How good is your map
Planning software, once used by large manufacturers to schedule production, is emerging as the roadmap that allows managers to anticipate supply chain demands.
By -- Modern Materials Handling, 5/1/2000
There is an old adage: If I execute flawlessly against a bad plan, I haven't done anything good for my customer or my company.
What's unstated is the corollary to that bit of wisdom: If I can come up with an accurate plan, flawless execution is an advantage for me and an added value to my customers.
The corollary is one reason that sales of supply chain planning (SCP) applications are riding high.
SCP is the umbrella term for software tools that model business systems to predict, plan, and optimize the future for warehouses, distribution centers, and manufacturing facilities. That might include determining where to locate a warehouse to best service a particular market over the next 5 years; how much inventory to make and stock for a particular promotion for the upcoming holiday season; or how many workers to assign to a group of orders that need to be picked and shipped in the next 2 hours.
For the last 3 years, planning has been the hottest segment of the enterprise applications market with a 70% compound annual growth rate in 1996 and 1997, according to AMR Research, the Boston-based research firm. The market slowed to a still impressive 55% annual growth rate in 1998, the last year for which figures are currently available. Looking ahead, sales of supply chain planning products are expected to nearly quadruple from $940 million in 1998 to $3.6 billion in 2002.
By comparison, the supply chain execution market, which includes warehouse management systems (WMS), transportation management systems (TMS), and order management systems (OMS), is expected to grow at 39%.
What is driving the growth of supply chain planning applications? "Customer demands are requiring improved performance across the supply chain," says John A. White III, vice president, strategic consulting services, with Manugistics. "Today's planning capabilities enable speed, value, connectivity, and intelligence to support those changes."
"There is far less loyalty from customers than there was in the past," adds Neville May, product manager with interBiz Supply Chain Group. "More is expected from customer service, so how well you plan, schedule, forecast, and then deliver had better be flawless."
And then there is the Internet, which is creating demand for the entire supply chain software market, from enterprise resource planning (ERP) systems to WMS.
The Internet is producing a two-fold impact on the planning niche. On the one hand, e-commerce is creating new customer demands and new channels of competition such as auctions and business-to-business trading exchanges. Planning can determine how best to compete on that unfamiliar terrain and still turn a profit.
"Planning is quickly becoming the enabling technology for e-business applications," says Chuck Alvord, vice president, advance programs, TRW Global Enterprise Solutions. "What we saw over the last two holiday seasons was that not having a robust distribution management function caused some companies to fall flat. They put up a store front without coupling their portal with an effective back-end function that could forecast and plan for demand."
At the same time, the Internet is providing a platform to connect different systems and trading partners for more effective planning. The new challenge of the Internet, then, is also providing new solutions to meet those challenges.
"For many years, the goal has been to improve the integration and collaboration capabilities across the supply chain, but there wasn't an easy way to do that," says White. "Now there's an infrastructure put in place by the Web to do that."
In short, the Internet has increased the challenges of doing business, but it's also increased the opportunities for planning, forecasting, and scheduling.
While planning is often thought of as a corporate level function, it impacts all departments in an enterprise, including the warehouse and distribution center.
"In the past, the manager of a DC may only have had to deal with full pallet and case picks because they were shipping directly to a large customer," says Chris Jones, executive vice president, marketing, SynQuest. "Now, they may have to worry about higher volume of orders and picking individual items. To do that, you may have to think about reconfiguring the warehouse, implementing a cross-docking or postponement strategy, or how best to schedules trucks to utilize your docks."
Supply chain planning provides the roadmap that will answer those questions and get you to your destination.
Planning across the supply chain
Supply chain planning software typically resides at the corporate level, often on its own server. Because many plans are forward looking in terms of months and even years, SCP applications may not run in real time.
However, the new breed of warehouse and distribution planning applications are designed to provide answers now to difficult questions that may arise during the course of a shift. They are ready to evaluate if a hot order for a valued customer can be picked and delivered before the day is out. Those programs may reside at the warehouse, or be accessed from the warehouse via the Internet, and run in real time.
In fact, thanks to desktop computing power, a transportation plan to optimize a fleet of vehicles that may previously have taken hours to create can typically run in as little as 10 minutes, says Enslow of Descartes Systems Group. Incremental changes can literally be made in seconds. "That kind of power allows you to do dynamic routing," Enslow says. "If a customer calls or a truck breaks down, you can instantly adjust your plan and reroute vehicles for the best resource utilization."
