There’s no denying that supply chains are still playing catch-up from disruptions that occurred throughout 2020 and 2021. From COVID-19 demand shocks to shortages of semiconductor chips, patio furniture, home office supplies and holiday table staples like turkey and alcohol, brands in every sector have felt the squeeze of balancing booming consumer demand with record slowdowns in logistics. As such, manufacturers continue to face rapid change, adding monumental challenges to supply chain planning.
At the heart of the matter is understanding the various elements of the supply chain planning process, so that manufacturers can proactively identify opportunities and constraints that can affect their operations. The manufacturing industry is volatile and competitive, and companies need to be fast and agile in order to survive and thrive.
One such way in which manufacturers are dealing with current supply chain shortages is purposefully overstocking in certain areas, while running leaner on low-demand items. While overstocking is typically a wasteful endeavor, the current state of supply chains has necessitated that manufacturers go against their lean principles.
Because the supply chain is currently thin and unpredictable, manufacturers believe that purposefully overstocking in areas where the risk of running out and not being able to re-supply is greater than the cost of having overstock in reserves. At the same time, they’re willing to sacrifice not meeting low-volume and low-revenue demand.
In such instances, the demand plan looks at the ability of the extended supply chain to meet current demand. The manufacturer bets on the demand for high-volume products by overstocking those components, while using informed bets on what will be lower-demand products and therefore having less stock in those components and materials. From there, companies have to work with suppliers to ensure that what’s needed can be supplied as planned, even if that means overstocking and paying more to store the inventory for a longer period of time.
Beyond having the ability to be nimble, manufacturers must include all the right players to deploy a successful supply planning process. Often, the weak link in supply planning comes from outside the plant floor. Collaborating with sales and marketing, operations, finance and any other parts of the business that impact the ability to fulfill orders can give unprecedented insights into upcoming changes in demand, and ward off production of excess product and overstocking.
Supply chain teams are also adopting supply planning software that enables them to process massive amounts of data and keep up with the increasing demands of their customers. Using data to predict inventory levels is a vital step toward understanding the supply and demand of manufacturers’ products. The science of supply chain planning is rooted in the idea that we can use contextualized information to make sense of the data and take appropriate action — for example, easily rolling up demand based on a variety of criteria such as geography, product type, customer type, and other meaningful aggregations. This allows manufacturers to identify patterns and make better decisions.
A food services company utilizing a modern supply chain planning system was able to easily adapt to the shift toward at-home eating during the pandemic because it had greater visibility into what was being ordered, the status of its supply chain and production, and what was needed to maintain service levels at 99% for a growing customer base. By having the right tools and procedures in place, players at all ends of the supply chain can more effectively track changes in the market and keep their warehouse operations running smoothly.
Recent challenges have underscored the need for supply chain planners and managers to create an environment that allows them to precisely control production and maintain visibility into critical processes. They also need the ability to easily adapt by identifying requirements and constraints, as well as collaborate with corporate planners and executives. The heart of successful supply chain planning is consistency, repeatability, and continuous review. Manufacturers can react quickly and mitigate risks by incorporating data, industry trends and supply chain challenges, coupled with intuition and a connected supply chain planning system. Ignoring these steps can leave companies unprepared for sudden market shifts and unforeseen challenges, potentially alienating customers and losing ground to competitors. In an era of shifting consumer loyalty, companies can ill afford to take this risk.
Ara Surenian is vice president of product management with Plex Systems.
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