99% of the companies that bring us on board for consulting projects can accelerate bottom line business results by better utilizing their ERP system. The typical 80/20 equation holds true – at least 80% of companies underutilize their ERP system by a significant amount. Even the 20% that utilize their ERP system to a better degree than most have opportunities.

In almost 20 years of consulting, we have found only 1 client that couldn’t utilize their ERP system to a greater degree as their manual work around processes would fall apart. They required an ERP upgrade before they could utilize their system to a greater degree. Every other client could make progress (improve customer service levels such as OTIF on-time-in-full, reduce lead times, increase efficiencies, reduce waste, automate manual functions, reduce inventory, etc.) by better utilizing their ERP system. It didn’t matter if they had a tier 1 ERP system such as SAP or Oracle, or a tier 2 or 3 system such as Epicor, SAP Business One, Microsoft Business Central, Sage 100 etc. It didn’t matter the industry – aerospace, building products, life sciences/ healthcare products, or food and beverage. These statistics apply across the board. To learn more about how to better utilize ERP, read our article, The MacGyver Approach: Leveraging Your Underutilized Asset.

Building Products Manufacturer Case Study

A building products manufacturer struggled to get the “right” inventory to the “right” distribution center at the “right” time to service customers successfully. There were four production facilities supplying around 12 distribution centers across North America. Each production facility also functioned as a distribution center for their region. This consulting client used SAP, and although they were on an older version of the software, the system could support a complex distribution network. However, they were underutilizing the ERP system.

There were various levels of expertise at the production facilities, different processes at different facilities, and different use of the ERP system and different data integrity at different sites. This is not uncommon. In 80% of clients, the employees using the ERP system are NOT resistant to change once they understand how it works, how it will help, and how what they do fits into the big picture. Until they understand how to perform their daily tasks to successfully serve customers and accomplish their goals, they will do whatever it takes to do what’s needed including developing manual processes, updating spreadsheets, etc. That is exactly the situation as we entered this client.

We started by understanding the current business processes and use of the ERP system. By documenting the high-level processes, we could identify gaps and opportunities. We quickly addressed quick wins. There are typically a few quick wins at every client; however, to make sustainable progress, the key is to review how the business processes connect with and interface with each other. Once a full view of the business processes and interfaces emerges, the current use of ERP will also become apparent. Finally, the use of data, integrity of the data, and reliability of the data for decision-making will also emerge during the process review.

In this client situation, we started by sharing best practices among production facilities. One production site had a more advanced use of planning functionality, and so we worked with the second priority site to set up the appropriate system settings, update data, and roll out upgraded planning processes. This use of SAP in conjunction with upgraded planning processes and coordination with Sales and Operations propelled service levels to jump from low 60%’s into the 80%’s within a few months. Next, there was additional SAP functionality that could upgrade the planning process across both sites, and so we worked with SAP experts to test and roll out additional SAP functionality to further automate what made sense. This resulted in a solid production plan.

From a replenishment standpoint, it started with a solid production plan. Beyond a solid production plan, the replenishment process to supply the distribution centers with the appropriate product to satisfy customers required a directionally correct forecast. The forecast was the trigger to supply the distribution centers. Thus, we worked to better utilize the advanced planning module of SAP to whatever degree feasible on an accelerated timeline in addition to upgrading the business process for reviewing the demand plan with the Sales Team. This step was incorporated into the monthly SIOP (Sales Inventory Operations Planning) process to gain executive alignment and to ensure the forecasts passed the smell test.

In addition, we reviewed the current replenishment process including the MRP and replenishment or transfer order settings. We performed inventory analysis to determine optimal settings for safety stock, minimum orders, etc., and rolled out process improvements in conjunction with SAP functionality. These process and ERP utilization improvements allowed us to improve our service levels greatly and rectify relationships with customers. As the process smoothed out, we started to look at ways to optimize inventory levels while maintaining higher levels of service.

Results with Better Utilization of ERP

Results followed the rollout of improved utilization of SAP in combination with process upgrades and associated education. Most importantly, service levels improved from around 40% to the 90%’s. Lead times were also shortened in a critical site that produced a core product line. This made a dramatic impact on customers’ perception and and turned unhappy customers into customers looking for opportunities to expand business with our client.

In addition, the critical site increased output and capacity as manufacturing got in front of what was needed to support customer requirements. Manufacturing efficiencies improved as the production schedule transitioned from reactive to proactive.

From a replenishment standpoint, as upgraded replenishment planning was rolled out, service levels improved. And, as MRP settings were updated with optimized variables, inventory levels were reduced without impacting service levels negatively.

Finally, as the process and system upgrades were rolled out, the team was educated and gained confidence with their core tasks. Additionally, as processes were automated, the team could spend more time on exceptions and less time performing mundane tasks. This freed up time for additional improvements to grow revenue and profitability.

The Bottom Line

Pay attention to your business processes in conjunction with your use of ERP. The better you utilize ERP in a smart way to accomplish your goals, the more focus will go to exceptions, bottlenecks, and additional process and technological upgrades. If you are interested in talking about how to better utilize your ERP system to drive superior customer service, customer growth, profitability and cash flow, contact us.

