The Wheel of Five for Supply Chain Management

reliable forecasting

Recently, one of my customers stated that ‘the total supply chain inventory says as much about the health of a company as weight says about the health of a person’. If you look at it like that, then my colleagues and I have once again had the privilege of helping a considerable number of ‘seriously overweight patients’ to slim down healthily over the past year.

By Alex Tjalsma, partner/consultant Involvation

For example, we’ve seen make-to-stock companies with as many as 40 weeks’ worth of inventory in their supply chain, even though production and transport combined accounted for less than two days. We’ve also seen engineer-to-order organisations with lead times of several months, while the work itself was a question of just a few days. Time and time again, the ‘symptoms’ were horrifying: high levels of (partially obsolete) stock, long and unreliable lead times, having to turn customers away, inefficient operations, high management costs and/or an atmosphere you could cut with a knife – and on the odd occasion, the patient was even at death’s door. So there was work to be done.

Yo-yo effect

When trying to lose weight, many people drastically reduce their calorie intake by following the latest fad diet. It’s not uncommon for them to actually achieve the opposite; over time, many people end up even heavier than when they started. The yo-yo effect is a well-known phenomenon in this context. In reality, if you want to lose weight, it’s not enough to simply eat less – you also have to change your behaviour. A balanced lifestyle is the solution. The Netherlands Nutrition Centre has been promoting healthy eating based on its ‘Wheel of Five’ for decades, and more recently added physical exercise too.

Just like people who are on a diet, many companies recklessly slash their order parameters and/or throughput times to reduce their stocks and/or lead times. The initial euphoria is soon followed by depression in the shape of having to turn customers away more often, late deliveries and rectifications. The countermeasures are predictable: higher buffer stocks and longer safety lead times – the familiar yo-yo effect. Our companies are almost human!

Changing the company’s lifestyle

Here, too, if you seriously want to reduce your supply chain inventory and/or lead times, you will need to change the organisation’s behaviour. Even for your company, a balanced lifestyle is the only solution. That’s why we at Involvation are echoing the Netherlands Nutrition Centre’s advice and promoting a ‘Wheel of Five for Supply Chain Management’: eliminate unnecessary variations, improve your effective flexibility, absorb any remaining variations through time and/or stock, eliminate waste and – last but not least – avoid overburden.

Die-hard ‘Lean addicts’ (and any Japanese readers) may well recognise this to be ‘muda, mura, muri’, Goldratt fans might spot overlaps with his five-step plan and QRM followers may see Suri’s quest to reduce MCT. That’s fine. It’s not really all that difficult in principle – but then we could say the same about the Netherlands Nutrition Centre’s Wheel of Five. The real challenge lies in managing to stick to it – permanently. Good luck with losing weight!