It’s just after lunch on a Friday afternoon. The phone rings. It’s a company you’ve been trying to turn into a customer for years. They have a big order with your competition that they can’t get in on time and have decided to give you a try.
The problem is – they need the order in two weeks – less than the lead time for these items and you don’t have enough finished goods inventory to satisfy this order. To make matters worse, they want an answer by close of business or they will look elsewhere. If you can get these orders on time, you could be able to win significant future business from them. The stakes are immense.
What factors need to be considered when deciding on a course of action?
- What is the impact to revenue?
- What is the impact to margin?
- Can I accept this order if I’m willing to make other orders late? If so, what other orders will be put at risk? What are the customers associated with those orders?
- What components are blocking this order from being completed on-time?
- What options do I have for resolving those blocking components?
With traditional ERP systems, responding with confidence is nearly impossible. Batch based calculations mean that you simply can’t know the impact on the supply chain unless you run the various processes that rebalance the plan. This can take several hours at least – and are typically run at night or over the weekend. Further, many companies have different versions of ERP in different sites. Worse, companies may have grown through acquisition resulting in different ERP systems across the various sites. This means that visibility across the various nodes of the supply chain is limited. Once the calculations are done, the ability to visualize the impact of the change and the required response is very limited since ERP systems tend to be stuck in the 70’s model of presenting information, part by part, on a single screen. How do companies respond in this environment? Typically, things go one of four ways –
1) They quote a standard lead time and refuse to consider an order inside that lead time because they can’t know whether meeting the customer request date is even possible. Order lost.
2) They promise the order and “hope” they can get the order done on-time. Operations try to scramble to get it done at a significant cost – and often can’t – so then customer satisfaction suffers.
3) They have extensive models built in Excel that “approximate” the supply chain – and promise based on that, which can never provide the full and accurate picture, and so, customer satisfaction suffers.
4) They build up large enough buffers of inventory to ensure they have enough for when unexpected orders come in, which results in poor inventory turns performance, and typically ensures that you have lots of inventory… of exactly the wrong part!
So, what alternatives are there? If you were to develop a supply chain planning tool, what capabilities would you include? Maybe you would come up with something like the following:
- Supply chain wide visibility – What if you had visibility across the entire supply chain, regardless of the ERP system or version? What if you could instantly see the impact of a demand change down to the lowest component across multiple sites?
- What-if simulation – What if you could model your change using the same logic that exists in your ERP system in a sandbox-like environment where nothing is official until you are ready to share it?
- High-speed analytics – Time is critical. What if you could drop an order in and instantly see 1) when that order would be available 2) what is preventing that order from completing on time and 3) the impact that order drop in has across the entire supply chain?
- Responsibility based collaboration – No one person can solve all the problems across the supply chain. What if you could do something like drop-in an order and instantly see who in the organization was impacted by that change? Then, what if you could share the scenario with that team to see if they could come up with alternative ways to resolve the lateness?
- Scenario comparison – Your team has come up with several alternative approaches to solving the problem. Some may have an impact on margin and others have an impact on delivery metrics. Which approach is best? What if you could evaluate the various resolution approaches in a simple view that compared the various scenarios against a set of weighted metrics and targets? What if each scenario was scored so that you could immediately see which scenario performs best based on the companies goals and objectives?
- Alignment – Once you’ve decided on a course of action, what if you could share this information across the entire organization ensuring that everyone knows what is expected? What if you could communicate this information back into the ERP system?
To those who have been fighting in the supply chain trenches for years, this probably sounds too good to be true. Before you get back to work, check out this case study showing how one company has made significant gains in order promising and clear to build assessments.