What could an Integrated Planning System ever do for me?
What could an Integrated Planning System ever do for me?
In the past few months Iter has published articles that discuss the fragmentation of markets and the importance of organisation design in managing an integrated supply chain. The missing element, that this article covers, is how new generation planning systems make these changes possible. We will explain the catalytic effect of this through our experience at a recent client meeting.
We were presenting the requirements for an integrated planning system to replace the client’s retiring SAP APO module to an internal group of supply chain specialists. As we went through the meeting it became increasingly clear to them that they needed to rethink the way their supply chain was defined and operated: a very technical, supply chain systems project had become the catalyst for an operating model and organisational redesign.
So why was this?
How many supply chains and business states do we really have?
Today we think of our businesses as having one, two or occasionally three supply chains. Legacy planning system capabilities means each supply chain is defined and planned in a relatively static way that provides a predictable, but not very flexible output provided the demand fits within expected bounds.
Today’s reality is that there are many demand and customer types and multiple supply chains that often require the same products to run through the same manufacturing and logistics infrastructure. Equally importantly, at any point in time each supply chain may have a different balance between supply and demand, and therefore need to be managed against different rules and priorities.
Whilst integrated supply chain planning systems can manage these realities, characterising the supply chains and defining the prioritisation rules and how these need to respond as the demand/supply balance changes whilst still delivering an optimised balance of cost, working capital and service is challenging. Our experience is that these challenges are not just about system configuration but challenge the existing operating model and stock locations, purpose and profiles.
What level of flexibility do we want to provide and what are the consequences?
With a global capacity excess and an explosion of routes to market, competitive advantage is often sought through the flexibility and consistency of service that is delivered. On top of this, in every business we have supported there is always a small group of customers that are too important to abide by the rules. What is rarely understood is the extra cost and knock on effect on the service provided to other significant customers and even if we do understand this, it’s inevitably after the event. How many businesses in a backlog situation bend to who shouts loudest knowing they are sub-optimising the use of capacity that is already inadequate?
Unfortunately, integrated planning system cannot stop people shouting, but they can model in real time alternative ways of meeting the request and show the implications on the commitments to other customers and costs to the business. Moreover, this can be managed via automated decision making or decision support.
Designing these decision-making rules in a crisis is not advised. The level of complexity in understanding how these rules apply across diverse demand types, individual customers and when to escalate is as politically challenging as it is technical. The outcomes of these decisions also inform how we need to start to design our supply chain organisation organisation and the focus that needs to be placed on data management and integrity.
Data and rules management is critical to making these systems work in the real world?
The reality of many legacy planning activities is well intentioned but uncontrolled spreadsheets sitting alongside the formal system are used to support decision making or even to make the planning decisions.
Today’s integrated planning systems operate in near real time and make decisions based on the demand at that point in time. As the loading changes it can adjust the initial decision to re-optimise provided it allows the initial commitment to be met. This is no place for spreadsheets.
To make these systems work we must trust that the planning system is making the correct decision as typically with AI we are not be able to reverse engineer why that decision has been made. This trust is built upon detailed definitions of rules, priorities and the maintenance of them and the overall supply chain model.
Many spreadsheets exist today because the planners don’t trust or understand the capability and operation of the planning system. This cannot happen with new generation systems as the consequences are too great. Planning teams will inevitably become more centralised, run by small groups of highly skilled and knowledgeable individuals whose focus is on maintaining the integrity of the models and rules so that the decisions the planning system makes are the best available.
The benefits from a modern planning system are immense, but to be successful requires a paradigm shift in thinking. We must fully understand our supply chains, our priorities and how these change as business circumstances change. We must be obsessive about the currency and integrity of the data models that characterises our supply chains and rules by which we want to operate.
Above all we must trust and follow the decisions that the system is making and where they are poor adjust the planning models, not make a manual planning decision.
Welcome to Iter Insight, this is one of a monthly series of articles from Iter Consulting addressing the most critical operational and supply chain problems businesses face today.