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Better Utilize Your ERP System

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Although production and materials planning can be overlooked in its importance in most companies if going smoothly, it is cornerstone to success. Unfortunately, when not going smoothly, it can bring a company to its knees. For example, production might not know what to run, changeovers can be out of control, customers become unhappy, materials shortages persist, resources are scrambling to catch up with changing conditions, and chaos ensues. Read more about this topic in our article, The Million Dollar Planner.

An Industrial Equipment Manufacturer Case Study

An industrial equipment manufacturer struggled to keep up with month end sales goals when receiving last minute notice from Engineering of final design of the engineer-to-order item (bills of materials) before the item was scheduled to ship to meet customer requested dates. There were multiple stages to the manufacturing process (fabrication, weld, paint, final assembly), and parts had to be shipped offsite for process steps and married up along the way at the “right” time to make the orders come together.

The bottleneck and pacing item was the machine shop, yet visibility was limited to seeing which parts had to complete production at the same time, and the production schedule was completely manual based upon paperwork on hand since there was a lack of visibility in the system. The production supervisor would go through the work order packets, pick out manufacturing differentiators (size, material type, etc.) and group the packets in piles by the optimal run sequencing. For example, you run different sizes on different machines, and you would sequence by material type to be most efficient with changeovers.

Although the machine shop pulled out the stops on a regular basis to meet sales goals, it required constant expediting and coordination of process steps, was sub-optimal based upon the work order packets available at the time, and the process was completely dependent on a person (who also turned into a single point-of-failure). Since there was a lack of visibility, sales order availability frequently moved from month-to-month, creating concerns with predictability. And the machine shop ran less efficiently than it would have if there was visibility to the full scope of work order packets.

As we provided consulting support to this client, we learned about the optimal sequencing triggers (size, material type, etc.) and looked for ways to identify these triggers sooner in the process. Of course, it is never as easy as it appears. Thus, we had to work upfront in the sales quoting process to get a better picture of the demand plan by adding configuration strings (high-level identification of the item) into the process and system early in the process. By adding this information into sales orders, the team had better visibility to what was coming down the pike prior to Engineering’s final design so that we could gain visibility to plan capacity and materials (master scheduling) instead of reacting to sales orders late in their life cycle. We integrated this visibility into a SIOP (Sales Inventory Operations Planning) process to build a monthly cadence and review of critical sales and operational forecasts.

To address the machine shop scheduling, additional triggers had to be identified and incorporated into the data. Sales order statuses were also key to the process as sales orders went through engineering, production engineering, customer approval, material availability, and work order creation before the items were available to be scheduled. We built these statuses into a planning report along with key triggers and dates (incorporated from a production status review process). Once this report was built, a dashboard was developed for improved visibility and ease of use. This powered the production scheduling process and replaced the packets process so that the system automated the 80/20 and focused attention on what was meaningful to optimize the production schedule and ensure the parts married up at the right time.

Master Scheduling & Production Planning Results

As the client gained visibility to required capacity and materials, they were able to start making directionally correct decisions early in the process with the master scheduling process. As capacity bottlenecks arose, they were able to address proactively before “running into a wall”. For example, we gained visibility that paint was a future bottleneck, and so the head of Operations was able to put together the appropriate capital requests, gain approval, and order an additional paint system to support sales growth goals. Additionally, offload capacity was needed to supplement the weld area, and so leadership was able to pursue additional options prior to negatively impacting customers.

From a materials standpoint, Purchasing was able to look into the future and secure materials ordered from the Russia-Ukraine region while they were still available. While every client struggled to maintain service levels during COVID, our client was able to keep one step ahead and sustain higher levels of service for customers.

As the production scheduling process was upgraded, our client gained visibility to the machine shop and could optimize efficiencies and gain capacity. The head of Operations said he was able to double capacity to support sales growth. The production schedule was no longer dependent on a person; it became part of a process. Thus, this key resource could focus attention on further optimizing machine shop performance.

The Bottom Line

Pay attention to your planning processes as they will drive bottom line business results. Changing from reactive to proactive sounds far easier than it is when you get down to the details, but rolling out the appropriate process, data, and ERP system upgrades will propel progress. If you are interested in talking about implementing a master planning and production scheduling process upgrade to improve visibility and results, contact us.

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Production Planning Best Practices to Recover Capacity

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Clients are struggling to keep up with customer’s changing requests. Order backlogs remain relatively high (depending on the industry), but customers are pushing orders out at the last minute, pulling orders in without notice, adding future potential orders, and changing requirements on the fly. Production is scrambling to keep up.

80%+ of manufacturers simply do not have enough skilled production and support resources to keep up with the volumes, let alone with the volatility of the order backlog and changing forecasts. Not surprisingly, executives do not want to hire more resources than absolutely necessary as they are concerned about rising input costs and the uncertainty of their order backlog. To add fuel to the fire, the supply chain has been volatile as well with global unrest, strikes, and other disruptions as well as supply chains on the move. Read our recent article on how supply chains are changing. The production resources cannot keep up with changing conditions, and triage must occur.

Our best consulting clients are engaging in proactive business processes to get ahead of changing customer conditions and sales forecasts and the impact on capacity, production and replenishment plans as well as the reallocation of critical resources. SIOP (Sales Inventory Operations Planning) is a key process and toolset for successfully navigating this volatility while maximizing output and production capacity to support revenue growth.

