Supply Chain Management
Please click on the FAQ to see the answer.
• What are the differences between Enterprise Resource Planning
systems and Supply Chain Planning systems?
• What are some of the benefits of Supply Chain Planning?
• Dont ERP packages already offer supply chain planning?
• What are some of the elements of Supply Chain Planning?
• Wed like to do collaborative supply chain planning with
a handful of strategic partners. What are our priorities for the initiative?
• What functionality should I expect in supply chain planning
• What steps should my company go through in implementing Advanced
Supply Chain Planning: Ive heard about the benefits from successful
supply chain management initiatives, but Ive also heard about
failures. How do I move forward in a way that ensures success?
• How do I Initiate a Sustainable Collaborative Process Among
• What is OLAP and Why Should I Care About It?
• What is Customer Relationship Management and How Does it Relate
to Supply Chain Management?
• If Lean Manufacturing or Theory of Constraints (TOC) is used
in an environment, when is it appropriate to apply Advanced Planning
and Scheduling (APS) technology?
• Some ERP vendors that weve spoken with have a discouraging
perspective on application interfaces. Were about to install
some decision support applications and will need to interface these
to our ERP and other systems. Do we have reason to be concerned about
• I understand what incremental means, but is there a good guideline
for the length of time any one project should take?
• How will I know when our team is ready for advanced supply
chain management tools?
• Were routinely running statistical forecasts. Is there
more that technology can offer us to support better demand planning?
• We're currently implementing a production planning tool. What
steps can we take to make sure we aren't "consultant dependent"
after we go live?
• Across the entire S&OP spectrum, what first steps would
you recommend for improving our inventory mix?
• On average, we spend about $15MM per year on our rail car
fleet. What can we do to reduce this cost?
• How Do We Encourage Salespeople To Contribute To a Forecast?
ARE THE DIFFERENCES BETWEEN ENTERPRISE RESOURCE PLANNING SYSTEMS
AND SUPPLY CHAIN PLANNING SYSTEMS?
Enterprise Resource Planning
systems (ERP) are information systems that are transaction
oriented. They are backbone systems that track orders, production,
financials, etc. They tend to answer the question What
is the current state of my business?
Supply Chain Planning (SCP) systems are information
systems that enable a company to link their vendors and customers.
They help companies to respond to changes in their processes
and market place using optimization and simulation techniques.
They tend to answer the question How can I respond to
the current situation in the most effective manner?
ARE SOME OF THE BENEFITS OF SUPPLY CHAIN PLANNING?
Typically, a company can expect
the following benefits:
Inventory reductions 20-40%.
Order fill rates and On-time shipments which
are typically measures of customer service improve by 10%
1-2 % reduction in operating costs.
Total SC management cost reduced 10%.
On-time delivery of median companies can improve
Typical company can improve asset utilization
Leading companies have a 40%-65% advantage
in cash-to-cash cycle time over average companies.
ERP PACKAGES ALREADY OFFER SUPPLY CHAIN PLANNING?
ERP solutions have improved
the quantity and quality of information, but they have not
necessarily provided users with true decision support. To
understand this, we have to remember that the primary purpose
of an ERP system is to continually track how a companys
activities impact its financial status. In order to do this,
ERP systems must work at a transaction level of detail. They
capture every receipt, production activity, and material movement.
Although this greatly improves the quality
of data, it is very cumbersome to do analysis, forecast, or
plan at this level of detail. As a simple example, financial
Executive Information Systems have been developed
to meet the slice-and-dice analytical requirements of managers
who need to actively monitor business performance. The technology
that makes ERP systems so valuable in preserving data integrity
also sacrifices the ability to do strong analysis. The result
is supply chain planning modules that are simplistic, and
Many current ERP vendors now offer product
extensions that allow for some degree of supply chain planning
(SCP). These extensions use different technology to enable
more sophisticated analysis, and they interact with your core
ERP system much in the same way as other best-of-breed solutions.
However, the range of functionality they offer is uneven,
since many ERP solutions have difficulty moving far from the
simplistic planning modules they already offer.
