Supply Chain Planning Blog

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

Where is the E in S&OP (Sales and Operations Planning)?

Posted by Cyrus Hadavi on Wed, Aug 24, 2016

download.jpgWhere is the “E” in S&OP?

According to Gartner, there can be no effective S&OP process without an S&OE—Sales and Operations Execution, process. In other words, why make a plan if cannot be executed accurately or cannot be translated into execution? Here is what Gartner says:

• The No. 1 challenge among manufacturing companies is connecting sales and operations planning (S&OP) to operational plan/execution.

• Value-adding, effective S&OP process cannot exist without S&OE, as it provides the planning interface to execution.

There has been a recent surge of interest in S&OP. The attraction is primarily in integrating sale and operation as well as better visibility into potential issues. However, the major problem with most, if not all, S&OP systems is that they are far from accurate especially when it comes to capacity and mix of products as well as order level pegging. The inaccuracy of plans leads to all kinds chaotic manual adjustments and tweaking just to get it to work. S&OP shows you the direction but cannot take you there! In order to arrive at your destination at the right time and place you need to be able to execute the plan not just get a high level idea of which direction to go. There may be traffic jams, there may be road closings, there may be flat tires; and there may be bad weather and bad road conditions. In all such instances your S&OP plan is inadequate to deal with such inevitable but unpredictable issues and cannot give you any help as to what your best course of action should be. Their best suggestion is “keep simulating and perform What-if” all possible conditions that might occur! This is not a feasible approach!

To be able to perform execution, you need to have:

1- Accurate plans (not just rate-based planning like spreadsheets)
2- Have a unified data model between plan and execution engines
3- Ability to adjust the plan as needed

Furthermore, execution systems, just like vehicles, can handle all the bumps on the road to make the ride a lot easier. Shock absorbers in your vehicles are precisely a method of execution of plans. In their absence, the ride can be extremely uncomfortable. This is often the case when execution systems are missing and people often end up performing all kinds of expediting and manual changes, trying to absorb the “shocks.” Even more importantly, the main issue is that the financial predictions that they had made regarding the plan at the S&OP level is no longer valid and totally false. For example, use of more expensive substitute materials or more expensive freight methods, because of late deliveries, can substantially add to the real cost of products. To this end, the S&OE system needs to have the capability to monitor the financials, as such changes are made, on an on-going basis. Costs based on S&OP alone is wishful thinking and have no resemblance to the actual.
Another important point that was made earlier above was having the ability to translate plans into execution. In other words, a seamless transition between planning into execution. A unified data model in plan and execution systems is a requirement for this to happen. Furthermore, the planning engine must have a realistic model of the actual environment so that the plans are produced in an accurate manner. Current methods of capacity planning which are based on bucketed rate-per-period, is very inaccurate and insensitive to the mix of products. Even if you had two products A and B, if B takes twice as long as A to make, one cannot plan this unless you know how many B’s and how many A’s are needed. An average of X per day or week is very misleading which is exactly what almost all S&OP systems do. In many cases, such as asset-based industries, the actual models of equipment are a must in order to produce accurate plans. Capacity depends on set-up times, batching, availability of tools to be used on the equipment, processing times and so on.

Lastly, almost all S&OP systems cannot trace orders to the components and supplies that are to be used for every order. Thus, the ability to peg orders, to qualify suppliers, and to find root causes of issues and latenesses are totally impossible for these systems! They can only say what is short and which orders will get what is available. In high tech, pharmaceutical and many other industries, pegging to the right supply, to the right supplier and to the right processes are requirements. S&OP systems must be able to demonstrate such capabilities or else the actual execution of the orders would be a nightmare.

S&OP and S&OE are two essential processes that go hand in hand and in the absence of one or the other the whole purpose of having the system is defeated.

For further information on how Adexa’s S&OP and S&OE work to avoid the aforementioned issues, please send an email to info@adexa.com or visit our web site: www.adexa.com

Topics: Supply Chain Planning, Planning Systems, Spreadsheets, Planning, Sales & Operations Planning, S&OP, S&OE, planning and execution

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