Planning for supply chain Success
The ability to make operational, tactical, and strategic plans has made supply chain planning solutions red hot.
By Bob Trebilcock, Contributing Editor -- Modern Materials Handling, 5/1/2001
Given the hectic pace of business today, few of us could get through the week without a day planner or palm pilot to keep us on schedule.
The supply chain is also under pressure. Lead times are shrinking, SKU's are proliferating, and the demands for improved customer service are multiplying exponentially.
Enter supply chain planning (SPC), a day planner of sorts for manufacturing, warehousing, distribution, and transportation.
The velocity of today's hyper supply chain is one reason the market for supply chain planning (SCP) solutions is showing strong growth despite a slowing economy. In fact, AMR Research, Boston, Mass., predicts that sales in the sector will increase by 45% in 2001, from $3.1 to $4.5 billion.
Where will that growth come from? According to AMR, the opportunities are vast. Fewer than 20% of companies have implemented a supply chain planning solution, including a mere 5% of the mid-market.
But why do companies need supply chain planning in the first place regardless of their size? There are a number of reasons.
First, any business that wants to migrate to the Internet needs a strong B2B foundation. Supply chain planning is the essential tool to the electronically-linked supply chain.
Second, as the velocity of business revs up, companies have less time to react to change. "The gap between planning for an order and executing that order has dramatically narrowed," says Chris Jones, executive vice president of marketing, SynQuest, Atlanta, Ga. "The question then is: How are you doing to enable your business to move faster and more reliably while still turning a profit?"
"Five years ago, planning in some industries was done at the beginning of a quarter and updated periodically," adds Chris Houck, director of solutions marketing for supply chain management solutions at i2, Dallas, Texas. "There is no way to do that today. Companies need to respond to changes in customer demand more quickly."
If those sound like high-level functions, in one respect they are. SPC solutions reside at the corporate or host level, as either a component of an ERP system, or along side of an ERP system. Typically they take a corporate or enterprise-wide view of activities.
But that doesn't mean that supply chain planning is divorced from the activities in the warehouse, distribution center, or on the manufacturing plant floor. Far from it.
"Supply chain planning is absolutely imbedded in what goes on in the warehouse," contends Ken Carroll, director of distribution industry strategy for PeopleSoft, Pleasanton, Calif.
That's because the resources most impacted when a plan goes awry are the people, inventory, equipment, and transportation involved in order fulfillment, Carroll explains. Conversely, he adds, "warehousing and logistics professionals are the beneficiaries of a good planning system."
Just what is SCP?
The paybacks to early adopters of SCP solutions have been significant. They include:
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Delivery performance improvements: 15 to 30%
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Inventory reduction: 25 to 60%
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Shortening of fulfillment cycle time: 30 to 50%
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Improvements in forecast accuracy: 25 to 80%
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Overall productivity increases: 10 to 16%
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Improved fill rates: 20 to 30%
But, just what is a supply chain planning? The short answer is that a planning solution is an analytical tool that crunches numbers that pertain to one facility or even multiple stages of the supply chain.
"Planning lets you know what you're going to do today, tomorrow, and next year," says Anne Omrod, president of John Galt Development, a Chicago-based planning vendor that focuses on mid-size manufacturer's.
SCP is an umbrella term that covers a broad group of applications that addresses all segments of the supply chain, including manufacturing, distribution, planning, inventory replenishment, and transportation. In all, there are at least a dozen distinguishable types of software that fall under the SCP software umbrella.
A planning solution might be used to predict the affect of various levels of demand on the resources of a manufacturer or distributor. Or it might focus on the inventory levels needed to meet a required customer service level at a warehouse.
The ultimate point of a planning solution is to enable companies to practice true supply chain management across an enterprise or across a supply chain.
The key difference between contemporary systems and their predecessors is the concept of constraints. Early planning and scheduling tools assumed that inventory, raw materials, and capacity were infinite. As we all know, the real world is a series of speed bumps, road blocks, and hiccups. SCP applications create a plan around those real world hazards.
"Planning goes beyond simply scheduling orders," adds Kyle Sanford, product manager, Made2Manage Systems, Indianapolis, Ind. "It's a decision about how a company is going to allocate resources to meet demand. If a list of work orders has been created, then the planning system has determined that you have the material, the man-power, and the resources to make or pick that order and push it through the system"
That can involve decisions on whether to make or buy the inventory for an order; from which warehouse to ship the orders; and how much material needs to be ordered to replenish the stock that went into filling the order. All of those decisions are made with an eye towards producing a profit.
Finally, a good planning system uses the outcome of a plan to create an historical record that can be used to better forecast demand in the future.
Three levels of planning
SCP tools attack a plan at three different levels: Strategic, tactical, and operational.
Strategic planning has a long-term horizon. "In the strategic process, you're looking at your raw supply chain network design in order to best meet demand over the next several quarters or next several years," says i2's Houck.
A strategic plan might decide where to locate a warehouse and transportation hubs to serve a specific market, or whether to rely on a third party logistics providers.
Tactical planning looks for the optimal way to align supply to meet anticipated demand over a shorter time horizon. "The tactical level is based on forecasts," Houck says. "We forecast demand, and then determine how to best position resources along the supply chain to meet that demand."
Operational planning creates a specific manufacturing, warehousing, and transportation plan to fulfill real demand in the near term, considering all the constraints in the supply chain. "If we've done a good job at the strategic and tactical levels," says Houck, "we have a good chance of moving the orders through the supply chain to meet a customer's delivery date."
Operational solutions may develop weekly production and stocking schedules, then divide those into smaller units of time, right down to the day, hour, and minute to handle exceptions.
Combine those three levels of planning with the historical record of your company's transactions, and you gain broader and deeper visibility into where you've been, where you are, and where you're company is going.
Integrate that information with order execution systems, like a warehouse or transportation management system, and lower your fulfillment costs without sacrificing customer service.
Web-enable those systems and you can share that information with your trading partners to collaboratively plan for the future.
At the end of the day, that leads to a more efficient, productive, and profitable supply chain.
That translates into increased productivity and an optimized supply chain.
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