SUPPLY CHAIN REDESIGN AT FINNFOREST CORPORATION
INTRODUCTION
Business organizations today operate in a turbulent and dynamic business environment. The contemporary business environment is undergoing a metamorphosis as rapid technological innovations, competitive markets, diverse customer preferences, and extensive global operations prevail in it. To ensure continuous operation and survival in today’s rigid business environment, a business firm has to be open to change and improvement. Business processes, services, products and operations should be consistently subject to evaluation and refinement. The norm is to deliver quality products and services while maintaining flexible and effective operations.
One of the most vital aspects of a business operation is the management of the supply chain. The supply chain comprises of the coordinated arrangement of manpower, technology, and production processes that transforms raw materials into tangible products or services. The supply chain is the overall process that determines how business firms secure materials, exploit people, utilize machines, and follow business processes to develop specific products and services for the satisfaction of consumers. This business operation is crucial as any defect in one area can render adverse impacts to the others. Thus, management of the supply chain entails strategies and constant monitoring to ensure its consistency to deliver outputs to the customers at the most convenient time.
ANALYSIS OF THE FINNFOREST SUPPLY CHAIN
The supply chain network at Finnforest Corporation starts at the forests in Finland where the company gathers the logs from trees found in these forests and ends in the retail outlets that sell the finished timber products to individual customers, industrial and construction firms, and timber merchants in the United Kingdom. The entire supply chain process of the company follows twelve steps. The first step is the harvesting of trees which takes one day, seven days to get to the mills, and has fourteen days of inventory. The second step is transporting the logs to the sawmills which takes one day, seven days to become grade togs and one day in inventory. The third step is to grade togs which take 0.1 day, one day before primary manufacturing and ten days in inventory. Primary manufacturing or the processing of logs into timber follows which takes 0.1 day, one day before kiln drying and one day in inventory. Kiln drying takes five days, five days before grading and two days in inventory. Grading takes place in 0.1 day and 0.5 day before packing. Packing occurs in 0.1 day, 0.5 day before transport to the ports, and 45 days in inventory. Transportation to the ports takes one day, one day before the products arrive in the United Kingdom and ten days in inventory. Transportation of timber products to the United Kingdom takes eleven days, fourteen days before they are processed into consumer products and thirty-one days in inventory. Processing of timber into specific consumer products takes 0.1 day, fourteen days before they get to the warehouse and one day in inventory. Warehousing of consumer products takes forty-six days and transportation to retailers takes 0.5 days, and four days lead-time.
Finnforest is confronted with three challenges in its supply chain network. First, the company basically has a slow supply chain process due to the amount of time that each step consumes. The first eight steps of its supply chain network take place in a single location which is Finland, yet consume 8.4 days of activity time, 18 days of lead time and contain 83 days of inventory. According to (2005) one cause of under-supply in timber products can be traced to a poorly structured supply chain network characterized by lack of communication and coordination between producers of sawmill timber products and end-users (p. 1). In the case of Finnforest, the company’s partners such sawmill producers, harvesters of logs and others who facilitate the process of harvesting logs, transforming them into timber products, packing and transporting are located in Finland while the retailers and consumers are in the United Kingdom. The distance between the two locations may pose certain inconsistencies in communication of orders and demands which make the first phase of supply chain long and tedious. Secondly, Finnforest suffers high inventory because of the need for storing the products before they are transported to the actual market which is in another country. Finnforest’s supply chain generally consists of 161 days of inventory which is more than the 20 days of actual activity time for each step in the supply chain process to be undertaken. The high inventory will cause problems with the financial status of the company because products in inventory do not generate income and the binding capital in those inventories prohibits the company from investing in other projects that would gain actual return ( 1997). Finally, the company has long lead time of exactly 50 days with each step of the supply chain process contributing to the total lead time except warehousing. The primary cause of the lead time is the complex arrangement of suppliers, distributors, manufacturers and retailers involved in the company’s supply chain. Different entities handle the harvesting of logs, processing them into timber, and transporting them to the second location which add conflicts to the entire process as these various entities have their own interests, targets and goals. (1995) claims that the organizations involved in a supply chain function independently. These organizations facilitate each of the typical supply chain functions such as planning, purchasing, manufacturing and distribution without intervention from the other players. Thus, the possibility of conflicting objectives and interests is high. Planning and purchasing partners pursue customer satisfaction and more sales while manufacturers underscore enhanced throughput without much consideration of inventory or distribution capacities. Considering the abovementioned situations, Finnforest needs to strengthen integration and coordination in its supply chain network to address the three problems.