Next generation SCP systems offer the decision
support to understand what customers will want, how to make
it, how to ship it, and where to hold inventory. The spreadsheets
and manual systems that were once used to interface with a
company's ERP are quickly becoming a liability. SCP systems
are designed specifically to leverage your ERP data, and combine
this with supply chain performance information to improve
daily decisions. What-if analysis becomes faster, and more
realistic. People can test the outcome of their decisions
before they commit resources, and each has a view into how
their input affects the entire organization.
ARE SOME OF THE ELEMENTS OF SUPPLY CHAIN PLANNING?
Typically, Supply Chain Planning
will address all or part of the following processes within
• Demand Management • Collaborative
forecasting • S&OP • Scheduling • Performance
measurements and metrics • Vendor management • Continuous
LIKE TO DO COLLABORATIVE SUPPLY CHAIN PLANNING WITH A HANDFUL
OF STRATEGIC PARTNERS. WHAT ARE OUR PRIORITIES FOR THE
The Internet has reduced the
cost of communications between companies, so connectivity
is no longer a limited factor. Effective external collaboration
builds on effective internal collaboration, so the first step
is to ensure that your internal systems and processes are
in order. The second step is to understand which collaborative
relationships have the greatest potential return for your
You need to answer two key questions about
your internal systems and business processes.
• Are they integrated? • Are
Look at the basics:
Is supply chain information available to users across your
company? Can people slice and dice data from a common source
to meet the needs of their job function? Do you have dynamic
reporting of performance information? Is there a common planning
process for evaluating the interactions between customer demand,
material availability, production capacity, and distribution?
If you have difficulty in managing your own data, adding that
of others wont provide for better internal decision-making.
Many companies still find that their data and decisions are
fragmented across the different business functions.
The scalability of your systems and processes
affects the cost of collaboration and the likelihood of success.
Can current staffing levels deal with the additional information
and interactions required by external collaboration, or will
additional resources be required? Spreadsheet based planning
processes are very labor intensive, and have limited scalability.
Once you are satisfied with your internal capabilities,
you should look at your customers to identify the prime candidates
for collaborative interactions. The specific factors to consider
with vary with the industry that you are in, but a universally
productive exercise is to plot customer volume versus demand
variability. The customers with both high volume and high
variability are prime candidates for collaborative planning.
FUNCTIONALITY SHOULD I EXPECT IN SUPPLY CHAIN PLANNING SYSTEMS?
Methodology to assist in implementing the
systems and processes.
A repository for my business rules and procedures.
A system or process to identify problems (early
Tools to optimize supply and demand.
A detailed finite scheduling module.
STEPS SHOULD MY COMPANY GO THROUGH IN IMPLEMENTING ADVANCED
Understand your companys
supply chain and its important aspects.
Get buy in from upper management and identify
Identify opportunities for improvement and
quantify the benefits.
Be prepared to educate the organization. Too
many companies do not prepare their organization for the amount
of change that will occur.
Choose the correct vendor to work with. Know
each vendors strengths and weaknesses. Speak with companies
the vendor has worked with in the past.
Bring together the best people in your company
to be part of the team.
CHAIN PLANNING: I’VE HEARD ABOUT THE BENEFITS FROM SUCCESSFUL
SUPPLY CHAIN MANAGEMENT INITIATIVES, BUT I’VE ALSO
HEARD ABOUT FAILURES. HOW DO I MOVE FORWARD IN A WAY THAT
In their rush to capture the
potential benefits from supply chain management (SCM) initiatives,
companies often fail to consider how they affect the daily
lives of the people in their organization. On paper, a big
bang approach may appear to be the fastest way to capturing
benefits, but it is also the most disruptive way of introducing
new tools and processes.
People tend to cling to the way they currently
perform their jobs. A common element in the big bang
approach is rapid introduction of technically sophisticated
tools. If an SCM initiative is viewed as increasing the difficulty
of a job function, or creating a more complicated work environment,
the initiative usually encounters resistance. In this case,
an opportunity is missed where SCM could have actually
consolidated the work required for decision-making, and made
the users job more meaningful.
