Clients typically set goals; however, goals without an understanding of where you stand is non-value added. Although it is common to set goals and expect employees to achieve them, it is far less common for clients to understand how they will get from the current state to the desired future state. You must start by understanding where you stand in your supply chain. Unfortunately, although this sounds obvious (and Executives would agree), in reality, it is uncommon common sense!

How comfortable are you that you understand where you stand when it comes to your supply chain? We thought it would be of value to create a quick (2 minute) supply chain assessment quiz so that you can self-assess your supply chain. Learn more about the quiz here.

Client Example: Supply Chain Assessment for Service Turnaround

Our first step of any project is to perform a rapid supply chain assessment. For LMA to help a client, we must know the current situation. We do a review of people, processes, systems (ERP and peripheral systems such as CRM, CPQ, etc.), data, alignment with strategy, etc. Since we are focused on bottom line results, we must determine how to get from “here” to “there” on the quickest and smartest path while ensuring quick wins and value along the way.

For example, an aerospace manufacturer wanted to improve delivery performance to support key customer programs (Boeing, Gulfstream, etc.). In essence, they wanted to dramatically increase OTIF (on-time-in-full) from the mid 60%’s rapidly and reduce lead times to a more acceptable and attractive level for customers while maintaining or improving costs and working capital levels. The executives brought us in as supply chain consultants to upgrade their systems, processes, and talent to achieve these goals.

Our first priority was to perform a supply chain assessment. We reviewed their end-to-end order flow process, use of ERP, data, and skills/ talent. This provided us with a good understanding of their strengths, weaknesses, opportunities, and risks of execution so that we could put together a roadmap for success.

We stuck around and partnered with our client to roll out demand planning, master scheduling, capacity planning, and SIOP (Sales Inventory Operations Planning), also known as S&OP programs. Based on the assessment, we knew we could better utilize their ERP system and upgrade processes by entering forecasts, analyzing capacity plans and establishing supplier contracts with attractive pricing and stability. Additionally, we identified training and education opportunities and risks of execution so that we could mitigate potential bottlenecks. We brought service levels into the 90%’s, gained key customer confidence with improved scorecard performance, and improved margins by several points by rolling out materials forecasts, supplier contracts, and by gaining long-term visibility into operational capacity to minimize costs.

Client Example: Supply Chain Assessment to Turnaround an ERP Debacle

In an electrical equipment manufacturer, customers were upset due to lagging service levels and key employees were overwhelmed with an insurmountable workload following the launch of a new ERP system. After jumping into the details to work with their North American planners to unbury the schedule and to develop directional capacity information, we performed a supply chain assessment with an eye to use of ERP. There was no way to find a grain of sand in the ocean of details without assessing their supply chain and use of ERP.

Although we have a combined 99+ years of experience, 112+ successful client engagements with bottom line business results, 42+ ERP projects, and specialized manufacturing experience, jumping into the process and working with the key resources to turn around the execution didn’t provide enough information to put together a long-term path forward that would achieve the radical improvement required with the ERP system. Thus, an assessment was required with the full scope of ERP as it relates to supply chain and order creation and fulfillment.

We spent five weeks in an around-the-clock focused effort as the situation was urgent to gain a thorough perspective of the business processes, use of ERP and associated skills. After all, our team had to absorb what the ERP implementation team took a year to develop and roll out while understanding the impacts on the supply chain teams (demand planning, production planning, materials planning, capacity planning, etc.) and the correlation to the business bottlenecks. We reviewed business requirements, ERP functionality, offline spreadsheet processes, the status of data integrity, data availability, the status of training and development, availability of key resources, etc. Although it was a hair-raising process, we were successful in putting together an assessment, resource recommendations, quick wins and long-term solution to rectify the use of the ERP system to drive the business results.

The Bottom Line

Take a step back and assess what is needed to achieve your objectives. Don’t “stay in your lane” if you require a broader scope to ensure results even if you must have uncomfortable conversations and take risks in pushing back on standard assumptions. On the other hand, don’t fall into analysis paralysis. When you have a directional view that is assured to get you moving in the “right” direction (even if not 100% optimal), start moving. Avoid circular discussions and pivot back to the key points.

Also consider the people, the process, the system, the data, metrics and strategy in conjunction with each other. Focusing on technical without the process and people will not work, but focusing on the people without a good understanding of the technical and process aspects will not work either. In fact, you will come to inaccurate conclusions in your assessment that will make the situation worse, not better. Instead, use uncommon common sense, and you success rate will skyrocket.

If you are interested in reading more on this topic:
Why Planning is Impacted as Disruptions Abound

The post How Do You Rate in Supply Chain? appeared first on LMA-Consulting Group, a supply chain consulting firm.

