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There used to be a commercial (with Orson Welles for Paul Masson wines) on television back in the 1970’s advertising that they would “sell no wine before its time.” This implied that they wouldn’t release any wine until it reached full maturity and perfection. I thought this would be a good analogy for the concept of time phased release of supply orders to the supply chain. Shouldn’t we want to release orders only when they reach full maturity and perfection?

The temptation is usually there to release supply orders as far out into the planning horizon as possible so as to give suppliers more time to deliver. But what actually happens when we do that in an MRP planning environment? It artificially lengthens lead times, and consequently, we are releasing more supply orders into an already overloaded supply chain. It seems to me that we should build a recovery reschedule of the past due purchase orders and cut the lead times to the bone, only releasing new supply orders in the near term when the master production schedule is more mature and firm.

The APICS definition of Time Phasing is:

The technique of expressing future demand, supply and inventories by time period. Time phasing is one of the key elements of material requirements planning.

This definition to me appears to be overly simplistic and deserves further expansion into specific scenarios and benefits. The definition doesn’t say anything about the benefits of time phased release of supply orders in small bites. It should also include the benefits of time phasing the release of supply orders, based on precisely defined lead times in the near term, resulting in greater ‘maturity’ and ‘perfection’ of quantities and due dates.

I think the old adage, “How do you eat an elephant? One bite at a time,” applies here. The time phased releasing of supply orders at the latest possible release date that would satisfy the minimal lead time requirement would result in only releasing supply orders when the production schedule is firm. This enables better accuracy in release quantities and due dates, and less disruption in the master production schedule.

We can look at our entire planning horizon pictured above as a time phased funnel depicting firmed or released supply orders at lead time (dark shading), unreleased or planned supply orders (light shading), and gross demand and forecasts input and the resulting shipments to the customer. This planning horizon is funnel shaped because forecasts are generally more optimistic further out into the future and then start to lean out when approaching lead time due to forecast consumption by actual demand, capacity limitations of the master production schedule, and actual customer shipments.

If we take a closer look at the dark shaded area (firmed or released orders), we can probably say that a large portion of our planning horizon for customer delivery has, in effect, been relinquished to the mercy of our suppliers. So shouldn’t we want to limit that dark shaded area so that we can maintain as much control of our planning horizon as possible?

Another thing that can be said for this dark shaded area is that it is the labor intensive portion of your total planning horizon because of near term supply chain volatility.  Suppliers that can’t deliver, lack of capacity, acts of God such as the earthquake in Japan, all of these and more can contribute to near term fluctuations to your master production schedule,which result in overtime throughout the company in order to resolve the issues quickly.  Buyer/planners in particular, perform lots of work expediting and rescheduling released purchase orders. Despite the temptation to artificially increase lead times and therefore release more supply orders earlier, this can ultimately result in the buyer/planners increasing their own maintenance workload… sometimes beyond their means. Most buyer/planners I know are responsible for three or four thousand parts.

In the light shaded area (unreleased or planned orders), your suppliers have no control over your master production schedule. You do. In this area of the funnel, volatility, resulting in additional laborious tasks is not a problem. The MRP software handles it automatically. All planned orders are automatically rescheduled during every MRP run. So shouldn’t we want most of our time phased funnel to be light shaded? In this area, we can also favor and easily maintain the formal system over the informal system of order launch and expedite hotlists.

Think about this the next time an overloaded supplier asks you for more lead time to dig himself out of a backlogged hole. You just might be supplying him with a bigger shovel.

The trade off is cost versus speed as to how to get the goods from Asia to North America: via air or sea.  In an ideal world, and especially for bulky items, freight by sea is the most cost effective option and is used as the default shipment option.  Shipments by sea can take around a month or even longer to reach the destination.  Therefore, there are times when shipments need to be expedited to meet demand and air freight must be used.  This is a classic supply chain problem: how to balance transportation costs against demand and supply.

Once the decision to put the materials on a boat is committed to, these materials are basically unavailable for a month or more.  This can be a real problem to have this in-transit inventory tied up when these materials are needed to fulfill shortages or customer demand.

Many ERP systems have modules available to help manage transportation, and there are also third party logistics applications or Transportation Management Systems (TMS) on the market that can be “bolted on” as well to assist with transportation management.

