A Better Way to Think About Integrated Planning

Paul Delbar from OMP has a different take on what integrated planning means. OMP provides supply chain planning (SCP) solutions.

Resilience is About Planning for Agility

“Definitions of agility, resilience, visibility, and end-to-end collaboration are all very much tied together. Something happens in your end-to-end supply chain. Resilience comes down to planning for agility.” And agility is about reacting quickly and hopefully effectively to the actual disruptive event. But the event might not be disruptive at all if you had planned for it. For example, if a company had built up safety stock, and the inbound supply of components needed to make a product is disrupted, the company can still respond to customer demand without breaking a sweat. Without this safety stock, planners need to scramble to try and figure out if there are alternative suppliers that might be able to provide the components they need in a timely well. If the planners are successful in their scramble, then you can say they managed to respond in an agile manner.

Resilience means you have variability that the supply chain team has accounted for. That variability might be in the areas of manufacturing, distribution, or transportation capacity. Or it might be the ability to secure the necessary quantity of inventory that is needed or respond to unexpected surges in demand. A company can plan for this variability in a variety of ways – sourcing from multiple vendors for a given part or component, or network design to create a network with more decoupling points (more paths for a product to flow to market), or purchasing just-in-case capacity. All these things add costs to products. The optimization engines in SCP solutions can’t provide the same degree of savings when these buffers are put in place.

The more cost-effective supply chain often involves buying big volumes from one supplier and just-in-time manufacturing. COVID taught companies the risks associated with these practices.

One of OMPs customers told them these techniques for dealing with supply chain variability can add up to 10% to the costs of their supply chain, but two incidents can create costs for the supply chain that are 30% higher while leaving customers unhappy because of their inability to get what they ordered.

A Different Way to Think About Integrated Planning

Supply chain planning is one system that can be used to react to events and find the lowest cost way in which to mitigate the disruption while keeping customers happy to the maximum extent possible. But Mr. Delbar from OMP points out that our models are not integrated enough. Disruptions often come from outside the enterprise. Our SCP models do not understand the constraints of key suppliers or partners.

“We tended to look at the enterprise as if it is contained in a glass dome,” Mr. Delbar explained. Historically, companies assumed suppliers would be able to supply raw materials or that the lead time from China to deliver those materials was three weeks. These assumptions simplified planning. And that is great as long as the assumptions are valid.

But during the pandemic so many of those “assumptions turned out to be false. There are no containers that are empty. Ships are blocked in front of ports. You cannot find a truck driver to take your container to the harbor. Planes don’t fly because no passengers are flying, so no belly capacity is available.”

Companies responded by building up safety stock. In addition to adding cost, this has also led to increases in the bullwhip effect and served to increase variability surrounding demand even as it lowers variability on the inbound supply chain.

But there is a better way that is emerging. “What if we could get suppliers to share their capacity?” Mr. Delbar exclaimed. And what if we shared our true needs with suppliers?

“We have a plan in place for a supplier to deliver 500 units a day to us twice a week, right? Very simple situation. But we know we actually have quite a bit of stock. We’re not planning to use those 500 units for the next couple of weeks. But procurement says, ‘well, we’re not going to tell the supplier that because we have this volume-based discount. So, let’s just shut up about this and not communicate that.”

Meanwhile the supplier may have more orders than they can handle. Supplying those 500 units requires overtime and higher costs. If the supplier was honest, he might actually prefer to just provide 200 units in the first delivery of the week and catch up over the subsequent week and a half.

The result of this failure to communicate honestly leads to higher costs in end-to-end value chains. It also too often leads to unnecessary supply disruptions. Multi-enterprise supply chain network solutions from companies like Infor Nexus, MPO, and SupplyOn actually enable this kind of collaboration. However, there must be a culture of honesty to provide this. That often means that the way procurement deals with key suppliers needs to change.

But once this extended supply chain capacity data is available, supply chain models can model not just the internal supply chain, but the extended value chain. The planning model needs to become more dynamic; it needs to be updated more frequently. One week, the model may show the capacity of an upstream node as being 200 units, the next week it can show 700 units.

But combining the right kind of upstream data into living, dynamic models of the value chain allow for agility with optimization. In short, it allows for agility at a much lower cost.