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Manufacturers around the world are grappling with the challenge of meeting fickle market demand in a new economy, without making risky investments in high inventory levels and costly production assets. The good news is that by synchronizing inventory, production and distribution processes as closely as possible with actual demand levels, manufacturers can make their supply chains both agile and profitable.
The obstacles to a truly agile, synchronized supply chain lie in traditional planning processes, which have largely been siloed, lacking integrated decision making across multiple functional areas, as well as any involvement from supplier and channel partners. Supply chain leaders are overcoming these obstacles by implementing fundamental changes to their planning processes, allowing a single physical supply chain to support multiple channels and different operating models. They are shifting from the push-based approach of the past to a supply chain management model in which actual market "pull" forms the basis for every supply chain decision.
The Challenge of Planning in a Transformed World
When demand levels were flatter and more predictable, customer service was the great differentiator for most manufacturers. Today, as working capital management has become a priority, businesses seek to minimize inventory to free up working capital and maintain a strong bottom line. The extreme demand volatility of the past several years has only complicated this challenge.
Also adding complexity is the geographically scattered nature of the supply chain in a global business environment. Product cost issues are much more complex now. Manufacturing executives must understand and manage the total landed cost of all goods and services, with its intricate web of offshore suppliers, multiple transportation and distribution nodes, and flexible manufacturing options.
While individual facilities used to be managed vertically, the global supply chain extends beyond the four walls of a facility, encompassing a network of trading partners who collaborate closely with one another in serving the end consumer's needs while also protecting the overall profitability of the supply network.
Traditional planning processes are failing to manage the new demand volatility and the geographically dispersed nature of the global supply chain. It is practically impossible for traditional, siloed planning processes to keep all the nodes in the supply chain synchronized with ever-shifting demand.
The Need for Connected, Closed-Loop Planning
Supply chain leaders are implementing powerful closed-loop planning processes which synchronize all core activities, including demand planning, inventory planning, master planning, factory scheduling and supplier collaboration. Via this closed-loop process, actual performance is continuously monitored against planned results, and adjustments are quickly made to reflect the new reality.
When a deviation occurs in one area - for example, when a supplier fails to deliver, a customer cancels an order, or labor costs rise in an offshore facility - there is a synchronized, consistent impact felt across the entire network. Plans across the supply chain are immediately adjusted to reflect this event.
This closed-loop process ensures that, even when the unexpected occurs, the end-to-end value chain can be re-set with speed and agility to continue its support of top-level operational and profitability goals. Processes are orchestrated across the end-to-end global supply chain, so that the end result is a synchronized, highly effective response to changing business conditions.
By using intelligent decision support tools and closed-loop planning processes, supply chain leaders are maintaining the high level of agility needed in today's marketplace, while also managing the constraints imposed by their own financial and operational goals. In an uncertain market environment, powerful planning processes and linked technology solutions are able to sense demand shifts and automatically balance a number of priorities, including costs, customer service levels, supply risks, production constraints and environmental targets, to achieve the best possible outcome.
Aligning Planning Processes in Six Core Areas
In any supply chain, there are six core business processes that must be closely synchronized in order to enable organizational agility and market responsiveness.
Sales and operations planning (S&OP). The S&OP process should be a continuous process in which short-term demand predictions are reconciled with long-term organizational goals. S&OP must occur at both the operational and the executive levels, bringing both views together in a closed-loop planning process focused on consensus. Across every part of the organization, the S&OP process provides a disciplined cadence for monitoring and synchronizing demand, production, supply, inventory and financial plans via a rigorous Plan-Do-Check-Act process. The entire supply chain can share a common perspective on any issue and agree on an appropriate path for resolution.
Demand planning. Advanced statistical modeling, supported by multiple algorithms tailored to unique item characteristics, must be applied to ensure that sourcing, production, inventory, transportation and distribution functions are optimized based on a shared forecast. Advanced demand planning tools should account for the impact of promotional and external events that will have repercussions across the global supply chain.
Inventory planning. "One-size-fits-all" inventory plans fail to recognize the differences among products. Instead, leading manufacturers are using advanced tools to create highly customized "designer" inventory strategies based on key product attributes. Products are segmented based on their critical characteristics and managed accordingly. Wherever possible, inventory decisions are postponed to minimize financial risk and inventory levels are managed by exception to maximize time and cost efficiency.
Master planning. Leading manufacturers are reviewing, analyzing and updating supply plans daily, instead of monthly or quarterly, to maximize customer satisfaction, while also protecting their profits. Through a problem-oriented design, their planners are intuitively guided to monitor performance issues and exceptions in the global supply network. In addition, a layered planning approach allows planners to rank their business objectives and make informed trade-offs. With clear visibility into the root causes or constraints to problems, planners can interactively adjust constraints and business rules to make continuous performance improvements.
Factory planning and scheduling. Optimized production plans should be defined for plants by scheduling backward from the requirement date, while material and capacity constraints are simultaneously considered to create feasible plans. Advanced solutions should streamline and align the activities of production control, manufacturing, and procurement planning teams by automating mundane tasks and shifting the focus to more important functions. These tools should also provide time-phased reporting on key factory performance metrics, enabling planners to take corrective measures for both short- and long-term planning. By applying a management-by-exception approach, planners can eliminate unnecessary work, minimize planning fatigue and assess a variety of scenarios when the unexpected occurs.
Collaborative supply planning. Most manufacturers purchase parts from a range of diverse and global suppliers, and these parts have different lead times, demand profiles and inventory strategies. Advanced tools enable manufacturers to manage this diversity through customized business rules that track performance exceptions. Dashboards, exception-based reporting and early warning systems allow supply issues to be identified and resolved before they impact the global network. Planners can also track the entire life cycle of procured parts, for example, to adjust forecasts, production schedules and transportation plans when late deliveries impact the manufacturing flow.
Are You Prepared for the Future?
Manufacturing businesses of all types can realize substantial improvements across their global supply chains by transforming from a "push" mindset to a more nimble "pull" stance. They can realize diverse improvements, including revenue increases, inventory reductions, better asset utilization, lower materials costs and service enhancements such as fewer stock-outs. Overall, the average manufacturer is expected to realize a 15- to 25-percent operating margin improvement by synchronizing all supply chain planning activities with the pull of actual market demand. Looking toward the future, there is only one real certainty: that uncertainty will continue to prevail. Consumers will continue to shift in their confidence and spending habits. Materials and transportation costs will keep fluctuating. Channel preferences will evolve.
The only way to manage your worldwide supply chain profitably in this uncertain environment is to understand true market demand at the earliest possible stage - then synchronize all your planning processes and make the right decisions based on that insight. The ability to create a synchronized, agile, pull-based supply chain will separate the leaders from the followers as economic uncertainty continues.
Source: JDA Software
Keywords: SC Planning & Optimization, Forecasting & Demand Planning, Supplier Relationship Management, Sales & Operations Planning, Technology, Inventory Planning & Optimization, Logistics, Business Strategy Alignment, Supply Chain Analysis & Consulting, Global Supply Chain Management, Closed-Loop Planning, Dashboards, Exception-Based Reporting, Push/Pull Inventory
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