Supply Chain Planning Blog

Bill Green

Recent Posts

Not All Planning Systems are Created Equal!

Posted by Bill Green on Tue, Apr 11, 2017

not-equal.jpgMost planning systems deploy more of a reactive strategy than a predictive one. In the former category, when a problem is identified regarding a capacity shortage, material shortage, or arrival of a high priority order, the system addresses the issue by rearranging the plan. There is nothing wrong with this except that it is not optimal and it is a Band-Aid solution that could have been avoided in the first place! Let me illustrate this using a simple example. If you release too many jobs to your resources (or factory), you build a big queue in front of resources creating much WIP adding to your inventory and delaying delivery dates. In addition, you diminish your capability to address inevitable but unforeseen problems such as shortages, equipment breakdowns, and arrival of surprise orders. But the interesting part is that, most people try to resolve this issue by having better sequencing rules for each resource. As you can see a problem that could have been avoided was created and now we are trying to reactively resolve it by locally expediting, which is almost impossible. This type of strategy is prominent in many S&OP solutions which tend to operate at a high level not knowing how the plan can be executed. They assume a fixed lead-time and assume maybe ONE bottleneck resource for the entire plan for every site, and then expect to have an accurate plan! However, when it comes to executing such plans there will be a lot of expediting and adding shifts and delays to name a few. Such an approach is no different than the use of spreadsheets for planning and use of fixed lead-times, which really implies infinite capacity planning. I remember MRP systems did that really well! Are we back to the technology of 80’s?

We believe that predictive planning avoids the problems in the first place and diminishes the need for reactive solutions. We also believe that any plan generated by the system has to be accurate enough so that it is executable. Spreadsheet type of planning (pre-defined bottlenecks, fixed lead-times and bucketed capacity) deployed by most S&OP solutions are simply NOT accurate enough! They give you a false sense of hope and control as well as poor visibility into what can be accomplished; resulting in erroneous delivery dates. By performing predictive planning, you can account for potential issues of shortages and breakdowns or even quality issues in advance. Furthermore, one can “release” the orders (virtually in subcontractor facilities or actually in your own) in a way that they do not have to wait for a long time in front of resources, reducing WIP and at the same time maximizing utilization. By producing realistic plans based on “shifting bottlenecks,” one can also ensure realistic due dates maximizing on-time delivery. Predictive planning is performed by having an accurate model of your supply chain (yours and your suppliers’) and understanding the mix of products that need to be built and how they compete for resources in a dynamic manner. In addition, making sure that we account for probability of breakdowns, demand variations, maintenance schedules, supplier lead-time variations and so on. By taking into account all such variations, one has a realistic model of the supply chain and can precisely predict the behavior and how each order can be delivered through different choices of the Supply, Make and Distribution. The key is to take all such combinations into account and optimize the use of resources and inventory using an optimal order release strategy that maximizes delivery performance, minimizes inventory and optimizes the utilization of resources. For additional information, please refer to Adexa Whitepapers on this topic by clicking HERE

Topics: Supply Chain Planning, Planning, best of breed planning systems, Sales & Operations Planning, S&OP

Planning is Important, Re-planning is Even More Important

Posted by Bill Green on Wed, Feb 08, 2017

Control-Hand-Marker-Leave-Production-Planning-Mark-516277.jpg

Planning is the world’s second oldest profession! Why? Because no matter what you want to do, you need to plan for it. You may argue that there are things that you do not plan for: accidents, Acts of God, inventions. However even these are somewhat planned for in case they happen. Buying insurance is a good example of such planning. Perhaps emotions and feelings are exceptions! But even these were planned by nature for our survival. In the world of manufacturing and supply chain, planning is probably the most important aspect of the business since it has to do with getting the right product in the hands of the consumer on time in the right place. In the absence of proper planning the cost can be very high leading to the demise of the business. Despite, the importance of planning, it is not enough to ensure on-time delivery of goods at the lowest cost. This is due to the stochastic nature of events that can change the demand or supply. Examples are a breakdown of an equipment or plant due to earthquake. Or, sudden increase in demand or shortage of supply from a supplier can lend the original plan somewhat under-optimized. Hence the title of this piece which is a quote from General Eisenhower.

