Critical strategies for building an agile supply chain driving one synchronised view of demand

By David Johnston, senior vice president supply chain, JDA Software.  

In today's business environment, industry experts acknowledge that supply chain resiliency and agility provide a significant competitive advantage. A recent Aberdeen Group study found that over the past year, 58 per cent of companies suffered financial losses as a result of supply chain disruptions. The same study showed that best-in-class firms have made more progress in improving supply chain processes and infrastructure to respond better to potential disruptions1. There are several effective strategies companies must adopt in order to minimise risk, reduce working capital, improve customer responsiveness and bulid a more resilient and agile supply chain.

Adopt a 'Pull' Approach to Demand Management
The supply chain battle has intensified in the face of global competition, volatile economic conditions, localised market events and rapidly changing consumer buying behaviors. Consumer Goods (CG) manufacturers are challenged with achieving accurate forecasts to meet demand while their retailer customers are engaged in their own competitive struggles and are less tolerant of late deliveries and out-of-stocks. At the same time, inventory and operating costs continue to increase in the wake of mitigating the risks associated with elongated supply chains and volatile input costs.  

For CG manufacturers, resolving these challenges requires an efficient supply chain that begins with a consumer-centric view of demand. Scalable demand management solutions can help manufacturers transform their supply chains from historical "push" models driven solely by a view of orders and shipments to more agile "pull" models that provide invaluable insights into consumer trends through retailer provided POS sales data. Industry leaders are integrating POS sales data into their planning processes, thus leveraging the power of a singular demand repository for all demand streams as a means to get closer to consumers, improve promotional planning and better understand the market drivers of demand.

Leveraging the power of POS sales data to improve supply chain planning has been talked about for years; however it is just now starting to be adopted and deployed by the industry leaders. In the discrete industries, leveraging the lowest level of demand is also imperative. A steel manufacturer, although not affected by 'consumer' demand, still can significantly improve the accuracy of their forecasts and responsiveness to their clients by having a detailed view of demand at the customer level.

Reduce Cycle Times by Removing Inherent Latencies in Planning Processes
The prevailing practice of sourcing globally in manufacturing is straining today's supply chains and affecting the operational efficiencies of many companies. Logistically moving materials and products over longer distances has resulted in elongated planning horizons, which in turn, has significantly slowed the responsiveness across the supply chain or added unnecessary levels of inventory to mitigate the risks. Unfortunately, the supply chain planning process within many companies is still managed by silo organisations or groups making sub-optimised decisions within their own functional planning roles. A typical manufacturer has distinct processes and organisations for customer service and sales, demand planning, product development, distribution planning, production planning, transportation and logistics management, and materials procurement with each group often operating somewhat independently of the other, driven by competing measures and goals.

Manufacturers must remove the latencies that exist between the multiple planning functions within their supply chain by having all of the planning processes linked and driven form a single view of demand - demand planning, replenishment planning, production planning, finite scheduling, and material procurement must all be linked and have a synchronous response to dynamic changes in demand. By deploying an integrated supply chain solution with optimisation capabilities that consider capacities, materials, resources, and prioritised demand, manufacturers can literally reduce the planning cycles from months to days and ultimately down to within one day while simultaneously driving increased levels of profit and improved customer service.  

Commit to a Well-Defined, Structured S&OP Process to Truly Enable Agility
One of the historical challenges for manufacturers has been trying to continuously align demand and supply to optimise production and distribution efficiencies while meeting customer service levels and growing the business. This challenge has become exponentially more complex with the increased pace of new product introductions, the acceleration of pricing actions, the lengthening of the supply chain, and the lack of collaboration on promotional campaigns.  

Becoming agile does not necessarily imply that you strike this delicate balance between supply and demand by making last minute and often sub-optimized decisions to manage the increased level of variability and risk in the supply chain. Rather, agility requires that companies have better visibility into supply and demand in the immediate and longer range planning horizons to ensure potential issues can be addressed and trade-offs made as profitably as possible in a manner that ensures strategic business plans are met. For instance, if by creating a plan that looks three months to the future a company can identify a lack of production capacity to meet the current planned demand, the company can then asses the many ways of addressing the problem, including:  1.) potentially delaying the introduction of a new product, 2.) contracting additional production capacity, or 3.) potentially running an additional shift in the By anticipating problems before they occur, manufacturers can make more strategic and profitable trade-off decisions, and be better positioned to make strategically aligned adjustments in the short term horizon. A disciplined S&OP process that is supported and owned by a high-level business executive can effectively address and solve these issues.

Today's next-generation S&OP solutions effectively bridge the gap between top and bottom level company executives by creating a holistic view of the supply chain planning process across the entire organisation. This holistic view enables companies to realistically model supply chain processes and financial implications in order to identify potential disruptions before they happen - essentially aiding companies to select the plan of action that will be most cost effective without diminishing customer service levels. These evolved S&OP processes connect strategy and operations and drive alignment of demand with supply in order to better meet financial expectations, a link that has been lacking with traditional S&OP solutions.

Strategically Manage Transportation and Logistics
For retailers, wholesaler-distributors and manufacturers, synchronising the global movement of goods and information drives smarter transportation decisions. Through effective transportation and logistics management, businesses can gain efficiencies and reduce expenses, even with rising fuel costs.
 
Improved logistics planning, execution efficiencies and optimized routing all represent opportunities to maximise savings and service. Collaborating between shippers, suppliers, carriers and logistics providers can dramatically reduce expediting and transportation expenses. For example, consolidating shipments with preferred carriers, as well as providing shipping projections to carriers enables companies to negotiate reduced rates. In some cases, it may be advantageous to mix modes of transportation, share rail cars, and arrange with partners for backhauling shipments. Shipping a partial load at a higher rate to meet demand and keep inventory low may be the best decision. There is always a balance between logistics, inventory costs, and desired customer service levels. The right technology helps maintain that balance by allowing modeling of more complex transportation strategies.
 
Even in a tight economy companies are investing IT dollars to improve supply chain efficiency and profit margins. Companies of any size can harness technology solutions that reduce costs, improve cash flow, automate regulatory compliance, accelerate inventory velocity, minimize stock-outs, and enhance customer service levels. An agile, resilient supply chain yields strategic optimisation, elevating a company to the next level of business value by allowing them to reap the benefits of one view of demand and demand-driven manufacturing; these are goals worth striving for.
 
1. Supply Chain Risk Management: Building A Resilient Global Supply Chain, Aberdeen Group, July 31, 2008
 
About the Author
David Johnston is senior vice president, manufacturing & wholesale distribution for JDA Software Group, Inc. (www.jda.com), provider of integrated retail, supply chain, logistics and transportation management software for manufacturers, distributors and retailers around the globe.