An Industrial Manufacturer Case Study

An industrial manufacturer struggled to meet customer requirements. Order deliveries were lagging, capacity wasn’t allocated evenly across its ten production facilities and production at a critical site had almost 1000 hours of change overs per month for nine months in a row to try to keep up with urgent customer requirements. Several large customer jobs pushed out and others pulled in, keeping Operations scrambling.

We rolled out a SIOP process, starting by getting a handle on the sales orders and potential sales orders. A weekly meeting with Sales and Project Management helped to solidify the priorities of the demand plan (sales forecast). Although customers continued to request push outs and pull-in’s, when the requests were proactively worked with the team and the ERP system was maintained, better clarity emerged.

The demand was run through a capacity model, showing available capacity vs. operational requirements by production facility. The operational requirements were bucketed in categories of firmed sales orders, sales orders waiting on Engineering release, sales quotes that were better defined, and sales quotes. By evaluating near-term capacity, priorities could be established with Engineering, short-term capacity actions could be taken (overtime, supplementing production at additional sites, etc.), and proactive customer communications could take place.

More importantly, by evaluating medium and long-term capacity, the appropriate strategic decisions came to light. For example, the critical site showed as overloaded months in advance so that Operations could reallocate customer orders among production facilities within the same region to mitigate impacts on freight cost. The model could be evaluated with multiple what if scenarios so that Sales and Operations could address the bottlenecks proactively. Guidelines were set to reprioritize and set pricing for key customers, capacity could be reallocated, additional capacity could be planned, and capacity offload options explored.

The key is the connection between Sales, Project Management, and Operations and Engineering. As customer requirements change, capacity scenarios need to be reevaluated and impacts reviewed. Proactive communication and collaboration is a critical piece of SIOP to keep demand and supply aligned and optimized.

SIOP Maximized Production Output & Capacity

By seeing the demand and capacity picture in advance with SIOP, the executive team could maximize production output and capacity. They could do this by proactively addressing bottlenecks to level load the plants so that the scheduling teams could optimize the production schedules to increase efficiencies and reduce waste. By running like items, sizes, and material types together, changeovers are minimized. And by seeing the final assembly schedule requirements, labor and resource plans could be optimized.

Also by reviewing the full capacity requirements across all North America sites, capacity could be reallocated to maximize output, thereby minimizing the need for offload capacity. Each plant’s strength could be maximized and planned in advance while minimizing transfers between plants, freight to customers, and material price differences.

By addressing these supply plans proactively, materials contracts could be addressed in advance ensuring material availability which positively impacts manufacturing planning and output. It also typically provides opportunities for more favorable contracts and pricing. In addition to maximizing production and capacity output, SIOP improved the customer delivery performance, resulting in happier customers and additional revenue possibilities.

SIOP: A Look Forward

In our book, “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth“, we discuss how SIOP can support these types of improved results. As companies navigate the exaggerated volatility of the global environment and try to keep up with changing customer needs, SIOP becomes an essential tool in the toolkit to survive, let alone thrive. Our best clients are utilizing SIOP as a way to take control of their future and manage their options instead of letting their situation manage them. In fact, they are taking SIOP to the next level with advanced technologies and by connecting SIOP to their customers and suppliers to gain an end-to-end supply chain view.

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Optimizing Business Decision Tradeoffs with SIOP

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Lisa Anderson was quoted in a SelectHub article recently on the best production planning software for the manufacturing industry in 2023. She says a wishlist of key features for your facility is key.

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Best Production Planning Software

Production planning software is a manufacturing solution that helps you plan for and supervise essential workflows in the production process.

Our analysts compiled a detailed list of the best production planning software with the top benefits, features and limitations. We’ll also discuss top benefits, must-have features and the best way to choose the right manufacturing planning software for your business.

Key Features

When you shop for new solutions, you must have a wishlist of features needed for your facility.

Lisa Anderson, founder and president of LMA Consulting Group Inc., discussed sequencing similar items during production as an essential capability.

“If you think about it in terms of colors or flavors, you would want to run all the dark flavors together. You would want to not run them before you go to a light flavor. So basically, the ability to tie together like items in a production run, and know how much time you’ll need for that category of items.”

Anderson also elaborated on the importance of what-if scenario planning.

“You want to be able to see, ‘Well, what if I have a second shift? How can I rearrange my production plan? Can I find a more efficient way to do it where I can minimize waste or maximize efficiencies? What if I have this situation or that situation?’”

Here’s a helpful list of the best production planning software features to consider when browsing vendors and resellers.

To read the full article, click here.

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CLAREMONT, CALIFORNIA – November 20, 2023 –  In a business landscape characterized by unprecedented business volatility, maintaining stellar customer service emerges as a critical differentiator for companies navigating the ebbs and flows of the current market. Manufacturing and Supply Chain Consultant Lisa Anderson, MBA, CSCP, CLTD and President of LMA Consulting Group Inc., highlights the pivotal role of backlog management in elevating customer service levels, especially significant in a landscape where 88% of buyers, according to Salesforce, deem experience as crucial as the product or service being offered. LMA Consulting Group specializes in supporting manufacturers and distributors in strategic planning and comprehensive supply chain transformation, focusing on enhancing the customer experience and robust business growth.

