Every professional responsible for his or her company’s supply chain planning and execution probably realizes that there are a number of inefficiencies in his or her system; they just might not be able to pinpoint where the biggest and/or most urgent issues are. In order to optimize all points along a chain, you must first assess your current situation looking for areas that create a drag on your entire supply chain process and limit its efficiency.
There are two ways to evaluate the performance of your supply chain: the first is a “40,000-foot view,” which we’ll talk about in this post; the second is a more detailed view, something that requires a more in-depth consultation. The 40,000-foot view starts with 2 simple questions that look to uncover weaknesses; your answers will help you determine where your greatest opportunities for improvement are.
Question 1: Do your Planning and Execution systems operate independently of one another?
Planning and execution should not be a two-step process where each is executed separately. When each is addressed in its own silo, interpretations of planning needs become part of the fabric of the execution – right or wrong. And it’s a costly disconnect when you’ve got it wrong. Planning and execution done independent of one another requires reliance on human interpretation (which too often comes with error and assumption), and it wastes valuable resources – both people and time.
A more effective approach is one that integrates planning and execution as a single, coordinated and interdependent solution, with planning inputs directly feeding into execution outputs. The process is sped up significantly and your people aren’t spending time on tasks with little inherent value.
Question 2: Do you plan inventory, orders, and transportation separately?
Most supply chain planning models aren’t fast enough or sophisticated enough to evaluate different attributes and time horizons, nor are they capable of solving for large quantities of SKUs on a daily basis. The inability to solve for large quantities of SKUs daily means you’re having to aggregate SKUs into groups or categories and to summarize insights that provide only a snapshot of the true picture of your supply chain and its inventory.
This kind of system manages orders by first-available, an approach that isn’t geared toward optimizing lowest-cost-to-serve or customer satisfaction.
What’s really needed is the kind of granularity only a closed-loop system provides. This kind of system makes day-to-day decisions possible because planning and execution are integrated and together turns optimized plans into action. A closed-loop operational management system concurrently plans orders, inventory and transportation, helping you allocate scarce inventory, what/when to order, how to move it all through the pipeline, and meet on-time fulfillment/shelf availability targets. It also optimizes stock levels for each SKU, fills from lowest cost-to-serve, and selects best delivery speed/service. This is particularly helpful for short lifecycle, fast-moving consumer goods and others in high-SKU-count environments. A closed-loop system also allows you to do comprehensive planning in all three horizons (strategic, tactical, operational) to make sure the optimized plans flow from each other and back up to each other.
The bottom line is that by improvement in any one of these areas – not to mention all – is one of the best ways to minimize total cost to serve and improve profitability.What kinds of savings are we talking about? The right systems could save you up to 20% on inventory, freight bill savings up to 15%, and on-time fulfillment improvements of up to 35%.