The starting point in any successful supply chain strategy has to be understanding the demand it will have to meet. And the first stop has to be getting sales and marketing to see the benefit to them of demand planning. Malory Davies reports.
Nine out of ten international logistics decision-makers believe their supply chain lacks integration between manufacturing and warehousing design, and routine demand management tasks, according to a recent survey, and creating a closer connection between these areas could enable them to identify short to medium-term savings and unlock performance improvements.
The poll was carried out on behalf of Barloworld Supply Chain Software, and Fraser Ironside, head of strategic modelling, said: “Post-recession, many firms have realised the importance of a more reactive supply chain and reviewing their processes on a much more regular basis. However, as this survey highlights, this is still not translating into a close-knit demand, supply and design function or enabling them to create a crucial connected, end-to-end workflow between different business units. In our experience, this could be due to business and operational silos as well as a conflict between the different metrics used across the organisation.”
And Miquel Serracanta, regional advisor to CSCMP (Supply Chain Management Professionals) Europe & Spain RT President, said: “Almost all supply chain and logistics professionals are clearly in agreement that design and strategies cannot be isolated from daily execution. To create a tighter connection between demand, supply and design, they now need to take a closer look at measurement and collaboration across the business. In doing so, they could open the door to valuable savings and performance improvements.”
For Andrew Walker of Oliver Wight demand management should be the fundamental driver for business growth and strategy, with the needs and wants of the consumer running through the bloodline of the entire supply chain. Integrated Business Planning is dependent on one set of numbers and the demand plan is a critical part.
He points out that it is critical to agree where accountability and ownership of the demand plan should lie. And he is very clear that it should not lie with supply chain – despite the fact that it often does.
“All too often it starts in the supply world because people in commercial (ie sales and marketing) don’t see it as their responsibility.”
He points out that no-one in supply chain will be aware of what sales and marketing is doing to change the future.
The challenge, he says, is how you get a commercial group to care. “You need to see the demand plan holistically,” he says, arguing that the commercial group need to see that it helps them meet their goals. “It won’t work if it is seen as helping only supply chain,” he says.
Collaboration is key to the process. Oliver Wight calculates that collaborative demand planning delivers sustainable growth, and increases profits by five per cent.
“We see collaboration as a significant part of any capable demand management process. You need to talk to distributors and wholesalers and find what their view is. It’s proven to reduce supply chain costs,” says Walker.
This is particularly important in extending the horizon of the plan. Walker says firms should be looking for an 18 months to two years forward-driven demand plan – many of his clients are planning three years ahead.
But you also have to recognise that as you go further out, so you lose accuracy. Collaboration is a key factor in helping improve accuracy. “The demand plan will always be wrong – what trying is to make it less wrong,” he says.
Walker also emphasises the importance of trusting the plan. “You have got to understand the value that a good demand plan will give you,” he says, pointing out that all the hard work that has gone into creating a demand plan can be wasted if executives choose to ignore it and work on their own assumptions.
There is now a lot of interest in supply chain synchronisation – aligning production with demand. “Companies have been trying to do that with more or less success throughout history,” says Robert F Byrne, CEO of Terra Technology. “But this is really a small part of overall synchronisation and arguably one of the better working parts. There are three key steps:
Shortening your product supply lead time – responding to changes rapidly is important and this also reduces the amount of forecast error experienced over the lead time.
Sensing demand – making the wrong product is not useful. An accurate picture of demand over your supply lead time is essential to smooth operations.
Shaping demand – sometimes demand and supply cannot be feasibly matched. Ahead of this point, it’s important to do the best you can to guide your customers into ordering what can be delivered. Of course, it’s ideal to have more control over your supply chain.
Daniel Dombach, EMEA industry solutions director at Zebra Technologies, argues that to achieve synchronisation of production and demand, visibility of accurate and up to the minute asset data is essential. “RFID technology can be an amazing enabler of this, dramatically enhancing operational efficiencies throughout the chain. RFID tags can reduce the time it takes to make important supply chain decisions by providing access to real-time information. This also enables faster response to customer demands than ever before through better information management. Enterprises can even improve error correction ratios by increasing levels of automation,” says Dombach.
Excel spreadsheets have been the lingua franca of business planning for many years, but there are an increasing number of specialist tools. Andrew Walker of Oliver Wight argues that before deciding on which tool to use, it is important to get the process right. And he warns that while statistical forecasting tools can be very helpful in markets where there is little volatility, their usefulness can decline sharply in very volatile markets – where, for example, there are a lot of sales promotions.