The decline in customer service, a nearly 20% drop according to Forrester, coupled with diminished customer patience, has spotlighted opportunities for companies to prioritize superior service. This is where proactive backlog management plays a vital role, ensuring high service levels, on-time-in-full (OTIF) delivery, short lead times and preemptive communication.

Backlog management can encompass a myriad of statuses and potential scenarios during order fulfillment, ranging from inventory shortages to waiting on customer approvals, purchase receipts, production engineering, international shipping paperwork or even dealing with credit holds and quality controls. “One of the secrets to success in enhancing service levels lies in implementing a proactive backlog management process. Transitioning from reactive to proactive stances can swiftly elevate customer service levels. We have seen it with a building products manufacturer where service levels increased from 38% to 90% by adopting a forward-looking view and assigning orders with tight timelines to specific people or departments to ensure on time fulfillment. We had an aerospace manufacturer elevate service levels from the low 60%s to the low 90%s by implementing a backlog process that tracked progress through multiple steps of the manufacturing process, adding capacity where needed, and introducing advanced technology solutions. It can be done and it delivers results.” states Ms. Anderson.

For deeper insights into navigating the complex landscape of global supply chains, download Ms. Anderson’s special report The Road Ahead: Business, Supply Chain & The World Order and her eBook SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., specializing in manufacturing strategy and end-to-end supply chain transformation.  Ms. Anderson is a recognized Supply Chain thought leader by SelectHub, named a Top 40 B2B Tech Influencer by arketi group, a Top 16 ERP Expert to Follow by Washington-Frank, in the Top 10 Women in Supply Chain by Warner PR, in the top 55 Supply Chain & Logistics Experts by flexport, and a woman leader in Supply Chain by RateLinx.  Her primer, I’ve Been Thinking, provides strategies for creating bold customer promises and profits. An expert on the SIOP process (Sales, Inventory Operations Planning), advancing innovation, and making the supply chain resilient, Ms. Anderson is regularly interviewed and quoted by publications such as Industry Week, Bloomberg, Fox News and The Wall Street Journal. For information, sign up for her Profit Through People® Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.                 
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Media Contact Kathleen McEntee | Kathleen McEntee & Associates, Ltd. | p. (760) 262 – 4080 | KMcEntee@KMcEnteeAssoc.com

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Lisa Anderson was quoted in a Harvard Business Review report about supply chain volatility and uncertainty that are part of the new normal.

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Since early 2020, supply chain disruptions have captured global attention like never before. Newspaper headlines reported dramatic events ranging from surging toilet paper demand to empty store shelves to a ship blocking the Suez Canal. These events only worsened the existing global supply chain crisis. Much of the disruption was pandemic-related, but it hasn’t waned nearly as much as Covid-19 has. Many organizations find that supply chain volatility and uncertainty are part of the new normal.

Consequently, companies find it difficult to accurately predict demand. In
February 2023, Harvard Business Review Analytic Services conducted a
global survey of 459 respondents familiar with their organizations’ supply
chain operations. The survey found that of those whose organizations
execute demand forecasts, 69% say, on average, the accuracy of their demand
forecasts has been below 80% over the past three years. And respondents
are not particularly pleased by this result; only 8% indicate that they are
“very satisfied” with the average level of accuracy of their organization’s
demand forecasts.

Indeed, forecasts are inherently wrong. The questions often are just how
wrong a forecast will be and when that failure will occur.

Extreme Events Changed the Game

It is difficult for organizations to predict demand and plan operations if they can’t be certain about what lies ahead. Lisa Anderson, founder of Claremont, Calif.-based LMA Consulting, says the military term “VUCA”—volatile, uncertain, complex, and ambiguous—best describes global supply chains at present.

“Since the pandemic, new issues have arisen—the Russia-Ukraine war, for example—that are causing issues in many supply chains,” she says. “Oil and natural gas are used in the production of multiple products, and this affects everything from medical devices to fertilizer and food production. When you add the heightened tensions between the U.S. and China, and extreme weather events, the picture is one of continued disruption. We have to stop waiting for it to end. It’s not going to end.”

To read the full report, click here.

Originally published on Harvard Business Review, June 15, 2023

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Why Is Inventory Accuracy Foundational to Success?

Inventory accuracy is foundational to success. Most clients aren’t concerned about inventory, and they shouldn’t be if they can count on what their system says. However, in every case, inventory must be maintained to ensure your foundation is strong and will support customer service, revenue growth, operational efficiency, and cash flow goals. It is also foundational for maintaining financial records and a foundational requirement for Sarbanes Oxley.

For example, a security products manufacturing client called with concerns about decreasing profits. They were concerned that they couldn’t predict their costs and therefore their profit, and they thought it related to their use of the system. After performing an assessment of their people, processes and systems, it was clear that putting costs in their system didn’t make sense until they had a solid foundation to build upon. Inventory accuracy was one of those foundational elements that had to get in place before advanced layers of process and system capabilities were added. Fast-forward four months, and their inventory accuracy was intact, base product data was available, and they had gained control of their business and were better able to predict performance – and could advance from there.

