Welcome to the Make edition of our FMCG supply chain guide, a centrally located room in the Enchange Supply Chain House. Previously we have looked at the Planning and Sourcing functions and those overview articles can be found here.
The Make function is possibly my personal favourite function after having managed large FMCG factories over the years and thoroughly enjoyed the experience. In manufacturing you literally get your hands dirty and at the end of every shift, day, week you know you have produced something tangible; a detergent, a shampoo, a food, a paint or a polish.
From the dictionary we see some definitions of Make as a noun and as a verb:
- Form something by putting parts together or combining materials, e.g. my grandfather made a wooden boat for me.
- Cause something to appear or come about that did not exist before, e.g. the leaking pipe had made a puddle on the floor.
- The manufacturer or trade name of a product, e.g. Dacia Duster 4WD.
- The making of an electrical contact.
Construction and operation of manufacturing facilities are usually the highest CapEx and OpEx investments FMCG leaders will make. (An investment in a manufacturing unit assumes a rigorous business case assessment of Make versus Buy has been completed in the favour of the former. Even so, such decisions warrant routine review to ensure those assumptions and cost decisions remain valid, e.g. in the game-changing dynamics Covid-19 has presented.)
Having your own factory provides you with competitive advantages over reliance on 3rd parties and here is a selection.
- The flexibility to change plans to counter market fluctuations and competitor activity. Against the principles of S&OP I hear many shout but when needs must, having control of your own SKU supply is a distinct advantage. You may be able to increase output to meet rising demand without waiting in a potential queue at a 3rd party vendor.
- If you are operating S&OP correctly, your own product source should provide you with lower working capital charges from closely controlled stock levels in the extended supply chain and a faster and more reliable Route to Market.
- The ability to develop in-house innovation and bring it to the market quickly. Product Development trials and testing can take place (charged to the correct cost centre) and intermediate or non-conforming materials can probably be reworked into routine production to minimise losses.
- You are in command of your own Quality Control and Quality Assurance and do not experience the pain of a 3rd party delivery arriving with parameters outside of the agreed specification. Or worse, you allow a delivery to enter the supply chain and then suffer a costly recall. (Of course, if your quality systems are not on the ball you can experience the same problems from your own factory.)
- Last but not least and important although not strictly operational, investment in physical assets is important for reputation as local authorities appreciate direct investment, the employment opportunities and the associated tax collection.
Make in the Enchange Supply Chain House
In subsequent articles I will take you through more detail but for now, here are a few words on some of the important elements.
As discussed earlier, do you need a factory or factories? Is the factory a sensible logistical distance from your key market(s) and suppliers? Are the required skills available in the local workforce? Decisions on your manufacturing footprint involve macroeconomics, tariffs and trade agreements in addition to standard business analysis.
Once you have taken the trouble and expense of investment in manufacturing assets, they have to start paying back. This is a measure of how accurate your business case was as this is a true measure of how well you are using your installed capacity. Are your manufacturing teams operating the equipment at name-plate output or is this suppressed for an easier shift? Do you have the capability and capacity to accommodate new product innovation and sales volume increases?
Equipment wears out eventually but to get maximum benefit from the investment you must have a maintenance resource (internal or 3rd party) and a plan. Is maintenance carried out by a suitably qualified workforce? Is this a dedicated team or multi-skilled operator roles? Is a training plan agreed with HR? Is the maintenance team trained on new equipment BEFORE delivery and installation? Are breakdown losses measured, investigated and corrected in a timely manner?
Factory Scheduling is the production management process by which raw/pack materials, semi-finished goods and the labour force are allocated to match the finished goods demand signal. Do you know your production bottlenecks? Do you have a set of 'Golden Rules’ to optimise the factory operation? Do you have a system for considering and accommodating urgent plan change requests?
Materials management is a core function of a factory, controlling and regulating the timely flow of raw and packaging materials. Have you defined inventory levels for each item depending on consumption and supply lead time? Do you have a documented process for bringing materials to the production line? Do you have people and processes to manage excess materials not consumed during production?
IWS, TQM, TPM, LEAN, KAIZEN
These (and more) are systems designed to improve manufacturing performance. They are not all the same as some focus on product quality while others target losses, efficiency and cost reduction. Do you follow a performance improvement process whether internal or external? Does your system improve cooperation and teamworking with management, engineering, maintenance, and operators? Do you measure production losses and apply a ‘why-why’ or other technique to apply a ‘100 year’ fix?
CapEx Planning & Execution
CapEx planning is the process of budgeting money required for investment in replacement or new equipment in line with future business plans. Do you have a process for evaluating and approving expense requests whether in or out of budget? How far into the future do you plan CapEx? Is CapEx execution planned well in advance to avoid downtime and market disruption?
Despite the length of this article this is only a snippet of what you should expect from your Make function. In subsequent articles we will look in more detail at those specifics you need in place to support and fuel the extended supply chain.
Read all posts in my series on the Supply Chain Excellence page of our blog where you can also subscribe to our updates.