We conclude that S&OP is good for aggregate level decisions for things like expected total production required in a month, but not good enough to figure out how much to produce of each individual product along with the capacity needed of each machine type. You need to have accurate plans that can be executed; and while they are being executed the plan is constantly adjusted to account for the changes that were not foreseen by the plan. To be able to do this, one needs S&OE (Sales & Operation Execution) system that can translate the original plan into more and more detail. A typical S&OP plan can only be as accurate as 40-65%. When combined with S&OE, the accuracy can be as high as 98% or better. We have actually performed simulation studies that confirm the above results.

What S&OE does is simply take the constraints defined by S&OP and apply additional detailed constraints in order to make the plan work and more accurate. In this process, it enables the users to see the details of what will be delivered and where and what potential issues need to be addressed, if any. For example, the S&OP Plan may say the forecast for the month of Product group A is 100, while S&OE says how much for A1 and A2 per day.  S&OP says 80 hours of drilling is required, while S&OE says how much of each type of drill is required each week.

Topics: Supply Chain Planning, Planning, Sales & Operations Planning, S&OP, S&OE

How easy is it to Integrate Supply Chain Planning Data to SAP®?

Posted by Bill Green on Tue, Aug 31, 2010

Integrating to SAP R3Based on our own experience with most of our customers that own SAP, as well as talking to many others, it seems that the IT folks are initially rather cautious when it comes to integration of Best-of-Breed supply chain planning systems to SAP-R3®, or any other ERP system for that matter.

It may come as a surprise that there are only about 15 core data tables used in supply chain planning systems, and only some of these data will have to come from transactional-based ERP systems, whether its SAP-R3, ORACLE®, QAD®, or any other.  So the hard part is not the actual integration to these ERP systems, but making sure the incoming data from them is accurate.  In fact, moving data in-and-out of brand-name ERP systems is through fully standardized mechanisms or Adaptors, especially with SAP.

On that note, there is a well-defined architecture to move data around with SAP.   It is broken into 3 main parts: 1) SAP’s ERP Interface, 2) An API and Middleware adaptor, and 3) The Supply Chain Planning Master Data Management module. The set up is straightforward:

SAP Integration Diagram

SAP’s Production Interface serves three functions; it moves static data outbound from SAP, it receives static data inbound to SAP, and it moves transactional data both in and out of SAP.

The planning API is broken into 2 functional areas.  The first functional area deals with the movement of static model data such as: product, BOM, or Route information to the applications and results data such as Forecast, Production Plan from the supply chain applications to SAP, and the second area with real-time transactional data.  The final process is used to transform the customer’s data into the form needed for the planning modules.  This is accomplished through the Master Data Management layer.

Once you peel back the integration hype (or sheer panic in some cases), you will see that that all supply chain planning systems bolt-on to SAP in the same way and just as easily—whether its by a third-party or SAP, itself.  This makes it almost effortless to tap into the standard interfaces and have ready-to-go integration available.  What this means is that the actual movement and transformation of the data is not going to be the risky part of a supply chain planning project—so there is no need to panic. 

The focus for managing risk should be on the process and where the data has originated instead, i.e. SAP’s core transactions.  Any good planning system will provide a strong Master Data Management module of its own to help you clean and efficiently structure the small amounts of data that are coming from your transactional systems or any other sources.    

Feel free to comment below on how your experience has been when it comes to integrating planning data to SAP.

For more information on this topic read the paper: Integrating Planning Data Is Not That Scary!

Topics: Supply Chain Planning, Integration, ERP, SAP, Best-of-Breed

Worried About Integration Of Your Supply Chain Planning System?

Posted by Bill Green on Wed, Jul 28, 2010
Supply chain WorriesPlanning a supply chain is a complicated task and requires a lot of complex calculations.  However, it does not require a lot of different kinds of data.   This is an important point to remember.   In this blog posting I want to discuss what to worry about when it comes to getting data for your supply chain planning system, and what not to worry about.

