The Value of New Planning Systems: An Interview with Narendra Mulani
What is the importance of planning to supply chain performance, and how has e-commerce influenced its importance?
The key issue – regardless of whether you provide raw materials or you make finished goods to stock or make finished goods and configure them to order – is that you still need to plan. If you make to stock, you need to plan how much you´re going to sell, when and where. If you configure to order, you still need to know how much, when and where so that you can position the materials and have the right capacity available to meet demand. And finally, if you are a provider of raw materials, you essentially need to plan in order to understand when your raw materials need to be positioned and where they need to be positioned for finished goods production.You know, 10 years ago, the real feeling was that if you got the forecast right you did a good job, and everybody was focused on that. Today, no one tries to get the forecast right. You try to get a consensus on demand right, and you make sure that you´ve got the flexibility in your supply chain and you have the tight cycle times in your planning cycles so that when demand signals change you can reverberate that through your extended supply chain. So planning is as much about anticipating demand as it is about the flexibility and velocity by which you take the demand signal and pass it through the system.
The advent of the Internet has not fundamentally changed the process. It has accelerated the process and brought some tremendous new options to how you plan, but you´re still providing the same finished goods to the same customers. You now just have much more speed. The customer now expects much more flexibility and a much more immediate way of their demand being fulfilled.
What are the biggest challenges facing companies when implementing planning solutions?
Well, the e-commerce revolution and globalization are doing two things. They´re changing your channels and simultaneously changing the profiles of your suppliers. Which means the supply chain isn´t static. Supply chains are very dynamic and they´re dynamic either because customers are pulling demand differently or the economics of manufacturing and distribution are changing on you. And therefore, for you to remain cost competitive you have to change your supply chain. So the real dynamic here is that if your channel mix changes or your supply chain changes, you have to be flexible enough to change your planning processes and structures to reflect that in time. Rigid planning systems have been deadly in terms of their negative effect on manufacturers that were considered advanced in the early 1990s. They were advanced but they set their planning systems in concrete and they forgot about them, so when the market changed, they had a great deal of difficulty responding to the changes. And, it took them a long time to recover. In fact, some of them still haven´t figured out that what they did was set planning processes in place that are sensitive to neither changes in the market nor their own supply chain.The first hurdle you´re going to have to overcome in terms of introducing a new planning system is defining your leverage – either in terms of meeting customer demand or reducing cost in your system. If you´re starting from scratch or you´re reengineering your planning system, focus on your major points of leverage. Understand what they are and build the business capability to be able to affect that leverage. I´ll give you a simple example: personal computer manufacturers. Although direct-to-consumer shipping is the current wave, 70% of all personal computers bought by households still sell through retail stores. Manufacturers carry the cost of the depreciation on that personal computer while it´s sitting on the shelf. So for a personal computer manufacturer, their leverage is simple – the less shelf inventory that exists in the channel for their computers, the higher their return can be. That´s one of the largest points of leverage. So once you understand your leverage, build the planning capabilities that allow you to sustain that leverage. Start at the leverage point and work back from there. Otherwise, this can be very intimidating and you diffuse your dollars in a way that will not give you the return you should get.
We find the value in the white space. We find the metrics that tell you things that aren´t obvious because you only see through the lens of your own organizations. SCVA doesn´t lay claim to being the only way to do that but it puts a structure around highlighting those unique features.
What approaches can companies take to more rapidly achieve the benefits of these planning systems?
Again, I´ll give you a historical perspective. Ten years ago, there was very little application software available. So a lot of it was custom developed and we would go through a very traditional development cycle – getting user requirements, performing the detailed design, developing the code, testing it and getting user acceptance. Two things have changed. The first is that applications are now available. The second is that the speed with which the supply chain changes, and therefore the speed with which you have to deploy, is fundamentally different. To be able to affect the marketplace, you´ve got 5 to 6 months to design, prototype, and implement. What we have done at Accenture is reflect that in how we build planning systems with clients. A planning system is fundamentally different from a transaction system. It´s only effective if you use it. It´s a decision support system and the value it provides is only the value that you as a business user see in it. So essentially we have built a set of very flexible but "bulletproof" methodologies that emphasize user acceptance in terms of making sure that the user owns the solution at the end of the development.There are three things that we emphasize when we partner with a client to implement a new system. One is the emphasis on user acceptance. So from conception to delivery there´s a natural tendency for the client to say, "Yes, I´ve owned it all along. It´s been my baby even though you built it for me." The second thing we emphasize is the ability to prototype – we build the system in front of our clients, and create the processes and systems in front of our clients. The third emphasis is the use of what we call business scenarios to affect this change. It´s the combination of our technology skills and business development that enable our clients to build new planning capabilities.
Could you elaborate upon the types of different scenarios? Are they out-of-the-box? Are they customized?
Again it depends on the maturity of the organization. The normal method for building business scenarios is to begin by talking with the expert leaders on the client team. We bring in knowledge of traditional scenarios from similar environments to spark the conversation – it could be order fulfillment or aggregating a demand plan or supplier signals or what have you. The important thing about scenarios is that they are owned by the business user and reflect all elements of business integration. Does the scenario achieve the operating strategy that the client is looking for ? Does it accurately reflect the business process that´s going to take place? What is the technology needed to support the process? And finally, is the client organizationally aligned to achieve the desired results of that business process? Does the organization have the skills in place? A business scenario is the combination of these different elements from a live business situation. Our whole development process is based on prototyping these live business situations. Therefore, a natural outcome of the prototyping process is that the business users will believe and accept ownership of the entire business solution.Can you cite examples where this approach has really made a difference? Generally, we have used this approach in industries that have tremendous change occurring right now. For example, the personal computer manufacturing industry. We have used the approach to implement new flexible planning systems to support retail markets, as well as for cellular providers. If anybody´s business is changing both from the supply side as well as the demand side, it´s the cellular industry. We have been very effective in helping clients in these industries create new planning capabilities in both the upstream and downstream portions of their businesses.
I think what´s important about this approach is that it consistently delivers against the benefit case. It enables clients to achieve results faster because there is no lag between the build-up of the planning capability and its deployment to the field.
What final thoughts would you leave a company preparing to introduce a new planning system?
It begins and ends with the business operations people. If they´re not involved, don´t bother with the initiative. The second is that if you leave out any one of those elements of business integration, you are destined to fail. It´s not a matter of whether you will fail, it´s a matter of when. The third point is leverage. If you are creating this capability in a silo that doesn´t let you affect the overall business scenario, then your ability to achieve business value is at very high risk. Do you have the right sponsorship? Do you have the right skills? Are you going to affect all sides of business integration?Narendra Mulani, an associate partner in the Accenture Supply Chain Practice, is a leader in value supply chain planning technology and performance and the development of new business models.We spoke with him about the importance of supply chain planning in today´s business environment and the steps companies can take to more rapidly achieve performance benefits from their planning processes and tools.
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