An incremental approach to supply chain management
one that prioritizes efforts in a measured fashion
is often most credited with considering the change
enablement needs of a company, and generating excitement
and support for the efforts early on.
It is important to realize that simply providing
users across the organization with supply chain performance
visibility can create strong benefits, including:
A common view of enterprise performance; this
can often assist in identifying and prioritizing next steps.
Less silo thinking as people share
information across functions.
Shared decisions that people own.
This improved visibility generates tangible
dollar benefits, and is usually a prerequisite to the introduction
of more sophisticated decision making tools.
Another benefit of an incremental approach
is that it limits investments in resources both financial
and human to clearly defined projects that build on
experience and knowledge across the firm. This last point
is very important to consider: It difficult for an organization
to accurately define how it will use tools and methods that
it has no experience with. Using an incremental approach,
as an organization gains experience with new technology, it
can more clearly articulate future requirements. Priorities
may also shift due to changes in the business.
In short, identify clear needs that affect
people across functions and promote information sharing and
dialogue across the company. Priorities will then become visible,
and a phased approach will accelerate benefits, generate enthusiasm,
and allow for learning that will create a sustainable process
DO I INITIATE A SUSTAINABLE COLLABORATIVE PROCESS AMONG PLANNERS?
If you want people to participate
in a collaborative process, it helps to give them capabilities
that improve their productivity. Unfortunately, past initiatives
to improve supply chain performance often involved creating
more systems for people to interact with, thereby adding to
Three critical capabilities are needed to improve
productivity across a broad range of business roles.
Make all relevant supply chain information consistent, current,
and in one place. This includes plans, schedules, and supporting
data. Even today, people spend too much time pulling data
from a variety of sources and trying to make it consistent.
Let people easily extract information in the
format and level of aggregation that they need. Many companies
still run their business with fixed format reports, which
means that people either manually manipulate information into
the format they need or develop other sources for it.
Make it easy to move the information into the
normal desktop tool set, avoiding the manual re-entry of data
still found in many companies.
These capabilities may seem trivial, but they
are still largely missing from most supply chain job functions.
IS OLAP AND WHY SHOULD I CARE ABOUT IT?
OLAP stands for On-Line Analytical
Processing. This technology has the ability to explore multi-dimensional
data interactively, going beyond the fixed, two-dimensional
views normally found in spreadsheets and printed reports.
OLAP capabilities are often used to support collaborative
An example is the easiest way to illustrate
this. A newly appointed supply chain manager wants to understand
production variability in a business where a product can be
produced on more than one line at more than one plant. The
standard view of production data is a weekly total by product,
but he would like to drill into the data further to see production
by product and by plant. Production variability at one plant
is noticeably greater, so the next step is to drill further
down into the data to see production by line at that plant.
He notices significant variability with one product on a single
line. To see if related products share this variability, he
then looks at production by product family for each line.
In the past, the supply chain manager would
have ask someone to create a new report each time he wanted
to see more detail or to expand the number of standard reports
to include every level of detail that might be of interest.
In the first case, there is a delay between when he needs
the report and when he get its. In the second, the volume
of reports is overwhelming.
The advantage of OLAP is that it lets the supply
chain managers interactively drill into the data to generate
desired views as needed. They can start at a detailed level
and generate views that are more and more aggregated. Or,
they may go back and forth, as in our example.
Three capabilities are required to make this
kind of analysis possible.
The tool needs to be able to access data and perform calculations
User interfaces must be flexible and intuitive.
The tools must provide multi-user support.
OLAP tools pull data from a relational database,
prepare the data to speed up aggregation, and create a data
structure called a cube or hypercube in computer memory. It
should be noted that data preparation may include some partial
aggregation. The user then accesses the cube through an interactive
interface to work with the data.
Of course, every technology has shortcomings
that go along with its benefits. Large OLAP applications see
a trade-off between the time required to create the cube when
the OLAP application is initially loaded and the response
time for working with the cube. These applications may need
tuning to optimize performance. In addition, since creating
the cube may involve partial aggregation of the underlying
data, many OLAP tools are view only. In other words, they
dont allow editing of data from the cube because they
are unable to disaggregate it into its underlying form.
