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Why supply chain planning solutions are struggling and the new planning paradigm
How does planning look today?
In typical supply chain planning and execution cycles, the plan can’t be executed successfully. Not only that, the plan is over-invested in terms of working capital, inventory, labor, capacity, premium freight, expediting, and costs in general. Execution can’t deliver on the plan but tries through spreadsheets to cut across all the transactional silos. Bridges are built between planning and execution, but they are on two different playing fields because they are on two different data models and architectures, and because of this, they are unnecessarily complex and slow.Today's supply chain planning is broken. Here's why and what we can do about it: What Does Modern Supply Chain Planning Look Like? Click To Tweet
So, what tends to happen?
We miss the month or quarter because the execution variance was material as compared to the plan and we didn’t re-plan fast enough to adjust based on current demand/supply data. So, the plan remains unchanged until it is too late to affect the outcome and the company misses its business targets.
The Problem with Traditional Supply Chain Planning
Companies are doing their best to integrate S&OP with S&OE but it just isn’t generating acceptable results. The reason is that planning is using a stale snapshot of the execution data, then using that stale data to offer decision support.
This creates two major problems.
First, you get outdated recommendations that are no longer practical. Secondly, the system doesn’t enable decision execution. So, by the time you process the recommended decisions and bridge into execution to exploit opportunities or solve for problems, many times the real world has moved on.
Execution is no better. Transactions are processed within their own functional silos. This is why we have a 3- or 4-way match at receiving. While we have enabled concurrent planning for the most part, concurrent execution across business functions whose decisions affect each other has not been deployed.The two major problems with current supply chain planning: 1) Outdated recommendations that aren't practical. 2) No way to execute effectively execute them. What we need instead… Click To Tweet
An example of this problem, is when a transportation execution visibility solution flags an ETA problem. By the time everyone can react by coordinating with the related orders and warehouse transactions within their own functional silos, the opportunity to resolve the issue and its associated customer or cost impact has passed.
On top of all this, plans are over-invested in an attempt to make them executable. Today’s planning solutions do not have a workflow running seamlessly between planning and execution to help streamline the plan. Thus, they have to be buffered with extra inventory, premium freight, expediting budgets, and additional labor, in order to try to make the plan executable, given the current variability in demand and supply.
Optimized Execution: The Missing Link in Supply Chain Planning
This is where the concept of “Optimized Execution” comes in. Optimized execution solves for all problems, issues and revenue opportunities. Here’s how it works.
Optimized Execution is a unique process capability that marries planning and execution. It re-plans based on execution changes, and it targets the monthly and quarterly objectives in S&OP as part of that re-plan. As demand and supply fluctuates, optimized execution will run continuous and incremental planning to match supply to demand across the network, to hit targeted business objectives, and achieve the overall goal of highest customer service levels at the least landed cost
A modern planning platform should include all traditional capabilities – IBP/S&OP, Advanced Planning, Execution and a Control Tower bound together through Optimized Execution.
Given today’s market variability in demand and supply, it is exceedingly difficult for companies to successfully execute their plans. This is precisely the problem that Optimized Execution solves. The Optimized Execution process capability marries planning and transactions into a real-time execution system.What Does Modern Supply Chain Planning Look Like? It has the missing link between planning and execution that enables both better plans and more effective execution… #supplychain #planning Click To Tweet
The Value of Optimized Execution
Without Optimized Execution to help streamline the plan, companies are forced to buffer against uncertainty and variability, with excess inventory, premium freight, expediting budgets, and additional labor. This at least gives them a chance to make the plan executable.
This was the case at one of our food manufacturing and distribution customers. Their plans required 65 days of inventory from retail through manufacturing in order to hit planned customer service levels. However, they still couldn’t execute to their 98% plan given their in-store, in-stock, performance on promoted items was still only 80%.
With a combined planning and execution system through Optimized Execution, they were able to plan with only 25 days of inventory, and simultaneously achieve 99% in-store in-stock on promoted items.
The food manufacturer using Optimized Execution drove an over 50 percent decrease in inventory, while increasing in-store, in-stock from 80 to 99 percent.
An important point, is that this solution generated shared value across trading partners. It is not simply cost-shifting. Suppliers also benefit from improvements in inventory, labor, capacity, and logistics.
Optimized Execution is the key process that has been missing in all deployed solution architectures.
To enable Optimized Execution, the network must run on a common data model, with a single version of the truth, in real time, with the ability to represent multi-party and multi-tier transactions across trading partners. Further, fully integrated AI/ML decision making which can be configured to run autonomously or interactively through prescriptions rendered in a graphical workbench is a must.
In my next post, we’ll look at the role of a Control Tower in Supply Chain Planning. If you want to know more about this unique approach to Supply Chain Planning, watch The New Supply Chain Planning Paradigm, where I go into this in detail.