Basically, planning calculations need to consider all kinds of different data elements at the same time so the system needs to utilize a data architecture that is separate from the ERP system’s.  This means that all planning systems, whether they are offered by an ERP provider or a Best-of-Breed provider, need to be bolted-on to the ERP system with integration middleware.  I know that even the thought of integration to an ERP system makes many IT folks nervous, but when it comes to supply chain planning systems the integration should not be the biggest worry.   

Let’s break it down; there are 3 data factors for IT folks to think about when a new planning system is being launched.  In the order of easiest to hardest, they are:

1)     Integration to ERP Transactional system

2)     Getting the planning data complete and clean

3)     Making sure the planning system will scale and be reliable 

Integration to the ERP Transactional System

This is the one that everybody spends most time worrying about, but it really is not that hard and it’s the easiest to get passed.  First, there are only about 15-20 data tables that are required for supply chain planning.  The ERP transactional system will only contain about 10 of the key data elements.  Things like process routes, resource alternatives, resource capacity and resource availability, demand planning hierarchies do not have strong representations in ERP transactional systems.  These need to be defined in the Manufacturing Execution System (MES) or the supply chain planning system, itself.   Second, there has been a standardization of the data integration in-and-out of ERP systems.  The data-exits have been set up and well documented.  Both Best-of-Breed and the ERP vendors use the same data-exits.  Third, there are standard interfaces for supply chain planning that have been standardized over the years in major ERP systems, like in SAP® and Oracle®. So to sum it all up, a small set of data needs to be interfaced using a method that has been worked on for over 10 years.  So, not much to worry about here.

Getting the Planning Data Complete and Clean

This is one of the factors to worry about.  You must pay attention to the Master Data Management (MDM) part of the application that comes with your supply chain planning system. The data for planning needs to be verified carefully to get the best results, so strong master data management is critical.  This means that the MDM part of the supply chain planning system needs to be able to identify errors in data, its structure, and also make sure its correct in context with other data.  The contextual checks are what make MDM for supply chain planning systems so important.  Basically, The MDM for planning needs to take the data from other systems and clean it up with input from the user.  It also needs to make it so that it is easy for the user to add data to the system that does not exist anywhere else.  Note that attribute-based master data management makes this easier, by enabling data definition based on product characteristics.

Making Sure the Data Structure Can Scale

This is another thing to worry about.  Even if the data is clean and complete, the system will not work properly if it is not structured to be efficient and reliable.  If the system is slow, the users will not be able to complete the needed steps in the process and will give up.  Make sure to check how the data is structured for scalability.  A point to remember, memory-resident cache is critically important for planning systems.  Understand how this is architected for all the planning modules needed.  Is there a single point of failure?  Can you add user-defined attributes in the memory resident cache?  Can you change the imbedded logic in the memory resident cache?  If the answers do not show that the system is scalable, configurable, and reliable, then the system will fail because the IT staff does not have the ability to change any of this. 

In summary, data integration between ERP and a new planning system is the easiest part of its implementation but most IT folks seem to focus most of their worries on it.  Maybe because its under the control of the IT staff to fix.  What you should really be concerned about is the part that is not under their control, which is the underlying power of the planning systems’ data management capabilities.   This has a big impact on the data runs and takes more effort to fix.  Even a bigger concern should be the questions related to scalability and configurability of data cache within it.  If that is not right you are dead in the water.  

About the Author:  Bill Green is the Vice President of Solutions at Adexa, for more information about him please visit http://adexa.com/company/green.asp    

 

For more information about different types of Supply Chain Planning systems visit: Demand Planning, Inventory Planning, or Sales and Operations Planning.

Topics: Planning Analytics, Attribute Based Planning, Supply Chain Data, Integration, Adexa

Inventory Planning | What Does It Mean To Optimize Inventory?

Posted by Bill Green on Thu, Apr 22, 2010

Inventory Optimization

Many companies say that they want to Optimize Inventory, but they often have different things in mind when they say it. 

