workload


DDSCM’s wheel of 5


To help organizations recognize and effectively deal with good and bad variability, Involvation has developed the Wheel of Five for Supply Chain Management. This article is the first in a series of five.


I


f it’s no longer possible to guarantee on-time delivery, the system is over- burdened. In other words, to offer delivery reliability, it is necessary to avoid overburden. In short, this can be done in two ways: by making extra capacity avail- able and by managing the workload. Two familiar examples from everyday life are the rush-hour lane (extra capacity) and avoiding the rush hour (workload man- agement). Well-known examples of workload man- agement in manufacturing are Kanban and Polca – two real-life applications of the WIPcap principle, in which work can only be allocated as long as the cur- rent work in progress (WIP) is below the agreed level. The aim is to limit the WIP in such a way that the lead time is mini- mized while maintaining the throughput rate (Little’s Law).


Although this sounds logical and appeal- ing at


44


first glance, WIPcap can come under pressure when it leads to resources with structural overcapacity running out – which is occasionally unavoidable. In that case, the noble intention to manage the workload in favour of WIP, lead time and throughput conflicts with the motto that ‘from a coverage perspective, all capaci- ties must be fully utilized at all times!’... despite all of the late Eli Goldratt’s teach- ings. Even today, overcapacity as a tool for


avoiding


overburden is not welcomed with the same enthusiasm everywhere. In fact, the aversion to overcapacity is often so great that companies choose – whether consciously or unconsciously – the path of structural overutilization. The smart meter supply chain provided a good exam- ple of this.


While transitioning households to smart electricity meters, grid operators Lian- der and Stedin repeatedly faced meter shortages. “This was particularly hard to believe because the installation of the smart meters seemed so predictable. A brief investigation revealed that although the installation activities were predictable, the forecasts passed to the meter manu- facturers were very unreliable. Besides that, there were strong variations between the grid operators’ orders to the meter manufacturers. The cause? Classic multi- echelon inventory management resulting in the famous bullwhip effect,” says Ton Ramstijn, Project Lead Logistics at Stedin.


Bullwhip catalyst By unconsciously presenting their sup-


eliminate


waste of capacity,


stock and time


eliminate unnecessary variation


in demand and supply avoid overload


with workload control and spare capacity


chase variation


with insight in variation, potential flexibility and effective decision making


end custo- mer


absorb variation


with stock and time


pliers with variable demand and unre- liable forecasts, the grid operators had unwittingly pushed them into a planning mismatch. Faced with uncertainty and with a focus on maximum coverage and minimum working capital, the suppliers had (completely logically) opted for long lead times in order to be able to level and limited capacity in order to avoid running out. For the grid operators, this resulted in structural shortages and long delivery times: a bullwhip catalyst! “We were stuck in the planning mismatch. We needed to break through it!”


Ton Ramstijn, Project Lead Logistics at Stedin: “We were stuck in the planning mismatch. We needed to break through it!”


And that breakthrough came. Instead of asking their suppliers to manage their capacity based on an unreliable forecast, the grid operators now reserve produc- tion capacity beforehand based on a reli- able installation plan. Furthermore, rather than having to order meters months in advance based on an unreliable fore- cast, the grid operators now allocate the reserved production capacity at the last minute based on the current stock of meters. Ton Ramstijn: “Our new approach has not only resulted in better availability, but also in a more straightforward pro- cess, smoother collaboration and, quite simply, less hassle.”


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