Agile supply chains require apps for Assemble to Order

Roger OakdenGlobal Logistics, Logistics Management, Logistics Planning, Supply Chains & Supply NetworksLeave a Comment

Mix and Stir business

IT applications which meet the need.

Commentators are telling us that to be successful, manufacturers and distributors operating in an ‘on-demand’ economy will require to integrate the Internet of Things (IoT), cloud computing and multiple other technologies. But what they do not write about are the software requirements to plan the flow of materials and resources through an Agile supply network.

Although ERP applications have existed in various forms for about 50 years, the software requirements for Agile organisations have not been comprehensively addressed. My previous blog discussed the positioning of Agile businesses in the Make to Order (MTO) and Assemble to Order (ATO) sectors. The similarity between the two is that manufacturing and distribution activities are best initiated when a customer order is received (although some ‘form postponement’ activities may occur). The difference between the two sectors are:

  • Make to Order (MTO) is the adaptation of pre-designed products – providing a design and manufacture service for options on the base products
  • Assemble to Order (ATO) is to assemble discrete or ‘mix and stir’ process (non-discrete) products to order; based on specific orders from customers (or the sales department) for catalogue products or special recipes/formulas

These methodologies are different from those addressed by the more common business IT applications, which are generally designed for discrete products, positioned in the Engineer to Order (ETO) or Make to Stock (MTS) sectors. Therefore, for a business which desires to be Agile, a team lead by a Supply Chain professional needs to identify which processes help make the business successful. Using this knowledge, then identify how a focused IT applications could improve outcomes. An example of defining a business application is for ATO in process industries.

From MTS to ATO within process industries

Businesses that provide manufactured feedstock are typically capital intensive, use continuous flow processes to produce high volume – low variety products as Make to Stock (MTS). Examples of these businesses are:

  • refining (petroleum, chemicals, sugar) – includes distillation and thermal cracking
  • milling (rice, corn and wheat)
  • coating (steel, paper) and
  • spinning and weaving (wool, cotton, silk, man-made fibre)

However, some end users (customers’ customers) could require specific products. So, specialist businesses exist which supply orders that mix feedstocks to individual customer requirements; hence, it is a subset of the ATO sector, called ‘mix and stir’.

A ‘Mix and Stir’ business

Businesses engaged in ‘mix and stir’ can exist in the agriculture, chemical and pharmaceutical sectors. Feedstock materials are purchased (typically in bulk, but can be bagged) from soft or hard commodity suppliers e.g. agribusiness, petrochemical and aggregates; either based within the country or from importers. The materials are transported from the supplier facility or wharf and stored in silos or sheds at regional or local locations.

Each customer order is based on an internal or externally supplied ‘recipe’ or ‘formula’, which identifies specific quantities of feedstocks as inputs. The initial step may require some treatment of the materials (e.g. heating, thawing, chilling), followed by a ‘mix and stir’ process and possibly some packaging. The order is then delivered to the customer, or loaded to a specialist materials handling truck for order application (i.e. spreading fertiliser), to provide the customer’s total requirements.

Mix and Stir business – IT application requirements

The objective of the application is for Work in Progress (WIP) to be kept at a relatively constant level, more predictable lead times and therefore reliable delivery dates – necessary for follow-on activities.

The most popular question from customers of a ‘mix and stir’ business is “what is the price and when can I have it?”. To address the first question requires on-line order costing (incorporating total cost of ownership (TCO) and Cost to Serve (C2S) methodologies) and pricing. To answer the second question requires finite capacity planning. But, to enable these functions requires specific IT application capabilities:

  1. Inventory
    1. Materials that are processed are described differently from discrete items:
      1. form of the material is the shape of the container holding the material
      2. size is the batch quantity
      3. quantity of the material can vary depending on factors such as specific gravity (SG), potency and grade
    2. Unit of measure and conversion facilities for purchasing, stored and issued quantities
    3. Status control of inventory, based on QA results. This prevents inappropriate netting and allocations in inventory calculations when items are delayed in QA testing
    4. Inventory locations per lot; established and deleted as part of ongoing operations, together with a history file, maintained and accessible
  2. Formula and recipe control, including version control and separate formulas for costing, planning and laboratory
  3. Lot control of:
    1. order receipts (bulk and bagged materials) from suppliers
    2. each production order number is used as the aggregate number for the various ‘lots’ that make up the order, based on stock location and the QA ID of the feedstock materials
    3. customer orders, with partial deliveries. Lot control enables traceability when orders are not performing to specifications. It also enables correct order pricing, with storage and delivery charges identified and calculated
  4. Track and trace capability of inbound loads, customer orders and deliveries. Drivers, trucks, storage lots and delivery loads must be identified (bar-code or RFID tag). This enables the track and trace of individual lots and accurate payments to contract drivers
  5. Finite Capacity Scheduling (FCS)
    1. the sequence of operations to fulfil orders, based on the real capacity of resources
      1. resources can be machines, tanks, piping, labour, storage areas, fork-lifts, delivery trucks, tooling or anything that could constrain the value adding processes
      2. only plan operations when resources are available and allocate materials when required for an operational activity
    2. The scheduler maintains the balance between demands and capacities
      1. flexibility for reductions in capacity, due to machine breakdowns, operator absence, scrap, re-work and excessive changeover times. Options available to increase capacity include overtime, sub-contracting, splitting batches and managing bottlenecks
      2. a ‘what if’ tool to allow different schedules, dispatching rules, routings or constraints to those currently in use. Alternative schedules generated and compared
      3. capability to create a schedule model using a minimal data set. Gives the ability to make timely decisions which support the business objectives

This outline illustrates that to become Agile requires a thorough analysis of your sales and supply markets, the planning process and current business IT applications; then identify their relevance to the Agile business model. If required, build a justification to replace processes and systems. Only after the successful implementation of a new business IT applications should new technologies be considered to advance your Agile agenda.


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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More…

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