SPECIFIC STEPS CONTAINING THE LARGEST AMOUNT OF WASTED TIME
Wasted time is the duration marked by absence of activity between a step in the supply chain process and the one preceding it. Wasted time in Finnforest Corporation occurs throughout the supply chain network. The most notable wasted time occurs between harvesting the trees and transporting the harvested logs to the sawmills (approximately 1 to 10 days), between kiln drying and grading (approximately 7 days), between arrival of timber products in the UK and manufacturing them into consumer product (approximately 4 days), between consumer product manufacturing and warehousing (approximately 15 days), and between warehousing and transport to retailers (approximately 4 days).
OPPORTUNITIES FOR REDUCING THE OVERALL SUPPLY CHAIN LEAD-TIME
Finnforest Corporation has to improve the flexibility of its supply chain network and coordination among the various entities involved in the process. Coordination and flexibility go hand in hand because a company that has well-aligned supply chain operations is guaranteed total flexibility. First, Finnforest has to plan its supply chain operation in advance to minimize wasted transactions. (2007) reports that the first step in the pursuit of supply chain flexibility is by designing a supply chain model. A supply chain model requires the company to determine the kinds of strategies and amount of time to suffice current customer needs. In this approach the company has to analyze and understand customer and stakeholder expectations in order to conceptualize the supply chain requirements and costs involved in each. Designing a supply model would enable Finnforest to gather data on what the British market really prefer and be able to tailor their activities in Finland. Secondly, Finnforest has to reinforce integration in all its facilities. Integration should occur among the people in each facility and between the different facilities. The first kind of integration necessitates constant communication and coordination between individuals performing a specific task. For example, people responsible for harvesting the trees or transporting the logs to the mills should coordinate to ensure that everyone knows what the supply chain requirements are and all efforts are geared towards meeting the requirements. Integration among people performing a particular function can be associated with the term “general coordination” in manufacturing companies. Multi-plant coordination, on the contrary, requires that production decisions are coordinated between different entities of a supply chain so as to achieve an integrated apparoach for the overall performance of the company. In this coordination, things like effects of uncertainty of final demand, complexities in production process at each facility and capacity weaknesses at each facility must be considered ( 1997). For Finnforest, multi-plan coordination should be observed in each of the twelve steps of the supply chain process i.e. people harvesting the trees, people transporting to sawmills, people grading the logs, people facilitating the primary manufacturing process and so forth in order to ensure collaboration of efforts and to facilitate monitoring of performance and output. Finally, to improve flexibility and coordination, Finnforest has to align its supply chain processes with the end products. There is a need to tailor supply chain operations to the nature of markets consuming the products. In order to do this, there is a need to identify the two types of products –
functional products and innovative products. Functional products are staples which are stable needs of the market while innovative products are varied, short-lived and volatile demands. Functional products require supply chains that are physically efficient and focused on lessening inventory. Innovative products necessitate a supply chain that is responsive and has built-in strategies for storing inventory to meet changes in demand for the product (2006). Finnforest’s products are stable demands because individuals often need timber products for home improvements, and industrial companies have a great need for them. Thus, it needs an efficient supply chain that guarantees minimal lead time and inventory.
