Planning Systems 101
There is no denying the growing trend to outsource more and more of the service supply chain. Manufacturers and service providers are trying to pass on the risk of performance variability to their partners, trading fixed facility costs and headcount for expenses that can vary due to volume of activity. In the frenzy to reduce headcount and fixed assets one critical point is often missed no matter how many companies comprise the new virtual supply chain, the company with their logo on the product or the one holding the maintenance contract owns the ultimate satisfaction of the customer. The customer does not care about how many intermediate partners contributed to the reliability of the product or the delivery of the service, as long as the end result is a quality offering, which means that the manufacturer or service provider needs to manage, measure, and monitor their supply chain even if they dont perform all of its functions.
This responsibility creates new and different challenges for those individuals managing the supply chain. Not long ago the service supply chain was a monolithic structure comprised of various departments within the same company. Even before the advent of enterprise resource planning (ERP) systems, data was reasonably accessible through the web of homegrown departmental systems or casual processes. ERP grew to replace those systems with a value proposition based upon making enterprisewide data available through one set of tightly coupled modules. Material planning, especially for service where the reverse logistics chain increases the complexity and scope, consumes enormous amounts of data from multiple processes and departments. The ability to use ERP platforms to see item masters, demand, networkwide inventory, on order positions, material in transit, repair, etc., in one integrated data structure, dramatically eased the process for accumulating large volumes of diverse transactional data to be passed to service parts planning applications.
The ERP model greatly advanced the ability to monitor and manage a single enterprise supply chain. But is it still as effective when the supply chain has evolved into a dynamic set of global partners? Probably not, at least not without some help. ERP systems are designed to be the provider of data, not the gatherer. As the breadth of the systems grew to include more modules covering more business functions they became more closed to other applications. The philosophical intent of the ERP developer was to be the sole software platform within an enterprise. Best in breed gave way to one-stop shopping. This worked well when the intent was to capture and manage data sourced within an enterprise. But what happens when you have different partners who warehouse and transport your parts, perform your depot repair, and take and execute your service calls? Todays challenge is to provide the same breadth and timeliness of data gathered from any number of partners. The insular ERP model must now be complemented with technology that can tie back together the data that represent the fragmented supply chain, especially to drive the material planning models that have their effectiveness diminished with every missing category of data.
The essence of planning is to reduce as much uncertainty as possible to make the best informed decisions. That is why we forecast demand and returns, measure lead and transit times, calculate yield rates, and collaborate with customers and suppliers. Every time we lose the data that drives one of these processes we re-introduce uncertainty into the planning model. Unless you are willing to compromise levels of service, the only way to compensate for uncertainty is to carry more inventory. If the amount of missing or delayed data affects multiple planning inputs, such as forecasting and lead times, and the amount of uncertainty compounds, so too does the amount of inventory required to achieve the same supply chain effectiveness. Most enterprises are faced with significant inventory reduction initiatives. The luxury of carrying additional inventory is not an option, especially when it is needed to cover gaps in the everything to everybody ERP platform that required so much time and money to install.
Obviously this is not a death knell for ERP, but it does suggest that changes in the structure of your supply chain will influence how and from where you gather data to populate it. The number of potential partners, and the propensity to change them, mean that traditional forms of systems integration are impractical at best. They are being replaced by specialized tools that capitalize on the ease of crossing enterprise boundaries over the Internet without having to code unique integration bridges. New backbones that support the entire scope of the supply chain and the reverse logistics loop are emerging. They can take advantage of data types for which the ERP is the system of record, but can also use templates of key transaction sets or data types to reach out to partner systems to obtain or provide data. The introduction of one of these platforms can solve multiple problems simultaneously. First they provide the planning systems with the complete array of data required to manage and monitor the supply chain. Secondly they can feed data captured from partner systems back to the ERP, filling information gaps in a way that can be transparent to the user.
To further increase the difficulty of planning materials in the service supply chain, there are three key challenges:
Increased Customer Expectations Gone are the days when the service provider dictated the terms of service delivery. The contemporary service customer is much more demanding than his predecessors. The result is continuing pressure to obtain service at lower costs and with shorter response times. This is a trend that we should assume will continue, forcing the service supply chain to provide greater efficiency at continually lower costs. If customers will define delivery contracts measured in hours, the systems that ensure the materials are available need to dramatically increase the agility of the planning and deployment decisions. In order to accomplish this, the planning systems that drive the supply chain will need data with shorter lag times than ever before. The complexities introduced by such short response times strain traditional cyclic planning models. Accumulating data in monthly buckets for once-a-month planning runs is no longer viable because the shortened response window increases the randomness of demand, which requires a more fluid supply chain.
