Congratulations. Your company has just implemented a supply-chain advanced planning system (APS) that forecasts demand for all products months into the future, determines the exact bill of materials for each and schedules production runs based on optimal inventories and customer service levels. In short, it should save the company millions, increase market share and make you a hero. But before you spend that much-deserved bonus, figure out a few wrinkles that the planning system is having trouble with. For example, how is the planning system going to deal with next week's orders that are already triple the forecast for one product and less than half what was expected for another product that was just launched? And don't forget about that key supplier that was just hit with a strike and the engineering change that suddenly made obsolete several components, which incidentally are filling your plant warehouse.
"Planning systems can do just so much," says Masud Asmand, a partner in Accenture's supply-chain practice. "Users are understandably confused about the limitations of planning systems, as well as what tools and processes should be used to deal with these limitations. There is a real gap between planning and execution that every company has to bridge, but few have developed effective strategies."
Proposed solutions for this all-too-common planning gap abound. Some companies try running the plan more often. Planning application vendors increasingly provide tools that can repair plans without the need for re-optimizing. Large vendors with suites of solutions try to steer users toward integrating their APS applications with their execution modules, so each uses the same real-time data. Supply-chain event management (SCEM) vendors offer a wide range of alerting tools that monitor supply-chain performance against plans and that can even automatically resolve problems with intelligent agent technology.
So with all of these choices, which is the right approach to heal your ailing supply-chain plans? As with genuine medical problems, the most important rule is to first do no harm. Yet, many companies believe the answer is simply to run the planning systems more often.
"You can't fix the problem just by re-running plans as soon as new information becomes available, and in fact, this approach is likely to throw your company into utter confusion," says Larry Lapide, vice president of research for AMR Research. "Constant replanning just whipsaws the whole supply chain."
Accenture's Asmand agrees with this cautionary note. He is helping a consumer electronics client with a complex supply-chain transformation project. The company is on a monthly planning cycle, and he is trying to take them to weekly and maybe daily for some other of their businesses. But Asmand has concluded that just running the plan more often with new forecasts would do little to smooth out the supply-chain plan.
"Even if we could run the plan more frequently, we may not have any better data because there must first be better linkage with the execution applications such as fulfillment and event management," says Asmand. He adds that most companies have similar problems bridging the planning gap and smoothing out their supply-chain volatility.
Coping With Forecasting
He points to several reasons. Poor demand data and inaccurate forecasts can be problems in certain industries, but most companies have found ways to deal with the forecasting issue.
"If you can work at all collaboratively with your major customers, so there are mutually beneficial incentives around meeting target levels of inventory and service levels, you can get pretty good demand signals," says Asmand.
The most fundamental forecasting hurdle is learning to focus on real customer demand, rather than depending on internally generated demand assumptions to drive manufacturing.
"As soon as a company shifts from sell-in forecasting to sell-through forecasting that is marketplace driven, it has gone a long way to solving the demand data problem," he says.
A much more serious planning problem is developing uniformity of excellence across the entire supply chain. For example, Asmand's client outsources its manufacturing to a fragmented assortment of suppliers and contract manufacturers (CMs) with varying levels of sophistication, incompatible systems and different production processes.
"It's a matter of the weakest link in the chain," says Asmand. "Until we can standardize or at least align processes among partners across the supply chain, there will continue to be a wide planning gap."
The major supply-chain planning vendors are very aware of the challenges that their customers face, and they also caution against just planning more often. Lori Mitchell-Keller, senior vice president of market strategy for Rockville, Md.-based Manugistics, says that manufacturers need to be concerned with keeping their plans stable, as well as keeping them fresh.
For example, if a manufacturer's plans calls for building 100,000 units, but sales suddenly spike by 50 percent, that plan must change to react to the market changes. But doing a new, regenerative plan based on new information in the middle of a production run can be disruptive.
"You are creating a level of waste, churn, and downtime in the system," says Mitchell-Keller. Often a company will decide not to re-plan even when faced with marketplace changes because of this disruption effect."
Instead of doing a completely new plan, the Manugistics planning system can do what they call repair planning that, to the extent possible, keeps the current plan in place and still reacts to change. The repair plan may affect two other products using the same critical raw materials and the same production line you are trying to update, but the plan allows you to work around everything else. The shop floor can react to the changes, but they do not have to deal with a whole new plan. Instead of running item B for 50,000 tomorrow, the production manager will run it for 20,000 and then switch to Item A for an extra 30,000.
