The late fantasy writer J.R.R. Tolkien wrote, “It does not do to leave a live dragon out of your calculations, if you live near one.” For supply chain planners, the challenge, of course, is knowing if any dragons are living in places that could disrupt their supply chains. As we learned last year, COVID-19 turned out to be a dragon no one saw coming — and it proved how difficult it is to plan for the unknown. Amélie Nicolas, a Digital Marketing Specialist at QAD DynaSys, observes, “The pandemic the world is facing has exposed the weaknesses of many organizations. And it also highlighted the need to transform the linear supply chain model into a more agile and resilient one. … [2020] showed us that, more than ever, supply chain planning should be at the heart of our industries’ concerns.”[1]
If supply chain planning should be at the heart of a business, it begs the question: What good is planning if unknown events can make such planning mostly ineffective? The late President and five-star general Dwight D. Eisenhower gave this answer, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” He may have exaggerated a bit when he called plans useless; nevertheless, his point is profound. Planning makes an organization better. Nicolas concludes, “COVID-19 will still be around this year and our supply chains will still face disruptions in this never ever normal world. High risk will be the new normal for 2021 and following years. Where Integrated Business Planning, Scenario Planning, and, technologies such as AI, Machine Learning, Advanced Analytics, and Digital Twin, were once seen as ‘nice-to-haves’, those assets are now essential to reach a truly resilient supply chain and have end-to-end supply chain visibility.”
Time for a new planning paradigm
The technologies mentioned by Nicolas are useful in different ways to the planning process; however, they are useless without a strong planning framework on which to build. Sujit Singh, Chief Operating Officer at Arkieva, suggests there are five signs you might not have a strong planning framework for today’s volatile world.[2] They are:
#1 Your organization uses a manually intensive end-to-end forecasting and planning process. If this describes your planning framework, Singh says, “You may be ready for a fresh look at how you are forecasting. Your supply chain software should help you forecast over a wide array of items (fast movers, intermittent, slow movers), across the entire network (even 2 or 3 tier), and provide target inventory levels (safety stock, reorder point, cycle stock). Making this change could help you achieve the service levels you desire and provide a continuous feedback loop for incremental improvement.”
#2 Your planning team’s forecasts are only in monthly buckets, so daily/weekly trends are lost. The old adage “the devil is in the details” applies especially to planning. If you are incapable of daily planning, you may be missing details. Singh explains, “With the right technology, you may discover micro-trends that occur within the month and be better able to capture that demand and produce demonstrably improved forecast accuracy.”
#3 Your “best fit” forecasting turns out to be “whatever fits”. Singh notes, “Forecasting based on best fit from a limited selection of formulas is prone to overfitting. It does not really model demand. It simply jumps from model to model, using whatever worked last time, without correctly understanding demand drivers.”
#4 Based on forecasts, your organization is unable to make effective inventory to service trade-offs. Without the ability to make effective inventory to service trade-offs, Singh asserts, “You are stuck with a ‘one size fits all’ inventory policy across all SKUs and locations, stocking product which sells once a year when you could use the capital (or space) for products that sell thousands of units per month. You ought to be able to perform ‘what-if’ scenarios to evaluate multiple inventory optimization scenarios and choose your inventory sweet spot.”
#5 Your planning process cannot handle multi-sourcing and simultaneous sourcing. Your organization finds itself in this situation, Singh writes, when “products outsourced from multiple locations force you to manually split aggregated forecasts and layout separate inventory plans to meet the target service level.” He adds, “[This might not be] bad for a few items, but [it becomes] a serious problem for thousands of Item Location combinations which in turn can have millions of components that go into them.”
Singh concludes, “Even one of these five signs should tell you to take a long hard look at your technology.”
Continuous versus periodic planning
The big takeaway from Singh’s five signs should be that supply chains move at a business speed requiring continuous as well as periodic planning. Hank Canitz, Product Marketing Director at Logility, explains, “If you could transport a supply chain professional from 20 years ago to the present day, they would not recognize today’s supply chain operations or the technologies we apply to try to solve supply chain challenges. That is because today’s supply chain operations are faster, more complex and less predictable than ever. Volatility due to shrinking order to delivery cycles, rapid shifts in distribution channels, SKU proliferation, global competition and more frequent disruptions that cause demand and supply fluctuations are all amplified in today’s ‘normal’ business environment. … Because forecasts are never perfect, we also need a way to deal with unplanned events. This is where continuous planning becomes essential.”[3] As Canitz points out, this is not an either/or situation. He explains, “You need both Periodic and Continuous Planning to be successful in today’s complex, fast paced volatile business environment. Periodic plans provide the starting point to meet company objectives through optimized supply chain operations. Optimized periodic plans provide the baseline for what is possible if no unplanned events were to occur. Starting with the optimal plan, continuous planning creates feasible derivatives to effectively respond to unplanned events.”
There is another aspect of planning that needs to be taken into consideration — concurrent planning. Concurrent Planning refers to planning by multiple departments simultaneously with consistent objectives. The ultimate goal is having an enterprise wide planning objective filter down into each department to keep the enterprise in alignment. Even during so-called “normal” times, supply chain planning can be difficult. The stark truth is that planning and optimizations are done in many departments within a business, such as supply, manufacturing, distribution, warehouse, transportation, budget, labor, and so on. Often, departmental planning functions are disconnected from one another and may have conflicting goals. In order to deconflict goals, companies need to create an objective function — and overarching objective — that balances these goals. Developing an objective function ensures corporate alignment in order to optimize operations and maximize profits. Why is this important? An objective function scores an outcome’s utility so the best outcome can be chosen. For example, manufacturing may be tasked to fill all orders which requires having inventory on-hand in distribution centers. However, distribution centers may be given the conflicting task of minimizing excess inventory space and cost. Without an objective function that spans multiple planning departments, each department’s objective function may conflict with others in often subtle ways. Cognitive solutions — like the Enterra Concurrent Planning Intelligence Solution™ — can help minimize conflicts and create a balanced concurrent plan. Concurrent planning is essential in both periodic and continuous planning efforts.
Concluding thoughts
As Nicolas pointed out, technologies that were once nice-to-have are now essential to modern supply chain planning. The world is simply moving too fast and is too complex to deal with and understand without the aid of cutting-edge technologies. Nicolas concludes, “To plan the future with a better sense of perspective knowing that, more than ever, men and machines have to be more agile. 2020 proved we are not invincible but 2021 will show us we can be … resilient!” Technology might not discover all the dragons in your supply chain; however, technology can help deal with them when they show up.
Footnotes
[1] Amélie Nicolas, “2021: The year of Supply Chain Planning,” QAD DynaSys Blog, 5 January 2021.
[2] Sujit Singh, “Top 5 Signs You Have Outgrown Your Planning System,” Arkieva Blog, 18 August 2020.
[3] Hank Canitz, “Periodic Versus Continuous Planning – What’s Needed for Success?” Logility Blog, 27 October 2020.