 

Of course, they are all looking to make better use of the inventory on-hand, and they all have the goal of keeping customer service high and inventory low.  However, what makes them different is that each company may have a dissimilar root cause as to why they are not doing better with it.

 Inventory Planning

There are four main areas of supply chain planning to focus on when trying to get more from your inventory investment.  From top to bottom, and with different time-horizons, each one is critical to get the whole picture right, so it’s important to target them individually:

 

1) Reduce forecast error with better Demand Planning

2) Establish better inventory target levels with Multi-Echelon Inventory Optimization (MEIO)

3) Further synchronize supply flow with better Sales & Operations Planning

4) Improve daily Inventory Management

 

Reducing Forecast Error

The two key factors that will impact the amount of inventory that is required in a supply chain are lead-times and demand uncertainty.  Although, forecasts will always be wrong, there is a great deal that can be done to increase their accuracy with improvements in process and technology.  Remember, you have to do everything possible to be less wrong.  Forecasts and “consensus demand” (i.e. aggregation and agreement on one forecast number, by all departments) are also used to determine forecast error.  So, if a company does not have a strong process in place to facilitate collaboration, they will not be able to do well in any of the other areas. 

 

Demand Planning is a critical component of inventory management.  We have a new ePaper on this topic entitled: Planning Demand for Profit Driven Supply Chains.  Feel free to download it by clicking on the title.

 

Multi Echelon Inventory Optimization

The amount of inventory buffering should increase along with the value of a product, the amount of uncertainty in demand relative to the sales volume, and a company’s response time to deal with supply chain surprises. 

 

Where to place inventory can be very difficult to figure out in an end-to-end supply chain with many products.  There are many ways to rebalance how inventory budgets are allocated, inventory pooling and production postponement strategies can be complex and hard to execute, as planned.  A Multi-echelon Inventory Optimization (MEIO) system will enable a company to consider all of these in deciding where in the supply chain and how much inventory to have.  If your company is using a manual system, and pretty much guessing at how many days of coverage to have for each product, or does not have a good process in place to calculate statistical safety stock values and its “What-if” impact on customer service, then you should be looking into how an MEIO system can help your supply chain. 

 

If you would like more information on Inventory Managment and its "Optimization", I recommend reading this paper: Demystifying MEIO.

 

Sales and Operations Planning

As part of the S&OP process a company needs to determine how to meet the inventory demand that comes from buffer stocks, forecasted demand, and backlog.  Or it may be that capacity or material constraints, or other operating efficiency concerns, drive a company to purchase or build inventory ahead of when it’s actually needed.  Regardless, the supply planning process that feeds a consensus S&OP plan is the place that these decisions are made.  If a company does not have a good S&OP process in place, then it will not be able to make good decisions around inventory.  Furthermore, if the S&OP system in place does not consider the effects of finite capacity, materials, and operating constraints, then control over inventory levels will not be achieved.

For more information about S&OP process, I suggest viewing this recorded webcast: S&OP 101: For all manufacturing executives

 

Inventory Management

Even with a perfect plan, a company cannot keep inventory low and customer service high unless they can execute on moving inventory through the supply chain to meet customer orders.  Better Inventory Management will give improved visibility of inventory through the supply chain and create the orders to move the inventory when required.  Inventory Management gets the target levels from the MEIO system, and then executes as orders and forecasts are received.  If a company does not have good visibility into inventory, forecasts, and orders then an improved Inventory Management system will surely help. 

 

A last thought, there are many areas of supply chain planning that can have an impact on reducing inventory and improving customer service.  Typically a company will focus on Demand Planning first, and then Inventory Management, while putting in place simple ways to set inventory target levels.  They would then focus on better inventory targets with MEIO systems and better supply side S&OP planning.  Each company is different, and it is important to address each area based on your needs.

 

About the Author:  Bill Green is the Vice President of Solutions at Adexa, for more information about him please visit his profile link.     

 

For more information about different types of Supply Chain Planning systems visit: Demand Planning, Inventory Planning, or Sales and Operations Planning.

