Modern supply chain planning (SCP) tools allow companies to create a brand-new demand and/or supply plans every day if they so desire. There is the prospect of unparalleled responsiveness, the ability to quickly react to new opportunities and mitigate new problems.
Procter & Gamble is doing the demand/supply planning for products like Tide multiple times a day! This means what is manufactured and shipped may be adjusted several times a day! For other products, the plan/execute cycle is weeks. This responsiveness, this ability to do quick scenario planning, opens new opportunities. A P&G executive spoke of the ability to respond to an incremental business request, for example a request from a retail customer for an incremental promotion in minutes. These kinds of requests use to take multiple days to respond to.
But at the same time companies have integrated business planning (IBP) processes, often 30-day supply plans matched to projected demand with long frozen production fences. They don’t do this because they are opposed to responsiveness. They do it because they have monthly financial and market goals. The IBP process helps to give companies some level of certainty that key goals can be largely achieved.
How can supply chain responsiveness be embedded in a new planning process with guardrails that helps give companies some level of certainty that their monthly and quarterly goals will be mostly attained?
One of the biggest inhibitors to a responsive supply chain are frozen production plans that can extend from weeks to over a month. Shaun Phillips, Director of Product Management at QAD Dynasys sent me an article he wrote recently. “Fundamental changes happening on the ground at many manufacturing sites. Here we see companies questioning a piece of planning furniture that has been in place since the birth of MRP (materials requirements planning) … the frozen planning horizon.” These frozen production fences are intervals of time in the planning horizon during which a company doesn’t change its supply plan for a product, regardless of events or changes.
In a company with a seven-day frozen production plan, the plan is frozen for the next seven days. The other three weeks in the month continue to be planned and replanned to meet changing demand and customer replenishment requests. In a one-day frozen production plan, only the next day’s production is locked down.
“The objective of the frozen horizon is to minimize disruption to the factory schedules.” Mr. Phillips wrote. “This is an honorable objective as production disruption reduces production efficiency. However frozen periods also result in reduced flexibility, agility and responsiveness.”
But Mr. Phillips points out that there are good reasons to question the old way of doing things. Companies have much better access to real-time information on what is actually selling – versus what was expected to sell – and IoT devices can provide early advance warnings of probable supply disruptions based on predictive maintenance alerts (this key piece of machinery is about to break down), probable inbound shipment delays, or other similar types of events.
Supply chain planning (SCP) technology allows near-term daily factory schedules – called operational plans – to be connected to medium-term (week and monthly manufacturing plans) tactical plans. “When two plans become synchronized it is natural that they start to be treated as one plan with two different decision-making windows,” Mr. Phillips explained. “The planning technologies used to manage the plans have become much more powerful. Most planning software vendors now use a common data model to ensure tight synchronization between operational and tactical planning data.”
In concurrent planning, the model with the detailed production plan might have set-up times for each machine, understand how much can be made on that machine in an hour, understand production wheels, and other similar forms of granular modeling. The IBP plan will be less granular, it might model how much can be produced by the production line in an hour. But when running demand/supply scenarios, it is easy to come up with a plan that looks good in the less granular model, and quickly test if for feasibility in the operational model.
Concurrent planning is becoming something increasingly demanded in the market. Kinaxis is best known for this capability. But in the course of updating my global supply chain planning market study, suppliers like Solvoyo, JDA Software, AspenTech, OMP, QAD Dynasys and others tell me they also offer this functionality. This means that the initial integrated business plan is more realistic; the plan that is being developed has a higher chance of being executed. It is a key planning feature that enables more responsive supply chain planning.
Achieving a responsive supply chain, without carrying gobs of inventory, is a multifaceted problem. Shrinking the frozen production window is a no brainer. Other potential solutions to this problem are more difficult to ascertain. I’ve kicked off a collaborative research project with APQC, one of the world’s best resources for benchmarking, to find best practices in this area. Supply Chain Management Review, the closest thing we have to the Harvard Business Review for supply chain management, has agreed to publish our findings if we find significant correlations. There are no guarantees we will find anything. Keep your fingers crossed!