Supply Chain Planning Blog

Spreadsheets and Planning

Posted by Cyrus Hadavi on Wed, Apr 06, 2016

Givspreadsheet.jpgen that more than 90% of the enterprises in the world use spreadsheets in one form or another, one may conclude that spreadsheets are the most desirable and successful enterprise software in the world! So, why would you want tospend so much money and effort to invest in planning software? The justifications to use spreadsheets are that they are simple, easy to manipulate and they “do the job!”  There are a number of reasons, discussed below, that make spreadsheets inadequate for planning purposes. Mostly the fact that just an ad hoc plan can be far inferior to other more optimized plans; and in the absence of suitable systems and algorithms, one cannot tell one from the other. I am sure you have heard of the expression: good is the enemy of great! In case of spreadsheets, it is merely the perception of good that is preventing companies to do something exceptional and distance themselves from their competition! It is amazing that companies invest hundreds of millions of dollars in people and equipment and then rely on a simple spreadsheet to run their business and make use of the resources that they have so heavily invested in. Every one percent improvement in plan can translate into millions, if not tens of millions, of dollars in inventory savings and higher utilization of resources. In fact, it is more than just savings that need to be considered; it is more relevant to know that there are opportunities for increasing revenue and market share, by deploying adequate planning systems. More recently companies have been investing more heavily in supply chain execution systems such as warehouse management and logistics or even shop floor sequencing. The problem is that executing without a good plan results in a more efficient way of doing the wrong thing! What is the point of building and delivering the wrong goods to the wrong place in an “efficient” manner? Planning prevents making costly mistakes, it makes companies more responsive, it shows where to spend money before it is spent and it creates opportunities to expand market share by having the right product at the right place at the right time. A multinational CPG customer of Adexa with over 100distribution centers reduced inventory by 33%, reduced material cost by 5% and improved delivery performance by deploying planning systems that enable optimization and improve visibility of the entire supply chain. ROI for the project was over 2100% realized within half a month! The point is that before deploying Adexa, they were running a successful and profitable business but could not see the hidden potential of their supply chain and opportunities that could be exploited using a more sophisticated system.

There are many reasons that make spreadsheets less than ideal for planning purposes. Spreadsheets cannot account for mix of products (different mix results in different capacity needs and different lead-times). They assume fixed lead-time whereas in reality lead-times are variable depending on the mix. In addition, they do not take into account availability and synchronization of material and capacity at the same time. Furthermore, there are myriads of other constraints such as tool availability, setup times, batching possibility, process and product attributes etc. that all need to be accounted for that spreadsheets cannot model. Many users are fond of spreadsheets because they can manually manipulate the plan.  The question is why is there a need for manual interaction? The answer lies in the fact that the plan that is being created is not accurate enough to execute therefore requires manual adjustments.  The planning systems create an accurate and near-optimal plans such that little manual effort is needed.  Finally, spreadsheets cannot perform incremental planning, dynamic allocation and ATP/CTP, and the underlying models are static, deviating from reality the more they are used. As an example, one of our clients used to take up to two weeks to figure out delivery dates of orders to respond to its customers. It would take about a week of spreadsheet planning in their HQ in US and another week with their subcontractors in Asia. After they started using Adexa’s planning engine, the commitment dates to their customers have been practically instantaneous and more importantly accurate and reliable.

With the recent innovations in processor speed of computers and advances in programming and Artificial Intelligence, we are now in a position to accurately predict inventory requirements at every level of the supply chain by considering the probability of usage of every part# from raw material to WIP to finished goods. This allows companies to keep the right amount and mix of inventory at different stages of supply chain to maximize responsiveness at lowest cost of inventory. Such disruptive technologies help to save tens of millions of dollars in inventory cost and improving responsiveness dramatically.

When it comes to efficiency, use of spreadsheets to perform planning function is probably as good and efficient as using a bicycle to travel from Los Angeles to New York city! It gets the job done but …

Topics: Supply Chain, Supply Chain Planning, Inventory Planning, Excel, Spreadsheets, WIP, Manufacturing Planning, Inventory Optimization, CPG, Factory Planning, Material Planning, Scheduling, Business Planning, MRP

Are You Still Using Spreadsheets To Plan Your Supply Chain?

Posted by kameron hadavi on Thu, Jul 22, 2010

Spreadsheet PlanningWhat 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

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, Excel, Spreadsheets, Planning