The world of supply chain data processing has ushered in a new and effective technique by which successive links in the chain transmit demand information to each other.

 Instead of traditional discrete orders, more and more companies are relying on sending demand “schedules” to suppliers. A schedule describes demand for a given part and consists of a series of dates and the quantities of the part required at each. A single schedule may well show future demand for a period of six months or even more.

Unlike discrete orders, which are only sent once, successive schedules will each show the entire demand picture for the part going forward from the time of production of the schedule. Each new schedule received supercedes the previous one.

Organizations wanting to participate fully in global supply chains are well advised to ensure that they have the capability to deal seamlessly with customers who want to send them demand schedules.

Customers transmit schedules, typically weekly, via EDI, e-mail or fax. The catch is that when the lead time is long, the supplier may well have already shipped a considerable portion of the schedule. That is where the cumulative total, or “cume” comes into play.

Each schedule received will contain a “cume” which is the total number of parts received by the customer since a mutually agreed starting point in time. The supplier also needs to maintain a shipped “cume”, which is the total number of parts he has shipped to the customer since the same point. The difference between the two “cumes” represents the amount of the schedule that has already been completed by the supplier.

It is immediately apparent that any error in the “cume” numbers, on either the supplier or customer side, will translate to an incorrect understanding of the customer demand.

 Schedules come in several different flavors that can be influenced by customer handling of ASN’s and the existence of consigned inventory. “Cumes” must be dealt with differently in each case.

Context Group consultants are well versed in all of the issues pertaining to schedules and to ensuring the correct synchronization of “cumes”. We can provide advice or hands-on assistance in helping clients to implement this powerful technique.

Contact richard.evans@contextgroup.com

Consignment deals are becoming more popular as each link in a supply chain attempts to eliminate inventory carrying costs.

 In a consignment arrangement, a vendor delivers goods to a customer’s facility but retains title to them and is not paid for them until the customer uses them in production.

The tricky part for any manufacturer utilizing consignment from his vendors is dealing with the recording of the inventory. The MRP folks want the consignment inventory registering “on-hand” on the computer so that the netting and ordering process works properly. But the bean counters don’t want to value it because that will mess up the books.

Most ERP systems do not handle consignment elegantly. The solution usually involves setting up a separate site or entity at which the inventory can be recorded as on-hand but costed at zero. Without a fairly sophisticated MRP or DRP system though, the netting and planning algorithms may not always recognize inventory in separate sites. Also, additional contortions can be required to extract goods from consignment  into “regular” inventory, and generate the payable.

Appropriate software modifications are likely to prove complex. The concept of a single standard cost is so deeply rooted into most software packages that proposals to change to an environment of multiple costs for the same item will usually make the MIS guys pull their hair out.

Outbound consignment deals, placing your goods with a customer, are much easier to handle because only separate locations are involved, not different costs. Even so, there can still be complications recording shipments as movements of inventory to in-transit, rather than as sales.

 Tricky or not, consignment looks like it is here to stay. Before buyers set up these deals with vendors, though, a thorough review of purchasing, inventory, costing and MRP systems is a good idea to get a handle on the degree of operational disruption that could be caused.

The Context Group can help with this process. Context Group consultants have hands on experience with implementing both vanilla consignment and the more complex flavor generated when NAFTA importation to Mexico is involved.

 Contact richard.evans@contextgroup.com

When we have a long inter-company supply chain, though, it is equally important to track and accumulate the gross margin accrued for the product by each business unit that adds value to the end item. It is especially important where trade agreements like NAFTA require that certain predefined profit levels be recorded in each country where a  manufacturing step occurs.

If each step in the chain merely records, on its system, the partially completed items that it receives from the previous link as inter-company purchased items,  then one hundred percent of the cost is displayed as material. The margin recorded by previous links is obscured.

So the last link in the chain, the eventual seller, may not be able to tell whether a particular selling price required by a customer represents a profitable arrangement to the organization as a whole.

As an example, a Context Group client with a multi-step international inter-company supply chain was faced, recently, with a decision as to whether to agree to supply components to a high volume plant in South America. The  client wanted the business to fill capacity in his plant, but the customer was only interested at a price point that was below the standard cost of the item as shown on the ERP of the division that was the producing the finished good. A thorough review of margin accrued along the chain revealed that excessive intercompany margin and pricing in one of the early steps of the chain had resulted in a final cost of the finished good which was unnecessarily inflated. The price that the customer was willing to pay was actually a good deal for the client when seen from the point of view of assessing the costs of the entire chain.

Context Group consultants can help their clients obtain the visibility to the costs of their entire supply chains that is vital to effective decision making in a complex international environment.

Contact richard.evans@contextgroup.com