The demand forecast is one of the key inputs to supply chain planning. Because it drives resource allocation, inventory builds and purchase commitments for a business. A 1993 study published in the Sloan Management review (T. Davis) pointed out that the lack of an accurate demand forecast is the leading cause of inventory buildup. The study showed that demand variability accounted for more than 60% of the total variability.
Supply Chain Management – from demand planning to production planning to inventory management to schedule execution – is at the heart of any manufacturing business’s ability to supply its customers while making a profit. Done well, supply chain management makes an enormous contribution to a company’s bottom line; done poorly, it can ultimately put a company out of business, not only through excessive costs but also through such poor customer service that the customer base is lost.
A Study published in Supply Chain Management Review suggests that supply chain glitches in large corporations’ results in 10% loss of shareholder value, a decline, which is not viewed favorably by the investment community. This study clearly shows the financial impact of Supply Chain Management (SCM) on the corporation.
Frequently, people looking at Demand Planning software will express a need to “lock” some customers’ forecasts while leaving others unlocked. Generally, what is really desired is a mechanism for indicating that some forecasts are more credible than others. Indeed, different levels of uncertainty between forecast streams have to be handled, but simple locking is not a good solution. Let us first look at the problems introduced by attempting to “lock” a forecast, and then look at alternative means for addressing the different levels of uncertainty.
People often state that “true demand” instead of actual sales or shipments should be used as the basis of any forecast. In the real world, however, almost no one captures all orders that “might have been.” Orders not taken because of known inability to supply are not generally captured in any system. The choice then is which date to use for demand which is indeed recorded and filled.
In improving the supply chain, one of the most difficult steps is knowing how to get started. Too often, a whole host of things seem to be wrong, and trying to figure out where or how to begin can be overwhelming. The first step to improving anything is to understand it. Often, businesses are not clear about their objectives or goals. Read the following list, for example, and select your business’ primary objective.
Who is involved in supply chain planning (SCP)? Production planners and schedulers certainly are. However, we’d argue that many others are also directly involved-they are just not supported effectively by traditional supply chain planning solutions. For years now, supply chain management as a discipline has been somewhat distorted by the scope of the software products that supported it. Fortunately, some new solutions are addressing those shortcomings to deliver true extended enterprise SCP support.
ERP systems both provide a framework for defining the current financial status of a business and capture the transactions that affect the financial status. The benefits of such an integrated data foundation are well documented and accepted in the marketplace.
Planning systems use some of this data to support decisions about future business activities because they can analyze data, simulate scenarios, and develop optimal plans. Since planning requires some ERP data, many companies naturally assume that an ERP installation is a prerequisite for supply chain improvements.
In the last few years, a major theme is the increasing use of Business Intelligence (BI) for business process management (BPM). BI goes beyond static data snapshots to enable users to identify and analyze ongoing business trends and patterns.
This document gives an overview of the Sales and Operations Planning (S&OP) process adopted by many companies. A sustainable S&OP process requires close coordination and collaboration between those developing the business practices, and those developing the systems to support them. In this document, we will take a fresh look at Sales and Operations Planning, and see what it means in common sense terms.
Arkieva is excited to share our experiences and knowledge with other companies. Here are some of the common questions we hear regarding effective supply chain planning.
The current surge of interest in Sales and Operations Planning – a discipline which has been around for years – is indicative of companies’ growing awareness that improving their supply chain is imperative for gaining or maintaining a competitive edge.
Businesses, of course, are at various stages along the path to effective S&OP. Some are beginning from scratch, with no formal processes or tools in place. Others have software “pieces” like demand planning and/or supply planning. Such enabling tools are necessary for all but the simplest of businesses –necessary, but not sufficient. Tying these “pieces” together in an effective S&OP process will exponentially increase the benefit provided by the tools alone and allow your supply chain to truly become a competitive advantage.
Scheduling is the last step in supply chain planning before material is actually converted. It represents the final opportunity to review information and make decisions before hard assets are expended. Typical schedulers respond to 1) Plans developed by the business that deal with capacity utilization, and inventory targets. These plans might be developed periodically in the Sales and Operations Planning (S&OP) process and communicated to the Scheduler. 2) Changes to orders, equipment disruptions, unplanned shipments, and other events that occur between periodic updates to the plan. Everyone recognizes that major benefits can be gained by providing better tools for the scheduler. The challenge is to introduce these tools in a smooth and non-disruptive manner.
There is no doubt that Excel is unparalleled as a personal productivity tool. However, supply chain planning is a collaborative exercise that requires data integration, communication, and the application of appropriate technology. Experienced planners know that productivity suffers if you shoehorn a business problem to fit a tool. In such a case, the analysis can be worse than useless – it might influence you to take the wrong action.
This paper was written and presented at the World Batch Forum by Jane Lee, who at the time was a Global Supply Coordinator at DuPont. At DuPont, Jane spent 10 years in supply chain planning in a billion dollar specialty polymers business. In this position she created and then ran the Global S&OP process. This paper highlights some of her experiences.
Available-to-Promise, Able-to-Promise, Advanced Able-to-Promise, Capable to Promise, Profitable to Promise: all are catch phrases describing different offerings that support the order commitment process. Such a proliferation of jargon makes it harder to understand the various levels of support for order commitment and the tools and technologies available to deliver them. Why the interest in order commitment?
