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Time Compression in The Supply Chain
Time Compression in The Supply Chain
Towill
The Authors Rachel Mason-Jones, Researcher and Denis R. Towill is Professor, both at the Logistics Systems Dynamics Group, University of Wales, Cardiff, UK Denis R. Towill, Professor, both at the Logistics Systems Dynamics Group, University of Wales, Cardiff, UK Abstract Our total cycle time (TCT) compression strategy encompasses the whole system in the supply chain from consumer demand to customer satisfaction. TCT has two major components that are essential to meeting customer demand: information flow and material flow. Both are necessities and together make up the total supply chain lead-time; the information activates the material pipeline. Therefore to optimise a time compression strategy TCT must include both the information and material flows. We show in the paper that a very effective way of achieving TCT is via access to EPoS data by all "players" in the supply chain. The tremendous benefits exhibited by TCT compression within the supply chain can be described as "squaring the dynamic response circle". Not only are the stock dynamic responses improved via time compression, but the capacity dynamics are also radically improved. Therefore TCT compression avoids the dilemma frequently faced by companies when implementing change of having to trade off customer service level against capacity utilisation. Our results are verified using a simulation model of a common real-world supply chain. Article type: Theoretical with Application in Practice. Keywords: Bpr, Cycle Time, Decision-Support Systems, Logistics, Supply Chain Management. Content Indicators: Research Implications** Practice Implications*** Originality** Readability** Logistics Information Management Volume 11 Number 2 1998 pp. 93-104 Copyright MCB University Press ISSN 0957-6053
Introduction
It has been consistently argued that time is the competitive weapon of the 1990s (Stalk and Hout, 1990). Unfortunately many companies take a restrictive view of time compression which they link purely with production cycle time reduction. However, Thomas (1990) utilises the phrase total cycle time (TCT) stating that "... the first word of Total Cycle Time was intended to express how short cycle times can be applied productively to all segments of a business, not just manufacturing efforts." This distinction is important, hence TCT compression programmes should be directed at all the work processes linking customer need to that demand being satisfied (Towill, 1996). The consequential effect of reducing TCT is direct leverage on the bottom line. Lead-time consists of two consecutive components through a supply chain, the order information pipeline and the material flow pipeline. We confirm that material flow cycle time compression coupled with open information channels will potentially have a much greater effect on supply chain competitiveness. Unlike production delays, which are reliant on technological processes, the order information pipeline can in theory be instantaneous from the marketplace to the upstream players (Mason-Jones and Towill, 1997). The essential competitive benefit of marketplace data usage by each player in the supply chain is summarised by Sabath (1995) as "When everyone plays from the same sheet music, delays are minimised". However, sharing information is only simple in theory: in practice attitudes must also be changed. It does not help if the other players in "our" supply chain are frequently regarded as "the enemy" (Macbeth and Ferguson, 1994). In an increasingly global marketplace most companies are competing with relatively similar machines, technology, and expertise. Consequently business strategy is becoming the cornerstone to establishing the world class enterprise. In this article we show via the simulation of a real world supply chain that implementing a holistic time compression strategy must include both production and order information lead-time reduction to maximise competitive advantage. The simulation output is benchmarked for easy visual reference when ranking alternative routes for business process re-engineering (BPR) the supply chain. The provision of such benchmarks is important if future progress is to be made in improving the many supply chains world-wide which are operating below par (Towill, 1996).
However, as we have argued previously, the new output of TCT reduction is fundamentally different. The effect of "economies of scope" is to enable customer choice to be met at reasonable cost. The practice of material flow cycle time reduction is well established. The same principles have been extended into areas that could not have been readily foreseen, such as commerce and insurance (Stalk and Hout, 1990). Companies have found that reducing and continually improving cycle times positively impacts on many other areas within the organisation such as inventory policies and workforce attitudes (Womack et al., 1990). For example it is of little benefit speeding up the shopfloor if the internal warehouse is slow and cumbersome at despatching orders. This in turn leads to greater work-in-process (WIP), a ballooning warehouse, loss of response flexibility, but still dissatisfied customers. Frequently we find the warehouse is full, but with the wrong items. We then risk losing money from obsolescence as well as stock-out. As is evident from Towill (1996), cycle time reduction has positively affected many operational facets within individual company structures the challenge is now to take the lessons outside and apply them to the whole supply chain. Applying TCT compression right across supply chain is obviously more complex but the basic issues remain the same and the four strategic approaches of Table II still hold strong. Practical TCT compression can be achieved through a variety of techniques which following Scott and Westbrook (1991) are conveniently grouped as shown in Table III.The first three categories listed in Table III are associated with material flow time compression activities, whereas information technology improvements additionally tackle the order pipeline. The importance of the availability of undistorted marketplace information is further emphasised with the addition of electronic point of sales (EPoSs) to the original table in Towill (1996).
Successful time competitive supply chains must view their information as a strategic asset and ensure that it flows with minimum delay and minimum distortion. The payoff is better customer service, reduced stocks throughout the chain, and reduced risk of product obsolescence leading to enhanced business performance by all "players".
The factory order rate and stock level responses to the random demand signal are shown in Figure 7. As expected the beneficial effects of time compression exhibited by the step response results are replicated by the supply chain when subjected to a random demand. Note however that the random marketplace orders trigger off pseudo-seasonal patterns of behaviour at the factory level. This is as expected from a knowledge of system dynamics (Forrester, 1960). However, the "intelligent" product champion would recognise that these patterns are self-induced by the supply chain, and would not be wrong-footed as to the true causality of this phenomenon. The trade-off matrix of Figure 8 very effectively summarises the benefits available for both orders and stock level patterns, via time compression of each of the supply chain pipelines. Compression of the material flow lead-time allows the supply chain to react much faster to changes in consumer demand. Improvements in the order pipeline lead to far greater control of the supply chain response due to greater visibility of the consumers behaviour. But taking the TCT approach to time compression additionally results in improved reaction to consumer demand. Specifically we improve stock control dynamics simultaneously with reducing capacity fluctuations, i.e. square the traditional dynamic response circle by avoiding the need for a trade-off between stock and capacity performance measures.
Conclusions
Simulation results show that the main gains from time compression are only realised when a holistic approach is taken, tackling both the production and the information pipeline. Implementing a time-based strategy while residing in a slow supply chain will usually do relatively little to improve market share of an individual company. However it may be the route to moving towards a forward thinking chain and thereby ensure a bright future for all the players. To move successfully into the next century a supply chain has to appeal to the end consumer and give him what he wants - the right product at the right price at the right time. Although much can be achieved from material flow cycle time reduction, reacting faster to a slow order does not significantly improve control of the supply chain dynamic response to a change in consumer demand. To improve control of the highly undesirable overshoot effects the supply chain has to provide undistorted order information fast. Therefore to maximise and complement production cycle time compression a supply chain must re-design its order information usage strategy. Time compression of the order pipeline via direct utilisation of the market sales information by each player in the supply chain certainly improves the overall speed of response and lessons the impact of the demand magnification phenomena. Players no longer have to suffer from the distortions that infect traditional supply chains. However, the real power of information flow only becomes evident when it is utilised throughout the supply chain. It takes a visionary world-class supply chain to implement a total time compression strategy, especially from the point of market information sharing for the holistic good. However, for those who take the revolutionary step, the tremendous benefits to speed and control of response to consumer demand will offer a strong competitive weapon.
Figure 1 The impact on the supply chain from reducing the production lead-time in the factory
Figure 5 The effect of varying time compression strategies on supply chain orders
References
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