An early warning indicator should provide a heads up to changing conditions in your end-to-end supply chain. With all the volatility, uncertainty, complexity, and ambiguity (VUCA) in the supply chain, it is vital to get a heads up to risks, potential dangers, and opportunities coming down the pike. For example, if you see an early warning indicator that sales volumes are dropping off in a particular region, you can divert resources to find out what’s going on in that region, emphasize another region or roll out additional products to achieve revenue targets. Or, if you see a projected increase in inventory levels, you can turn down the dial on safety stock factors and incoming purchase orders, proactively renegotiate stocking strategies, and/or proactively prepare for working capital needs. If you waited too long before realizing the issue, there will no longer be enough time available to adjust.
Custom Manufacturer Case Study
There are a plethora of early warning indicators in manufacturing and supply chain environments. The key is to pay attention to the critical indicators and react accordingly. For example, in working with a custom manufacturer of test equipment supporting data centers after an ERP system conversion, lead times unexpectedly extended. They struggled to get the product quoted properly with the new system configuration, engineered in a timely basis with limited resources, entered into the ERP system without errors, and triggering the planning systems appropriately to run MRP with ample lead time to order materials and complete the manufacturing process. Thus, service suffered.
Although the teams worked hard, the appropriate early warning systems didn’t exist to proactively communicate with customers. Thus, we implemented early warning indicators at each stage of the process to highlight upcoming bottlenecks so that they could be proactively addressed. For example, we started tracking jobs at each stage (quote, order entry, engineering, planning, purchasing, manufacturing, assembly, test, shipping). As we reviewed trends, if we noticed that the Engineering backlog shot up 30% , we could divert resources to supplement, prioritize based on customer need, and design a product grouping forecast to order long lead-time materials and plan labor capacity proactively (hire, train, OT etc.). Service levels improved and lead times shortened.
Industrial Building Products Manufacturer Case Study
Similarly, an industrial building products manufacturer supporting the logistics industry had mismatched supply and demand, creating significant expediting and work-in-process inventory waste. The manufacturing process included the stages of material deliveries, fabrication, weld assembly, paint, shipping, and installation. Because customer due dates changed frequently, inventory inaccuracies occurred, and quantities could be adjusted during the production process if installation ran into a design issue, order releases moved around the schedule constantly. Fabrication was completed in bulk and run through multiple machines. Parts were married up in weld assembly and then moved directly to paint. The bottleneck was keeping the flow moving as parts had to wait for a missing part frequently. As fabrication inventory built up, waiting on missing parts, demand and supply became more misaligned. It required planners to spend their days searching for parts.
Thus, an early warning indicator had to be installed that would alert planners of customer change orders, missing parts (waiting for weld assembly), material shortages, labor availability issues, and other signals that would communicate what had to be adjusted to realign demand with supply. We worked with the I.T. resources to add dashboard signals for the planners, partnered with Sales to establish the value of upfront communications and date changes in the ERP system for order release tweaks, and worked with Production to prioritize certain machines and/or high-skilled resources to produce priority items to keep critical customer orders flowing. Thus, service levels improved, efficiencies were gained, and Project Management had dramatically improved visibility to order status and availability.
In addition, we could use the early warning indicator to take advantage of opportunities. Since there were multiple plants throughout the U.S., Canada, and Mexico, if they could visualize future capacity and workloads by facility with enough notice to take action, they could better leverage opportunities to increase revenue and profitability. For example, if a significant customer wanted an order on a short lead time in the east coast region, they could take a chance and do their best to expedite through the process at a higher cost when they discovered the capacity shortfall. With early warning indicators incorporated in a SIOP (Sales Inventory Operations Planning) process, they could see that there wasn’t sufficient capacity available in their default facility. Thus, they could evaluate other east coast facilities for available capacity, capability, material contracts and freight impacts to determine the best way to fulfill the order. This also provided the appropriate information for Sales to go back to the customer with pricing that aligned with these changes. Or, if the default facility could gain temporary storage in advance, and they could level load production and mitigate freight costs.
The Bottom Line
Early warning indicators can mitigate against risks and provide opportunities to increase performance. Avoid complicated early warning indicators as they are less likely to be followed. At times, counting items produced or orders placed can suffice. Of course, after starting simple, look for opportunities to automate and provide visibility across your organization. Revenue and profit opportunities will emerge.
If you are interested in reading more on this topic:
How Common Sense Drives Supply Chain Results