Organizations, from health care facilities to manufacturing giants to small restaurants, can be viewed as an ongoing sequence of loosely coupled activities where current and future assets are matched with current and future demand across the supply chain or demand-supply network (preferred term of Dr. Karl Kempf – Director of Decision Technology and Senior Fellow, Intel). These planning and scheduling decisions occur across a complex playing field organized by decision tier (strategic, tactical, operational, and relevant time response) and organization (corporate planning, factory, marketing, purchasing, etc.). The components of the playing field are described in more detail in a future blog.
The purpose of Supply Chain Management (SCM) is simply to keep chaos at bay – steer the ship and have it work in a coordinated fashion. More formally, SCM is a business process that helps keep demand and supply in balance and synchronize the activities the firm at an aggregate level. This balance and synchronization is achieved by collaboration and alignment throughout the various departments of an organization.
All SCM or central planning processes created to manage an organization’s demand/supply network consists of three primary activities, as well as two secondary activities. The three primary activities include:
1. Demand Management
Understanding the exit demand, quantity, due date, certainty and priority of an organization’s products. To achieve successful demand management, it is key to have current data, collaboration and a wide range of visibility. Best – in – class software solutions help organizations achieve these requirements by providing seamless access as needed to key data like ship history, order history, forecast history, and current forecast. The ability to dynamically aggregate and disaggregate the data, implement various forecasting methods, and create a collaborative environment are also added benefits. Through effective demand management, an organization can automate the routine aspects of their process, quickly analyze emerging opportunities, and focus on understanding their market to improve responsiveness as opposed to the mechanics of creating the demand estimate.
2. Supply Planning or Match Assets with Demand (MAD)
MAD (1998 IBM patent 5,971,585) – balances or matches assets such as inventory, resource capacity, and production routes with demand to determine what can be met and how different asset levels impact the projected supply plan. This “matching” process is often called Rough Cut Capacity Planning (RCCP) or Production Planning. The methods deployed differ based on the level of granularity, the inherent nature of the industry, and the algorithm(s) used to match or balance assets with demand. It is important to determine which method is best for each specific situation. However, in all cases there are two main goals: insight for responsiveness and synchronization.
3. Analytics Workbench
Using analytics to create insights that can help determine the exchange between those involved in the SCP or S&OP process. Generating the demand statement and executing the matching process are just the start of the supply chain planning process. The real work is the analysis of the source data and model results to insure the organization is not over committed, and more importantly, those opportunities are not missed. This is sometimes referred to as the “repair” process. Key elements of support are basic business analytics and dynamic, or pro-active, analytics.
The two secondary (secondary since the first 3 must exist first) activities are:
Available to Promise (ATP)
Focusing on specific commitments to make to customers when an actual order is placed. “Complexity” can range from simply looking at available inventory to complex trade-offs with projected inventory to altering the relative importance of tasks for execution.
Inventory Modeling and Policy
Focusing on understanding what inventory levels occur simply as a result of the nature of your network to locating safety stock to buffer against the inevitable variability in demand and supply. The critical insight is the purpose of inventory policy is to manage risk and the purpose of the model is to help management understand the risk.
Organizations that are just starting the journey of using software to support more intelligent SCP will often, but not always start with demand management followed by either an aggregate level supply planning application or an inventory model. After these are in place, typically an assessment is made to determine the next steps that best benefit the organization. It has been proven that following an incremental process for enhancing existing or implementing new functions is the best practice. An organization already into the journey should begin with the assessment. However, the critical concept to remember over all integrated areas is this is a “plan”, not the execution. Benefits of having a plan like this one are:
- You create expectations for an organization that are feasible but do not leave opportunities on the table.
- You insure the “assets” needed are in place.
- You synchronize the overall activities of the organization.
Last, having this process in place with depth, breadth, and flexibility enhances the value of business knowledge and intuition, not replace it. As Karl Kempf observed “The interplay between analytics and intuition produces better business solutions with less debate and in a shorter time”.