IS CUSTOMER RELATIONSHIP MANAGEMENT AND HOW DOES IT
RELATE TO SUPPLY CHAIN MANAGEMENT?
CRM refers to a broad range
of software that supports the sales function. Two themes commonly
associated with CRM are using computer technology to enhance
sales effectiveness and providing consistent information to
the customer across all available interfaces. From a Supply
Chain Management perspective, CRM supports the execution of
the sales process and ties into data sources shared by other
Vendors apply the CRM label to a wide range
of applications that include the following:
(Note that many of these applications overlap with each other.)
Interface management: Telephony applications
that display customer attributes when they call, automated
voice-response systems, web-based applications for sales and
customer feedback, call center software, links into customer
ordering systems, and software for administering e-mail sales
Contact management: Software to manage leads,
track and measure progress through the sales cycle, log customer
input, and store customer attributes.
Data management: Applications that provide
a common repository of customer data to support interactions
across all available interfaces (web, telephone, EDI, etc.)
and collect customer history.
Analysis: Manual tools for exploring customer
data. Quantitative techniques to identify groups of customers
with common attributes, develop and deliver customized pitches,
and analyze market trends. More specialized applications address
inventory policies, store layouts, and product displays.
Many vendors claim to provide one-stop shopping
for CRM, but companies may utilize 5 or 6 different vendors
in a CRM initiative.
After Y2K, the software industry searched for
marketing themes that would continue the large-scale expenditures
for software that occurred prior to 2000. The first major
post-Y2K theme was E-business. When E-business lost momentum,
the next major marketing theme was CRM.
A number of companies launched major CRM initiatives.
Typical projects had budgets of $30 million to $60 million
over a three-year time span. As might be expected with something
so ill defined, outcomes varied greatly. Gartner reports that
half of all CRM projects failed to produce benefits. More
recent efforts are smaller in scale and address specific areas
LEAN MANUFACTURING OR THEORY OF CONSTRAINTS (TOC) IS USED IN
AN ENVIRONMENT, WHEN IS IT APPROPRIATE TO APPLY ADVANCED
PLANNING AND SCHEDULING (APS) TECHNOLOGY?
Both Lean Manufacturing and
TOC are complementary to the use of APS. APS includes anticipating
customer requirements (Demand Management); planning and coordinating
activities across the different business functions (Sales
& Operations Planning); defining the timing, volume, and
sequence of production activities and material movements (Scheduling);
and ensuring that customer ship date commitments are realistic
and consistent with business priorities (Order Commitment).
All companies perform these functions, either implicitly or
explicitly. The details of what they do and the effort they
expend vary with the size and characteristics of the business.
TOC is a specific scheduling methodology that
emphasizes scheduling the production bottleneck first, and
then letting the schedule for the bottleneck drive the rest
of the production activities. People have used a variety of
scheduling tools to do this when there is a well-defined bottleneck
for production. While Eli Goldratt has made TOC a semi-religious
ideology, it breaks down if the bottleneck moves as your product
mix changes or if you can flex capacity to shift bottlenecks
as demand increases.
Lean Manufacturing focuses on improving the
efficiency of executing production activities. Its core is
a participatory approach to implementing continuous improvement.
First, the value of each step in the production process is
assessed; next, steps with no or little value added are eliminated
or minimized; finally, value-added steps are made more efficient.
This process gets into the details of the production process,
by considering how material moves through the plant and how
materials, tools, and machines are positioned. In other words,
the techniques associated with Lean Manufacturing are used
to control and synchronize the flow of materials through the
plant, which can be a real headache in many discrete manufacturing
Lean Manufacturing results in improved yields,
reduced lead and cycle times, and fewer quality problems.
These are the parameters used by APS tools that can be updated
as they improve. In the absence of good APS tools, significant
delays are likely in determining how these improvements in
manufacturing performance translate into improved customer
service, reduced inventory levels, and captured additional
Much of the perceived conflict between APS
and Lean Manufacturing comes from competition for consulting
budgets. Fortunately, its not an either or
proposition since companies need to plan effectively just
as they need to execute effectively.
