Looking at your supply chain to increase resilience? Are your past supply chain challenges due to poor supply chain planning? Are you wondering what the right balance of centralized control vs. decentralized responsiveness is?
Your answer will depend on many factors, including the complexity of the manufacturing processes, prioritization of flexibility over efficiency, and the mix of products you produce. In addition, there are different needs for centralization and decentralization for each vital planning level – Strategic Planning, Sales & Operations Planning (S&OP), Master Scheduling, and Detailed Scheduling.
Strategic Planning
Comprehensive – whole-of-the-organization – capacity and expenditure planning.
The strategic plan is your organization’s highest-level plan, broken out in quarters, halves, or even years, looking out three-plus years. The strategic plan is where an organization would look at long-term capacity and make decisions on large capital expenditures such as opening a new plant or adding a manufacturing line. You will almost always centralize strategic planning because it drives the annual business plan, which your executive leadership team owns.
Centralized planning increases benefits in today’s complex, inter-connected supply chains. That said, organizations may decentralize for a variety of reasons.Sales & Operations Planning Most likely to be centralized.
Sales & Operations Plans (S&OP) typically look forward 24 months and, for the most part, are centrally led. However, If you have multiple business lines, you may need to have an S&OP process for each one. In any case, multiple S&OP processes work best when business lines are discrete and don’t share resources. In addition, if you have separate, geographically-partitioned business units, you will most often need S&OP processes for each.
Master Scheduling
Where your organization has the most flexibility to centralize or decentralize.
Master scheduling horizons vary significantly but typically look out 12-20 weeks. Your master schedule is where your organization has the most flexibility to centralize or decentralize. Some reasons why you might choose to keep master scheduling decentralized include:
- You have little overlap when it comes to manufacturing processes or products produced by each plant
- You desire speed and flexibility at a local level – especially in high-margin businesses with low-volume and high-mix where customer service is a critical competitive advantage
- You partition business operations and plants geographically
Centralized planning has more benefits in today’s complex, inter-connected supply chains. Your organization may choose to decentralize for reasons such as:
- Your manufacturing processes are complex and interdependent, with some multi-stage procedures that start and finish in different plants
- You manage business operations centrally and prefer a global optimal to a local optimal
- Multiple plants produce the same or similar projects, so centralized planning enables economies of scale for procurement
- Margin is a top priority – especially in low margin businesses with high-volume and low-mix
Detailed Scheduling
Nearly always decentralized.
The Detailed Schedule is a plant’s daily, line-level production schedule and is almost always decentralized. Decentralization at a plant level provides more flexibility to meet and respond to customer demands, which may be specific to a plant’s geography. In addition, time zone differences between the central office can make centralization a challenge when your plants require flexibility to adjust immediately as manufacturing issues arise.
Deciding on the optimum level of centralization for your organization is not easy
And, if you centralize, implementing that centralization is harder still. Centralization almost always requires implementing or reconfiguring a planning system to enable centralization. Existing processes will need to be re-engineered to support centralization and align with any technological or organizational changes. Organizationally, roles and responsibilities will change, and there may be a skills gap to address as planning is centralized.
Lastly, change management is something that you need to address early and often. Some organizations have had decentralized planning functions for decades, so engaging the functions that will be most impacted is critical to ensure buy-in.
An industrial manufacturer centralizes management of a global network
A large industrial manufacturer engaged Chainalytics to assist in their transformation to centralized planning. They had an S&OP process – in name only – and there was no connection to downstream planning and scheduling processes. All planning was done at a plant level and, because their plants and processes were interdependent, each plant was solving for a local optimum. This resulted in a necessarily sub-optimal global network.
Chainalytics assessed the current supply planning process and built out future-state processes. We took a holistic approach and developed the future processes and the supporting activities required to get there. We assessed the capability of the incumbent planning system to determine if it would be a fit for the future-state process. We developed an organizational design and identified the supporting roles and responsibilities that enabled centralization. We also prioritized change management by establishing communication and training plans that they executed throughout the transformation.
Centralizing or decentralizing projects are fraught with many variables and even more opportunities for indecision. Drop us a line and see how Chainalytics helps you make informed choices and build the systems that will take the organization forward. Using one-of-a-kind tools and approaches like digital assets and managed analytics services, we consistently deliver actionable insights and measurable outcomes to our clients.
Thomas Ambrose is a Sr. Manager in Chainalytics Integrated Demand & Supply Planning practice. He focuses on helping clients improve their supply chain planning processes through process and technology transformations.