However, some companies struggle with the issue of transportation, primarily because there are multiple considerations:

1. Which orders should be expedited to use air shipment?
2. Is the cost of the expedited shipment worth it?
3. How do you effectively communicate to suppliers which orders to expedite?

Related to item 1, we need access to planning information to determine orders that potentially are late to demand.  Adding in item 2, we need to be able to evaluate the cost of expediting against the additional revenue that can be realized in the current period with the expedited order.  This implies that some sort of simulation capability needs to be present to model the change in the supply plan and how that will impact the fulfillment of demand.  Item 3 has to do with the actual execution, purchase orders may need to be updated or at a minimum the change in shipping method needs to be clearly communicated to the supplier.  The considerations or dimensions of the problem can be summarized as

• plan/simulate,
• calculate cost, and
• execute. 

Many of the third party or extended modules available on the market today can only handle one or two of the three considerations.  Therefore, the above considerations require a “one to many” solution. The ideal solution is to have an application that enables all three of the dimensions: determining what needs to be expedited and the resulting impact on revenue and customer service; calculating the cost and benefit; and effective communication to suppliers and execution.

I am curious if you have any insights as to how you have (or suggested approaches) solved this multi-dimensional problem of transportation management?

I read a lot of books.    I typically have a few books “in the queue” but occasionally I’ll run out of reading material and have to wait for my next trip to the city to buy more.   When I travel, I’ll bring the book I’m currently reading and one or two more just in case I run out during the trip.  I’ll often re-read books I’ve enjoyed so I tend not to sell or give away books I’ve already read. As a result, my book shelves are stuffed way beyond their capacity.

So, when the Kindle came out a few years ago, I watched with interest.  There were still a few bugs to work out, so I waited.  The Kindle was also kind of expensive and…oh yeah…it wasn’t available to us cave-dwelling Canadians.  The Kindle 3 was announced in July.  It had some nice new features and a great price and was available north of the border, so I decided that I would treat myself for my birthday and ordered one on August 17th.

When I placed my order, Amazon couldn’t tell me when my new Kindle would ship.  Hmmm.   Yesterday, a couple of days into September, Amazon STILL couldn’t tell me when my Kindle will ship…not online anyway.  What’s going on?  Do they honestly not know when they can ship my product?  Is the date so bad that they are afraid I’ll go elsewhere?   Those among you that have been involved in supply chain, customer service or sales, know that the only thing worse than not shipping a product on the date a customer wants it is not being able to tell the customer when they can expect it.  

So what is the cause of the delay?  Bad Forecast?  Supply issues?  We just don’t know and likely won’t know until Amazon tells us (if they ever do). Regardless of the cause, what is stopping Amazon with providing me with a delivery date?  We all know that there are supply chain analytics available that can be used to identify an expected ship date.  Perhaps, being new to the brand owner /  manufacturing side of things, Amazon might not yet be aware of what is possible with good supply chain software.

Desperate for Amazon to tell me where the heck my Kindle is, I broke down and called customer service and finally got an answer that it should ship likely on September 10th.  Why that date wasn’t or couldn’t be provided online when I checked the status, I don’t know.

As someone who understands the complexity of the supply chain, I know that sometimes we can’t ship when a customer wants a product.  However, as a customer, I want to know when you CAN ship my product.  Amazon, you gotta give your customers any insight you can….and don’t make them work for it!

Drivers include:

• SKU proliferation
• Demanding customers and high competition
• High product variety and customization
• Increase in total inventory and high obsolescence

Ideal candidates for postponement are products with:

• Short life cycles
• High variety / options to customers
• High value profile
• Standardized components and modular design

We too are seeing among our customers and prospects (particularly those in the high tech and electronics space) a growing interest and focus on postponement.  A great deal of agility and flexibility can be attained when a company can ship sub-assembly inventory and finish it locally.  But as these new supply chain management strategies evolve, so too does the complexity of the supply chain.  Advance supply chain strategies require the associated advance technology solutions to enable them, and that may limit the number of companies who can successfully apply the practice and harness its benefits.

Is postponement a growing topic in your company?

There is a comedian here in the US, Jeff Foxworthy, who is famous for his “You might be a redneck” jokes.  I am copying his format  – I hope I do not get any trouble related to comedian patent regulations or something like that!