Essential Inventory Accuracy Basics

Inventory accuracy boils down to a few simple concepts including:

• Process disciplines: The 80/20 of inventory accuracy success requires process disciplines to be implemented throughout your company. The tricky part of this equation is explaining the importance, establishing the connection points between processes, marrying the processes with the systems, and ensuring priorities are in place to complete processes and system transactions on a timely basis, in the correct sequence, and with the appropriate controls in place. Process disciplines cover from receiving and production to transfers (intercompany and intracompany) and shipments. In essence, any transaction that impacts inventory must be included.
• Use of the system: If process disciplines are intact, the only other root cause we’ve seen over a combined 100 years of manufacturing and distribution experience is the use of the system. Not all scenarios are created equal. For example, in several situations, intracompany transfers were an issue from an inventory standpoint. In a consumer products manufacturer, their system didn’t allow for tracking intransit properly, and so their inventory “disappeared” while intransit. In a building and construction products manufacturer, their system was highly capable, but the long-term processes didn’t account for transfers properly. Again, the result was “invisible” inventory.
• Root cause analysis: It is common to have inventory inaccuracies. No client has 100% inventory accuracy over the course of a year as perfection is cost prohibitive. On the other hand, many clients can maintain reasonable inventory accuracy with process disciplines and cycle counting. This suffices whereas only the best (around 20-30%) have substantial root cause analysis built into the culture and routines. If reasonable “works”, why strive for the best? They have fewer high skilled resources tied up in maintaining the foundation. Instead, these key resources are focused on profitable growth and advancing the business.

With these three essential inventory accuracy basics, a strong foundation is intact.

Maintaining Inventory Accuracy with Cycle Counting

The key to maintaining inventory accuracy is cycle counting. In essence, it is counting a subsection of your inventory on a daily basis to confirm your inventory accuracy foundation remains intact. Although there are many strategy options, common sense rules the day. ABC cycle counting means you count the material items (in terms of value, volume and/or customer impact) more frequently (that usually account for 20% of your items that equal 80% of your value) while counting the least material items (that usually account for 80% of your items that equal 20% of your value) less frequently. Instead of counting and adjusting, counting and adjusting in a vicious cycle, you focus attention on root cause analysis and resolution. Doing this for the “A” items will positively “B” and “C” items as well since the same process disciplines are required.

How Does a Physical Inventory Fit Into the Picture?

In most situations, once you implement a solid cycle counting process where you cycle through your full inventory at minimum on a yearly basis, you can provide evidence to Finance Auditors that your inventory will be “better” than performing a physical inventory. For example, if the people counting aren’t familiar with the units of measure and products, counting errors increase. Thus, many companies no longer require a full physical inventory. On the other hand, if inventory accuracy metrics start going off-track, it might be time to regroup with a physical inventory and a reimplementation of cycle counting.

The Bottom Line

You don’t want to be sitting happily and unwittingly in a house of cards. Thus, don’t have your house sit on a faulty foundation. Prioritize the appropriate resources to set up solid inventory accuracy processes and tracking mechanisms. If you aren’t in front of inventory variances and root causes, consider bringing on a supply chain consultant. You won’t need significant expertise long term for inventory accuracy alone, and so a short-term expert might fit that bill. Once intact, provide training and education, and make sure a regular review of metrics with Executives is a part of the process. It can be incorporated into the metrics slides of a SIOP (Sales Inventory Operations Planning), also known as S&OP, process to get a regular cadence with Executives.

Please contact us with your stories, issues, and ideas on inventory accuracy and cycle counting. And, please keep us in the loop of your situation and how we can help your organization upgrade your inventory accuracy processes to support profitable growth in addition to satisfying compliance objectives.

P.S. To get ahead of the curve on where to focus for the best results to build on your foundation to get ahead of the competition, download our complimentary report, and The Road Ahead: Business, Supply Chain & the World Order.

The post Why Is Inventory Accuracy Foundational to Success? appeared first on LMA-Consulting Group, a supply chain consulting firm.

The State of Affairs in Manufacturing & Distribution

Manufacturing is on a downward trend after eight months of PMI (purchasing manager’s index) below 50. It dropped to 46 in June. China’s manufacturing also shrank for a third month in a row to a PMI of 49. Yet manufacturers backlogs remain relatively robust in many industries, leading executives perplexed on what to do about capacity shortfalls.

Logistics is in largely the same shape as the Logistics Manager’s Index (LMI) hit a new all-time low of 47.3 for May, down 3.6 points from April and operating in contraction territory for the first time. Thus, not surprisingly, the Freightos Baltic Index, which measures freight volumes and prices globally, shows average daily spot rates from China/East Asia to the U.S. West Coast at $1,324 per 40-foot container, down from more than $14,000 a year ago. Yet, products aren’t easy to find and get delivered on the rapid expectations consumers expect.

On the other hand, supply chains are on the move. Smart companies are reshoring, nearshoring/ friend-shoring, expanding manufacturing capacity and getting ready to scale up rapidly to meet customer expectations. As manufacturers struggle with rising interest rates and consumers focus on services, weak ones will get absorbed or go out of business, leaving an opportunity for those ready to take on the volumes. The same is true on the logistics front. As the West Coast ports struggle to finalize labor negotiations, container ships are on the move to the east coast, leaving distribution and transportation suppliers ready to support the volume with aggressive growth. It is a time where the winners and losers will separate, leaving vast opportunities for forward-thinking executives.

What are the Implications for Capacity Planning?