Companies have benefited from Supply Chain Planning (SCP) techniques for over 30 years. SCP techniques are a collection of well-established solution methods made more accessible and effective by incremental improvements in a wide range of technologies. This view may not have too much sizzle, but it means that an experience base exists that companies trying to implement SCP can draw on.
A business unit of a major chemical company came with a problem. Sales were growing by 10% each year . This business operated internationally, with production distributed across multiple plant sites. The plants were stressed in meeting current customer demand, and felt that future increases in demand would exceed available capacity.
How often do we hear the lament, “How can I forecast? My customers can’t even forecast their own needs. My forecast can’t be better than my customers’!” In fact, this is one of those urban legends of the supply chain. It is true that individual customers very often do not know what they will need and when. With today’s tools, however, your forecast can be much better than the sum of your individual customers’ forecasts. Here’s how.
The focus of S&OP is to not only balance supply and demand but also to keep them balanced. Proper implementation of an S&OP process at a company will help improve customer service, lower finished goods inventory, stabilize production rates, improve material procurement, and improve teamwork among the management from Sales, Operations, Finance, Customer Service and Information Technology.
The Days of Supply (DOS) measurement is commonly used to measure supply chain efficiency. Its calculation has the three elements that are needed for a metric to be successful:1.It is easy to understand and easy to calculate 2.It suggests a direction for improvement; either it is too high or too low 3.It provides an aggregated view While useful in measuring total inventory volume, DOS does not provide a good indication of how well the inventory matches demand.
The cost required to distribute bulk products such as petroleum, chemicals, and gases is a substantial part of the total cost of manufacturing and distributing these products to customers. Our experience is that in most supply chains, optimizing the transport and delivery alone can reduce the total distribution costs by as much as 10%.However,by far the greatest savings can be realized only by coordinating the distribution of these products with manufacturing.
In most manufacturing organizations, there are two ‘line’ organizations: Sales and Operations. Usually, these two organizations have conflicts that are inherent in the way they are set up. Read to learn more about these organizations and how to bring them together for collaborative planning.
Recently I wrote about the limitations of Microsoft Office Excel as a tool for supply chain planning. In this whitepaper, we are going to explore the pros and cons of using the resident Enterprise Resource Planning (ERP) system (or the extensions thereof) for Supply Chain Planning (SCP).
Inventory management is the practice that deals with proper management of these inventories, both planned and unplanned. In this paper, we will primarily concern ourselves with the calculation of safety stocks, which can make up a substantial part of the total inventory at a company. We will discuss various ways companies have calculated safety stocks and also present a new holistic way of doing the calculations.
Arkieva is more than supply chain planning software. It offers role-based views of production and operations data to diverse users across the extended enterprise. Arkieva provides powerful decision support and analysis tools in a familiar Microsoft environment that is both easy to use and inexpensive to maintain.
When a company is looking to attain sustainable improvements, the most common question we encounter is, “Where do we begin?” Our answer is that the supply chain is a dynamic, fluid organization. Improvement paths require that you consider the experiences of people, competitive processes and information flow as a whole.
It’s always so much easier to see what everyone else is doing wrong. Many companies talk about integrating customers and suppliers in a completely integrated end-to-end supply chain solution, and they may even endeavor to immerse themselves in the process. But to be truly effective, an organization must first get its internal supply chain under control.
Early adopters in the Fortune 500 have clearly demonstrated the benefits of Supply Chain Planning (SCP). Virtually all companies face the issues that lead to consideration of SCP. Growth means more products, SKU’s, customers, and locations to plan. At the same time, companies are expected to reduce inventories and make better use of existing capacity. Customers expect better service and faster response.
Movement of material through the supply chain is increasing becoming a significant portion of the delivered costs. Depending on the industry, the total warehousing and transport costs can amount to 5% of sales dollars. With margins under constant pressure, efficient logistics can be the difference between making a profit and losing money on each sale.
Now you can easily provide information people need to better understand customer demand. Allow each person on your team to contribute anywhere and at any time. Concentrate only on what matters, because everything else is just noise.
The recovery is underway, or is it? There are signs of recovery, but also continued obstacles and negative indicators. With the outlook for demand so murky, how can manufacturers be sure they can scale up or cut back to profitably meet demand? Supply Chain Planning software (and the processes to fully leverage it) is pivotal to production companies’ profitability in these uncertain times.
Companies with strong prospects for future growth face the related challenge of finding additional capacity to meet increasing future demand. Traditionally, companies first considered capital improvements to increase or de-bottleneck existing capacity. Since these projects could require seven or eight-figure budgets and extended lead times, a near term option might be to contract for additional capacity even though this consumes a good part of any future revenue increases.
This document is a guide to project management techniques that Arkieva has found useful for managing the development of Decision Support Systems.
All of us experience the challenge of inventory every day – whether at home -how many cans of tuna to keep in the cupboard- or as a critical component of effective management of your demand-supply network. This is the first in a series of articles to reveal some of the mystery behind the safety stock calculation – today we cover some basics and explain the role of “normal” distribution.