“You might be expediting too much…”

• IF, you are amassing major points in your Air Frieght carriers “frequent flyer program”…
• IF, you constantly get emails from your Land/Sea carriers saying “We miss you, please come back”…
• IF, your key supplier ran out of bright orange “hot order” stickers to place on travelers and had to place a rush, expedited purchase order for more stickers…
• IF, even though your “Material Expediters” canceled their gym memberships but are actually in the best shape ever…
• IF, you use half of your white board to prioritize which late parts need to be expedited by keeping score of angry phone calls from production…
• IF, you use the other half of your white board to track supplier promise dates for late/shortage parts and you have run out of space…
• IF, you have not logged into your company’s MRP system for weeks because none of the dates are accurate… You might be expediting too much.

OK, these are obviously starting to get worse, so I am going to stop. Any more to add?  Join in!

I think that most of us would agree that ideally, we would have a sound plan where there is accurate demand (forecast and/or actual), adequate resources and capacities are in place both in-house and at suppliers, and all the supply chain is on board and executing to the plan.  In reality, there is a lot of expediting that occurs, at least in my experience (the extent of which depends on the industry and the complexity of the products and the supply chain.)  A lot of manufacturing companies even have a formal position with a job title something like “Material Expediter” or “Production Expediter” (although the actual job descriptions can differ from what I am describing).

What I have found in working with some customers who do a lot of expediting, is a basic lack of maintaining data accurately in their formal ERP/MRP system.  A lot of the “planning” tends to occur off-line in Excel spreadsheets or other tools.  This may work in some isolated areas, but from an overall enterprise perspective, much of the supply chain does not have visibility into these off-line plans.  I correlate this to Project Management on a large project where there is no up to date project schedule that the entire project team can work to.   Team members work tasks that they are directed based on meetings, phone calls and other types of somewhat ad-hoc communication. 

This can be somewhat effective, but not having the formal MRP system reflecting the current plan disables the capability to orchestrate the entire supply chain and efficiently execute the plan.  This leads to a lot of expediting rather than planning and executing.  Why don’t we always keep the formal MRP system up to date?  There are lots of reasons, including:

1. too time consuming;
2. off-line tools are easier and more flexible; and
3. certain processes or functionality is not supported in the formal system.

An example of # 3 above, is provided in a blog post from a colleague of mine called Do YOU have enough Supply?   This describes a process to allocate limited supply to demands that recently, seems to becoming more prevalent in certain industries.  A process like this may not be supported in the formal MRP system, so it is likely done off-line.  Changing or enhancing the MRP system to support new functionality generally takes some significant time and money, and usually has to compete for priority with other fixes and enhancements needed.

I know that many of you will agree that this expediting approach is far from ideal, and also may say “not us, not me”.  But I also know from experience that this occurs and sometimes with some very practical reasons.  In situations like this, what can help solve the problem is a system with capabilities in a couple of key areas:

1. Detect and report data integrity issues in the MRP system for clean-up
2. Easily configurable to support additional planning functionality
3. Available for sharing and collaboration across the supply chain

I would like to hear any insights, experiences and suggestions you may have regarding this expediting versus planning situation.

In working with clients, I have never seen so much interest in supply allocation options,  demand prioritization and customer segmentation. Companies are realizing that the FIFO approach to customer demand isn’t good enough anymore.  However, you do find some companies that think that they need VERY complex rules. Supply chain doesn’t have to be complex to be effective.  In fact, I would argue that the opposite is true.

Companies all want to maximize revenue and minimize stock levels. I believe that global competition has also had a significant influence on the need for supply allocation options. If you can’t satisfy everyone on time, which customers are most important and what impact will not satisfying some customers have on your business?  Many companies have top tier customers that represent such a significant portion of their business that they always need to satisfy.  Other companies are rewarding their customers with the best forecast accuracy.

Supply is being allocated at either the finished good level or the material component level. If you are managing the finished goods side of the business, you may need a combination of automated supply allocation rules and also the option to manually allocate or create firm allocations to distribution centers or regions.

There is no one rule however for supply allocation. These are collaborative decisions that need to be supported by software but not decided by software.

What has been your experience with limited supply? How are you solving this today and do you need a better way? I would be really interested in hearing your comments.

