What is the most popular supply chain planning tool in the world? The answer: Spreadsheets! Its used for demand planning, Sales and Operations Planning, inventory planning, or any other type of planning you can think of. But is this really the best tool to use? Most popular response is: “it gets the job done.” Well, using a knife instead of a power-screwdriver may also get the job done, but how fast, how efficient, and how satisfactory is the end result?
The fact is that by using spreadsheets we would not even know how well or how badly the job was done until we run into issues of delivery and/or high inventory cost. And then we blame it on variability of demand, late supplies, rush orders, unreliable suppliers, equipment breakdown, and so on. We have been dealing with all these problems for decades. Shouldn’t our planning system take these factors into account? Let me just say it bluntly, these are all excuses. The right tool and a preventive plan can quickly react and avoid 99% of these issues before they occur. And more importantly, it will ensure that you have no surprises.
Just like anything else, supply chains of today are more complex than the supply chains of yesterday. So it makes perfect sense to need much more sophisticated planning systems. Inherently, supply chain planning is a highly complex and collaborative process. It requires 100’s, if not 1000’s, of parameter to be considered, including resources, routing, demand signals, supply capacities, inventory levels, locations, priorities, etc. etc. It is almost impossible for one planner, with a static system, to take into account and optimize for all of these factors. And even if such miracle can take place then what happens as soon as one of these factors changes. How quickly can you re-align everything?
The fact is that spreadsheets are simple and passive systems and forced to look at data locally. Simple because they hardly integrate different business processes and need a simplified view of the world to work, e.g. fixed lead-times. And they are passive because they can be programmed to consider only one or two objectives, that are important to the planner, at any given time. When orders are late and customers are screaming, priorities change. When Inventories and cost is going through the roof, then priorities change, again. Spreadsheets are just not capable of dynamically dealing with all global objectives, from multiple-streaming sources of data, at one time. And you certainly can’t expect the system to Alert you in real-time when things go wrong. They are just not designed for that! The end result is loss of market share, dissatisfied customers, too much inventory, too much build-ahead and not enough of what is in demand. Sounds familiar?
I know these words may come as a shock to some of the readers, but it should not. If you are running a multimillion dollar facility with a tool that was not designed for that purpose then you should focus on more sophisticated tools that consider the availability of every resource, man, and machine, and figures out the right supply at the right time, based on dynamic changes in demand. Updating your model in spreadsheets on monthly, or even weekly basis is not going to work since your model is incorrect to begin with. Lead-times are variable, not fixed; demand is unpredictable (random) within certain variances; suppliers miss due dates; and your machines or outsourced production sites don’t always cooperate. I know what you are thinking; all this can be fixed by just increasing lead-times (slack times). But that wont work; as lead-times are increased across different products, we start the orders sooner than later. So when the demand changes, we end up with a lot more WIP inventory that is no longer needed, and continue building them. To that end, we inhibit our own ability to react faster to what is actually needed today and focus on expected demand.
Finally, stop worrying about availability of data for a more advanced planning system. If you have enough data to run spreadsheets, then you definitely have enough data to get started on a better planning tool. You will see that the better planning systems are designed to measure, clean, and filter your data over time. This will enable you to scale and improve your planning capabilities quickly.
Look forward to your comments and if this topic is of interest to you then I suggest the following epapers:
How to Justify A Supply Chain Planning System?
Common Pitfalls in Supply Chain Planning System Implementations
Dr. 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.