Despite the current digitalization hype end-to-end supply planning models still struggle to be agile and responsive. In a short series of posts I describe what is currently happening in these supply models, how this happens and why. I also highlight the opportunities of a new end-to-end supply planning framework – one that connects all end-to-end planning processes, has single accountabilities and is centrally controlled by supply parameters to ensure seamless product flow.
In my last blog post I described what is happening in today’s supply models. In this article I will outline how and why many of the existing end-to-end frameworks struggle to achieve basic objectives:
- Central & regional control of target service level fulfilment
- Stabilization of manufacturing assets to reduce upstream variability
- Stable supply signals to optimize component supply and inventories that reduce the bullwhip effect
- Improvement of COGS (costs of goods sold) along connected supply nodes
- Tactical control of a supply chain’s service capabilities
Part II – How do these inefficiencies take place in supply planning and why is this happening along the supply chain?
Despite many inefficiencies along the supply chain, today’s supply planning operating models are often controlled and driven by aggregated rough cut/ master plans. Central functions struggle to gain transparency on the supply capability such as visibility of the true inventory positions, capacity profiles, etc. to evaluate tactically performance metrics such as inventory costs and service level targets in a sales and operations planning process.
Conceptually, in supply planning not much has changed for the last years despite costly process refinements, process-oriented organizations, and advanced planning technology implementations. Material requirements planning (MRP) still propagates demands and routes it across the supplying nodes not reflecting the true supply capabilities, tactically. The results are often operational emergencies, and protectionism of the short-term plans.
It is interesting that supply chain professionals still refer to a tactical plan as rough cut plan or master plan. While it seems correct that aggregated tactical plans based on average lead times might be sufficient to gain visibility on available and required capacity and materials to reduce complexity. It is however quite a challenge to determine appropriate average lead times to reflect an appropriate material and capacity constraint plan. Observations have shown that for instance, in machine changeover intensive manufacturing environments the difference between an average setup time and the actual setup dependent changeover time is often up to 50%.
Thus, assuming the wrong average lead times in combination with aggregated or bucketed capacity, supply plans have a significant impact end-to-end. Along the supply nodes, period by period a plan may seem sufficient. However, once it is rolling into the operational horizon, the disaggregation of a plan required to schedule a factory can have significant lead time effects. These lead time effects are often driven by changeover times, commercial customer prioritizations, operational inefficiency, etc.
A vicious circle
All of a sudden what seemed to be feasible and in sync tactically isn’t any more so operationally. An aggregated, bucketed master plan for instance may assume the average machine setup time for a particular product or product portfolio. Once the aggregated plan transitions into the operational time horizon a master plan becomes disaggregated into a production schedule. To protect the operational plan the tactical plan becomes separated quite commonly by a work in process basket where prioritized orders are pulled into the operational horizon by a planner/ scheduler or from the operational zone back into the work in process basket, again because of re-prioritizations. This work basket is also in many industry environments characterized by a bow wave at the end of the operational period, the freeze period. The disaggregation is reflected by scheduling with detailed start and end times and actual setup times based on the predecessor-successor product relationships. Also, customer prioritizations due to short-term demand changes become predominant. In the end the order lead time increases. This often leads to a situation where the capacity in the operational horizon is not sufficient and a re-prioritization of the production orders is initiated.
A vicious circle is created. While a tactical plan is re-created based on its MRP planning frequency, an operational plan becomes completely decoupled from its tactical horizon. The short-term, operational horizon is now characterized by constant re-prioritization based on first come first serve, component, machine and labor availability. Short term it regularly seems that the available capacity is not enough to fulfill the demand. Constant changes on a manufacturing line lead to line availability issues. Capacity availability becomes a challenge. From an end-to-end supply planning point of view functional silos are created supply node by supply node, constantly firefighting.
Overall, short-term changes of a schedule lead to noise and variability along the supplying nodes. This is caused by re-planning/ re-scheduling of a nodes plan to accommodate changes in the demand situation. The operational planning window gets tight capacity wise, backlogs occur, orders are waiting and queuing outside the operational fulfilment horizon. Operational plan stability becomes a necessity but the means towards it is often realized by an operational protectionism, by artificially firming plans. Tactical and operational plans become two entities where the rough cut/ master plan seems to be infeasible. End-to-end plans get out of sync and key components are short which interrupts production further and leads to re-planning affecting the tactical horizon. As a result, buffers are increased. Lead time buffers, capacity buffers or inventory buffers to keep service level targets but negatively affecting costs of goods sold (COGS).
Let’s face reality
In summary, in today’s supply models the supply capabilities are not adequately reflected leading to supply variations and service level violations. Aggregated and bucketed master plans with difficult-to-determine average lead times promote the bullwhip effect. Observations have shown that lead times can vary from a tactical to an operational plan by up to 50% on individual order level. A master plan is not able to lay out a synchronized material flow constrained by available capacity tactically into the future because the short-term events bring a plan constantly out of sync.
Limited organizational supply planning capabilities without local and global end-to-end accountabilities lead to infeasible and misaligned supply plans. Today’s rough cut/ master plans are not designed to parameterize a supply plan end-to-end by constantly calibrating inventory buffers to stabilize manufacturing. As a consequence, the organizational supply planning operating models are not enabled to calibrate a supply chain centrally by using supply planning parameters. Tactical rough cut or master planning become not only functionally two entities but also organizationally. Local sites tend to evade into a shadow planning in spreadsheets escaping from the instability that an MRP based plan entails.
This deteriorates the reliability and visibility of a supply plan end-to-end even further. It is not unusual in these types of environment that also tactical planning capabilities of local and global organizations deteriorate because of the lack of credibility of a tactical supply chain plan. This happens because supply shortfalls such as material and capacity constraints are not adequately considered by MRP-driven master plans leading to over or understating the supply capabilities across the supply chain.
Have you experienced similar? Please let me know how operational and tactical planning is working in your company.