Supply Chain Redesign at Finnforest Corporation


Supply Chain Management


            Supply chain is the physical, financial and information networks for the logistic movement process of materials, funds and related information. It starts from acquisition of raw materials to delivery of finished products to the end user. Supply Chain Management is the methodology to improve the business efficiency in finding raw components for business products or services and delivering it to the end user. The Supply Chain Management contains five basic components:


1. Plan – Strategies for managing resources toward meeting customer demand for goods and services


2. Source – Selection of suppliers to deliver materials or services for the making of goods and services


3. Produce – Making of goods and services, which may include production, testing and packaging


4. Deliver – Coordinate orders from clients, carriers sending products and invoicing/receiving payments


5. Return – Network for receiving defective or excessive products from client


           


            Finnforest is a global mechanical-forest-products company. Finnforest Corporation is a € (Euro) 1.2 billion turnover timber products company, owned by about 125 000 private forest owners of Finland, with worldwide sales and operations. Here, we focus on the Corporation’s European operations, where the company under­takes primary and secondary timber manufacturing, and the supply and distribution of finished goods to three main types of customer:


1. Home improvement/DIY retailers


2. Industrial and construction companies


3. Builders and timber merchants


 


            Strategic supply chain management means management of the complex network of supply chain operations, which gets products and services to the customer, and the physical arrangement of the supply chain operations facilities, technology and people. In the face of ever increasing complexity, and customer expectations for faster supply chain response, businesses must be able to identify the potential weaknesses of their supply chain networks and adopt appropriate supply chain analysis and redesign.


Key Supply Chain Process


           Diagnosing a supply chain starts by understanding the current operational system and processes. This understanding is also the first step in gaining widespread recognition of any symptoms of poor performance and helps to establish the need for change. Mapping and measuring a process establishes the performance base line that enables the effect of changes to process designs on performance to be measured. The Finnforest supply chain is diagnosed in terms of five stages shown below. This block flow diagram format uses a notation of boxes to represent each stage and arrows to represent the flow of goods between these stages. In order to gain a more thorough appreciation of the supply chain, a detailed investigation must be taken.


 


Finnforest’s timber products supply chain


 


 



 


The starting point for this supply chain is the forest in Finland where the trees are grown.



 


 


 


 



 



 


Logs from the forest are processed into timber at sawmills in Finland.


 


 



 


 



 



 


Timber is transported by sea to the UK, where a secondary manufacturing operation is undertaken to machine it into a range of consumer products.


 



 


 


 



 



 


Finished product warehouses hold the customer items until a retailer calls them off.


 



 


 


 


 



 



 


Finnforest delivers directly from its finished product warehouses to major DIY retail outlets.


 


 


 


 


Data Gathering


            Data was gathered at each of the major steps in the process. The principal unit of measure used was time. Despite being a simple metric, time allows a rich understanding of the symptoms of poor performance and is effective in identifying and diagnosing waste. Its usefulness is based on the relative ease with which this understanding can be communicated to those involved in operating a process. it also helps in showing what and who would be affected if the process were changed. In addition to time, inventories were quantified at each step of the process. The three measures collected are the following:


1. Activity time – the time to physically undertake the activity involved in complet­ing a process step for a single item.


2. Lead Time – the time between when the item finishes the preceding step in the process until it finishes the current step in the process, this time will include the time spent undertaking any activity


3. Inventory – the amount of inventories, raw materials, work in progress or finished goods held, measured in terms of the number of days of demand


 


This report will particularly focus on analyzing the supply chain and identifying the proportion of supply chain process lead–time which is made up of wasted time. The table shown below presents the supply chain process at Finnforest and includes performance measures in terms of activity time, lead-time and inventory.


 


 


Finnforest’s supply chain steps with performance measures


 


                    Supply chain step            Activity time/days      Lead-time/days Inventory/days


 


                  Harvest trees                                  1.0                               7.0                       14.0
                  Transport logs to mill                     1.0                               2.0                         1.0
                  Grade togs                                     0.1                               1.0                       10.0
                  Primary manufacture                      0.1                               1.0                         1.0
                  Kiln dry                                          5.0                               5.0                         2.0
                  Grade                                             0.1                               0.5                         0.0
                  Pack                                               0.1                               0.5                       45.0
                  Transport to port                            1.0                               1.0                       10.0
                  Transport to UK                           11.0                             14.0                       31.0
                  Secondary manufacture                 0.1                             14.0                         1.0
                  Warehouse                                      -                                   -                          46.0
                  Transport to retailers                      0.5                               4.0                           -


                                                    Total            20.0                             50.0                    161.0


 


           


            The table above shows that the overall lead-time products to get from the forest to the retail outlet is 50 days. Contained within the 50 day overall lead-time is 20 days of activity time, when timber is worked upon. Overall, the supply chain contains 161 days inventory. To analyze the supply chain process and the lead-time at different supply chain step a Time Based Process Map (TBPM) is presented.


 


Time Based Process Map


            The time based process map presents data for both lead-time and activity time for every step along a process. The lead-time for each process step contains a value for the amount of activity time involved in undertaking that step. By definition, the remainder of the lead-time must consist of time where no activity was undertaken. An assumption is then made that all lead-time which has not been classified as activity time must be ‘wasted time’. Thus, the TBPM provides the means to present performance data and highlight the incidence of wasted time. Through highlighting where wasted time exists, the TBPM helps direct attention onto the most significant areas of waste. The TBPM for the Finnforest supply chain process is presented below.


 



Supply Chain Lead-Time


            From the data presented above it is evident that steps like transportation of products to UK and secondary manufacture contain the largest amount of wasted times. The supply chain of Finnforest is still quite long and involves several intermediaries. The long distribution structure is problematic and, especially, the non-transparency of the supply chain makes it difficult for Finnforest to get real and accurate information from end markets. Various delays in supply chain and management thinking appear. Furthermore, there is an extensive capacity to stock in the supply chain. Stocks and inventories are located at many points from the forest to end-users and inventories have tended to fluctuate heavily throughout business cycles.


            One of the steps in the Finnforest supply chain that has the largest amount of wasted time is the transportation of products from Finland to the United Kingdom. The transportation of products is very slow. This makes Finnforest unable to respond to market fluctuations and forces the company to increase inventory levels, extend production schedules and write unforeseen expenses. Lead times are inhibiting Finnforest’s ability to respond to customer demand. With up to 14 days of wasted times for products from Finland to United kingdom, many second manufactures are forced to stock extra product to meet unexpected market spikes. Greater inventory requirements tie up capital, countering most lean manufacturing models. Alternatively, if demand shrinks, manufacturers will continue to increase inventory levels as shipments that are at sea continue to arrive for many more weeks. To build better reliability into the supply chain, manufacturers need the right product at the right time. Due to the importance of the export trade for Finnforest, the key customers are often foreign based. Due to prevailing long supply chain and slow product transportation direct contact with these final customers remain elusive.


 


 


 


 



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