Supply Chain Planning Blog

Where is the E in S&OP?

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

In-Memory Computing—Only the beginning

Posted by Cyrus Hadavi on Thu, Jul 21, 2016

In-Memory_Computing.jpgIn a few recent sessions with industry analysts, we were surprised that we were asked if our software is in-memory computing! Given the fact that for over 20 years we designed our applications to have all the data in-memory for computation, our immediate response was: Is there any other way of doing it? The response was, yes, there are others which bring in the data from the database when they need it but now they are changing and they are getting orders of magnitude improvement in speed! This improvement in speed must have caught the attention of the analysts which brings us to the core subject of this article. There is more to speed of application than just having all the data in memory. The latter is the easy part. There are also some vendors, try to improve speed by abstraction and over-simplification. I am sure you are aware of quite few who deploy “Spread-sheet” type of capacity planning in their S&OP applications. That is forming weekly or monthly buckets with fixed lead-times! This approach typically either dumbs down how to deal with capacity, or ignores it altogether. It is the old method, with NO notion of product mix and real processing time, that has been around for decades but with a new user interface which makes it slightly more attractive. Therefore, any gain in speed is offset by a very inaccurate and unrealistic plan. In addition, it has no order level information OR any order level pegging functionality. You might as well use your spreadsheets since they give you even more control!

 

To gain real improvement in speed with proper representation of capacity of resources and equipment, deep modeling capability is needed and the mix of products must be taken into account. In addition, to IMC, one needs to have data representations and algorithms that provide real-time answers to very complex supply chains at order level. As an example, if one material is not available, does the system go back to search all over again for a new method of making or will it just backtrack one step to find an immediate substitute pegged to that order? If a resource is a bottleneck, will it look for a whole new routing or will it look for an alternative, process or equipment. How this data is represented and how the algorithms divide and conquer in parallel processing is what makes the application fast. Just using IMC is only the beginning, there is a lot more that goes into a comprehensive planning system that can analyze tens of millions of data points from material availability to resources and tools and skill levels, to say a few, in almost real-time.

Topics: Supply Chain Performance Management, Planning Data Integration, Supply Chain Data, Spreadsheets, Attributes, Sales & Operations Planning, SCP System, S&OP, Adexa

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