How to Understand the Connections Between Supermarkets and SNP

Executive Summary

• What is a manufacturing supermarket?
• How have companies changed the definition of a supermarket?
• What is the connection between a supermarket and a supply planning application?

What is a Manufacturing Supermarket?

The concept of a supermarket was first developed by Toyota and kept supplier stocking locations close to the Toyota factory. The following quotation covers this.

“Supermarket is a stockpoint of inventory that supplies a downstream channel. A pull production technique. Materials in a supermarket are pulled off the “shelves” by the “customer”. A supply of parts are stored near the cell / line and as these parts are used, they are replenished by the upstream process.”

The Origination of The Toyota Supermarket

In the beginning, Toyota’s definition of a supermarket was a stocking location maintained, often by the supplier, outside of the plant. This is how Toyota developed the concept. However, since then, the concept has been extended to be a stocking location within a factory. Deloitte Consulting’s strategy consultants have been telling companies to move to supermarkets for both inventory savings and improvements in production efficiency. It is unclear as to whether Toyota ever actually used “supermarkets” in this way. Deloitte strategy consultants have a well-known habit of saying that some prestigious company is doing A or B when companies are not doing A or B. However, this is how the term and usage are enlarging over time. This article will include several quotations from an unnamed client that can help understand how supermarkets are used and how they intersect with supply planning.

“A supermarket is a like a mini warehouse within the plant or at the end of the final process, so that production  keeps only small amounts of stock at any one point. One can set-up minimum and maximum stock levels for the supermarket. When the stock level falls to certain pre-determined level (re-order point) a Production Kanban is raised to produce certain amount of stock to bring back the stock level to a maximum level.”

This is also known as an intermediate stocking location. The methods described above are reordered points, which are part of supply planning. Therefore, it would be desirable to set up these reorder points in the supply planning system.

How to Kanban Fit into Supply Planning?

However, Kanban is not part of supply planning but is an execution scheduling method. Also, a reorder point does not trigger a Kanban. Either the Kanban or the reorder point should trigger the stock transfer. This issue, properly interpreting a supermarket, for a supply planning person at least, determines when the supermarket, specifically the product locations in the supermarket, is replenished with reorder points, controlled by the supply planning system, or by a Kanban. This is because the supply planning system has control and settings for one but not the other. A company can do both, but it makes sense to include the product locations to be managed by supply planning in the product locations matrix. This matrix is used to document how different product locations will be planned in the supply planning application.

“A daily Material Requirements Planning (MRP) run will occur and the system proposes orders for replenishment of the supermarket.”

This quotation made less sense to me. MRP is a forecast based supply (and production) planning method. One can use MRP to plan the replenishment of any stocking location, but tactical movements tend to work better with reorder points in the short time horizon.

“If the material is being supplied by an external vendor, then the order proposal comes in the form of a purchase requisition. The system automatically triggers the purchase requistion during the daily MRP run.”

To this quotation, I would say, “maybe or maybe not.” It remains to be proven that each product location combination will use a particular method. I would never take it for granted that MRP will be controlling this. However, MRP has come to be used very broadly and is sometimes overused and misused as a term.

Conclusion

“Supermarket” is a term that is frequently used by people that work in manufacturing. However, it does not have much meaning for the supply planning system, except that some of the supermarket’s product location combinations will be planned with a reorder point or a procedure. Supermarkets can be a bit of a problem because they are discussed as if they are a supply planning method, when in fact, they are a stocking strategy and a stocking location that may or may not be planned by the supply planning system (and in other cases will be planned by some Kanban oriented system). Toyota had some success with supermarkets, but when the term meant something different. The term supermarket is so promiscuously used that when someone says “supermarket,” no one can say for sure what the person means (is it supplier managed or not? Is it inside the manufacturing facility or not, etc..)

It should be understood that when a supermarket breaks a single stocking location into multiple stocking locations, it will have the consequence of increasing inventory, all other things being equal. This is due to the law of large numbers and is a natural mathematical law. In the non-Toyota use of the term, Supermarkets may be seen to provide manufacturing efficiency benefits at the cost of increased inventory. Do is perfectly fine; these two costs should be intelligently traded off against one another. If more stocking locations does this, then I think it’s an excellent idea. From a configuration perspective, I can set up any number of stocking locations. However, when I put my business hat on, I would like to see more evidence that supermarkets actually improve the things they are generally presumed to. Some study by Deloitte Consulting, or doing it because “Toyota” may have done it or something similar to it is not convincing.