4 signs it’s time to revamp your supply chain planning process
Looking for a new sofa, bike or car parts? How about a Nintendo Switch? Or just eggs? Over the past three years, supply chain issues have plagued every manufacturer, retailer and industry. Even as supply chain strains begin to ease, more optimistic economists are signaling that we face another year of shortages, barring further unforeseen disruptions.
Suffice it to say, supply chain planning and the ability to reschedule is more important than ever. And while supply chains have always been vulnerable, their greatest threat isn’t just external disruptive forces (that’s a fact). It is the supply chain planning process itself.
Fragmented, imprecise, manual, rigid: these are four things a supply chain planning process shouldn’t be, but it’s the hand that many supply chain managers have had to deal with.
So what are the indicators that your supply chain process is a threat to operations? Here are four signs it’s time to revamp your supply chain planning process.
Sign 1: Supply chain plans made in isolation
Each link in the supply chain – demand, supply, production, inventory, finance, sales, operations – depends on the plan that precedes it. Despite the inherent interdependence of supply chain plans, many managers find themselves manually tinkering with a patchwork of applications, processes, and systems to create and adjust plans.
It is both common and problematic for sales and operational data to reside in one system, while demand forecasting is run in another and production data is housed in an entirely different region. With an isolated process like this, manually assembling each plan does nothing to foster an agile or comprehensive response when supply or demand changes. A study by Supply Chain Dive found that 39% of respondents believe that manual processes are the root cause of slow reaction times to change. 20% identified disconnected central systems. I would dare say it is a combination of the two.
Also, I would add that a disconnected supply chain plan creates liability issues. If plans are fragmented and isolated, who is responsible for adjusting the plan or communicating changes down the chain? Without clear ownership, it’s easy to see how miscommunication can have significant downstream effects.
Sign 2: Lower service levels, higher costs
Decreasing customer service levels, month over month, could indicate larger supply chain management issues. Two reasons for lower service levels could be:
- A disconnected supply chain: A cost-cutting measure in one area that leads to a spike in another area is the hallmark of a disconnected supply chain. When one part of the supply chain cannot see the domino effect in other areas, good intentions can lead to costly financial results or operational issues that impact the customer experience.
It’s hard to get an accurate picture of what happens when data doesn’t flow through the chain efficiently. The result? Inventory orders disconnected from working capital, supply decoupled from demand, and supply chain decisions made without considering the bottom line.
- Inaccurate forecast. Whether inflated or underestimated, incorrect forecasts impact service levels and costs. Let’s say you over-anticipated the demand. Symptoms of an inflated demand forecast show up in inventory – specifically, excess inventory and lower inventory turns. Of course, that doesn’t just mean you keep more stock. This means that you are hemorrhaging capital in supply, labor, production and transportation for each incorrect forecast.
If you have underestimated demand, you will face supply constraints. This manifests as stock-outs and stock-outs that cause the entire supply chain to change course. To address shortages, production must be accelerated, supply must be assured and production chains must change. Of course, like anything done in a short period of time, changes come at a high price.
Sign 3: You are facing financial disconnects
Every decision in the supply chain ultimately appears on the balance sheet. Excess inventory eats into working capital. Rising delivery costs can blow budgets away. McKinsey’s models show that “a single prolonged shock to production alone would wipe out between 30 and 50% of a year’s EBITDA for companies in most industries.”
Changes to labor, suppliers, orders, delivery methods, production line, demand and supply can happen in an instant. Without a direct link to financial truth, reactions are made blindly to long-term or downstream effects. Difficulty setting COG goals, forecasting revenue, or adjusting budgets to deal with fluctuating delivery costs are clear indications that supply chain plans are disconnected from finances.
Sign 4: A sudden change causes chaos
Supply chains are under constant strain. Change comes with the territory. Of course, traditional planning methods allow you to anticipate certain things: seasonality, weather, customer peaks and economic cycles.
But a pandemic? A sudden war? A factory fire? A labor strike? In these circumstances, rigid manual systems do nothing to allow for a hasty response. Traditional forecasts are one-dimensional and fail to adapt to the rapid, multi-level financial response required by sudden change.
As Vice President of Supply Chain Services at ARC Advisory Group, Steve Banker wrote in Forbes: “Traditional demand management is based on time series trend forecasting. Forecasting time series trends involves taking an inside-out approach, relying on an organization’s historical internal data to forecast demand. It works well…until the world changes.
Planning is the key to avoiding chaos. You can minimize chaos by planning different chaotic elements and being able to adapt plans when external chaos ensues.
Supply chain planning software isn’t an add-on, it’s a must-have
Supply chain plans are interdependent, data-rich, and subject to change. The question is not whether supply chain planning software is necessary; It is quite clear that automation is necessary to improve resiliency and responsiveness. Instead, the question is, what should you look for in software? We have the answer.
The Ultimate Buyer’s Guide to Supply Chain Planning Software is an eBook that will help you:
Assess your company’s current needs for new or updated supply chain planning software
Define your software requirements
Develop a business case for a new supply chain forward financial planning system
Identify a list of top providers to explore
Access the e-book here.