ERP VENDORS THAT WE’VE SPOKEN WITH HAVE A DISCOURAGING
PERSPECTIVE ON APPLICATION INTERFACES. WE’RE ABOUT
TO INSTALL SOME DECISION SUPPORT APPLICATIONS AND WILL
NEED TO INTERFACE THESE TO OUR ERP AND OTHER SYSTEMS. DO WE
HAVE REASON TO BE CONCERNED ABOUT APPLICATION INTERFACES?
Integration of different computer
applications is a necessary evil. Companies have always had
to connect their financials to the applications that handle
the details of sales, materials management, manufacturing,
and distribution. These details vary from one business to
the next, and-despite the claims of ERP vendors-no one product
addresses them all. As a result, a small industry exists around
Enterprise Applications Interfaces (EAI).
Over the years, improvements in technology
have reduced the cost and effort required to link different
applications. In addition, vendors have moved to more open
designs to eliminate many of the integration issues that hampered
businesses in the past.
Originally, computer applications were very
inward looking. They expected data in a certain format, acted
on it, and stored the results in a specific way. Just passing
data between two applications required code-level development.
You either modified one of the applications to address the
differences in data formats, or you created an intermediate
application. The development effort increased rapidly as you
increased the number of applications to be linked since code-level
development was required for each pair-wise interaction. While
only one interface is needed to link 2 applications, 6 interfaces
are required to link 4 applications, 10 interfaces are required
to link 5 applications, and so on.
Not surprisingly, these interfaces developed
a bad reputation because of the effort and specialized skills
required to develop and maintain them. In other words, interface
development required people who understood the proprietary
formats and work flows used by both systems. In addition to
creating the interfaces, they had to synchronize the interactions
between the two systems so that the output from one application
was complete and accurate when another application accessed
it. Further complicating the problem was the fact that changes
to any one application, such as the installation of a new
release, could mean revisions to a number of interfaces.
Initially, vendors tried to discourage customers
from modifying their products because the modifications made
it more difficult to install future releases. However, when
customers insisted that vendors make these interfaces easier
to implement, vendors created Application Programming Interfaces
(API). An API let customers link their own code to applications
without modifying the internals of the product. Although API's
were a big step forward, customers still needed to create
an interface between each pair of applications needing to
The emergence of relational databases (RDB)
greatly reduced the number of interfaces needed to link a
group of applications because they simplified the process
of connecting multiple applications by serving as a hub. When
each of the applications connected to the RDB, data could
move between them without the need for specific pair-wise
connections. At the same time, Structured Query Language (SQL)
emerged as the standard language for queries. SQL provided
a generic language for managing the movement of data through
With the move towards client/server computing
and the evolution of the Internet, applications added the
ability to send and receive messages. As a result, operating
system providers and third party vendors created components
and tools to support these interactions.
Then, vendors added scripting capabilities,
which could send data to other applications or interpret data
sent by other applications. These scripts were analogous to
Microsoft Excel macros in that they did not change the application
but were part of the data the application acted on. If a vendor
provided backward compatibility between releases, the interfaces
would not be affected by the installation of a new release.
Next, software vendors created "middleware"
to support connections between different data management products
running under different operating systems.
Clearly, computing environments have become
more homogenous, further simplifying connectivity. Generally,
operating systems options have distilled down to Windows on
the desktop and Unix variants (like Linux) or Windows on servers.
Such simplification makes it easier to utilize technology
for connectivity provided by operating system vendors. Two
major examples of this technology are ActiveX and Java. The
top three relational database providers (IBM, Oracle, and
Microsoft) control about 90% of the market, thus making it
easier to rely on connectivity tools available from these
vendors. Even more recently, the Extended Markup Language
(XML) has emerged as a common format for passing data between
It is important to realize that the evolution
of connectivity over the past 20 years, and associated reduction
of cost, indicates the degree of need. The creation of interfaces
between applications has gone from code-level changes to proprietary
applications, to the creation of scripts using generic components
and languages that leave the applications unchanged. RDBs
act as data hubs, eliminating the need for a host of pair-wise
Dire predictions on the cost of connecting
to other applications will remain a staple in the sales arsenal
of many software companies (including your ERP vendor). Despite
that, the need for connectivity will continue to increase
as companies move into the era of E-commerce, where they not
only have to integrate their internal applications but also
must connect to their business partners as well.