Companies need to expand capacity yet remain resilient and flexible so that they can also maximize profitability and accelerate cash flow. In order to do that, it is vital to get on top of your capacity capabilities. The majority of clients do not have clarity of their capacity (upcoming requirements as compared with available capacity). Thus, they struggle to know if they can take on customer orders and deliver it with the appropriate level of customer service (meeting the customers’ expected lead time and delivery performance with high OTIF (on-time-in-full)). When opportunities arise, poor service will kill the opportunity quickly. Also, if you don’t understand your capacity, you will not allocate it optimally and maximize your capacity; thus, losing profit opportunities.

Capacity planning is a key element of the SIOP (Sales Inventory Operations Planning) process: it takes your demand and translates it into your capacity requirements (manufacturing, equipment, storage, transportation, talent, etc.). By evaluating capacity, executives can get in front of changing business conditions and determine how to optimize their capacity to scale up or down quickly to meet key customer needs while maintaining margins.

Client Example: Using Manufacturing Capacity to Scale Up to Meet Sales Forecasts

In a storage manufacturer, a key to success is to have the capacity capabilities where needed when customers need it. As logistics changes occur (such as the transition from the west coast to the east coast), storage systems will adjust in concert. Since storage systems are bulky and freight costs of inbound and outbound freight is expensive, it is important to have capacity available where its needed at the “right” time.

It is not for the faint of heart to get a directional view of manufacturing capacity for a storage solutions manufacturer. The good news is that shop floor employees can move between machines and equipment to produce what’s needed; however, the bad news is that this makes understanding capacity availability challenging because not all products require the same number of people or skills to produce. By using a SIOP and demand planning process, customer orders, likely customer orders and quotes are available. Assuming engineering is on target in completing product designs, using a capacity planning process, this demand plan can be translated into directionally correct requirements (weight and hours) by plant and customer.

However, required machinery, equipment and labor requirements doesn’t provide valuable information if you can’t compare to available capacity. It sounds much easier than it is in reality due to the complexities. Typically in these types of operations, there are many different work centers (work areas) that are not alike in terms of capabilities and labor requirements. Similarly, products are not created equal; each product can require different numbers of people, different skills and it will go through multiple work centers before completion (fabrication, weld/ final assembly, paint). Storage requirements are also not created equal. Thus, a simple available capacity calculation across a work center or group of work centers is not feasible. However, using the forecast as well as historical run rates and weights by product, summarized by work center and production area can provide a directional view of available capacity.

Reviewing capacity requirements vs. available capacity by plant and production area will give Operations leaders their marching directions. For example, in one facility they had plenty of fabrication operators are had excess inventory of these parts yet customer service was suffering. The bottleneck was in weld operations, and so work in process (WIP) was stuck waiting for weld. As they trained weld operators and expanded the capabilities of a few fabrication operators, they were able to catch up and improve their OTIF (on-time-in-full) metrics.

As they gained a view into upcoming capacity, they could see potential bottlenecks in advance so that they could proactively handle them. For example, the plant could see that they had more requirements than capacity two months into the future; however, they could absorb it (level load) in advance if they could get engineering to complete the designs. Thus, a priority list was developed and managed with engineering. Additionally, they could evaluate whether they could fulfill a key customer project that another plant couldn’t handle on time and transfer the project to a nearby site so that it could be delivered on time without negatively impacting margin. On the other hand, if a critical project came up that required advanced manufacturing capabilities, they could see the impacts of transferring the volume to another facility with these capabilities and incorporate the cost impacts of the additional freight. They also had the opportunity to potentially transfer the volume to their Mexico facility which would add freight yet mitigate the labor costs. The bottom line is that capacity visibility supports revenue growth with minimal impact to profitability.

Client Example: Expanding to Storage, Freight , & Engineering Capacity

Although the focus has been on manufacturing capability, the next priorities are storage, freight and engineering capacity analyses. As the plants have the capability to see into the future and want to level load operations in a way that maximizes operational performance (running in the optimum sequence to minimize inefficiencies and waste), engineering capacity becomes the bottleneck. Seeing which orders / projects should be prioritized across sites will give a priority list to Engineering. If you add available engineering capacity into the picture, it might lead to hiring additional engineers or supplementing with short-term resources.

The same holds true for storage and freight capacity. Since the product is bulky and can only be stored outside for certain periods before fading, storage capacity should be managed. If you have significant customer orders coming down the pike, you could decide to produce ahead to keep customer service intact without adding unnecessary long-term manufacturing capacity. In this case, you could calculate storage capacity by region (to minimize freight costs). This goes hand-in-hand with transportation and freight capacity.

Final Thought

Capacity planning is cornerstone for any manufacturer or distributor as you must serve customers, maximize operational efficiencies, reduce waste, coordinate resources, right-size inventory levels, and execute plans.

Refer to our blog for many articles on capacity planning, production planning and related concepts. Also, read more about these types of strategies in our eBooks including SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth and The Road Ahead: Business, Supply Chain & the World Order. If you are interested in talking about implementing out best practices for production scheduling to drive cost reduction and inventory reduction while maximizing your customer experience, contact us.

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Production Planning Best Practices to Recover Capacity

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Does Production Scheduling Matter?

The best companies focus on production scheduling. Even though Production Schedulers aren’t typically highly paid positions, the function will make or break your ability to serve customers, improve operational performance and accelerate cash flow. Thus, it should be a key priority if you want to achieve profitable growth.

Are There Best Practices for Production Scheduling?

