Canada/United States Manufacturing Perspective

Industry Productivity and Competitiveness via Logistics and SCM

Lean manufacturing principles have revolutionized the way leading firms deliver products to their customers and manage their global supplier relationships. As competition becomes more global, innovation is moving from a firm-to-firm level to a supply chain versus supply chain perspective. In order to compete against low cost countries (such as China), Canadian manufacturers must develop Lean supply chain agility in a JIT and mass customisation mode.

Lean manufacturing is a management philosophy focusing on the reduction of the seven wastes in manufactured products (Over-production, Waiting time, Transportation, Processing, Inventory, Motion and Scrap). Lean is now a key tool to provide supply chain flexibility, reduce total costs and provide value added customised products for customers. In many sectors, agility into the SCM processes is more critical than process costs.

Supply chain agility is an operational strategy focused on improving velocity and flexibility in the supply chain. A supply chain is the process of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer.

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The main logistics and SCM challenges reported by Canadian Manufacturers, the ability to do forecasting/demand planning and time delivery, are directly linked to Lean and supply chain agility²⁴. The best performing manufacturers integrate inbound and outbound logistics in JIT as part of their Lean processes, which results in better response to customer centric demand by developing a build-to-order approach that shortens order lead times, improves responsiveness and agility, and drives out excess inventory while providing value added product/service differentiation to the end customer.

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Logistics and SCM are key components of any Lean manufacturing initiative. The two most preferred KPI measured by North American (NA) Lean manufacturers are logistics and SCM JIT related (on-time delivery and inventory turns) while traditional Lean floor plant measures, such as production cycle time and site utilisation, are far behind¹ .

The measurement of logistics and SCM KPI is an essential part of the agile supply chain concept. It is estimated that 37 percent of North American firms that have put in place logistics and SCM KPI corporate wide measurement achieved a decrease of at least 15 percent in shipment delays compared to only 7 percent of firms that do not measure those KPI consistently. NA firms that measure logistics and SCM KPI also outperformed their industry counterparts on document issues (a key component of Smart Border solutions in JIT² ) by a ratio of 3.5 times.

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In order to take advantage of logistics and SCM KPI measurement, supply chain managers must also take into account their sector specific focus into their strategy. For example, the automotive sector focuses on JIT and continuous flow of product and information under the Lean principles. Missing a delivery window in that specific sector could potentially completely stop numerous production plants at the same time.

The main objective for the retail and Consumer product goods (CPG) supply chain is to reduce the out of stock items in-store and the total inventory at the same time. For that purpose the CPG Manufacturing sector concentrates on total delivered cost, logistics and SCM large retailers mandate such as Collaborative Planning Forecasting and Replenishment (CPFR) and RFID.

Pharmaceutical and chemical manufacturers are pushing for item level traceability and supply chain visibility in order to better respond to governmental requirements such as anti terrorism acts and Food and Drug Administration (FDA) regulations, as well as corporate responsibility issues such as product recall and public safety. The aerospace sector emphasizes mainly total supply chain quality ratios such as Six Sigma processes and other quality standards such as ISO norms, with less emphasis on costs.

In order for manufacturers to achieve the benefits of these respective logistics and SCM business drivers, the adoption of logistics and SCM technology across supply chains is a key component for developing efficient collaboration networks. It is estimated that NA Small and Medium Sized Enterprises (SMEs) that will deploy logistics and SCM collaboration applications will enjoy a 5 to 25 percent decrease in logistics costs and a 15 to 40 percent increase in quality and time-to-market over competitors that fail to make these investments through 2010³.

SCM technology adoption is still at an infancy stage in Canada⁴ . While basic transactional applications such as Electronic Data Interchange (EDI)  are used by 38 percent of Canadian Manufacturers, very few firms use value added applications that respond to the key logistics and SCM challenges. Only 17 percent of Canadian Manufacturers use forecasting/demanding planning software and less than 14 percent use warehouse management system (WMS) and/or advanced planning & scheduling (APS) applications²⁴.

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In terms of innovation, only 16.4 percent of Canadian manufacturers have invested in logistics innovation processes between 2002 and 2004²³. On the other hand, 77 percent of Canadian sectors that have invested more into logistics technology than their industry average have achieved a superior Lean logistics agility productivity growth compared to the manufacturing logistics KPI average²³.

It is also important to note that sectors that have very short product life cycles and high levels of outsourcing and off-shoring, such as the communication equipment manufacturing sector, have responded to these business drivers by investing more intensively into logistics and SCM innovative applications compared to the average manufacturer⁵.

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Although there is a low logistics and SCM technology investment trend manufacturers in Canada, the sector is starting to respond to the increasing complexity of logistics and SCM by increasingly investing into value added distribution centers and freight terminal infrastructure⁶. Canadian Manufacturing annual investments in warehousing and freight terminals increased by more than 217 percent from 2001 to 2003.

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