| By Grace Diffenbacher | Senior Consultant, Integrated Demand and Supply Planning | Chainalytics |
Companies, specifically manufacturers, are struggling to keep up with the pace of 21st century demand. How is this still a relevant topic 18 years post “Y2K?” Shouldn’t it sound as outdated as computer programs operating with only two digit year signifiers? After all, it’s been a while since we’ve made that mistake. To further put things in perspective, children born in the year 2000 will be graduating high school this year. So why hasn’t supply chain planning matured at the same rate? Supply chain planning remains a major pain point for manufacturers, because optimizing the end-to-end supply chain goes against their core competency of operational efficiency within the four walls of a plant. In addition, competing with Supply Chain strength in 2018 requires a slightly different toolset to succeed.
Here are some key elements to consider for manufacturers seeking to improve their supply chain planning strategy:
- We live in a demand driven world. This requires supply chain planning functions to create a focus on demand. Retailers have been more successful at embracing this point. However, the response from manufacturers remains split between companies who recognize the need for demand planners and those who lump all planners together into a single planning function with no distinction between demand vs supply. Those who have failed to evolve tend to rely upon extremely reactive processes with cost consequences that hit the production floor in the form of changeovers, overtime and inventory obsolescence, or impact transportation spend in the form of re-deployments, expedited shipments and spot-market procurement – which is becoming increasingly painful with today’s tightening carrier capacity.
- This demand driven world is fueled by data. Once a demand planning team is established, they often become leadership’s chief informants, as they have the pulse of the business. In the last few years a mounting struggle within demand planning has been building as a consequence of the big data revolution. There is TONS of data and more tools readily available to help streamline the analytical process than ever before, yet many companies are not armed with a centralized analytics team or capability. Consequently, demand planners end up bearing a heavy analytics weight, stretching beyond demand planning, as an additional part of their job description, thus taking focus away from their core purpose of planning demand.
- So why wouldn’t manufacturers leave Point of Sale analytics to the retailers? Retailers generally have the capability but frequently lack the proper channels of communication between their merchandising and inventory replenishment teams. This is an important point due to the support those teams provide the manufacturer. Without them in lockstep, the demand signal sent to the manufacturer is often inaccurate or delayed. Meanwhile the manufacturer burns time and money trying to understand why retailers are ordering from them when customers at the cash register fail to make a purchase.
Manufacturers are being pulled in more directions than ever before as they try to reshape their internal resources to match the needs of this new environment.
So what’s a manufacturer to do? Here are some steps manufacturing companies can take to gain control in 2018.
- Step One: Remember this demand driven world is run by systems and data. Advanced planning and scheduling systems have exploded over the past five years and now have the incredible strength to process large amounts of data in minutes. Furthermore, what is particularly powerful is the ability to provide on the fly “what-if” scenarios that allow every level of your supply chain to understand the financial implications of their actions before they take them. But like a production line, advanced planning systems are only as good as their raw materials.
- Step Two: Utilize internal continuous improvement experts, normally found on the production floor, to streamline and standardize the ERP data maintenance process. Organizations must populate empty data fields and hold people accountable for maintaining master data on a regular basis. Advanced Planning Systems most often sit on top of the ERP and pull master supply chain data in to produce a forward looking demand, supply and inventory plan. However, if no one is in charge of managing ERP master data, then going from Cleveland, Ohio to Columbus, Ohio will take the same time as Cleveland to Paris or Cleveland to the Fiji Islands! In this example, the bad data will lead to a critical gap between when supply is planned and expected versus when the product is actually produced. And that will negatively affect the balance sheet while creating stock-outs on global demand. Not to mention create a mistrust of “the system” internally.
- Step Three: Align the operations and supply planning teams. People who understand the nuances of execution are critical to creating a realistic systemized supply plan. A manufacturer’s strength is being able to plan for supply and execute against it. Often supply planning is a corporate function that is not part of the everyday operations environment and therefore suspect. As supply planners dig to better understand and tweak supply constraints in the advanced planning system, a further schism evolves. One way to tackle this is to involve manufacturing operations up-front and make them a partner in the advanced planning journey. They should not be viewed as simply someone who is “consulted,” but instead as part owner along with the supply chain planning team.
- Step Four: Populate your supply constraints. Once aligned with operations, supply planners can work with them to apply the constraints of the business to the supply plan. Your advanced planning system should be a mirror of your production floor. To recreate this, you need data fields such as run rates, production families and downtime accurately represented. Do you ramp production capacity up and down seasonally? If so, put it in the system. Do you have multiple lines that you run interchangeably? Yes? Put it in the system. Does production stop for holidays and preventative maintenance? System! Skipping this step entirely or massively misrepresenting the actual process is a huge misfire we witness because of a misunderstanding of the associated risk.
Navigating the challenges and complexity of supply chain planning can be difficult for organizations that have yet to make the adjustments needed to remain competitive into today’s market. Keeping the aforementioned steps at the heart of your planning process will help your organization meet the demand driving business decisions and planning strategies. Additionally, choosing the right system and including the appropriate personnel will increase planning efficiency within the supply chain. The tools and expertise are available, and organizations must utilize them to their fullest to successfully adapt to 21st century directives. Following these steps will allow the data to work towards your objectives and drive organizational efficiency.
Grace Diffenbacher is a Senior Consultant in the Integrated Demand & Supply Planning practice at Chainalytics. Grace has an extensive background working for global manufacturers with a depth of experience in S&OP implementation, inventory optimization and customer-facing supply chains.
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