Bridging the gap between supply and demand is the prime objective of any business.
In the era when manufacturing ruled the roost, demand was generally higher than supply and options for customisation were limited. In fact standardisation was seen as crucial in order to maximise efficiency. Henry Ford’s famous quote, “Any customer can have a car painted any colour that he wants so long as it is black”, is a great example of this approach.
In the current scenario, where supply is higher than demand, customisation is becoming increasingly common and there is a constant tug-of-war between the sales and production teams. The success of today’s manufacturing organisations depends on managing this effectively.
Wendy L Tate, Diane Mollenkopf, Theodore Stank and Andrea Lago da Silva discussed some of the key traits of companies that have been able to successfully manage this perennial problem in their article, Integrating Supply and Demand. The key here is to understand how value is generated in a company and how this flows from the procurement of raw material to the end product.
All too often the key performance indicators (KPIs) for production and sales are not interrelated, so each department works towards optimisation but without keeping the overall objective in mind.
One of the most common barriers that hampers interaction between sales and production is the failure of managers to understand how their area affects the company’s overall efficiency and profitability. It doesn’t help that manufacturers often don’t analyse the impact of production variation on a day-to-day basis.
Data, even when it is available, is often not shared across the organisation. Cross-departmental meetings tend to happen at most quarterly, but often no more than annually. This encourages each unit within the company to have an insular focus rather than concentrating on the overall success of the organisation and how they can contribute to it.
This is especially true in the case of organisations which are dependent on suppliers for their end product. Effective information sharing can be the cornerstone to their success.
We came across an example of this during our work at a paper manufacturing company. Once the relevant people understood the impact of variation in production parameters and it became a topic for daily discussion, everyone became more aware of the impact of their work on the overall value to the organisation. This then became a catalyst to optimising production.
With the rise of retail giants, retailers have become a key party in driving organisational efficiency among manufacturers. In their article Rebuilding the Relationship Between Manufacturers and Retailers, Niraj Dawar and Jason Stonelli looked at how these players control market access and influence consumer behaviour. With Walmart selling 4.5 times more than their largest supplier, Proctor and Gamble, it’s easy to see the power retailers wield.
However manufacturers could stand to benefit from this relationship. Major retailers collect huge amounts of data regarding customer buying patterns. This presents a great opportunity for the manufacturing companies, if they could find a way to access this information and leverage it to modify their production patterns.
Changing the way your departments interact and the way your company interacts with both suppliers and retailers requires organisation-wide behavioural change.
At Renoir Consulting, we work towards identifying an organisation’s value drivers and creating systems and processes based on these to enable effective sharing of information. Our consultants work closely with teams within each client organisations to bring about a culture of discussion and analysis, helping all departments focus on improving organisational efficiency and driving customer satisfaction.
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