 

Topics: Multi Echelon Inventory Optimization, Supply Chain Planning, Inventory Planning, Inventory Management, Inventory Optimization

What is The Real Cost of SAP®-APO?

Posted by Bill Green on Thu, Oct 08, 2009
Cost of SAP APOThe question of should a company use Best-of-Breed supply chain planning system vs. SAP®-APO has been going on for a long time. Business users have typically wanted more functionality than is offered by SAP, but SAP has always sold to the executives of the IT group on the strength of the lower cost of an integrated system. If the discussion were in any other area besides "supply chain planning", the position of the IT departments would be tough to challenge, but APO is not part of the core SAP system. It is a separate system that just like any other Best-of-Breed planning system is bolted onto R/3.  Furthermore, the technology for memory resident planning is very different than for transactional computing, so it is so much harder to leverage core SAP R/3 technology to any cost advantage.

SAP has gotten a pass on the real cost of implementing APO for too long. It is time to examine the real cost of ownership for APO. It would help a lot if IT and supply chain professionals that read this open dialogue contribute to answering the following questions. What is the cost of ownership of SAP's APO? How easy was it to integrate all the data that is required to run APO?  Was the big "integration" story worth the results?  

For the sake of this analysis the purpose is to not compare functionality, but only examine the cost of getting the system running in the way that supports the desired business process.  Are there really IT and cost advantages to implementing SAP's APO?  The areas that are worth looking at include: cost of the software, cost of the hardware required to run the system, cost of implementing similar functionality, cost of implementing required supporting systems (such as using Business Warehouse to support the need for analytic views), cost and complexity of integration to and from all sources of data, cost of supporting the system once it is up and running, etc.

I am hoping that we can hold an informal discussion and feedback going on this topic, so please feel free to share your experiences or answers with us.  Or feel free to email me at wgreen@adexa.com

 

About the Author:  Bill Green is the Vice President of Solutions at Adexa, for more information about him please visit link     

 

Topics: Supply Chain Planning, Supply Chain Data, Integration, Cost of SCP, SAP APO

Pharma/Chemical Industry: Tie-in Supply Chain Planning And Financials

Posted by Bill Green on Thu, Jul 23, 2009

Pharma Supply Chain PlanningPharma and Chemical industries have to worry about managing increasingly complex multi-stage manufacturing networks that span the globe in order to stay cost competitive.  The supply chain decisions in these networks have become more difficult and intertwined.  There is pressure to turn to multiple production sites; while some are low cost producers, others are needed to hedge against product quality and production issues, or other risks.  These challenges are driving these industries to need more sophisticated capabilities in managing their supply chains, especially when it comes to protecting their margins.

In order to squeeze more profit from a tough market, Pharma and Chemical companies need the ability to manage their supply chain network based on the financial impact of every decision.  The Sales, Operations, and Financial plans need to be monitored, in order to see if actual sales and operations numbers are coming in according to  the plan, so that corrections can be made quickly.   Any time a new plan is created, the financial impact of the changes must be highlighted and compared to the budgeted plan. If done effectively, a company will be able to quickly and accurately determine what the market is ready to buy, and effectively align the whole company to meet market demand at the lowest cost.

Having the above mentioned capability requires a company to be able to link the areas of Demand Planning, Inventory Planning, Operations Planning (i.e. Network Optimization), Performance Management (i.e. visibility), combined with the ability to do Financial Analysis.  Some key points to look for in each of these areas are as follows.  

The Demand Planning systems need to be able to consolidate the expected demand from the many business units that sell product all over the world.  Chemical and Pharma companies sell to many types of businesses, but the resources required to build these products are shared.  This means the Demand Planning system needs to be collaborative, scaled on a world wide basis, with ability to predict not just demand, but expected revenue.

The Inventory Planning systems need to be able to set buffer inventory in multi-stage supply chains, and determine the necessary inventory required to meet the sales plan.  The ability to predict inventory levels into the future is critical along with the capability to measure the value of the expected inventory over time. 