SUMMARY OF ACTIONS FOR FINNFOREST
Finnforest’s problem with the supply chain rests on the long duration of lead time in the process which triggers high inventory as the need to store the products become a necessity while waiting for the next supply chain step to be undertaken. Developing a supply chain model, promoting coordination and integration among the various supply chain players, and aligning supply chain processes with end products will help the company address the problem of wasted time. Developing a supply chain model requires the company to establish a feedback system that would gather views, opinions and preferences at the customer and supplier levels. This feedback system can be in the form of survey questionnaires to be distributed to customers by retailers in the UK or a database in the company’s website wherein the customers and suppliers can access and leave their comments on how the company delivers its products. Information that would be accumulated in the feedback system would provide the company with basis on what the customers prefer, what the suppliers think is the problem with the supply chain network, the effects that these defects in the supply chain will provide, and what can be done to improve the supply chain operations. The feedback system can also help Finnforest to identify what kind of flexibility terms should be contracted with its partners. Finnforest collaborates with other parties like sawmill operators, transport and logistics firms and retailers to ensure that its products reach the market. If the company knows what the customers prefer and what the suppliers think are the weaknesses of the supply chain network, it can specify the amount of time and kind of output that should be rendered by each player in the supply chain to ensure that everything will flow smoothly in the least cost and amount of time possible (2007). Moreover, the company needs to reinforce and enhance coordination among the various people and organizations involved in the entire supply chain network. (2005) argue that trading partners in the supply chain should realize that their performance and actions impact the total performance of the system. Finnforest can improve coordination through information sharing and a team-based approach. These strategies mean that members of the supply chain communicate and coordinate their activities, decisions and plans through consistent information sharing regarding changes in demands, goals and target output to maximize system performance (). The feedback system proposed above would help in this strategy. Since the feedback system has given Finnforest a chance to gather market intelligence and develop plans according to the gathered information, it can now disseminate its plans to the various partners. All the partners must know the objectives of the company, target production and costs, and other specific production metrics. This way the partners can pattern their individual activities with the general plan and teamwork would be established. For example, if the people who harvest tress and transport logs to the sawmills know that there is great demand of products from the UK consumers and the company wishes to deliver finished products in the shortest time possible, they would be encouraged to hasten their harvesting activities in order to quickly transport the logs to the sawmills and for the other partners to continue with their work accordingly. Finally, Finnforest has to enhance its supply chain network into a demand-driven system. Again, the two prior strategies would enable this last strategy. General objectives developed from the feedback system and the team-based approach discussed above would mean that everyone in the Finnforest’s supply chain network knows the objectives and targets that the company wants to accomplish in order to satisfy the customers. Accordingly, all the entities would function towards customer satisfaction. (2006) state that teamwork and coordination in a supply chain connotes that the ultimate focus of all supply chain players would be on satisfaction of end customer requirements regardless of their position in the supply chain. Hence, if partners know that the requirements are for a variety of products with short lead times, each partner in the chain would attempt to react quickly to render varied products for the customer’s satisfaction ().
EFFECTS OF THE PROPOSED ACTIONS
The three proposed strategic actions would provide certain benefits to Finnforest in its aim to minimize lead times in the supply chain network. The team-based approach of all partners wherein information sharing is prevalent and everyone is pursuing the primary aim of customer satisfaction would lessen raw and finished good inventories because everyone would only produce goods that are dictated by the company’s general plan and based on what the customers require. Conceptualizing a plan based on the feedback system would enable the company to identify the types of products that are frequently needed by the customers in UK so that they can develop plans to produce these products and be able to disseminate the plans to all the partners especially to those who handle procurement of raw materials. There will also be efficient use of warehouse space since all the products that would be stored are needed by the market, thus, replenishment becomes consistent and waste is minimized. Furthermore, lead times would be minimized because team work and coordination would enable the different partners to consistently monitor each other’s performance and output so as to make the necessary adjustment if a defect is detected. If all partners work collaboratively, all the activities are scrutinized, defective actions would be identified and immediate solution cold be provided to ensure that ultimate objectives are still fulfilled. Lesser lead times will ensure real-time delivery because time is maximized and the entire supply chain process is shortened. Finally, Finnforest’s team-based approach and emphasis on coordination would make the company more responsive to changing circumstances. Some of these circumstances are need of consumers to consistently improve their living condition through home improvements which entail increased demand for timber products and adverse effects on product demands by the different seasons in Europe. In light of the increased need for home improvement, Finnforest would be able to know this because of the feedback system that it implements. Thus, the company can readily determine the volume of products that should be produced over a specified period of time to cover consumer needs. In relation to the changing seasons of the locale, the company has a team-based approach to its supply chain network. This means that each partner contributes to the knowledge base and decision-making processes. Hence, each partner has the freedom to express the difficulties that they encounter in every season so that the entire team can plan the adjustments that should be made. For example, the transportation partner can verbalize that they cannot transport logs during winter because of heavy snow or the harvesting people cannot cut more trees during rainy seasons. Accordingly, the entire team can conceptualize plans like doubling the volume of logs before rainy seasons and more production before winter so that warehouses can have sufficient stocks for consumer’s demands during the entire winter season even if no transportation of logs can be facilitated. In summary, the focus on customer requirements and coordination basically results to consistent oversight and analysis of the supply chain process (2006) in which all the decisions, plans and activities of the company and all its partners are dictated by the customers and the general corporate objectives, and wherein every effort is focused on maximizing performance for the efficiency of the entire system and customer satisfaction in the end.
APPENDIX
Figure 1: General Coordination and Multi-Plant Coordination ( 1997). This figure summarizes the proposed strategies for Finnforest wherein all supply chain efforts are monitored, scrutinized and enhanced by all partners through information sharing and teamwork.
Credit:ivythesis.typepad.com
Supply chain relationships: Wheatco Ltd and Chemco Ltd (A)
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