The five proven steps to improve your S&OP or IBP process outlined in Dr. Harpal Singh’s 2003 seminal work ‘A Practical Guide for Improving Sales and Operational Planning’ are as relevant today as they were in 2000. Over the past 5 weeks, each step has been discussed in a six-part series on LinkedIn. One of the sessions focused on balancing supply and demand. This blog captures some of the key questions and answers with respect to central planning engines to match assets with demand.
Over the past 5 weeks, Jeff Ondria has hosted a set of short interviews about the five distinct steps to develop an effective S&OP process for managing your demand-supply networks. These time-proven steps were outlined in Dr. Harpal Singh’s 2003 seminal work ‘A Practical Guide for Improving Sales and Operational Planning’. In today’s parlance, S&OP is sometimes referred to as IBP (integrated business planning) or central planning. The six-part series is
Intro – The Foundations of an S&OP Process
Step 1 – Understanding Customer Demand
Step 2 – Analyze Inventories
Step 3 – Routinely Create a Demand Plan
Step 4 – Balance Supply and Demand
Step 5 – Implement Sales and Operations Planning
This blog will review some of the key questions and answers with respect to balancing supply and demand that I refer to as the central planning engine – demand management’s partner in crime. We refer the reader to the IBF Practitioner Podcast in SCM series hosted by Eric Wilson for additional discussions about this topic.
Questions & Answers on Balancing Supply and Demand
Question: Before diving into our topic today, could you provide a short description of the requirements for successful demand management (DM)?
Answer: DM drives an understanding of the exit demand, quantity, due date, certainty, and priority. Successful DM requires easy to access data, best in class methods to extract information from this data, and best in class support for collaboration.
Question: What kind of problems can a business expect to run into if they are not able to balance their Supply and Demand?
Answer: I use the term central planning engine or CPE for short. (1) It serves as the control point for the synchronized flow of material focused on how to best meet demand and business policy without violating constraints. (2) It enables a firm to assess the requirements demands place on its network. (3) It creates a “game plan” for the enterprise. IF demand and supply are not matched or balanced, then the activities of the demand-supply network will not be synchronized: manufacturing location A will be producing product 1 when location B is expecting product 2, customer commitments will not be met, and inefficiencies will occur. For example, the firm may fail to use product 3 that is in inventory and instead produce it from scratch. This is referred to as the efficient frontier.
Question: If one was to begin a process for balancing their Supply and Demand, aka CPE, where should they start? And what type of tasks should the team expect?
Answer: We can divide tasks into two groups: creating the CPE and using the CPE. I am sure the firm has already created a CPE in some form, the starting point is to do a review of this. Then decide how to best improve the CPE. There are two major tasks: secure your data supply lines and flexible model structure. These two steps overlap.
Using CPE to support business decisions requires an assessment of which variations are needed for your business. For example, one might be with only firm demand, the second is with firm and forecast demand. Another would be focused on the first 3 months versus 12 months. Establishing a team that knows how to use the CPE effectively to support business decisions. And of course, what information to report. A critical component is to assemble your agents of change – the CPE will be technology that upsets the social order. Without agents of change, success is unlikely.
Question: What type of technology deliverables should a business be striving for at this point?
Answer: Some of the deliverables I mentioned before are on regular use. Let me chat for a minute about the type of technology used to build your CPE. This starts with assessing the complexity of your demand-supply network: Are there shared component material? Shared resources? More than one way to make or ship a product? How deep is your build structure? Are there demand classes? How is unmet demand aged? The second is assessing the size of the network. As the level of complexity increases, this points the firm to the use of mixed-integer linear programming – sometimes called optimization, although that is a term I dislike. Increasingly this is supplemented with specialized solvers focused on sequences. I most prefer to make the chocolate ice cream after I make vanilla. When there is less complexity Rough Cut Capacity Planning and rule-based replenishment planning work well.
Question: Once you begin this exercise, how do you maintain it and improve on it?
Answer: Hard work and agents of change. As Harpal points out you need to treat your CPE as central to your business, not a necessary evil. Give your CPE team status. Plan some enhancements each year – this is an ongoing challenge.
Question: What are a few benefits you would expect from completing this exercise?
Answer: The obvious benefits are better on-time delivery, improved use of inventory, and better use of capacity. The largest benefit is vastly improved responsiveness to changes in demand, supply, and business policy. Without a first-class CPE, your firm is flying blind. One VP of supply chain I knew well said the following, “Given the scale and supply chain complexities, unless we can accurately model our supply capability and integrate this with configurable business rules for netting demand against the supply, the problem is largely unsolvable without sacrificing service for inventory or vice versa.”
One of the foremost agents of change I have known referred to success as: “the business can not imagine life without the application.”
The five time-proven steps to improve your S&OP process outlined in Dr. Harpal Singh’s 2003 seminal work ‘A Practical Guide for Improving Sales and Operational Planning’ are as relevant today as they were in 2000. This blog answered some key questions with respect to balancing supply and demand or matching assets with demand.
- What kind of problems can a business expect if it does not balance demand and supply?
- Where should a firm start?
- What type of technology deliverables should a business strive for?
- How can you maintain progress?
- What benefits should the firm expect?
About the Author: Ken Fordyce
Before joining Arkieva, he had a very successful 36-year career with IBM, much of it in all aspects of supply chain (to use Intel’s Karl Kempf’s preferred term – demand-supply networks) for IBM Microelectronics Division (MD). During this period, MD was a Fortune 100-size firm by itself. Fordyce was part of the teams that altered the landscape of best practices – receiving three IBM Outstanding Technical Achievement Awards, AAAI Innovative Application Award, and INFORMS Edelman Finalist (twice) and Wagner (winner). He writes and often speaks about the “ongoing challenge,” both to practitioners and academics. In his free time, Dr. Fordyce enjoys writing programs in APL2 while running sprints.
About the Author: Jeff Ondria
Jeff Ondria joined Arkieva in 2012 and has focused his attention on business development and Arkieva’s brand awareness. You may have met Jeff at a number of supply chain conferences over the years or more recently hosting Arkieva Spotlight on LinkedIn Live. When Jeff isn’t working with the sales team he can be found supporting his 3 girls Lacrosse endeavors or riding his road bike throughout Bucks County PA.