Supply Chain Planning Blog

Run Your Supply Chain Like You Are Selling Diamonds!

Posted by Cyrus Hadavi on Tue, Mar 02, 2010

Demand Planning with AttributesI want to encourage you to plan and sell your products like Diamonds!

Allow me to elaborate. Diamonds are sold based on attributes, not product-ID (i.e. SKU-number). Nobody goes to a jeweler asking for a piece of rock, spends lots of money, and walks out of the store with a smile. Instead they ask for a diamond based on the 4C's (Carat, Color, Clarity, and Cut). So the bigger, brighter, cleaner and nicer cuts get priced higher and higher. As logical as this may seem, it amazes me to see how many manufacturers still sell their products like a commodity--giving away valuable things for free. And the root cause is usually the fact that their supply chain planning systems are not capable of handling attributes, in the first place. We see many manufacturers that don't utilize attributes when it comes to planning their supply chain and inventories, and yet work with a mind-boggling number of SKU's. Most of them also complain about high inventory costs, and poor customer service, too. Let's see why that is the case, and how attributes can apply to your products and supply chain-unless you manufacturer the first generation Model-T cars.

The fact is that just about everything has attributes, people do (e.g. kind, tall, smart), Products do (e.g. red, non-combustible, fast), machines do (e.g. speed, efficiency, precision), customers do (e.g. VIP, International, new), materials do (e.g. high surface tension, low grade, hazardous), countries do (e.g. tariffs, sanctioned, no-child labor), Logistics do (e.g. Rail only, Air Express, hazardous route), etc. etc. Adding attributes to all of these objects is not too hard; just add new fields to your data base.

What is important is the ability to plan with these attributes for your entire supply chain, beginning with demand planning, to operations and inventory planning. The ability to have an algebra by which attributes are used and planned with is critical in supply chain planning systems. Imagine having an inventory of sweaters without knowing how many of them are Large, Med, or Small, and how many of them are Red, Yellow, or Green. Clearly you could not make efficient use of this inventory, or forecast and build the right products. As mentioned, there are a lot more attributes than just style, size and color. The following is a typical scenario for a top-retailer:

"A NEW customer is interested in a NON-COMBUSTIBLE product made using a HIGH PRECISION machine, from SOUTHEAST ASIA region. Also, it can not be built in any country with CHILD LABOR, and can only be transported using RAIL or SEA."

Can you imagine having hundreds of customers, with thousands of products, and then trying to forecast and commit with so many different attributes involved. Don't forget, raw material and inventories also need to be planned with just as many attributes. In its full sense, Attribute-Based planning means the ability to take all the relevant product parameters into account when forecasting, planning, sourcing, selecting, pricing, promoting, differentiating, allocating, building, storing, committing, transporting, pegging and more. Without a planning system that considers the attributes, it would be impossible to do the math, plan the supply chain, and commit orders accurately. In fact, lack of attributes in the planning process causes some level of "commoditization," which reflects a company's inability to correctly distinguish its products from the others. In turn, customer requests are undermined, and products' costs and prices are not represented accurately. In most cases, this hurts the profitability of the enterprise in the long run, even if it has a monopoly over the market.

There are a lot more benefits to Attribute-Based planning. I highly recommend reading the more comprehensive ePaper that we just published on this topic: Attribute-Based Planning: How to Avoid Commoditization. Also, Feel free to comment on how you use attributes in your supply chain, or if you are looking for any ideas on how to make better use of attributes specific to your environment.

 

Dr. Cyrus HadaviDr. K. Cyrus Hadavi is the president and CEO of Adexa, for more information about the author please click here

 

 

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

 


Topics: Supply Chain Planning, Demand Planning, Inventory Planning, Attribute Based Planning, Manufacturing Planning, Operations Planning, Differentiate