Planning is generally targeted at three decision-making levels, each with its own time horizon.
Strategic decisions are made at the corporate level on an annual or quarterly basis. Strategic planning is primarily concerned with macro issues like capital asset allocations and market and sourcing decisions. These systems answer questions like; where to locate plants, warehouses, and transportation facilities; whether or not to outsource to third parties; and what modes of transportation to use.
The advantage of strategic planning is that it may provide answers that initially seem counterintuitive, but in the long run create more profit.
"We work with a large European cereal manufacturer that went from corporate-owned to public warehouses to distribute their products after running a supply chain planning program," says Jones from SynQuest. "They are spending $6 million a year more in transportation than they used to, but the net result is that they took $72 million out of their total supply chain cost and are better able to service their customers by ridding themselves of corporate-owned assets."
Without a planning system, it's doubtful the company would have come to the same conclusion.
Tactical decisions are also made at the corporate level on a monthly or weekly basis. A tactical plan may work with the sales department and suppliers to determine the best way to source and distribute inventory for an upcoming promotion or seasonal items, always with the constraints of the supply chain in mind. A tactical plan may decide to hold snow shovels in a central warehouse until predicted weather patterns determine where they're going to be needed most. It also evaluates whether it is best to deliver a truckload of shovels directly from the manufacturer to a store, rather than to a distribution center first.
Operational decisions impact a week, a day, or even a short span of time within a shift. Operational planning takes the supply chain plan developed by the strategic and tactical planning programs and develops a way to execute those plans. Transportation and order management are examples.
Despite the impressive growth of this new software, it's important to remember that SCP suites are still in the early stages of development and still have a long way to go, especially when it comes to the warehouse environment.
"The most prevalent use to date is still in the manufacturing/scheduling area," says Andrew White, vice president of product strategy for Logility, Inc. "Planning and optimization applications are only just now beginning to be applied in distribution scheduling. That area is a great candidate for these applications, but it's still not clear to us how broadly it will seep into the four walls of the warehouse."
Nevertheless, SCP is with significant promise for warehousing and distribution in the future. Moreover, new systems being introduced that provide even greater optimization, visibility, intelligence, and collaboration promise to transform the SCP arena again in the coming years.
Just as supply chain planning programs are enhancing the management systems we have used for years, a new group of applications is extending supply chain planning systems.
Four of these new categories include: warehouse optimization, supply chain performance measurement, business intelligence, and collaboration.
Optimization brings forecasting and planning down to the warehouse level, taking into consideration the orders to be filled against the constraints of inventory, equipment, personnel, and storage at a facility. These applications bridge the gap between demand forecasting, which usually takes place at the corporate level, and warehouse and transportation management systems, which execute the orders.
"A warehouse optimization system will look at a plan and determine what resources are needed to receive, putaway, and pick and ship that inventory, " explains Steve Christensen, vice president of sales for Renaissance Software, Lake Success, NY.
Supply chain performance measurement and visibility, or metrics, describes an emerging set of applications that measure supply chain performance. "The idea of metrics is that you can't manage what you can't measure," says Greg Aimi, vice president of industry strategy and product management for McHugh Software.
In other words, it's one thing to create a plan; it's another to know that the plan is a quantifiable success.
As a planning tool, these programs can model a business process before implementation like other supply chain planning programs. But as a measurement tool, metrics programs capture data generated by execution systems, like a warehouse system, and send that data to a central storage area for review to determine how well operations are performing.
Business intelligence applications integrate information from outside the four walls of an enterprise, or even a supply chain, with the predictive management capabilities of a planning system.
"Business intelligence is an agent technology," says Ken Ramoutar, vice president, marketing, interBiz Supply Chain Group. "It uses the Internet to collect and assimilate information, and then to tell you what might happen so you can react before a problem."
In the short term, Ramoutar says, business intelligence can be applied to predict demand to manage capacity, especially if you're operating your facility near it's maximum levels. Longer term, the technology looks at patterns and trends and learns what is ordinary and what is not. Once that happens, it can alert you when something out of the ordinary occurs, and predict what might happen as a result.
Collaboration, also known by some as decision support software, extends planning beyond the four walls of your enterprise, allowing you to create plans and forecasts in conjunction with your customers and your suppliers.
