Archive for the ‘Supply chain collaboration’ Category

Your supply chain is costing you money – Reason #7 Making decisions based on bad data (supply chain data accuracy)

Published November 19th, 2014 by John Westerveld 1 Comment
English: Book shelf

Over the years, working for and with numerous manufacturing companies, I’ve seen many supply chain practices that cost companies money.  Over the next several weeks, I’ll outline these issues and discuss some ideas around how to avoid these practices. You can find the previous posts here:

Making decisions based on bad data (supply chain data accuracy)

I went into a store the other day.  I’d driven an hour to get there.  I went to that particular store because their web site confirmed that they had 12 units on hand of the thing I was looking for.  When I got there and went looking, I couldn’t find it… the slot was there but there was nothing on the shelves.  I found someone from the store and asked about my item.   Yes, the computer shows they had 12 units on hand.  They went looking at the shelf the computer said the item was on (the one I just checked).  Not there.  They looked in the back.  Nope, nothing. They searched the shelves around where the item was supposed to be. Nowhere to be found.  “I’m sorry sir.  It looks like the computer made a mistake…we don’t have any”.  Hmmm… So I went back home and ordered it from Amazon.

A couple things struck me about that interaction.  Having wasted time going to that store, I’d be less inclined to use that store in the future – at least I’d be much less likely to trust their website’s inventory.  The second is that it likely wasn’t the computer that made a mistake, it was a mistake made by a person or process somewhere along the way.  And finally the same types of mistakes and process failings that resulted in my wasted trip occur all the time in supply chain. In addition to losing customers like me, those mistakes result in bad data that cost manufacturing companies millions of dollars.

Bad data in supply chain seems like it should be a minor thing.  I mean, it’s just numbers right? Let’s look at some typical supply chain data errors and think about the potential costs;

Lead time
If the planned lead-time is longer than actual, you get excess inventories. If the planned lead-time is shorter than actual, you get stock-outs and late customer orders.

Bill of Material
The Bill of Material drives material requirements through-out the supply chain. Missing components, extra components, bad effectivity dates, incorrect quantity per values will result in excess inventories, scrapped items, inaccurate costing, late customer orders, stock-outs and increased WIP.

Cost and price data
Inaccurate price and cost information impacts decisions based on margin. It can make unprofitable products appear to be profitable, and profitable products appear unprofitable.  In accurate costs can also impact pricing decisions driving higher or lower prices based on cost assumptions.  Finally, inaccurate cost information may cause you to make incorrect sourcing decisions.

Part master – ordering rules (Lot sizing, policies, etc)
Part master data controls how the system creates new supplies.  Bad data here can cause you to order too much driving excess inventory or too little driving additional ordering costs.

On Hand Inventory quantity/status
Decisions on when and how much to order are based on how much inventory the system thinks you have.  If inventory quantities or status is incorrect, excess inventory, excess costs, late customer orders and stock-outs can be the result.

Routing
The routing table describes how material flows through the shop and includes information on how long work should be scheduled across each work-center.  If this information is wrong, material will end up at the wrong work-center or the right work-center at the wrong time.  As a result, you can expect increased WIP, late customer orders and stock-outs.

Safety Stock rules/quantities
Safety stock influences the inventory levels expected on an item by item basis.  In addition to mistakes when calculating safety stock or setting safety stock rules, safety stock values can get stale.  In other words, the inputs (demand variability, lead time, etc.) that went into setting the safety stock value at the time they were set, may not be valid now.  Inaccurate safety stock values can drive excess inventory, excess costs due to expediting, late customer orders and stock-outs.

Demand (Actual Orders)
Inaccurate order information impacts in two ways; 1) an unhappy customer – especially if they don’t get what they ordered and 2) Increased costs due to excess inventory, excess costs from expediting.

Demand (Forecast)
Forecasts are always wrong.  Yet forecasts are what drive the business in many industries.   When forecasts are wrong, the result is too much inventory of some items and too little inventory of others.   This puts you in the unenviable position of having to explain to your stockholders why you have excess inventory while at the same time can’t meet revenue numbers because of stockouts.

Historical demand
Historical demand is the record of what was sold and when.  Historical demand is used to drive statistical forecasts, safety stock calculations and more.  Errors here will cause inaccurate forecasts, excess inventory, excess costs, late customer orders and stock-outs.