Byrne says: “A holistic approach to a demand-driven business requires companies to look at what demand signals are available and how to use them most effectively. This could be anything from POS to weather forecasts to housing stats to marketing spend. But there is definitely more data out there than just your sales history.
“Technological advancements make it possible to leverage data to predict customers’ next move, instead of relying on historical patterns. The introduction of the iPhone has transformed the way we way live. By 2020, an astounding 80 per cent of all adults globally will have a smart phone. Automated algorithms are changing every aspect of the economy. The combination of automation and algorithms provide the keys to unlock the value from big data and allow supply chain planning to become a driver of financial performance for all firms,” says Byrne.
He sees three needs for a demand prediction tool. “Accuracy is absolutely the most important, particularly over the key lead times for product supply. For example, if you have a three week frozen manufacturing schedule, forecasting the next four weeks accurately is much more critical than any other weeks, because that is where you commit to producing certain items. This accuracy can only be achieved by demand sensing tools.
“Automation is second; it should be completely automated in terms of fitting the most accurate models across large data sets and multiple demand signals, reconciling the forecasts and identifying various types of outliers. There is simply no reason in today’s world for demand planners to have to tune statistical models. Demand planners should be focused on collecting information that is not yet available to the system.
“Support the entire process, not just statistical modelling. For example, the system should include demand control, forecast reasonability, various types of exception identification, promotion tracking and forecasting, S&OP statistics, etc,” says Byrne.
“Technical implementation is straightforward. Logical implementation is much more challenging. Most supply chain and logistics systems work on daily or finer granularity, whereas demand planning is typically weekly at best. Running weekly means the demand plan is out of date for six out of seven days or 83 per cent of the time. This is not very promising. Demand plans also typically ignore valuable and relevant information like orders. It’s very easy to publish a demand plan and have the orders be higher than the forecast, which makes no sense. Sound integration requires the demand plan to be:
Accurate – of course this is critical
Current – it needs to reflect the latest information, particularly for logistics, which generally operates in a short time window
Consistent – the plan needs to reflect all of the available information. Publishing a forecast that’s lower than the orders on hand is nonsense and forecast consumption rules don’t work well.
“Only demand sensing meets the criteria for a meaningful integration,” says Byrne.
Dombach points out that achieving real time visibility throughout the supply chain is a critical factor in meeting a demand driven supply chain head on. “Customer expectations are becoming ever more complex and demanding meaning that suppliers need accurate, instant and consistent visibility.
“Advanced data capture such as barcodes, RFID, wireless technologies and location based technologies can all work to send asset information to a central location, giving a real time view of the product’s journey and location,” says Dombach.
International: Rise of the just-in-case buffer
Roswitha Tertea, vice president at Hitachi Consulting, points out that poor information within the supply chain can lead to the rise of “just-in-case buffers” across various operational functions of an organisation. They are called just-in-case because poor data quality, complexity, and uncertainty make people build safety measures into their daily work to cover all scenarios.
She highlights four areas where these buffers can occur: inventories; lead time, people, and equipment. “These symptoms of ‘just-in-case buffers’ can often be traced back to the various planning levels of an organisation that are poorly integrated.”
And she says that Hitachi consulting has identified three main reasons for failures in integrated planning: conflicting targets; opacity and lack of correct data; and 3 complexity of processes and organisational structure.
Conflicting targets can be addressed by employing cross-function shared targets for those teams that need to collaborate to achieve the desired results. “If they can jointly influence a KPI they should have the same targets and their bonuses should also be tied to them.”
To deal with the issue of opacity & lack of correct data requires strengthening the position of decision makers. “Integrated planning needs to be an instrument to deliver a basis for decisions at every involved organisational level, at any time and at any stage. Ideally, integrated planning triggers reaction and pulls for transparency to support the right decision taken from a flood of information that includes sales and financial planning as well as operational execution regarding performance decisions.”
Dealing with complexity of processes and organisational structure is a significant task in its own right. “At a basic level, companies should re-focus on core processes, simplify and harmonise the IT landscape and streamline the organisational structure. Ensuring end- to-end accountability for processes, clear responsibility for KPIs and well-defined targets enables people at all levels to make real-time, fact-based decisions.”