UNDERSTAND WHAT INCREMENTAL MEANS, BUT IS THERE A GOOD GUIDELINE
FOR THE LENGTH OF TIME ANY ONE PROJECT SHOULD TAKE?
Our experience has been that throughout any
one project plan, you should attempt to show measurable deliverables
within any six-to-eight-week time period. After about two
months of work, people start to lose patience and, more importantly,
their ability to adopt new ways of working is tested. So the
trick is to break a large project up into self-contained units
that take no more than two months to implement.
A good example is a large multi-national chemical
company that wanted to improve inventory management. While
there were many opportunities to improve inventory performance,
management decided that global inventory visibility was the
best first step in that direction. Within four weeks, people
across the firm were able to report on inventory by any combination
of attributes and in terms of volume, value, or days supply.
Not only did the improved visibility identify pockets of inventory
that could be reduced (accelerating business benefits), but
people were also given a tool that provided them decision
support very quickly. Users across the planning organization
began thinking more globally and gained comfort in utilizing
technology to support better decision-making.
WILL I KNOW WHEN OUR TEAM IS READY FOR ADVANCED SUPPLY CHAIN
The question of when
is not as important as how technology is introduced.
Technology for technologys sake is never a good decision.
However, at almost any level of supply chain planning (SCP)
sophistication, technology can play an enabling role. The
key is to identify what core choices your team is making on
a daily basis and then to identify opportunities to help support
them in doing so.
An example: Jane manages a small
supply chain team for a $400 million manufacturer. The five
of them have only recently begun to review their processes,
and they hope to improve both their own skills and the core
operational routines with respect to planning. Most of their
analysis is spreadsheet based and involves individual data
extracts from their ERP system, which takes time and effort.
Supply chain performance information is not easily available,
and she feels that, in many ways, analysis is not valued in
At first glance, it may appear as if technology
is putting the proverbial cart before the horse. However,
a good first step might be to provide her team with a strong
analytical base for supply chain performance. By providing
her planners with the capability to easily analyze demand,
identify trends, view global inventory balances and set up
some simple metrics, Jane is also setting the stage to identify
and prioritize later initiatives. She is also introducing
technology in a way that is non-threatening and that provides
quick benefits to her team.
Of course, every situation is unique, and each
deserves a unique approach to improvement. Therefore, in considering
tools for advanced SCP, it is important to make sure that
the solution can flex to meet the needs of your people, not
the other way around. Technology can then work to make an
employees role more meaningful, to provide support for
the decisions they need to make every day, and to be readily
be adopted by the team. This will be true for groups of all
sizes and levels of sophistication.
ROUTINELY RUNNING STATISTICAL FORECASTS. IS THERE MORE THAT
TECHNOLOGY CAN OFFER US TO SUPPORT BETTER DEMAND PLANNING?
The most immediate answer to
your question is yes, there is much more that technology offers
in supporting demand planning than just a statistical forecast.
It is a solid start, though, and you can build on it.
Effective Demand Planning is more than a module
for statistical forecasting. It is about understanding your
customers' demand and having visibility into trends that help
you plan and avoid problems. Technology supports this when
it brings together supply chain performance information like
shipment history and customer variability and supports ABC-style
analysis of orders and profitability. Much of the gain in
the use of advanced supply chain planning (SCP) tools comes
from the ability to easily analyze and understand your demand
Refer to the statistical forecast as a 'baseline.'
This single baseline should be offered to those in the organization
with intelligence to make adjustments to it easily and create
a forecast that is shared by various groups that have a stake
in it: sales, marketing, production planning. Without the
ability to collaborate in this way, multiple versions of the
forecast will inevitably exist, and people will be planning
from different positions. Furthermore, utilizing a common
baseline creates the ability to measure performance over time,
something that is absent in a process that is fragmented.