Capacity data
Capacity information determines what amount of work can be done in a given work center.  In finite systems, orders will be moved around to respect the available capacity.  In infinite capacity systems, planners will manually move orders around to level load work centers.  If capacity information is wrong, you can expect to see overloaded or under-loaded work-centers, excess costs due to expediting, increased WIP inventory, late customer orders and stock-outs.

As you can see, there are a variety of ways that inaccurate supply chain data can cost you money (and I’ve really only scratched the surface here).  So what can be done?  There are a number of tactics that can be used to improve supply chain data accuracy;

  • Audits – At a company I worked at in a previous life they recognized, through an earlier failed ERP implementation, the importance of data accuracy.  As such, they implemented a weekly MRP data audit where several parts were picked at random and the part master, BOM and Routing parameters were checked and validated.  In my previous post, Reason #6 Not effectively managing inventory, I talked about cycle counting.  This is a similar type of auditing targeting inventory accuracy.  In both cases, the key to improvement is root cause analysis.  If data is wrong, simply correcting the problem just fixes the data issue for that part.  Understanding how the error occurred and fixing the process that caused that error means that the error is less likely to happen again.
  • Data responsibility/data security – Ensuring that the right people are responsible for a given segment of data and that only those people can change that data is difficult and can be frustrating for some.  However, the risk of not locking down the data is that there is no control… anyone can change anything.  In the vast majority of cases, people won’t sabotage data (although that can happen).  No, usually, bad data gets created because people make changes without fully understanding the impact of what they have done.  Again, in a past life, we had one lady responsible for all item master changes made to the ERP system. Any change needed to be requested via a paper form. This form needed to have various approval levels before she would make the change.  While it did slow things down and admittedly was relatively inefficient, it ensured that any item master change was well thought out and vetted before it was made.  As a result our data accuracy percentage was consistently in the high 90s.
  • Alerting and what-if – With more advanced planning tools, you have a few more options around how to identify and correct some types of data errors.  Automatic detection of errors like missing cost data, missing sourcing data, order policy mismatches can all be detected and alerts generated that inform those responsible of potential issues.  In addition, advanced planning tools enable, through the use of simulations, the ability to try different planning parameters to see what the impact would be without actually driving any change to actual production.

Data errors if uncaught can result in millions of dollars of losses.  That being said, with some focused effort and perseverance you can eliminate the majority of data errors and get your supply chain running like the well-oiled machine it should be.

What data errors have you seen and how did it impact your supply chain?  How do you manage data errors in your supply chain?  Comment back and let us know.

 

Posted in General News, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management


Supply Chain Professionals Speak on Delivering Better Business Outcomes with Kinaxis

Published November 13th, 2014 by Melissa Clow 1 Comment

I wanted to share this video compilation of several supply chain professionals that we have interviewed over the years. In the following clip these supply chain practitioners share their opinions on:

  • What is the primary change we are seeing in today’s supply chain?
  • What are key supply chain challenges organizations are faced with today?
  • How does Kinaxis compliment and extend ERP investments?
  • How is Kinaxis helping improve supply chain processes and deliver better business outcomes?
  • How is Kinaxis unique in helping solve complex supply chain challenges?

Hear customers from Qualcomm, TriQuint, Flextronics and Jabil speak on how RapidResponse has transformed their supply chain.

Posted in Best practices, Control tower, Demand management, General News, Inventory management, Miscellanea, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management


Humans-In-Loop – Part 3 of Kinaxis & Cognizant Series

Published October 28th, 2014 by Prasad Satyavolu 1 Comment

Trevor Miles and I have been having a healthy discussion on the Internet of Things and how these technology changes are shaping the way we work.

This is part 4 in our series.

analytics-velocity

As the IoT (Internet of Things) unfolds across multiple aspects of human life, we should expect an exponential increase in human connectivity. Relying on a shared computing environment to having more than 2 computing devices per person and counting- Computing and Connectivity have come a long way for Supply Chain professionals.  As the graphic below suggests, the Analytics velocity is also increasing with time.

