The interdependent enterprise
Raising company-wide productivity requires the flows of materials, information, and work on orders each be as efficient as possible.
By Rick Bushnell -- Modern Materials Handling, 3/1/2000
Speaking at the IBM Global Supply Chain Management Executive Conference, my challenge was to explain the importance of the relationship between the materials handling and logistics functions (materials flow) within a company to the computer and control system (information and work flows) used to manage that enterprise. Some call this enterprise computing.Simple equations can explain the effect of one element of the enterprise upon another. Let's use just the variables: (1) Materials flow, which includes warehousing and shipping goods to the customer; (2) Information flow, or interacting with a database and exchanging inquiries and commands; and (3) Work flow, which involves placing and receiving orders.
By multiplying values for each flow we get an overall efficiency (sidebar).
Let's calculate the efficiency of one company. Say that we have a highly automated warehouse management system. It is 90% of what anyone could want; it gets a value of 0.9. But other corporate information sources, such as purchasing and real time data from the WMS, are not integrated. They are only about half of what others have. We give them a 0.5. Because we don't have a lot of visibility into inventory data, we can't accept electronic orders. Furthermore, we can't place replenishment orders electronically. The net result is that our work flow is only 70% of what we would like to have. That gives us a 0.7.
To calculate the level of total company efficiency we multiply 0.9 X 0.5 X 0.7 = 0.315 or 31.5%.
A company that just spent $500,000 for a WMS and is losing market share to a competitor would think that, for the money invested, the enterprise should be at a much higher level of efficiency than just 32%.
The fact that we multiply together factors that are each less than one to get our net result makes it obvious that we reduce efficiency when one area is less efficient than the others.
Now lets say that we want to put in a "cyber shop" or dot com operation. Orders will come directly off the Internet; the information system will be integrated to the WMS. We will have great work flow and information flow. But our materials handling system has only been optimized for full case and pallet picks with only a few single item shipments. Our workflow goes to 90% (0.9) and the information flow also is at 90% (0.9). But the materials flow is only at 50% (0.5). So our level of overall proficiency is 0.5 X 0.9 X 0.9 = 0.405 or 40.5%.
Quad II
Quantifying your overall efficiency
Assume we assign values for the efficiency of each of these three flows. For example, for a totally efficient materials flow system, this first variable is 1 (100%). But for a system only 50% efficient, this materials flow variable is 0.5. By multiplying the three values, we derive an overall efficiency for all systems for materials, information, and work flows. What this kind of mathematical exercise can demonstrate is that when values are less than 100% for each efficiency factor and are plugged into our equation, the cumulative impact is to diminish total efficiency of the enterprise (see examples in column).
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