"You minimize the disruption to the network," says Mitchell-Keller, who points out that processes in extended supply chains tend to be even less flexible than those within the enterprise.
"Contract manufacturers usually price their services based on very stable planning data," she says. "At the most, CMs want weekly plans. Anything more often just isn't workable for them. But CMs may be able to work with a process that includes plan repairs."
Such repair planning is impossible without near real-time updates from execution systems that have the ability to monitor inventory status against established performance points. This so-called supply-chain event management (SCEM) capability can be a stand-alone application, but is increasingly being built into various applications, including warehouse management systems (WMS), transportation management systems (TMS) and planning systems themselves. Based on execution activity, they recognize when a plan encounters out-of-range situations. They alert users to problems and in some cases can automatically resolve the problem using so-called intelligent agents.
The original SCEM applications were focused on logistics activity and essentially monitored the location of shipments and inventory.
"Just knowing where inventory and orders are and being able to measure their status against performance mileposts is often enough for many companies trying to fix their plans on their own," says Accenture's Asmand. "A remarkable number of companies are still not sharing this basic information, so this is the first step."
The fastest growing sector for SCEM functionality is now within larger applications offered by vendors of planning and execution software.
Manugistics, for example, has offered a tightly integrated event management capability with its planning application for over two years, but according to Mitchell-Keller, customer interest has caught on just in the last 18 months.
"Companies are just realizing how they can deal with the planning gap problem using integrated event management tools," she says. "We have been talking about this for four years, but just now it is becoming widely adopted, especially among companies with complex supply chains that extend to offshore suppliers and CMs."
Manugistics is already extending the SCEM capabilities within its applications with several tools called Monitor and Analytics. Not only do they monitor activity within the supply chain against pre-established key performance indicators, but also they can resolve out-of-range situations based on rules the user sets up in advance. So if there is a 50 percent spike in orders, these tools will detect the upsurge and automatically initiate a repair plan. Or, if the Monitor SCEM tool sees that a supplier shipped 10 percent less than needed, the agent technology can query an alternate supplier or start a search in the spot market.
"Many of our customers use Monitor to keep track of what is happening in their supply chains," says Mitchell-Keller. "At this point, only a few are allowing the agent to make automated decisions. These companies still want to manually review what the system is recommending and then push the button themselves. They may not change the recommendation at all, but they want to make sure that is what they want to do based on all information, some of which may be outside the system."
The gap between planning and execution takes on a very different complexion for tier one and tier two suppliers that are driven by plans and orders from large original equipment manufacturer (OEM) customers. All too often, the hapless supplier becomes the inventory buffer for the OEM and is expected to become the bridge for any planning lapses on the part of the OEM. The Indianapolis-based supply-chain software vendor, Made2Manage, provides web-based planning, execution and communication tools to allow suppliers to adjust instantly to signals from the OEM.
To support its planning application, Made2Manage recently introduced EDI-XML, which is a web-based tool that allows its users to integrate in near real time with its upstream and downstream partners.
"We act as the information broker between trading partners," says Chris Lenzo, the director of product management for Made2Manage. Using electronic data interchange (EDI), extensible markup language (XML) or other web services, Made2Manage users receive electronic documents for various types of transactions that act as the pull signals from OEMs. These EDI-XML signals fed into the Made2Manage planning application make adjustments on due dates, quantities, and customer delivery requirements.
The planning engine includes available-to-promise (ATP) and capable-to-promise (CTP) functionality, so when a signal comes in, the system determines how quickly the supplier can adjust to the OEM's new requirements and responds with this information.
Of course, a growing number of OEMs have planning systems that have their own event management tools that look into the suppliers' systems to monitor performance against its plans. The Made2Manage system is built on Microsoft's .Net platform and supports all existing web-service-based event management tools.
"Our EDI-XML gateway allows signals to pass back and forth between applications, whether they belong to the supplier or the OEM," says Lenzo. "These electronic documents and signals exchange such information as inventory levels, the price of items based on delivery date, the impact of the change on the bill of materials, design changes, etc. The biggest challenge remains the lack of standards for these various electronic documents. Everyone is still designing their own."
The Made2Manage planning system takes signals from OEMs 24 to 48 hours ahead of when the material is needed and looks into current buffers or queues. It evaluates whether there are work centers that can be brought to bear to fulfill the requirement in the adjusted schedule. It runs dynamically, so it is aware of these changes as soon as they appear.