Consumption of the Analytics output in Supply Chain can both be human centric as well as an automated control action.  We know that operations environment demands an Agile and Effective Fulfillment which requires individuals in the Supply Chain organization to make fast decisions in real time.  There is ample scope of automating several of these decisions with multi-dimensional information input and in Memory Computing based engines. However, not all scenarios can be modeled even with the availability of perfect information. Thus posing a limit to this automation and paving the way for human intervention. These limits are being challenged as new paradigms emerge.

human involvementWhen we speak about IoT, our focus is on the Automation of 3C’s – Communication, Control and Computing – in a network of “things”.  How will the Automation thrust from IoT a.k.a. Cyber Physical Systems impact the organizational roles in the Supply Chain function particularly planning and execution?   How will the shifting locus of Industrialization from physical to cognitive workload impact the human involvement? (See graphic)

In Supply Chain systems, we are always trying to create efficient closed loop feedback systems for achieving higher performance levels.   I found the comprehensive construct of Cyber Physical Systems created by UC Berkeley particularly useful in analyzing and designing systems with Humans- In- Loop.

The design thinking with H-I-L can be applied to the Demand side (where human sensing due to large scale device proliferation and ubiquitous communication creates better information flow) and on the Supply side (reconfiguring organizational roles with real time analytics and information consumption possibilities to automate and aid human decisions).

While the sensory network of physical things is going through its adoption curve,  proliferation of “human sensing”  is almost viral–a billion+ people on Facebook and twitter- generating a context that can be useful in varying degrees in Supply Chain planning – from Consumer demand  preferences to the outbreak of a deadly virus presenting a logistical hazard and risk.  A multidimensional Humans- in –Loop design approach to IoT leveraged Supply Chain paradigm?

Prof Tarek Abdelzaher talks about the Cyber Physical Systems with Humans in Loop http://slideshot.epfl.ch/play/ntass13-zaher1.

cyber physical

 

 

Posted in Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management


SMAC in the Middle of Supply Chain Change – Part 3 of Kinaxis & Cognizant Series

Published October 27th, 2014 by Trevor Miles @milesahead 0 Comments

digital natives versus digital immigrantsMy friends at Cognizant and I have been having a healthy discussion on the Internet of Things and how these technology changes are shaping the way we work.

This is part 3 in our series.

Some colleagues and friends think I am nuts to put so much emphasis on the Digital Natives, and perhaps I am. Being a Digital Immigrant myself, I am only too aware of the command and control structures with which I grew up and which have been the foundation of all organizations for which I have worked. I’m not so naïve as to think that this change will happen quickly.

Throughout history major changes in technology have driven changes in social and business structures, the classic being the Pony Express and the steam train. But more fundamental change came from the printing press. This is a closer equivalent to the impact digitization will have on business structures, including a major shift in business models and therefore winners and losers.

We used to go to an office (many still do) because this was the easiest way to organize a workforce and structure work. Similarly with factories. People have to go to where the machines are. But in a digital world the only reason to have an office is for the management, which are almost always Digital Immigrants, to enforce a structure and linear decision making processes, the very things that Digital Natives find most constrictive.

I’d also like to point out that these are the very things that cause siloed organizations and long decision cycles in our supply chains. The hand-offs and approvals which are the basis for our existing organizational structure date from the days of runners and carrier pigeons.  Jonathan Lofton raises many of these points, form a different perspective, in his blog “Unleash Pixar-like Creativity in Your Supply Chain Management Organization”. The braintrust Jonathan writes about has no authority, is collaborative, and is consensual. This is how Digital Natives like to work and what Digital Immigrants find threatening.

Technology is simply an enabler. It is how we use it that brings value. And much as we have had to rethink the first applications that were simply a digitization of a paper based paradigm, we need to rethink how we structure our organizations and get work done to get maximum utility out of the digital world. And the Digital natives are experimenting with these as we speak. As we have in the past, let us, the Digital Immigrants, extract the value from their experimentation rather than resist the inevitable change. I find these tremendously exciting times.

For additional reading on the topic of Digital Natives and Digital Immigrants, check out my recent blog on “Do Supply Chain Planning systems generate any value?” as well as the following presentation by Marc Prensky from the Handheld Learning conference.

 

 

Posted in Inventory management, Milesahead, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management


Your supply chain is costing you money – Reason #6 Not effectively managing inventory.

