Achieving an optimal planning state is a journey of continuous improvement. Customer requirements change, corporate goals evolve and market dynamics shift quickly and often. It is up to the supply chain organization to be prepared, flexible and responsive to these changes through the right combination of talent, processes and advanced technology.
Optimization, algorithmic planning, artificial intelligence and machine learning are terms used daily in conjunction with supply chain operations. But how do you determine what might be beneficial to your company’s supply chain operations and how do you start the journey to acquire and master the advanced supply chain planning capabilities required to develop and sustain a competitive advantage?
This article discusses the most important advanced planning capabilities and how they can lead to a state of Planning Optimized across your supply chain.
Get on the Path to Planning Optimized
According to SCM World, 51% of CEOs and management teams view the supply chain as a critical part of the business. In times of uncertainty and growing supply chain complexity, you must take advantage of every opportunity available. Lost sales, excess inventory, inefficient operations or constrained cash flow can sink a company.
Strategically-focused organizations with advanced supply chain planning and optimization capabilities are leading the move towards efficient and effective operations. These companies have turned to their supply chains as a way to drive value and business success through reduced costs and improved customer service. These leaders are the definition of Planning Optimized.
Why Planning is Essential
Dwight Eisenhower said, “In preparing for battle I’ve always found that plans are useless, but planning is essential.” We can easily apply that wisdom to the supply chain.
At the highest level, Integrated Business Planning (IBP) is the newest weapon in the battle to accelerate, direct and optimize business decisions. IBP unites volumetric and financial information into one flexible planning and decision support system for strategic and tactical planning horizons. It combines data from sales, marketing, production, procurement, transportation and finance to create a powerful decision centre for all stakeholders.
By removing organizational and technology barriers and aligning and synchronizing plans, an IBP strategy ensures your business plans are rooted in feasible supply chain network capabilities, with resources and investments deployed where they are most effective in achieving business goals.
According to Aberdeen Group, companies with an IBP process in place are 2.92 times more likely to evaluate and optimize inventory and service policy to maximize cash flow and profitability than non-IBP users.
Closely aligned with IBP is Sales and Operations Planning (S&OP). Once, the objective of S&OP was to create a feasible plan. Today companies view sales and operations planning as a means to execute corporate strategy. A successful S&OP best practice process aligns an organization strategically to execute tactically - empowering sales and operations planning teams to work from “one plan” to save time and achieve clarity. With a comprehensive S&OP technology solution in place, you can cut hours and days from your planning process, streamline the planning cycle and complete multi-divisional analysis in a fraction of the time.
Demand Optimization: The Starting Point
Of all factors that impact business success over the long term, executives agree that an accurate forecast is at the top of the list. Forecasting has a powerful impact on an organization’s ability to cost-effectively satisfy customers and manage resources. A forecast is not simply the projection of future business; it is a request for product and resources that ultimately affects almost every decision your company makes across sales, marketing, finance, manufacturing and logistics.
Creating demand plans by product, business and geography over multiple planning horizons and in multiple units of measure, including both volumetric and financial, creates a highly complex environment that dictates the need for optimized demand planning. This complexity is then magnified by the growing need to forecast for each stage in a product’s life cycle due to increasing product portfolio changes.
The benefits of an accurate forecast include significant improvements in revenue through better in-stock availability, coupled with reduced costs by lowering safety stock, inventory obsolescence, spot buys and expedited replenishments. More importantly, lower forecast error leads to increased gross margin and shareholder value through the combination of higher revenues and lower costs.
Demand optimization capabilities include:
· Product Life Cycle Planning - enables the forecasting of market demand for new product introductions (NPI), short-life or seasonal products and end-of life products
· Proportional Profile Planning - used to disaggregate higher-level forecasts into lower-level forecasts using user-defined attributes
· “Best-fit” Forecast Optimization—automatically switch to the most effective technique to exploit both available historical data and forward-looking market knowledge at each product life cycle stage
Once the Forecast is Right, Optimize Inventory
Inventory optimization is defined as having the right inventory in the right location to meet established service targets while minimizing inventory investment and operating within the constraints of the business. The best way to ensure an optimal inventory strategy is to take a holistic view and consider all levels and all inventories within the enterprise, rather than optimizing at each point where inventory is stored. This holistic process, called Multi-Echelon Inventory Optimization (MEIO), takes a broader view across the extended supply chain including raw, work in process (WIP), and finished goods inventory located in manufacturing, distribution centres, partner facilities or in transit between facilities across multiple channels. Typically MEIO users are twice as able to cost-effectively balance inventory and service as those that look at a single or even two echelons in the network.
Inventory optimization helps balance and align inventory across the supply chain, optimally locating inventory buffers to provide the best customer service at the lowest cost. Implementing an MEIO approach will often lead to a complete shift in the Inventory Efficient Frontier (see Figure 3), allowing better service levels at lower overall inventory investment. Companies that have implemented MEIO have seen inventory reductions of 20-30% while maintaining or improving customer service levels.
There are five crucial factors to ensure multi-echelon inventory optimization projects deliver outstanding results.
1. Get executive sponsorship and provide team education: The holistic nature of MEIO requires executive sponsorship to ensure all team members are on-board and aligned to a new way of operating the business. Buy-in often requires knowledge transfer and education on what MEIO entails and the expected benefits.
2. Ensure inventory optimization supports all aspects of the planning process: Strategy, tactics and execution planning must be supported, aligned and synchronized to gain the full benefits of an inventory optimization effort.
3. Make sure the inventory optimization technology is well understood and easy to use: Inventory planners will not use a new solution unless they can verify the results, and use the solution in an efficient and effective manner.