"The system alerts you and the OEM if the adjustment cannot be made or if the changes will result in late deliveries," says Lenzo. "The OEM will know well in advance if there is going to be a problem."
Future Agent Technology
At the other end of the vendor spectrum, SAP, the world's largest business software vendor, has long provided integration between its planning system called APO and its execution applications for WMS, TMS and SCEM.
"If you fill an order out of warehouse inventory, there is an immediate synchronized transfer of these actions to the APO planning system," says Christian Knoll, SAP's vice president for global supply-chain initiatives. "If you confirm a production order, the planning system is updated. Our tight integration already spans most of the gaps between planning and execution."
Looking into the near future, Knoll says that agent technology will play a growing roll in SAP's integration between execution and planning to remove planning gaps throughout the supply chain.
"Supply chains are growing bigger and more complex, so it will soon be impossible to update plans manually," says Knoll. "A combination of radio frequency identification (RFID) and agent technology will help us deal with the sheer amount of data."
For example, Knoll says that retail supply chains will have to use a combination of RFID and agents to keep track of inventory. As soon as items are sold, RFID will notify the inventory system that monitors every stock-keeping unit (SKU) in every store. Agent technology within the inventory system will monitor the consumption of the individual SKUs, and using rules for replenishment it will trigger orders and perhaps other activities farther back in the supply chain.
"This technology is not ready for implementation today, but pilots will be deployed in the not-too-distant future," says Knoll. " It is not really a technology issue. We know what we want to do and how to do it. The question is how to bring value to customers on a large enough scale to make a profitable application."
A Collaborative Solution
Some software vendors are not waiting for the market to catch up with technology and continue to press the limits of what can be done with collaboration and agent technology. According to Randy Sabourin, vice president of business development for Sockeye Solutions, now is the right time for a sophisticated supply-chain application that bridges the gap between planning and execution, not just at the OEM level but at every tier and at every location from the supplier to the end customer.
Toronto-based Sockeye uses a combination of collaboration, SCEM and agent technology to avoid problems in the supply chain before they happen.
"Hewlett Packard saved $170m last year based on our software that helped get their planning and execution systems in synch," says Sabourin, who adds that the savings came from avoiding stock outs, keeping supply-chain plans current and eliminating unnecessary and obsolete inventory.
A typical user would be an OEM with multiple tiers of suppliers and customers. A key goal is to anticipate the need to make plan changes weeks out, rather than to discover a crisis days or hours out when there is a problem on the production floor. The manufacturer can monitor customer plans and actual consumption. As increased demand signals from the customer indicate that the plan is out of range, the OEM needs to see if its tier one and tier two suppliers can meet new component requirements at various production locations by specific dates. As a web-based application, the Sockeye solution can pull information from all connected enterprise systems throughout the supply chain for demand and inventory supply and projections and put it in one virtual location. Users collaborate on the data to determine what changes need to be made to resolve problems as far out as they want.
"We don't replace any of the planning or execution systems," says Sabourin. "We just extract the information from all the systems that don't normally talk to each other. We replace the many spreadsheets and e-mails, as well as the manual reconciling of planning data. We do it in real time, online. After the problem is solved, the updated information goes back into the systems where they came from, so these systems are updated with the collaborative resolution."
HP uses its own APS applications for advanced planning months into the future. But within the planning horizon of four or five weeks, the model and demand plan can change dramatically to the point that stock-outs and production disruptions for certain lines are inevitable. Doing a complete re-plan in the APS and coordinating it with the multiple instances of its ERP throughout the company is a major undertaking that could cause more problems than it solves. HP uses Sockeye to solve these short-term planning gaps.
"We are not replacing the APS," says Sabourin. "We just keep it current."
In high-trust supply-chain relationships, Sockeye makes use of agent technology to do virtual collaboration. Based on rules that the users establish, the system automatically adjusts orders, production plans and replenishment to meet the needs identified by the system. The rules can be as complex as the parties wish. One vendor-managed inventory implementation automatically modifies the stock levels the supplier must maintain at the OEM plant based on variations in actual end-user consumption, all with no human intervention.
"The impact of this collaborative system is quite powerful," says Sabourin. "If a big promotion results in a spike of big orders at the retailer level, within one hour every authorized party back into the supply chain will know about that increase in demand and whether or not the entire supply chain can adjust to meet that promotional spike. That truly closes the planning gap."
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