Published October 20th, 2014 by John Westerveld 4 Comments

Over the years, working for and with numerous manufacturing companies, I’ve seen many supply chain practices that cost companies money.  Over the next several weeks, I’ll outline these issues and discuss some ideas around how to avoid these practices. You can find the previous posts here:

Not effectively managing inventory.

Reason #6 Not effectively managing inventory

I had to throw out some carrots yesterday. I hate throwing food out but there was nothing to be done for it…all I can say is that I’m glad the carrots were in a bag….and it didn’t leak. That got me thinking about why I was throwing away what had been perfectly good food;

  • I had forecasted needing a certain amount, but the customers (my family) didn’t take what I’d forecasted.
  • I thought we would want carrots, but everyone wanted broccoli…which I didn’t have.
  • I lost track of how many carrots we had and ended up buying more when we really didn’t need any.
  • Spoilage can happen.  In the case of my carrots, there was a limited shelf life – but they could have been dropped or stolen (hey, it could happen!).

That was carrots.  All in all, it cost me a couple of dollars.  Unfortunately, all the same kinds of things can happen to your supply chain inventory.  Except that your inventory costs millions of dollars.

Those of you that manage inventories know how hard it can be to get the quantities just right.  If you maintain too little inventory, you have stockouts, line stoppages and unhappy customers.  If you have excess inventory, it ties up working capital and is at risk of damage and obsolescence.  The worst possible world is when you have too much of something you don’t need, and too little of something you do need.

So what strategies are out there to maintain inventories at the “right” level? There are many but let’s focus on some of the high runners;

  • Sales and Operations Planning – How many times have you seen this scenario play out? Marketing sees an opportunity and plans a huge promotion for Product B.  Operations is going full out building anticipation inventory for Product A because Product A’s demand always goes up this time of year. By the time operations realizes that marketing is promoting a different product, they already have too much inventory of Product A and don’t have enough time to make enough Product B to satisfy the demand driven by the promotion.   If this company had an effective S&OP process, operations and marketing would have been aligned as soon as Marketing had approved the promotion, and would have had the right amount of inventory of the right product.
  • Better forecasts – Forecasts are always wrong! True.  But sometimes they can be less wrong…and the more accurate your forecast, the more likely it is that you’ll be building the right quantity of the right products at the right time.  Forecasting is hard, however, advanced tools like statistical forecasting algorithms, collaborative forecasting tools and forecast accuracy measures and what-if scenarios helps guide demand planners to a more accurate set of numbers.
  • Lead time reductions – Supply chain improvements can actually help improve forecasting!  Well,actually it would reduce the impact of bad forecasting when you are a make to stock shop.  How does that work you ask?   Imagine you were asked to accurately predict the weather for this time next year.  Pretty tough right? What about six months from now….still hard. What about next week? Getting easier.  How about tomorrow?  No problem (usually)!  In a make to stock environment, if I have a 6 month cumulative lead time, my forecast is being used to buy inventory today for something I’m going to sell in 6 months.  If through process improvements, I can reduce my lead time to 2 months, my accuracy will be much better where it really matters; during my cumulative lead time.
  • Better/faster planning – While there are things you can (and should) do to improve your forecasts, you are never going to realize truly accurate forecasts.  For example, a surveyfrom 2012 showed that average forecast error by industry ranged from 15% for retail to 39% for manufacturing/industrial and consumer packaged goods. Forecast error for most other industries was around 30%.One of the problems with poor forecast accuracy is that today’s legacy systems are unable to respond fast enough to satisfy demand that is in excess of forecast.  This leads to a) higher than necessary inventory levels as we maintain higher inventories on those items with the highest variability and forecast error or b) lower than acceptable customer service. Neither are good results.