4. Move quickly and implement in phases: Inventory optimization projects can deliver results in weeks if you take an evolutionary approach. Don’t let integration slow you down! Best-of-breed MEIO solutions can work alongside transaction systems. Think in terms of multiple adjustments and shifts in your inventory efficient frontier and walk before you run.
5. Avoid the “One System Fallacy”: No single system will provide all of your company’s business solution needs. Rigid assumptions on data integration and usage of systems will almost always have to be revised to fully realize the benefits of MEIO across your extended supply chain.
Supply Optimization: Know What to Make, Optimize What and When to Buy
To make the optimal use of critical resources and inventory while meeting customer and forecasted demand requires end-to-end supply chain optimization. To optimize supply planning you must consider all constraints, costs and capacities across the extended supply chain simultaneously. When you factor in all possible variables, supply planning enables you to profitably satisfy market demand by dynamically sourcing materials, optimizing production and manufacturing plans, reducing distribution costs and slashing lead times. In addition, you are now able to proactively plan and optimally respond to supply chain disruptions. Getting out in front of potential risks can make or break your business and help you stay ahead of your competition. You must be able to make crucial decisions quickly, realistically and optimally across the global supply chain network.
Ask yourself, do your predictive analytics and performance management/key performance indicators (KPIs) reflect your company’s business goals? They should. In addition, you need the ability to evaluate multiple supply plan alternatives through numerical and graphical simulations, and “what-if” analysis while incorporating both volumetric and financial information to enable the evaluation of supply, production, transportation and storage alternatives in the context of financial impacts.
Logistics Optimization: Now it’s a Matter of Transportation
Transportation management goes beyond shipping an item from point A to point B; it occupies a key position between the functions of order processing, warehousing and finance and can be a major new source of business benefit. Such a strategy should incorporate proactive carrier management, optimized planning, improved visibility, automated freight accounting and comprehensive control over operations. Benefits including reduced total transportation costs (typically 40-60% of logistics expenditures) by up to 30%, improved productivity up to 80% and reduced cycle times by as much as 50%.
An essential element to achieve good results is the adoption of shipment planning optimization. Shipment planning optimization combines orders into logical groups based on chosen distribution strategies (aggregation, multi-stops, multi-pickups, pooling, many-to-many), and selects the optimal mode and carrier. Optimization promotes the best use of company resources (common carriers, contract carriers, dedicated or private fleet) while ensuring delivery requirements of orders are satisfied, equipment constraints are met and transportation costs are minimized. Look for a solution that employs single step optimization to simultaneously evaluate both load building and carrier selection/assignment.
Companies who leverage Planning Optimized evaluate all logical alternatives for grouping shipments including considering business rules, consolidation parameters, carrier rates, order characteristics, and requirements for delivery and pick-up dates and times. Transit time, loading and unloading times, and equipment resources are also factored in to make smart decisions regarding:
· Aggregating orders with the same ship-from and ship-to address
· Building inbound or outbound multi-pickup or multi-drop loads
· Pooled consolidation and cross-docking
· Routing via private, dedicated, contract, and common carriers
· Shipment scheduling
Transportation optimization considers thousands of options as it evaluates shipping orders sent direct, through pools, via multi-stop trucks, or other carrier options. It computes the economics of each option, and then selects the best alternative to produce the shipping plan. Transportation optimization efforts can also evaluate constraints and trade-offs between a private fleet and commercial transportation options.
As a brand owner or retailer, you know that retail optimization has a unique set of industry-specific, omni-channel challenges. To start, consumers expect to find the merchandise they want for the right price, in the right colour, style and size at the point-of-purchase they prefer, 100% of the time. That’s a tall order.
Optimizing planning decisions require involving your people, processes and technology for a new level of collaboration and flexibility. Merchandise planning, assortment, allocation and replenishment activities must balance product and store plans, run “what-if” scenarios, create demand-driven assortments, use virtual warehousing to maximize stock availability, and more. The trick is to think in terms of each channel integrating with other channels to optimize customer service while minimizing your inventory investment and risk.
In the retail industry, products may be sourced anywhere in the world, and delays in the global supply chain can threaten product availability for short selling seasons. Merchandise Planning must work hand-in-hand with Allocation to optimize and automate operations from the chain level to item – store – week level. This complexity means you cannot rely on spreadsheets or fragile legacy systems.
Using an optimized planning approach, you can:
· Ensure better customer service by accurately predicting market demand
· Produce more accurate and timely demand-based performance across your retail channels and verticals
· Synchronize supply chain resources and prevent costly stock-outs
· Improve overall retail supply chain operations to realize ever-more-aggressive merchandise plans
· Reduce inventory risk and improve in-season replenishment
· Model, select and coordinate the right suppliers, production partners and distribution resources
· Proactively share and act upon issues like capacity constraints, scheduling limitations and other critical issues that impact cycle time
Building a strong foundation of optimized planning capabilities increases visibility, collaboration and market response to an increasingly dynamic marketplace while building a sustainable competitive advantage.
As you optimize your planning strategy, keep these recommendations in mind:
· Build a roadmap of supply chain optimization capabilities that can add value in your organization
· Determine the missing capabilities needed to increase accuracy and extend visibility
· Consider talent, process and technology requirements to enable your success
· Build an optimized planning investment roadmap and socialize this plan to gain cross-organizational support
· Engage with industry experts and learn from other companies’ successes and failures
· Realize this is a journey, not a destination, and celebrate your successes along the way
· Get started and turn your supply chain and retail planning challenges into opportunities
Article contributed by Logility. The original article can be found at www.logility.com