The Operations Planning systems need to be able to take into account, capacity, key material constraints, production costs and transportation costs and required dual sourcing for contingency management when optimizing the network.  The operations planning system should be able to differentiate the cost of running the same product on different resources, in order to accurately predict future expected operations costs. 

The Performance Management system needs to be able to extract key measures from the Demand Plans, Inventory Plans, and Operations plans in order to be able to monitor Key Performance Indicators and create dashboards to manage the enterprise.  The system has to understand the financial goals of the Budget Plan created at the beginning of the year, and monitor the plan against actuals and update to the plan during the S&OP process.

Want to talk more about what best in class companies are doing in these areas, or discuss some thoughts on the subject.  Drop me a line.    

For information about the author please click on Bill Green, VP of Solutions, at Adexa.  Or email him at wgreen@adexa.com. Or visit http://www.adexa.com/.

 

Topics: Supply Chain Planning, Demand Planning, Supply Chain Performance Management, Chemical Planning, Pharmaceutical Planning

Cost of ERP vs. Best-of-Breed Supply Chain Planning Systems

Posted by Bill Green on Wed, Jul 22, 2009
Cost of Supply Chain PlanningWe have posted before about comparing the costs of Best-of-Breed vs. ERP's supply chain planning systems and readers are asking for more specifics on what to look for when doing the comparison.  Here are three of the top issues to consider when comparing the cost of implementing SAP APO and ORACLE SCP with B-o-B offerings.

Data Integration

The majority of the cost associated with integrating ERP systems with supply chain planning systems comes from the effort of getting the data out of the core ERP system.  This has to be done even if the supply chain system is being provided by the ERP vendor, itself (e.g. data from SAP R/3 to SAP APO).  A much smaller effort goes into getting the data mapped into the planning system.  The reason for this is that the ERP systems are usually customized and each customized transaction can cause a hole in the integration.  Also ERP's transactional interfaces are more expensive to set up than interfaces that run in batch.  Before deciding on using a transactional interface (such as SAP's CIF Interface) make sure that you really need it.  Ask how often will the planning system run?  And how fast you need the data to transfer in order to run it?  With the exception of real-time Available-to-Promise capability, most planning modules will work fine with batch integration.   

Planning Analytics

A second overlooked but costly area in implementing a planning system is the use of analytic views (bucketed views of the plan that can be aggregated, sliced, and diced).  They are very important for analyzing a plan, but they are not part of the core ERP-based supply chain planning systems.  Both ORACLE and SAP rely on their generic business warehouse for analytic views since they are not part of their supply chain planning module.  In both demand planning and supply planning, users require accurate analytical views to make timely decisions.  Make sure you understand the cost of setting up SAP Business Warehouse or ORACLE Analytics.  Not only do the views need to be set up in the warehouse, but you also need to integrate to it.  Typically best-of-breed systems include analytics views as a memory resident capability.  To pick the right planning system you have to find out what information is most important to your users and what it takes, in terms of cost and effort, to provide it to them.    

Configuration Costs

One of the biggest cost areas in setting up a planning system is the configuration of the algorithm parameters and business logic, i.e. your business model.  This is where the rubber hits the road for a planning system.  If the system is not set up to properly handle the key business constraints you could easily end up with a useless plan and serious consequences, e.g. rising inventory, or bad commit dates.  The configuration effort involves getting the knowledge out of your head and into the system. Think of all the constraints and business rules that you need to incorporate, and ask how they will be managed within the planning system.  Ask how to customize the planning logic and enter custom constraints.  Naturally, the system with the most flexibility and ease in setting up your business rules and constraints will be the one that will be most useful and least costly in terms of implementation.   

We have noticed many times that companies struggle with a decision to go with either a Bolt-on planning system or their own ERP's planning system.  Are there any other points that you are concerned about when it comes to this dicision?

For information about the author please click on Bill Green, VP of Solutions, at Adexa.  Or email him at wgreen@adexa.com. Or visit www.adexa.com.

Topics: Planning Analytics, Planning Data Integration, Implmentation Cost, ERP Planning systems, best of breed planning systems, b-o-b, Configuration costs