So how do we respond faster? There are multiple capabilities your demand system must have to allow faster response to demand fluctuations;

  1. Visibility across the enterprise – to be able to respond effectively, your planning system must contain all data across all plants, regardless of the source system. Responding quickly means knowing what you have and what you don’t have.  If you have to wait hours or days to get a report off a remote system, you can’t respond.
  2. Always on analytics – Imagine creating an excel model but every time you made a change, you had to wait 6 hours to see the impact.   It wouldn’t be very useful, right? Yet this is what we accept from our ERP systems every day. To simulate effectively, you need to be able to see the result of a change as soon as that change is made.  Not only must the calculations be fast (seconds not hours) but the calculations must be configurable enough to allow you to model ERP results from any ERP system (what’s the point of figuring out what to do, if you can’t replicate the results in your execution system)
  3. What-if scenarios including scenario comparison – There is never only one answer to complex problems like supply change. Being able to try out multiple approaches very quickly and compare these approaches means that you can quickly zero in on the best answer.
  4. Collaboration – No one person has the knowledge of the entire supply chain in their head.  You must be able to rely on others to help figure things out.  You must be able to determine who needs to be involved, then share the appropriate scenarios and information with those people if you want to respond quickly (and confidently).
  5. Alerting based on impact, not on the event – There are a lot of things vying for our attention today.  So many, in fact, that we don’t have time to deal with items that aren’t truly important.  Traditional ERP systems drown us in frivolous messages; this supply order is 1 day late, this customer added an order, this job finished on time, etc, etc.  This is not important information –and as a rule can be relegated to summarized reports.  What is critical is: what the impact of these events?  For example, if that order is one day late, it impacts $3 million in customer orders. That’s what you want to know.  If the order is replenishing safety stock – who cares?
  • Inventory planning and optimization – Safety stock traditionally has been a pain to calculate – as a result many people didn’t. They either set the safety stock level once – and forgot about it or did a best guess at what the Safety Stock should be.  Inventory Planning is a relatively new area where safety stock is statistically determined based desired customer service levels and on supply and/or demand history. Traditionally, Safety stock was calculated a single level at a time and didn’t consider the stock of the parent or component item when calculating its own stock level.  Multi-Echelon optimization looks at the inventory for a family of parts and determines where it makes the most sense to locate inventory for individual items within that family and potentially lowers the overall inventory for the family.
  • Inventory accuracy – similar to my carrot analogy –  we all have had situations where you go to the store, buy some goods – then discover that you have 6 cans of the thing you just bought hiding behind the peanut butter.  Or worse, you THINK you have 6 cans of thing you need for supper and you don’t pick more of it up – then you discover that someone (maybe you?) ate it and you actually have none.  In supply chain, the same thing happens – but the cause is inaccurate inventory records and the cost can be huge.  How do inventory records get out of alignment?  In a previous life, I used to work with the operations team and track down inventory records. The biggest culprit was human error; incorrect quantities, incorrect BOMs, spillage, waste, etc.There are two approaches to maintaining accurate records;1. Annual physical inventory – This is a traditional inventory management technique where you take several days, tag all of the items in inventory and have some poor guy count the items, write the count on the tag and turn the tag into a central team that updates the records.  If there is a problem, the poor guy may be asked to go out and count the items again.  There are some problems with this approach;
    • While the inventory is being done, the factory cannot run. This means inventory must be done over the weekend or the factory needs to be shut down.
    • Physical inventories are not fun.  It’s tedious, boring, dirty, nasty work (speaking as someone who’s done it). It’s often performed by people not necessarily tied to the inventory function. It’s difficult to be precise counting thousands of different parts in the course of a few days.  It’s very likely that a significant number of the counts will be wrong.
    • The root cause of the error (why the inventory is wrong) is seldom ever caught and as such, doesn’t get corrected.

    2. Cycle counting – Cycle counting is a system where some small percentage of items get counted every day.  Important parts get counted several times per year, while unimportant parts are counted once per year. Every item is guaranteed to be counted at least once. The advantages of cycle counting are numerous;

    • The supply chain continues to function while the cycle count is done
    • The count is performed by inventory specialists that know the inventory, are used to counting and are incented to get it right.
    • Key parts are counted more frequently and therefore will be more accurate.
    • When a discrepancy is found, the team seeks to understand why the error occurred and ideally determines what changes they need to make to prevent the error from happening again.

    Inventory Management is a large and changing topic.  I’ve hit on what I think are some of the top runners in this post, but I know there are more factors that can cause inventory problems.  What issues have you seen?  Comment back and let us know!

