Logistics and Supply Chain Management, 4th Edition

STRATEGIC LE A D -T I ME M A N A GEMENT

129

Overcoming these problems and ensuring timely response to volatile demand

requires a new and fundamentally different approach to the management of

lead times.

Logistics pipeline management

The key to the successful control of logistics lead times is pipeline management.

Pipeline management is the process whereby manufacturing and procurement

lead times are linked to the needs of the marketplace. At the same time, pipeline

management seeks to meet the competitive challenge of increasing the speed of

response to those market needs.

The goals of logistics pipeline management are:



Lower costs



Higher quality



More flexibility



Faster response times

The achievement of these goals is dependent upon managing the supply chain

as an entity and seeking to reduce the pipeline length and/or to speed up the flow

through that pipeline. In examining the efficiency of supply chains it is often found

that many of the activities that take place add more cost than value. For example,

moving a pallet into a warehouse, repositioning it, storing it and then moving it out

in all likelihood has added no value but has added considerably to the total cost.

Very simply, value-adding time is time spent doing something that creates a

benefit for which the customer is prepared to pay. Thus we could classify man-

ufacturing as a value-added activity as well as the physical movement of the

product and the means of creating the exchange. The old adage ‘the right product

in the right place at the right time’ summarises the idea of customer value-adding

activities. Thus any activity that contributes to the achievement of that goal could

be classified as value adding.

On the other hand, non-value-adding time is time spent on an activity whose

elimination would lead to no reduction of benefit to the customer. Some non-value-

adding activities are necessary because of the current design of our processes but

they still represent a cost and should be minimised.

The difference between value-adding time and non-value-adding time is crucial

to an understanding of how logistics processes can be improved. Flowcharting

supply chain processes is the first step towards understanding the opportunities

that exist for improvements in productivity through re-engineering those processes.

Once processes have been flowcharted, the first step is to bring together

the managers involved in those processes to debate and agree exactly which

The longer the pipeline from source of materials to the final user the less

responsive to changes in demand the system will be.

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

130

elements of the process can truly be described as value adding. Agreement may

not easily be achieved as no one likes to admit that the activity they are responsi-

ble for does not actually add any value for customers.

The next step is to do a rough-cut graph highlighting visually how much time is

consumed in both non-value-adding and value-adding activities. Figure 6.8 shows

a generic example of such a graph.

Figure 6.9 shows an actual analysis for a pharmaceutical product where the total

process time was 40 weeks and yet value was only being added for 6.2 per cent of

that time.

It will be noted from this example that most of the value is added early in

the process and hence the product is more expensive to hold as inventory.

Furthermore, much of the flexibility is probably lost as the product is configured

and/or packaged in specific forms early in that process. Figure 6.10 shows that

this product started as a combination of three active ingredients but very rapidly

became 25 stock keeping units because it was packaged in different sizes, for-

mats, etc., and was then held in inventory for the rest of the time in the company’s

pipeline.

The difference between value-adding time and non-value-adding time is

crucial to an understanding of how logistics processes can be improved.

Raw

material

stock

Production

Finished

product

In-transit

Regional

stock

Customer

order

cycle

Cost added

Production, storage and transport costs and the time cost of money

Value

added

Time,

place and

form

utility

Figure 6.8 Which activities add cost and which add value?

STRATEGIC LE A D -T I ME M A N A GEMENT

131

10%

20%

30%

40%

50%

60%

70%

80%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Weeks in the supply chain

• 6.2 per cent of value-added time over a 40-week supply chain

Supplier lead time

Inbound material

Primary conversion

Secondary

conversion

Packaging

Shipment

Distributor

Ship to customer

Distribution centre pick

% of total cost added by logistics processes

Figure 6.9 Value added through time