Yes, there are best practice concepts for production planning and production scheduling. No matter the client, industry, and people, these concepts “work”. On the other hand, each situation is unique, and so the key to success is to tailor to the different set of circumstances and priorities at each client. For example, there are different people, processes, ERP systems, data sets, customer requirements, and more. The best way to determine your best path forward is to relate to different examples and determine which tools and skills best apply to your situation.

Client Example: Succeeding in Process Manufacturing with Production Scheduling

In an absorbent healthcare products manufacturing company, product started as materials at one end of the production line, was converted into an absorbent healthcare product and was packaged at the end of the line. All things considered, it was a simple process with one step. And, so why was production scheduling important? Depending on the production schedule, downtime, waste, and inefficiencies increased – or decreased. To increase output, better serve customers, and reduce stock levels (of both raw materials and finished goods), we had to schedule the fewest significant changeovers, sequence items in the most efficient order, and ensure the appropriate resources and support were available at key junctures. This optimized production, but didn’t address customer orders. Thus, we also had to balance operational needs with the appropriate inventory levels and sequencing of customer orders to meet customer needs while also optimizing production. After rolling out best practice production scheduling practices, we won awards from customers, improved operational performance, and reduced inventory levels, freeing up cash flow to invest elsewhere.

Client Example: Succeeding in Job Shop Manufacturing with Production Scheduling

In an industrial manufacturing company of storage solutions, there were multiple steps in the production process from fabrication to weld to paint and assembly. Although it sounds obvious, you need to have product available from the step prior before you can start the next step; however, in these types of companies, marrying up parts that go together in the next step operation is often an issue. There is no point in having 1 piece ready if you need all parts for the next operation. Thus, production scheduling must focus on clarifying the customer requirements and backwards scheduling the operational steps. Once you have this base schedule, the key to success often relies on scheduling certain material types together and sizes together. In this client, labor scheduling is also a critical priority to understand which work centers are scheduled to run on which shifts (and days) so that backward scheduling can ensure the correct parts are available at the “right” time. Otherwise, you have too much WIP (work-in-process) inventory and are chasing your tail to keep product flowing. Once a clear schedule was achieved, the fabrication schedule became visible, and production output immediately increased. Next, items could be optimally sequenced to further increase efficiencies and provide visibility to sales of product availability, thereby improving service levels.

Client Example: Succeeding with Kanbans with Production Scheduling

In a building products (piping) manufacturer, there was a combination of process and job shop steps to the production scheduling process. In this situation, we utilized Kanbans to pull product through the operation steps. During the busy season, we’d add Kanban cards and pull product through the process steps quicker. In this situation, the key was to level load the shop and ensure we kept enough resources to support production on a quarterly basis. We developed a high and low number of employees required to support the quarterly volume, and so long as we maintained these employees and/or reliable temporary resources, our Kanban system would meet customer orders in the most efficient way possible. The ERP system was important in supporting the production scheduling process by driving the backend (Kanban sizes, number of cards and barcoding) as well as providing capacity reporting by work cell which translated back to the demand plan. Results followed. They were able to respond more quickly to spikes in demand with higher service levels and were able to minimize costs by level loading production and minimizing spikes/ troughs in operational resources.

What’s In Common No Matter the Consulting Client?

There are a few items in common across the board for every successful production schedule. A few supporting factors that pop to mind include:

• Production scheduler(s): You need a well-rounded resource who is excited about optimizing several conflicting priorities as balancing sales, inventory, and operations is not a good fit for the a person who likes black and white assignments.
• ERP system tools: Whether it is MRP (material requirements planning), advanced planning systems, MPS (master planning), or a report showing orders, inventory, changeover groups, and more, you will need to use your ERP system to create a solid schedule. In 90%+ of our consulting projects, we expand the use of ERP and utilize advanced functionality to improve the process.
• Operational data & information: It is impossible to schedule effectively if you don’t understand your capacity. How many people are required to run certain machines and support different work cells? Do certain products require additional support? Are your people flexible to run multiple machines? Can they go across work areas? How many people do you have in total? How many shifts run which lines? Are support resources in place?
• Customer orders / demand plan: If you don’t know what is needed to ensure high service levels, you cannot schedule effectively.
• Training & education: You will need to prioritize training (how to’s – click here, perform the job in this sequence, etc.) and education (why are you sequencing in this order, what are your order policies and why do they matter).

Don’t fret if these priorities are not in place. In 99% of our clients, they are not in place when we start. Yet most can be quickly put what’s needed in place at least to the degree required to start gaining results. They are not of equal priority in every client. In fact, half the battle is determining what needs to be done in what order, who has the capabilities to jump into scheduling and thrive, how to extract directionally correct data from Operations and your ERP system, etc. What is clear is that if you focus on this priority, your customer service, operational performance and cash flow will thank you!

The post Scheduling Best Practices to Improve Service & Performance appeared first on LMA-Consulting Group, a supply chain consulting firm.

Why Balance Customer Orders, Inventory, & Profitability?

If you want to serve your key customers successfully (with high on-time-in-full (OTIF), short lead times, and proactive service) so that you can take advantage of the opportunities coming down the pike while addressing the hard realities of the current business environment (potential recessions, high interest rates, and less access to capital), you MUST balance sales, operations and inventory.

