Email
sinha.rk.dr@gmail.com
Are Efficiency Improvement initiatives hurting your Supply Chain?
We have seen a lot of initiatives undertaken by supply chain teams to improve efficiency of their operations. The hard fact is that many of these don’t result in higher profits. In fact, some of them do cause lower profits. Why is that?
The problem is the way efficiency is defined in the conventional sense. If a machine runs at higher speed and closer to its rated capacity, it is considered more efficient. If we minimise downtime through larger batches, it is considered efficient. The measures are influenced by ‘output’ and ‘input’. Instead of focusing on ‘output’, we should actually be considering ‘desired output’.
Excess production beyond the desired output is also inefficient, as it creates more WIP and results in stale products delivered to consumers. Similarly, excess procurement also has similar issues, even if we are enticed by a small discount.
Throughput Accounting in TOC tackles these issues head-on. Higher throughput, lower operating expenses, and lower investment are all efficient. The good thing is it’s measured at the system level, thereby avoiding local functional optimisation.