Evolution From a Supply Chain to a Supply Web The whole metaphor of a supply chain implies linearity and a definable sequence of steps. Competition and response-time pressure from the service supply chains demanding customers are requiring that companies reduce cycle time in the supply chain and reverse logistics loop. Shorter lead times increase inventory velocity, enabling greater asset utilization, adding agility to the network, and reducing the pool of assets carried as safety stock. Instead of a series of predefined steps along a linear path, progressive companies are introducing real-time decisions to determine where material should come from or where it should be sent. As a result, material can move anywhere in the network, creating web-like flows. The challenge arises because this requires a systems infrastructure that can gather real (or near real-time) data from a number of disparate sources and then bounce the options against the planning engine to make a real-time decision.
Traditional supply chains deal with returns by automatically sending them to a common collection point for triage, then preparing them to be sent to the repair vendor. If the plan already has enough of those parts, why pay to have them packed and returned only to have them unpacked and thrown away? What if they are excess but there is a secondary market, should we offer them for sale? What if I need them within my network but not in this theatre? Should I repair them locally and then send them to another theatre or should I send the broken part for local repair there? There is a set of mirroring decisions for good material coming off the line of a manufacturer or repair vendor. Why send parts to a central site for dissemination through the network when that decision could be made based upon real-time imbalances in targeted and available inventory shortages or open customer back orders? It is estimated that up to 25 percent of the reverse logistics cycle time can be taken out by replacing the supply chain driven by routine with a supply web driven by flexible, real-time decisions. Additional, tangible savings come from reduced transportation and handling charges.
As these processes mature, the backbone that supports them will extend from the creation of demand, via customer orders or service calls. Real-time processes will determine entitlement priorities and from where parts are sourced to satisfy demand. Return material authorizations (RMA) signaling returns of defectives will trigger real-time processes to manage numerous validations such as warranty status, offer the returning party replacement options, direct the return, and set priorities with the repair vendor. This more nimble, faster supply network will provide the next plateau of benefit to owners of the service supply chain.
Globalization From a planning perspective, it has long been proven that there are advantages to simultaneously solving the biggest problem you can. This is driven by the statistical concept of pooling, increasing the population of events so that outliers and variations cancel each other, yielding more accurate views of trends and data values. The benefit to the owner of the inventory is that as the views of demand and lead times become more accurate, the amount of safety stock required to deliver a level of service decreases. A compounding benefit is that if you aggregate regional plans into one global plan, not only do you further reduce uncertainty but you gain additional flexibility to rebalance inventory across a wider network, which eliminates overlapping layers of safety stock required for regional plans.
Evolution from a single- to multi-enterprise supply chain is a massive structural change, and the fragmentation of data infrastructure it causes is a formidable challenge. If you take the same concept and expand it to a global model, the number of partners, each of whom represents a target for information acquisition, the complexity of tying the supply chain back together grows exponentially. The propensity to use local sourcing for common components and repair depot services can represent hundreds of additional sources of data. Adding in the fact that many global companies use different warehousing and transportation providers, and field service delivery partners in different global theatres, continues to layer complexity onto the process of providing planning with one view of the world.
Conclusion
Like most evolutions, change breeds opportunity. Those companies that recognize that the fragmented supply chain is a potential catalyst for next-generation systems will experience a significant competitive advantage. This technology is coming to market in different ways including off-the-shelf software and transaction-fee-based services. However you choose to avail yourself, by introducing this technology to the systems infrastructures of your partners, you will be able to leverage your existing investment in ERP platforms into a broader, multi-enterprise infrastructure. Merging real-time data capture from partners with a world-class planning model will deliver a smarter, faster supply chain with tremendous soft and hard benefits. For example, it is not unreasonable to see 10 to 20 percent reduction in inventory investment and 5 to 10 percent reduction in transportation and handling expense as a result of the multi-enterprise infrastructure. The most significant soft benefit may lie in the ability of the enlightened service provider to leverage this technology and stay in step with the ever-demanding service customer, and continue to provide quicker responses at lower costs the most fundamental competitive advantage.
