Learning to balance growth, risk and a long supply chain can be quite a challenge with startups who need to manufacture something. Keep production cycles short but cost effective are incredibly difficult. Finding suppliers who are willing to work with you is also a challenge.
Nota Nota (www.nota-nota.com) is a 2 year old startup in Saudi who are going through this challenge right now. They are balancing the risk between missing out on volume orders versus the risk of holding increased stock across the company.
In the interview below, Salman Bahabri, who is a co-founder and runs the Operations side of the business, shares some of his insights in how to apply the key lean principles to managing the supply chain within a startup.
I was lucky to meet Salman in July this year when we ran some Lean training sessions for the Saudi Small & Medium Business Authority in Riyadh. It was a great week meeting some great people and some brilliant startup’s and small established businesses looking for growth.
Hope you enjoy and don’t forget to leave your comments.
Nota-Nota were expanding and growing at steady space with a fairly predicatble lead time and customer demand. Occasionally however, Nota-Nota received large one off orders that they were unable to accept due to the time pressure of the order. They simply were not able to meet the lead time for the volumes and were losing great growth potential.
The challenge that Nota-Nota faced was how to decrease the product lead time and offer greater quantities without incurring greater overall costs within the supply chain.
While there are a number of manufacturers involved, the final finished goods manufacture was identified as critical as they were the last step in the supply chain before final product shipment. Working with the manufacture, the team identified a win win by reducing the initial inventory levels but transferring more inventory into finished goods.
The risk from the supplier perspective was that they would produce more items ready to ship and hence put in the labour to do so. But on the reverse side, the reduction of inventory levels arriving saved storage space and with the finished goods taking up less space than the individual parts, the supplier was able to save on storage overall.
The finished goods inventory was increased by 70% to respond to a single high volume demands but the hope is that by catching one or two of these demands, larger growth will continue which in turn will reduce the short term risk.
From a lean perspective, this is no moving towards single-piece flow but actually increasing the inventory in the overall system. However, it allows for greater flexibility and faster responsiveness to customers demands. A supply chain that can’t meet the customer demand is not very lean – you just need the ability to continually adjust and be flexible to changes.
As Salman mentions in the interview, this solution was possible, because of the trust and the shared vision the supplier had for the team and the Nota-Nota product. So remember to maximise the flexibility in the early days even if margin takes a short term hit. The benefit will be the ability to change faster.