Most ERP systems support expiry on some level, usually from a transactional point of view (what I will call simple expiry). Simple expiry allows the users to set expiry limits on a part by part basis, and the system will then calculate when a particular supply will expire. This is mainly used for 3 things in an ERP system:

• determining when a particular supply expires so it can be scrapped and/or replaced,
• allowing planning to determine in what order to use a supply in order to avoid scrap, and
• to enable inventory control and shipping to determine what supply can or cannot be used in production or order fulfillment.

The problem with this expiry model is that it does not realistically model actual expiry conditions in the supply chain, as actual expiry times can be consumed by  production and quality inspection lead times, perhaps through several levels in the supply chain. What this means is that supply that was projected to be available until a certain period in time will actually expire earlier, leaving an unanticipated gap in supply. This could lead to real shortages and dire consequences for customers if not recognized in time. 

What simple expiry does not do is allow expiry to be driven by dependent components in the BoM, which I will call complex expiry. In this model, component parts (perhaps several levels down in the BoM), drive the expiry date of the parent part. A true expiry planning system must be able to account for the lost expiry time as the driving expiry component is processed and tested up through multiple levels in the BoM. As well, when supplies are allocated to demands, the originating demand’s expiry requirements (minimum shelf life, or how long the product must last before expiring once it has been shipped) must be known when planning supply, otherwise a mismatch between the demands requirements and the supply’s ability to meet them can occur. Another issue to consider is safety stock being held at multiple levels in the supply chain, as by its very definition, safety stock can exist in inventory for extended periods of time, further consuming expiry time.

In order to get a true supply/demand picture when planning or simulating in the supply chain, actual or planned supplies must be matched to their allocated demands. This can only truly be done in a CTP (Capable to Promise), bottom up analysis of the true available dates of the components, and how they affect the parent’s availability. In other words, you cannot properly fulfill demand for expiring product unless you have a true picture of when your supply will be available, and when it actually expires.

A simple expiry model can be made to accommodate certain aspects of this planning model (by manually or programmatically accounting for lead times etc. in each level of the BoM in the expiry data), but without the ability to account for actual variations in the supply plan through a CTP analysis, the picture will always be incomplete.

In summary, in order to get a realistic view of your supply chain under expiry, a complex expiry model is required (and a planning tool which supports this). In order to get a true picture of scrap, gaps in coverage, safety stock requirements, batch production timing, and the financial implications associated with each, the ability to support the complex expiry model is a requirement in any planning tool.

The obvious first approach is to fix the situation with the late supply, but a lot of times this cannot be accomplished.   Many different strategies are in place at some manufacturers to mitigate this type of situation, such as: vendor managed inventory, lean manufacturing, schedule sharing with suppliers etc. but, regardless, I have seen at many of the customers I have worked with a lot of late and past due end product demand.
So when late supply, and therefore late end product demand is inevitable, what is the best way to deal with this situation and reduce inventory?  From my point of view, to effectively plan and reduce inventory, there are some key capabilities required:

1. Ability to identify the gating components and determine when they will be available.  Required here is a tool to easily identify gating components as well as an effective way to collaborate with and get reliable commitment dates from suppliers.
2. Visibility into the gating components far enough in the future to reschedule the end product demand so that purchase orders and production orders on other components can be delayed in time to realize inventory savings.
3. Capability to determine if the rescheduling of demand is worth the inventory savings given the administrative effort involved, as well as the change and disruption at the suppliers.  This implies an ability to simulate the change and calculate the potential inventory savings as well as the amount of rescheduling that will need to be executed.

I would like to know your thoughts on this subject. If this situation is applicable to your manufacturing operations, how do you deal with it? What tools or applications do you have that assist you in effectively managing late supply against customer satisfaction and inventory levels?

Here is more about it:

“Using Segmentation Strategies for Better Demand and Supply Balancing in the Mid-Market”, presented by:

• Jeff Range, VP, global operations and customer service, March Networks,
• Nari Viswanathan, VP and principal analyst, supply chain planning practice, Aberdeen Group, and
• Trevor Miles, director, industry and applications marketing, Kinaxis.

Mid-market OEM’s are faced with unique challenges in today’s world of outsourcing. An effective balance between demand and supply in this environment is crucial, yet difficult to achieve. Learn how March Networks has used product segmentation processes and systems to overcome some of the supply chain challenges presented by outsourcing.

This 60-minute webcast presentation will be held on March 3, 2010, at 1:00 pm EST.