Monday, October 6, 2014
21st century Supply Chain require Demand driven Rules and Tools
With the increase in the complexity of the global supply chain management, companies are struggling with the increased difficulty to plan and manage. As per the survey conducted by Aberdeen Group in November 2010, 86% of the respondents indicated that their management team has asked them to find opportunities to improve their supply chain planning process and 71% of respondents had indicated the same for improving supply chain technology. However the most alarming point is that most of these companies are missing out on the biggest opportunity for the real solution.
So what are we missing about supply chain? Today many people think of warehouse management systems, product lifecycle management or logistics management packages as the essential supply chain tools. However this is a huge mistake.
Supply chain is an interconnected network of “islands” of manufacturing. Thus material requirements planning (MRP) is the most essential in a successful supply chain planning. Proper planning of material acquisition, speed of flow of relevant material and information throughout the system will lead to better benefits.
Today almost every mid-range to large manufacturing companies use MRP tactics and tools that are not enabling the agility in the supply chain. Huge investments in ERP product will not provide success unless the planning system is fixed.
The New Normal
The widespread use of internet and other technologies has made the 21st century highly volatile. The increased demand for shorter lead times, more variety and customization, increase in the competition have led the supply chains to be more extended and difficult to manage.
The traditional MRP rules that were used in the 50’s, 60’s and 70’s under “ Push and Promote” mode of operation are now breaking down and so with it are the traditional forecasting algorithms. Today, companies spend loads in “smarter” algorithms for forecasting, as a small mistake can cause a huge penalty.
The Compromises and Effects
Planners have built work-around and ad-hoc mechanisms in order to get better approximation of real requirements. However these tools have limited capability, scalability and transferability which leads to poor inventory performance, poor service levels and high expedite related expenses.
Where do we go from here then?
These problems are not going away. The out of box ERP toold are to generic to address the complexity of the demand. Chad Smith and Carol Ptak, Founding Partners of Demand Driven Institute have thus suggested a way to migrate from the world of “Push and Promote” to a world of “Position and Pull”. This is called Demand Driven MRP (DDMRP).
DDMRP is a multi-echelon demand and supply planning and execution methodology, which integrates multiple tiers in the supply chain in order to provide end to end planning and execution visibility so that flow can be improved and better managed. This tool ends the typical bi-modal distribution and brings it to the desired alignment.
Consider the case of Oregon Freeze Dry, the largest diversified freezer dryer in the world. In their Mountain House Division, sales increased by 20%. This was accomplished with 60% less inventory.
Since they started with DDMRP tactics, their sales has grown by over 1300% while inventory related to those items grew only by 200%. This happened with almost no amount of capital investments in capacity.