     

Posted in Demand management, General News, Inventory management, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management


Top 10 Movie Quotes from Kinexions! The Kinaxis Training & User Conference

Published September 26th, 2014 by Bill DuBois 0 Comments

Film poster for Top Gun (film) - Copyright 198...It’s an exciting time of the year at Kinaxis as we gear up for another user conference. Kinexions will take place this year in San Diego with the theme set as Innovation at Mach Speed (with some Top Gun references), a keynote from Navy SEAL Robert O’Neill and Afterburner (actual fighter pilots), along with a unique Customer Appreciation event.

The last couple of years we did parodies on movies, like “The Hangover” and “Back to the Future” so with the movie theme continuing, here are the…

Top 10 movie quotes from Kinexions that were also heard in famous movies.

10. Exchange between a customer and developer after seeing the capabilities in the next release: “Surely you can’t be serious?!” “I am serious…and don’t call me Shirley.”

9. Customer sharing ERP deployment horror stories: “ERP deployment is like a tense episode of ‘Everybody Loves Raymond’…only it doesn’t last 22 minutes. It lasts a lifetime.”

8. Customer talking to his Account Executive: “Keith, since I’ve met you I’ve noticed things I never knew were there before…birds singing, dew glistening on a newly formed leaf, stoplights….(scorecards, dashboards…).”

7. Customer after hearing Doug Colbeth’s opening remarks: “He’s the sweetest guy. Have you ever looked into his eyes? I swear it was like the first time I heard the Beatles.”

6. Prospect after seeing a Customer presentation: “I’ll have what she’s having.”

5. Customer before the Product Management presentation: “Go ahead, make my day.”

4.  Product Management after their presentation: “How’d ya like those apples?”

3. CIO to VP of Supply Chain: With great power comes great responsibility.”

2. Customer running a “what-if” in a training class: “I feel the need. I feel the need for speed.”

1. Attendee leaving Kinexions: “I’ll Be Back”.

 

Can you guess the movies? Hope to see you at Kinexions.

kinexions 2014

Posted in Demand management, General News, Jokes, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management


Your supply chain is costing you money – Reason #4 Making key decisions by modelling the supply chain in Excel

Published September 24th, 2014 by John Westerveld 5 Comments

Reason #4 Making key decisions by modelling the supply chain in Excel

Making key decisions by modelling the supply chain in Excel

Over the years, working for and with numerous manufacturing companies, I’ve seen many supply chain practices that cost companies money.  Over the next several weeks, I’ll outline these issues and discuss some ideas around how to avoid these practices. You can find the previous posts here:

In my career, I’ve had the pleasure of working with several top tier supply chain companies. Companies that are household names. Companies that have been in business for decades. Companies worth billions of dollars.  Companies that are forced to use Excel to manage large swaths of their advanced supply chain planning.  Companies that are starting to realize that while Excel is a powerful tool and can be used for lots of things, it isn’t the tool to use to run your supply chain.

Excel excels (if you’ll pardon the pun) at many things.  But modelling complex supply chain relationships isn’t one of them. There are many issues with using excel that have been written about numerous times in this blog.  A sampling are here, and here.

I can briefly summarize the main points;

Companies use Excel because their traditional planning systems don’t allow them to view and understand aggregate data and more importantly, don’t allow them to effectively react quickly to change.  However, because people need this information and because people (especially those in supply chain) are very smart and come up with ingenious ways to solve problems, they extract data from their ERP systems and build complex models in Excel.

So we understand why companies turn to Excel; they can’t get what they need from ERP.  Now let’s look at why Excel shouldn’t be used to run your supply chain.

Errors – Excel is a free form modelling tool – which means anyone can build a spreadsheet for just about anything.  Many of these spreadsheets are not validated or tested, meaning that the model is only as good as the persons that create the model.  Millions of dollars have been lost to Excel errors.

Everyone has their own version – While you can password protect and lockdown Excel spreadsheets it is difficult to do effectively and many companies simply don’t do it.  This means that often there are multiple copies of the same spreadsheet, all slightly different.  I’ve been in meetings where what appears to be the same spreadsheet tell different tales because someone made a data or formula change.  Eventually everyone has their own version and are all going off in different directions.

Excel is not supply chain software – it doesn’t matter how good your Excel model is, you simply cannot model the complexity of the supply chain in Excel. This means that the best you can do is build an approximation of your supply chain in Excel.  As we know, in supply chain, details do matter and the small detail that is approximated in your model might be the detail that costs you.