CURRENTLY IMPLEMENTING A PRODUCTION PLANNING TOOL. WHAT STEPS
CAN WE TAKE TO MAKE SURE WE AREN'T "CONSULTANT DEPENDENT"
AFTER WE GO LIVE?
Sustainability of an application such as yours
is quite frequently under prioritized when companies undertake
projects for advanced planning tools. The effort often has
a project champion and team that is focused on rolling out
the technology, but effective change management steps are
not taken to make sure that the software can be maintained
by the organization long after the initial "go-live."
Supply chain planning (SCP) applications are
decision support tools, not rigid general ledger applications
that can remain more fixed as business conditions change.
In this respect, a successful introduction of SCP tools -
meaning the tool is accepted and being utilized by your people
- will absolutely mean that people will want to tweak their
application as they become more familiar with it. Also, as
a business changes, the application must be easily modified
to conform with new business requirements.
Success of your project will therefore mean
the need to continually fine-tune the tool. Make sure you
have technical personnel actively involved in its design and
implementation. Tools that are based on open architectures
like Microsoft quite often have the advantage of leveraging
IT skills that already exist in many companies. Finally, build
an effective and ongoing training plan that provides for your
IT support professionals as well as your users.
THE ENTIRE S&OP SPECTRUM, WHAT FIRST STEPS WOULD YOU RECOMMEND
FOR IMPROVING OUR INVENTORY MIX?
Our experience has shown that
most often, it's an understanding of the demand stream that
is responsible for poor inventory performance: be it volume
(too high) or mix. With hundreds and even thousands of SKU's,
it is difficult for managers to have a good picture of demand
characteristics that drive inventory problems.
For example, determine if you have a good handle
on which products are fast moving, and which customers have
a more predictable buying pattern. Identifying highly variable
customers and isolating their demand can provide for more
accuracy in demand planning. Moreover, general visibility
into these trends is solid feedback into any regular planning
Visibility of aggregate channel inventory and
channel warehouse inventory can also play a role in improving
inventory performance. Your information systems should provide
you with an easy ability to report on inventory characteristics
on a daily basis that include: shipment volume, order and
shipment variability, late shipments, days supply, turns and
aggregate channel inventory.
AVERAGE, WE SPEND ABOUT $15MM PER YEAR ON OUR RAIL CAR FLEET.
WHAT CAN WE DO TO REDUCE THIS COST?
This can be addressed in a number of steps.
The first step is to establish an annual production plan in
monthly buckets based on the aggregated demand data (by location
and product). This step produces a constrained demand plan
which then is used in an annual fleet planning process using
the transit times between plants and customers. The fleet
planning process produces an average estimate of annual fleet
requirement. The planner can use this average estimate to
produce a best case and worst case scenario to further analyze
the impact of uncertainty on the logistics operation. This
planning process has generated fleet reduction benefits anywhere
from 10-40%. The cost savings is at least 2-3 times the cost
DO WE ENCOURAGE SALESPEOPLE TO CONTRIBUTE TO A FORECAST?
We sometimes hear that salespeople
are not inclined to participate in their firms' collaborative
forecasting process. When we work with these firms, however,
we see that the process for collecting forecasts from sales
is quite often cumbersome. In such cases, salespeople feel
as if they are being taken away from doing what they need
to be doing - selling. Instead they are being asked to spend
a great deal of time administering to a science that we all
admit is inexact.
These objections aside, there are great benefits
to having salespeople insert current market information into
a demand plan. We encourage organizations moving down this
road to make the process simple and to use a proper tool that
allows sales to contribute in a way that is quick and easy.
For example, you could begin the process by concentrating
only on those customers that are highly variable and that
account for the greatest percentage of shipments. Also, it
is most often better to provide salespeople with the forecast
and ask their input on an exception basis only for significant
clients. In this way, they can provide valuable input for
a change in a client order that may impact the business but
do it in a way that takes seconds and is exception based.
Using Excel is often very burdensome for both
the salesperson and for the demand planner who needs to aggregate
the information. Excel is a great tool for a single user,
but as a collaborative tool it has drawbacks because it forces
a rigid process across all participants, so users end up spending
too much time reconciling spreadsheets instead of doing valuable