9/4/03
From
Push to Pull – Perfecting
the Means
Compiled
by:
Erik Kruse, SCRC |
|
What
is “hybrid mode” supply management?
A recent SupplyChainBrain.com article that covered
a study by AMR Research describes it as a mixed
manufacturing mode that lies somewhere between
a make-to-stock (MTS) mode and a make-to-order
(MTO) or engineer-to-order (ETO) mode (1). To
appreciate the significance of the hybrid mode,
it is important to understand that the role of
supply management and customer fulfillment management
varies from one mode to another. This variance
is explained below (2):
| • |
Make-to-Stock
(MTS): The supply management process stretches
from the acquisition of raw materials to deployment
of finished goods inventories into the channel,
while the customer fulfillment process involves
taking an order and delivering it to the customer. |
| • |
Make-to-Order
(MTO) or Assemble-to-Order (ATO): The supply
management process covers staging the raw
materials or semi-finished sub-assemblies
throughout the supply network, while the customer
fulfillment includes taking an order, doing
final assembly, and delivering the product
to the customer. |
| • |
Engineer-to-Order
(ETO): The customer fulfillment process includes
all the steps in the MTO and ATO strategy,
as well as product development, engineering
or configuration, and some sourcing steps. |
As the SupplyChainBrain.com article notes, the
mixing of these networks is becoming more and
more common - but not without consequence. Many
companies are transitioning from their old push
system to a pull system in an effort to minimize
unnecessary operations and inventory costs and
maximize customer service. However, in their attempt
to create a demand driven supply chain, the AMR
study notes, companies often fail to configure
their processes as rapidly as they configure their
physical networks. As a result, the hybrid mode
of supply management emerges.
AMR’s study found that some companies in
this hybrid mode have incurred up to a 5 percent
higher supply chain operations cost with up to
30 percent higher inventory and significantly
lower customer service (1).
As Albert Einstein once said, “A perfection
of means, and confusion of aims, seems to be our
main problem.” In the past, conventional
wisdom led many operations managers to focus primarily
on operating their business as efficiently as
possible. They believed they could be most successful
if they strived for high product volume, high
product standardization and a continuous process.
But turbulent demand left them with excess inventory.
While efficiency will always be important for
operations, if customers don’t buy what the
efficient operations are producing, then the efficiency
metric isn’t really gauging the profit constraint.
Hence, many companies desire to switch from push
supply chains to pull supply chains. But they
have had trouble doing this across the entire
supply network. Take, for example, a company with
a desire to expand into a new market. Suppose
the new market requires its order winners to have
an MTO operation. If the company wants to be competitive,
then it will accommodate the customer’s needs.
It will begin to do this at the front end of the
supply chain. But at some point toward the rear
of the supply chain, production is still dedicated
to forecast. Thus, the hybrid mode is born: the
front of the supply chain operates in MTO mode
and the back end operates in MTS mode. Since the
company did not implement this new MTO strategy
across the extended supply network and processes,
it is likely that the expansion will result in
higher costs, higher inventories and lower customer
service (1).
According
to AMR’s research, most companies (over 60%
of those surveyed) operate in a hybrid mode. So
what should they do? AMR offers the following
advice (1):
| 1. |
With respect to performance expectations,
set the dynamic process boundaries for customer
fulfillment and the supply management of different
modes. |
| 2. |
Operate
with blurred lines of separation between customer
fulfillment and supply chain management. |
| 3. |
Separate
supply management and customer fulfillment
processes and strategies and create a solution
using existing applications. |
If
this advice doesn’t make sense, then perhaps
Albert Einstein was right. If it does make sense,
then it seems all that is left is to “perfect
the means.” No easy task.
References:
(1) Anonymous. (April, 2003) Hybrid
mode supply management is the answer to demand
driven supply chains. SupplyChainBrain.com
(2) Asgekar, V. (October, 2002) Finding
supply chain strategies that fit. Znet.com.
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