The pace of change within global supply chains continues to accelerate. It’s driven by ever-growing customer expectations (the so-called “Amazon Effect”), making weekly, monthly and yearly periodic planning processes insufficient. Business leaders are confronted with a new normal: the reality of ever faster-moving markets and changing customer preferences.
It has only been a couple of years since two-day delivery was considered a game-changer. Now there’s talk of fulfillment within hours in major metro areas. The same is happening across virtually every dimension of the business, and the pace of change is only getting faster. The ability to rapidly sense, analyze, optimize and respond is now king.
Granted, there’s been talk of a convergence of supply-chain planning and execution cycles for years, but like many other big ideas, this one was ahead of its time. In the past, the underlying technology just wasn’t there. Traditional enterprise resource planning (ERP) software was designed to manage internal operations in a batch mode. It was like trying to run a smartphone app on a rotary phone.
Now is the time to realize the convergence of supply-chain planning and execution, made possible by new business realities, advances in technology and cultural readiness.
Today’s underlying technology enables this convergence. It requires a modern supply-chain management (SCM) software platform to manage multiple ecosystems continuously in real time.
Much of what drives and disrupts the supply chain today happens outside the enterprise — at channel partners, suppliers and outsourced manufacturing and logistics ecosystem partners. With the convergence of planning and execution, enabled by new technology, the modern SCM system should be able to predict the impact of external events and react accordingly.
Tactical and strategic planning continue to hold an important place in infrastructure planning and budgeting cycles. But in a time of sharing, outsourcing and the gig economy, questions about planning that were once considered tactical in nature are now being asked with an operational horizon. These new questions are driven by an abundance of near-real time data, which poses both opportunities and threats.
In the past, analytics were required to support fact-based decisions for traditional planning questions, with planners looking mostly in the rearview mirror. In 2019 and beyond, they will increasingly use advanced analytics to address new questions before they become serious issues.
We’re in an era where political news is dominated by the Brexit crisis, trade wars, protectionism and nationalism. On whiteboards globally, supply chains are being redrawn and alternate scenarios rehashed time and again. The ideal strategy to survive and thrive in this changing environment is to have an agile supply chain — one that’s conducive to change. It requires the ability to rapidly identify, evaluate and execute alternative supply-chain scenarios.
Being agile contradicts what many practitioners have been taught over the decades. Supply-chain experts have traditionally focused mostly on efficiency and the dream of lowest unit cost. Using optimization techniques, companies sought to minimize procurement costs by absorbing larger order quantities and longer lead times. This allowed them to plan for longer manufacturing runs and achieve a higher return on assets, resulting in lower transportation costs.
By contrast, agile supply chains today exist almost as the antithesis of their “efficient” predecessors. Agility requires the ability to detect, analyze and execute the best possible business decision, regardless of traditional sources of supply and demand. Converged planning and execution crosses silos and is continuous in nature. It allows companies to arrive at answers to questions such as, “How is what’s happening right now in execution affecting my plan, and what is the business impact, beyond mere costs?”
The concept of continuous planning, where planners address opportunities and disruptions as they happen, will continue to gain ground in the coming years. The convergence of planning and execution provides a means to compete and win in this challenging new environment. A decade ago, this notion was seen as something that could give companies a competitive advantage. In the future, it will be a requirement for doing business.
To facilitate continuous planning processes, companies will need to start moving toward cross-functional teams, working in a control-room environment to quickly address global disruptions and opportunities, and using advanced planning, optimization and machine-learning capabilities. These efforts could become part of the recently emerged sales and operations execution (S&OE) process.
PJ Jakovljevic is principal analyst at Technology Evaluation Centers.