So if ERP can’t do it and Excel isn’t the tool, what tool can help you make supply chain decisions?  This tool needs to have the following characteristics;

End to end visibility – To make supply chain decisions, you need to have visibility across your supply chain. You need to be able to see where inventory exists, what capacity is available and what the issues are.

Simulation – The ability to create a scenario, make a change and instantly see the impact of what that change means that you can try things out and know with confidence that it’s going to work.

Full supply chain analytic model – Supply chain planning is very complex and while most vendors have similar basic logic there are many differences between systems, even within implementations of a given system.  To effectively model this logic, you need a tool that can simultaneously model the supply chain logic from all these different systems.

Collaboration - No one person has knowledge of the entire supply chain in their head.  You need to be able to work with others to resolve complex issues.  So an effective supply chain decision tool will need to allow you to quickly identify who you need to work with and then share your scenario with those people.

How do you make your major supply chain decisions? Comment back and let us know!

 

Posted in Demand management, General News, Inventory management, Response Management, Supply chain collaboration, Supply chain management


Your supply chain is costing you money – Reason #2 Poorly executed or non-existent sales and operations planning

Published September 10th, 2014 by John Westerveld 4 Comments

sales and operations planning gears

Reason #2: Poorly executed or non-existent sales and operations planning

Over the years, working for and with numerous manufacturing companies, I’ve seen many supply chain practices that cost companies money.  Over the next several weeks, I’ll outline these issues and discuss some ideas around how to avoid these practices. You can find the previous post here:

Tell me if you’ve heard this one before.  Your company has implemented an S&OP process.  At first it showed some promise, but now it has turned into a blamefest attended if at all by lower level representatives that aren’t empowered to make decisions.  No one trusts the numbers, inputs are late and you aren’t seeing any improvements month over month and people are starting to wonder “why bother”.  Sound familiar?

So how does a poor S&OP process cost money?

  • Excess and obsolete inventory. S&OP is all about aligning manufacturing and sales. When you don’t make what you sell and don’t sell what you make you create inventory.  Lots of it.
  • Lost sales.  This is the corollary to the above.  Typically companies with poor planning don’t have too much of everything.  They have too much of things that aren’t needed and too little of things that are.
  • Lost market opportunities.  Companies without an effective S&OP are typically much slower to react to market changes.  This means that their competitors will beat them into new markets and products.

A well-executed sales and operations planning process can transform a company; allowing them to better control inventory and costs while meeting rapidly changing demand pictures.  It does this by gaining alignment across the sales, demand planning, manufacturing and finance organization.  In effect making sure all areas of the company are working towards the same plan and towards the same goal.  5 years ago, I wrote a blog post in which I discussed the 3 pillars of S&OP. They are;

Process:  Trying to run sales and operations planning without a clearly defined process is like driving in a city where no one obeys the rules of the road….you probably won’t get where you are going.   If there were no process driving S&OP, then there is a very good chance that key information would not be presented (or presented poorly), key people would not be in attendance and that critical decisions would not be made.  It is important that the structure, timing and agenda of S&OP is documented, published and adhered to.   If the process needs to change due to changing business requirements, those changes need to be documented and published.

Executive Commitment:  It is very difficult (bordering on impossible) to implement an effective S&OP process without executive commitment.  Why?  First let’s ask what is the purpose of S&OP?  The purpose of S&OP is to align supply and demand and the various departments contributing to that alignment. Departmental alignment can only occur if the top level department executives are involved in the key decisions…because those top executives have the decision making authority.  Sales and Ops is a failure if the representative at the meeting needs to go back to their executive to get a decision.

Effective S&OP Tools: This includes the tools to analyze the data, present information and make decisions.  Effective S&OP tools also include the ability to integrate the data that drives S&OP.  While Excel can be fine to do the initial S&OP model, moving to the next level of S&OP effectiveness requires a more integrated, responsive and collaborative application.

S&OP is a powerful tool if performed well. Inventory reductions, improved efficiency, improved customer service and reduced expedites are all expected benefits.  However, If there is no buy in, if executive commitment isn’t there, if data isn’t reliable and doesn’t drive action your S&OP process won’t delivery these results.

Have you experienced poor S&OP planning processes?  How about excellent planning?  Comment back and share!

Posted in Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management