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Just In Time

Essay by 24  •  August 25, 2010  •  2,512 Words (11 Pages)  •  987 Views

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Collaborate or Perish!

The just-in-time supply model--an absolute requirement for e-commerce fulfillment--calls for closer collaboration with suppliers and partners than ever

By Scott Joyner

Today's corporations do not rely simply on brand loyalty. The sale now goes to companies that can implement a "just-in-time" business practice by quickly providing customized products. To do so, your organization can no longer be hierarchical. Instead, it must have an open-minded management team that can channel the necessary resources to meet demand.

Consumer demand for customized products and services delivered quickly has forced retail outlets into a "We won't make it until you order it" mentality. What's more important, retailers are telling their suppliers, "We won't ask you to make it until our customers order it." Consequently, recognizing and responding to customer demand must be instantaneous. Both vendors and suppliers require the ability to transfer information at fiber-optic speed across their distribution channel.

However, speed is just one factor. Successful product management and distribution requires synchronization with suppliers at the fastest speed possible, creating a collaborative relationship with all suppliers down the chain. Your organization can no longer afford an "us vs. them" mentality with your suppliers--it must be "we."

Previously, the business model assumed that inventory existed or was in the manufacturing process, that is, "available to promise" (ATP). Today, executing the just-in-time model requires a "capable to promise" (CTP) value stream. In this article, I'll examine how your business can implement a CTP value stream and how doing so will affect relationships with suppliers. I'll also discuss the technology that is necessary to implement the just-in-time model internally as well as with multiple suppliers across the supply chain.

Capable to Promise

The ATP and CTP dates are extremely important, in that companies want to tell customers when they will receive their products. ATP is based on the premise that your company has a finished-goods inventory that contains fairly standard products. Companies build an inventory of products to sell, and perform an ATP calculation, providing the date for product delivery. A finished-goods inventory ensures that when the customer calls and says, "I'm looking to buy a car battery," you have a standard supply of batteries ready for delivery.

ATP also applies to goods that are in the production process. For example, your company may be in a situation where it does not immediately have the product in the finished-goods inventory, but is near enough to completion that it can guarantee delivery within a well-defined timeframe.

However, as the business "ecosystem" has changed, companies and consumers now look for more highly customized products. With this increase in product variations, maintaining a large finished-goods inventory becomes cost prohibitive because it translates into a higher cost for the final product.

Therefore, the need to meet business and consumer demand for rapidly delivered customized products--while keeping finished goods inventory to a minimum--calls for an adjusted time, or CTP, manufacturing process. With CTP, in promising product delivery to the customer, your company could say, "We are capable of manufacturing the product that you want and delivering it to you in four days from the day that you placed an order."

To keep this promise, you would have to very clearly communicate with your suppliers in order to receive the raw materials for the end product. You must also look at the capability of the entire supply chain and facilitate it with an underlying IT support system that lets you place an order with a supplier and quickly determines the parameters in which that supplier can meet the pro-mise date. This task must occur at near fiber-optic speed. Ultimately, your goal should be to have an entire ecosystem defined by a reliable, core group of suppliers that are linked electronically.

Certified Suppliers

Once you have identified reliable suppliers, you should request that the

supplier be certified. Certifications encompass criteria including guaranteed on-time supply of materials as well as predetermined quality standards for the materials. In return, you guarantee the supplier a certain level of demand. For example, say a supermarket chain predicts the buying patterns for a laundry detergent and communicates it to suppliers. The suppliers will then guarantee deliveries of a predetermined amount of laundry detergent based on the described pattern.

For example, Franklins Ltd., a large Australian retail outlet in the discount grocery area, applies "narrowing" techniques that base the amount of inventory replenishment on sales results at the store level. For example, if a Franklins outlet carries a brand of dog food that is not selling well, the store will "narrow," carrying less of that brand and more of the dog food brands that are selling well. The store establishes the supply pattern, or replenishment schedule, with the dog food supplier; that is, the next order of dog food should be ordered on Monday because the supplier delivers on Wednesday. These close ties with the certified supplier create a predictable pattern of order replenishment and ensure that the supplier will fulfill the order for Franklins.

Vendor/Supplier Relationships

The CTP value stream lets you maintain a minimum of finished goods inventory and also lets your supplier carry a minimum amount of components and raw materials for the manufacturing process. However, you and your supplier must always be aware of varying lead times associated with certain materials and ensure that countermeasures are in place.

Gold is a good example. Vendors do not always have access to gold, regardless of what they are willing to pay. Long lead times with raw materials such as gold require the vendor to keep a fairly robust amount of the material on site in order to meet customer demand. Meanwhile, another component in the finished product that uses gold may be very easy to obtain and require minimal onsite inventory. By working with the certified strategic suppliers, the vendor can host the inventory although it is still owned by the suppliers. This vendor-managed

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