"In a collaborative environment," explains Andrew White, vice president of product strategy for Logility, Inc., "manufacturers, distributors and their customers exchange forecasts about what each thinks they will need and how that demand can best be filled."
Using the Internet to collect point of sale information, companies in a collaborative relationship can automate the replenishment process: When an item crosses the scanner in the checkout line of a department store, for instance, that information can automatically go to the manufacturer and distributor who know to replenish that inventory item.
"The gap between planning and execution can literally become zero," says White.
Those kinds of collaborative initiatives-known as collaborative planning, forecasting, and replenishment-are in the early stages through the Voluntary Interindustry Commerce Standards (VICS) association.
In the future, White also expects to see new initiatives that include transportation carriers as part of a three-way team between vendor, customer, and carrier to optimize the flow of goods. These initiatives are known collaborative transportation management.
That kind of planning leads not to just e-commerce, which is a matter of business transaction, but true electronic business relationships. White sees that kind of planning as the brass ring in the integrated supply chain.
The original planning systems were developed for the manufacturing plant. Manufacturing planning is still the most widely used application, according to AMR Research of Cambridge, Mass. However, with the increased need for speed, managers in the warehouse and distribution center are now recognizing the value of planning applications. Following are descriptions of some of the most widely available programs today outside of the manufacturing arena.
Supply chain planning, as a distinct application, provides end-to-end visibility of the supply chain. SCP models in real time all order processing and purchasing, manufacturing and assembly sites, transportation methods and routes, and supplier and customer connections associated with a complete supply chain to meet forecast and actual demand. SCP generally spans multiple manufacturing and distribution sites and may provide some level of supply chain synchronization
Supply chain network design optimizes the use of resources across a network of suppliers, customers, manufacturing locations, and distribution centers. With simulation, this application can also be used to test the impact of closing or moving a facility on profits and customer service levels. It can also be used to locate new facilities within an existing supply chain to determine the optimal way to fulfill customer demand.
Supply chain inventory visibility is an application that provides inventory levels for an entire supply chain, including not just your facilities, but also inventory in transit plus inventory at your suppliers' and customers' facilities.
Demand planning reflects what customers want, not necessarily what can be produced. It does so by analyzing all of the different demand streams coming into an organization, including point of sale (POS) and electronic data interchange (EDI) as well as shipment and order histories. Added to that is anticipated marketing and promotional activity. The planner then takes that information to design and plan future events and to predict their effects on the organization.
Distribution resource planning is a fully automated process that ensures the timely and accurate replenishment of warehouse inventories, and prevents costly inventory stock outs and stock overages. Through an analysis of current inventory levels, projected demand and anticipated inventory receipts, DRP determines where finished goods need to be located, in what quantities, and when inventory will need to be replenished to meet demand without increasing inventory levels. Distribution planning may consider actual transportation costs and material allocation requirements and support vendor managed inventory.
Inventory planning determines inventory levels necessary to provide a specific level of customer service at individual warehouse and distribution locations. Those levels may be determined by customer demands or sales history.
Transportation planning optimizes outbound and inbound material flow to minimize transportation costs and maximize the utilization of private truck fleets by consolidating shipments into full truckloads (when possible), planning routes, and sequencing delivery/pickup locations.
Warehouse planning or warehouse optimization defines how much product can flow through the warehouse based on the limitations on labor, equipment, and space. This software can assign a cost to each transaction and simulate future activity to perform a what-if analysis on how changes in the picking scheme, layout, and product mix might impact profitability.
Available-to-promise determines whether a customer's request date can be met and/or the next best date from existing inventory and production orders.
Capable-to-promise, a related application, looks at available capacity and determines whether an order can be inserted into the schedule to meet the customer's request date.
Vendor managed inventory is the name for when manufacturers or distributors manage the inventory in their customers' facilities until the time of a sale. In a VMI environment, it's up to the vendor to plan and have the right amount of product on the shelves to meet consumer demand. Those who do the job best are rewarded with more shelf space and better terms.
Collaborative planning, forecasting and replenishment is a new type of planning software that involves all the participants in a supply chain who submit their demand and promotion forecasts to create the best plan for manufacturing and product replenishment.
Sources: AMR; Manugistics, Inc.; TRW Global Enterprise Solutions; Renaissance Software.
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