Four key trends affecting OEM supply chains today part 3: The new 80/20 rule

The new 80/20 rule—automate 80% of your transactions and only involve managers in the remaining 20%

It seems to me that we’ve reached a point where most OEMs agree on the benefits of reducing complexity in their supply chain operations. In part 3 of our OEM Supply Chain series (see parts 1 and 2), I will explore why some of the benefits of simplification, however, lie below the surface of typical analysis.

Increasing application sophistication and computing power means that application systems are increasingly automating less complex transactions (80%), allowing OEM supply chain managers to focus only on exceptions (20%)—the few transactions that require their intervention.

OEM Supply Chain 80 20 rule

Technology is the key driver for allowing managers to focus only on the exceptions. Clearly, though, this does not happen by accident. Setting up simplified processes, and controlling the amount of policy and process “rule breakers” is paramount to attaining the goal of managing only the true exceptions—in other words, automate the easy and focus on the complex. Areas that are primed for automation include those processes with a high degree of repetitive transactions, and those that don’t have high levels of exceptions, often found in planning, procurement, order processing and inventory management, for example.

In most cases, the benefits of simplified processes are helping OEMs achieve their goals of quality improvement, cost reductions and improved customer satisfaction. What is not generally acknowledged, however, is the impact “rule breakers” or exceptions can have on process simplification. Some common examples of “rule breakers” are:

  • Ship all customers in this region out of warehouse 102, except customer XYZ.
  • Add Label G to parts 10, 11, & 12, unless it is going to be used later as a component of assembly 112.
  • Vendor source data is to be controlled centrally, except for Plant C’s vendors.

With the flexibility of today’s systems, setting up rules is generally pretty easy; when rules and policies are allowed to be broken, however, complexity, and hence cost, are added to the overall process.

The implication, of course, is also simple: policy and process “’rule breakers” add complexity, and complexity in supply chains is something to avoid.  So instead, consider following the new 80/20 rule.

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About the Author: Craig Delano