Introduction: the Manufacturer’s View
Rapid, global and outsourcedsupply chains introduce new dynamics in the planning process. The last decade saw many organizations becoming much more sophisticated in the use of supply chain process and technology, using that as a foundation for global expansion and global sourcing techniques. No longer might your tooth paste come from the plant in Columbus, but from Columbia. Or your shampoo, instead of from Iowa, it comes from Indonesia. Sourcing globally, while at the same time getting leaner, required deft supply chain practices. Many rose to the challenge, reducing safety stocks from bloated triple digit levels (+100 days of safety stock or more) to more approximate numbers that actually represented something that looked like an affordable economic number (20 to 30 days) while still assuring customer service.
Metrics were looking pretty good — shareholder value, working capital, and margin — not bad from the ‘C’ suite perspective. Their attitude towards supply planning has been, “Well, let’s just set some number we can live with and move on. The minutia of data is too detailed to bother with.” And Supply Chain was in on that. After all, supply chain managers get penalized more for shortages than from carrying a little extra.
But, just when you thought it was safe to go back in the water, the global economic crisis hit. That crisis, but more importantly, the ongoing brand competition battling for shelf space, put downward pressure on price. That has been the catalyst for manufacturing companies to strive for the next level of precision in their planning and fulfillment in order to enable them to further shrink inventory without compromising service levels.1
However, often overlooked is the calendar. The dynamics of work — the level of the organization, their calendars, and the aggregation of the data, all play factors in misalignment and miscalculation of forecasts. Here we just want to look at the overlooked issue of dynamics.
We’ll look at the planning dynamics of most companies to examine how things are typically done and why that might create errors.
So what do we mean here? The calendar, the money, the focus.The C level is driven by Wall Street — a quarterly view of the world. The planners are driven by specific SKUs in specific locations and specific hours of the day. That is a huge gap in orientation! That can lead to huge misunderstanding and errors.
At the highest level in the enterprise, we are dealing with three fundamental levels of planning and execution activities. (Figure 1)
Here we already see discontinuity between the types of planning, methods and goals. This creates a challenge to reconcile plans, intents, and results.2
C levels – Monthly views and focus on shareholder value drive decisions about allocation of working capital across the company. This has huge impacts on how much inventory, how many people, and what investments the organizations may make in a quarterly time period.
Product and marketing people also have long term views of the business. Often they are event or seasonality driven. Or they might be planning a new product introduction, of which the schedule may not map to any others. And they want that new cool product out there gaining market share. How do those measures sync with hard numbers like money and unit counts?
Manufacturing – Depending on product schedules can vary, but for many product groups we like to have frozen periods — a window where nothing changes, to meet forecasted demand.
Distribution – Here is a very tough place to be! Squeezed between customers who want daily, weekly on their own schedule vs. the whim of the tides — literally. Erratic transportation, for sure. But if you are shipping daily or weekly on the customer’s day, when do you get to order from manufacturers with frozen periods? What is the transportation cycle to you, and then to the customers? Execution aside, the Distribution side needs to wedge in their calendar, too!
Let’s see what this looks like.
The graphic looks neat, but living within these calendars and communicating the ups and downs of demands between the different schedules is not neat at all! Cycle times/lead times and frozen periods are generally non-negotiable, fixed times. Yet life happens!
Even in the best of times, the practices lead to errors. The results on this practice are shown in Figure 3.
Shipments leaving the warehouse deplete the stock level. If we have long lead times or frozen periods, errors can become emergencies when stocks are depleted. If our goal is to improve the cash metrics of the enterprise, and service the customer well, we have to address a variety of planning problems. But often the simple solution (OK, not so simple solution) is to get the corporation — with its far flung operations, trading partners, and different functions — to focus and be on the same page. This can go a long way to reducing critical and costly errors.
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