Otherwise, you will have one or more of the following issues arise:

• Inventory Overload: Too much inventory of the wrong products and WIP (work-in-process) in the wrong place at the wrong time.
• Slow Moving Inventory: Too much slow moving or obsolete inventory
• Production Schedule Disruptions: Not enough of the right inventory in the right place to keep production running smoothly.
• Weak Service: Not high enough service levels to ensure you can maintain and grow your business during turbulent times, let alone meet business plans
• Not Prepared for Growth: Not able to take on significant opportunities coming down the pike. For example, as companies expand manufacturing in North America, customer orders continue to increase down-the-line in the supply chain
• Skyrocketing costs: If you aren’t balanced, you have to spend more to meet customer objectives.
• Inflation cost increases: The only way to offset the massive cost increases related to inflation is to be able to get in front of what’s coming.

Instead of these dire consequences, the smart are proactively balancing customer orders, inventory and profitability.

How Do You Balance Sales, Inventory & Operations?

The good news and bad news is that balancing these factors does not require significant capital investments, the latest technologies like ChatGPT, and a mountain of resources. It simply requires rolling out the appropriate strategy and tactics that is uncommon common sense. Roll out the appropriate strategic processes largely encompassed with Sales Inventory & Operations Planning (SIOP), also known as S&OP, processes. Focus solely on achieving directional progress, and you’ll gain quick wins.

However, strategy alone will not “work”. It has to be accompanied with the appropriate tactics which is the execution of the fundamentals required to support Sales & Operations Execution (S&OE). If you aren’t familiar with S&OE, don’t fret. It is a common term in software circles, but in manufacturing and supply chain circles, it is known as supply chain planning and includes demand planning/ forecasting, supply planning (master scheduling, production planning, material planning, replenishment planning, inventory planning, production & labor scheduling, etc.), operational execution, shipping, receiving, etc.

Client Examples: Using SIOP / S&OP To Balance Sales, Inventory & Operations

The SIOP process is geared to aligning sales with operations, customers with suppliers, and demand with supply.

How SIOP Fueled Growth for a Biotech Manufacturer

For example, a biotech manufacturing client couldn’t meet aggressive sales goals with high enough service levels to ensure customer loyalty and future growth. Sales was frustrated and executives were concerned about how to support future growth goals. On the other hand, Operations didn’t have the information to prepare in advance to meet the service objectives with the aggressive goal goals. They were concerned about spending money until they knew the product wouldn’t go to waste, and management was concerned about hiring manufacturing employees until volumes were confirmed in enough detail to know the work centers and skills required. The bottom line: Sales was out of balance with Operations. Thus, the right inventory was not available in the right place at the right time.

After rolling out SIOP in combination with S&OE (as you cannot have one without the other), we developed a directionally correct sales forecast by geography, product and unit of measure that “added up” to the growth goals (in dollars) in a way that made sense when viewing by customer, product groupings and growth rates. Simultaneously, we focused attention on understanding capacity (production requirements vs. available capacity by key work area and equipment). It quickly became clear that we had to reallocate a few resources to the bottleneck operation, and we gained approval to hire a few people to support the growth plans. Once the bottleneck operation smoothed out, we gained efficiencies in down-the-line operations, and most importantly, customer service improved and customers gained confidence. Sales, Operations and Purchasing also had insights that enabled cost reductions, product rationalization plans, and key pricing decisions. Nice side benefits to the aggressive growth goals!

How SIOP Accelerated Cash Flow & Reduced Debt by Increasing Inventory Turns

In another example, an aerospace manufacturer had turned the company around following the 9/11 downturn and was interested in selling the business. Thus, they wanted to maintain their excellent service levels while maintaining/ improving profitability and reducing unnecessary debt. We had to balance sales with operations and inventory to reduce unnecessary inventory (not required to support service, spikes in sales and predictable disruptions in supply) while focusing on operational performance. Thus, we assigned executive leadership to the topic to emphasize the priority, clarified the sales plans, and focused attention on inventory planning processes (again, the combination of SIOP/ S&OP and S&OE).

In this case, we had to balance profitability/ margins by site with customer orders and inventory plans. We rolled out improved business processes, better utilized the ERP system, provided training and education to the inventory teams, and we aligned the goals of the Site Leaders with corporate objectives and the Inventory Leaders. Inventory levels came down by 30% in key product lines while maintaining/ improving service levels and growing the business. The company was also better positioned for sale and for continuing operations so that no matter which path was chosen, the company was in a healthy, robust position.

Path Forward

SIOP can be an important process in aligning people (within your organization and with your supply chain partners) and processes (demand and supply) to improve service, support growth, reduce debt, accelerate cash flow, and improve profitability. During times of volatility (inflation, recession, stagflation, technological advances, talent shortage), there will be more opportunities for those companies prepared for success. The winners will be separated from the losers and opportunities will abound. SIOP requires focus, but it doesn’t require capital intensive investments. There is no downside to becoming more profitable, having greater access to cash, and better serving customers and preparing for growth.

Refer to our SIOP webpage for more information, our blog (SIOP category) for hundreds of articles, and learn more about SIOP and what’s important for a successful implementation in our new release eBook, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. If you are interested in talking about how to improve profitability, free up cash, and/or improve service, contact us.

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SIOP/ S&OP Playbook: Creating Predictability & EBITDA Growth

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