Simple metrics drive results. Whether a food and beverage manufacturer or an aerospace distributor, measuring the “right” metrics will focus attention on key issues and drive results. From OTIF (on-time-in-full) to projected past due to reasons for operational inefficiencies, metrics will rally the team on the appropriate topics and highlight the bottleneck issues to ensure success.

Manufacturing & Distribution Metrics

Proactive manufacturers and distributors monitor a core set of metrics. Most clients track revenue month-to-date (MTD) and year-to-date (YTD). Some clients track total backlog while others track booked orders. Many track past due and a customer satisfaction metric such as on-time-delivery (OTD), on-time-in-full (OTIF), or fill rate. Differences start at this point with some clients tracking inventory levels, purchase price variances (PPV), operational efficiencies, waste/ scrap, inventory accuracy levels, a measurement of production output, quality metrics such as parts per million (ppm), holds, warehousing efficiencies, picked, packed and shipped units, freight costs, customer complaints, quotes, and many others. For example, read our article on Walmart and OTIF metrics.

How to Choose Metrics

With so many choices, the question becomes how to choose which metrics to track. If you track too many metrics, your metrics lose meaning and waste precious time and resources. If you track too few metrics, your team might focus on the wrong activities to drive results. If you track the appropriate number of metrics but focus on the wrong metrics, your team will not focus on the “right” activities. So, how do you know how many metrics to measure and which are the “right” ones for your business/ department?

After consulting with manufacturers and distributors for almost twenty years, it has become apparent that common sense will provide the answer. Start with your company objectives. Every client has a sales (revenue) goal. Thus, measuring progress to that goal makes sense to focus attention on potential issues that could negatively impact achieving that goal. Similarly, what other objectives are important to your company? Your metrics must drive the correct behaviors to focus attention on what the executives want to achieve.

If you are in a cash crunch, you should highlight inventory. If you are experiencing negative consequences due to supply chain risk, develop a metric around % of products and /or suppliers within your control or # of products reshored, nearshored, or with backup suppliers. Use uncommon common sense to drive the results desired. Do not overcomplicate it with metrics that might be helpful but will distract from the mission. No clients have excess resources to track metrics that will not add significant value.

Client Examples

In a building products manufacturer, the focus was on pounds produced and sku-level efficiencies. Because every executive from the CEO to the VP of Manufacturing focused on these metrics, the sites found ways to increase the pounds produced regardless of impacts to customer service and other areas of the business. For example, if Operations could run certain products where they gained pounds more quickly, they emphasized those items and deprioritized the ones that required more effort to gain pounds. Unfortunately, the outcome was that the metrics did not focus attention on the appropriate actions to drive results. We refocused attention on schedule adherence, past due/ projected past due, and capacity availability. Executives gained visibility to see how to fit in additional orders to increase revenue without increasing capacity, and they were able to plan ahead to keep service levels high while optimizing manufacturing efficiencies.

In an aerospace manufacturer, the focus was on profitability at each site as the General Managers were incentivized by profitability and revenue. This led to a focus on profit, not inventory levels. Fast-forward a year later, and executives wanted to reduce debt and increase cash flow; however, the site metrics did not encourage sharing of inventory if one site leader would lose and the other won in terms of profitability. The executive team assigned an executive to focus on inventory, provided the teams with resources including our support as inventory and supply chain management consultants, and added an inventory levels metric to the site’s performance and tied it to potential bonuses. In the next several months, we reduced inventory in the core product lines by 30-40% while maintaining / improving service levels, and the inventory team achieved a collective “win”.

The Bottom Line

Metrics will drive performance. Every company has limited resources, and so they need to focus only on what will drive results. Use uncommon common sense, and you will know which metrics to track and how many to track to achieve bottom line business results.

If you are interested in reading more on this topic:
SIOP Metrics: 5 Key Baseline Measurements

The post How Simple Metrics Will Drive Results appeared first on LMA-Consulting Group, a supply chain consulting firm.

Customer service has suffered in the last few years. Yet providing a superior customer experience is paramount to success especially during these turbulent times of volatility, uncertainty, complexity and ambiguity (VUCA). As we see this trend become a reality across a wide spectrum of companies and industries, proactive backlog management has proven effective in ensuring consistent high service levels (on-time-in-full OTIF, quick lead times, and proactive communications).

The Customer Service Priority

Only organizations that provide a superior customer experience will succeed over the long term. Customer service matters especially in volatile and turbulent times. According to Salesforce, 88% of buyers say experience matters as much as a company’s products or services. Do executives pay as much attention to customer service as they do product and profit?

Since customer service suffered during and post pandemic, it has provided opportunities for those companies that prioritize service. According to Forrester, customer experience quality levels have dropped almost 20% in the past year while consumers have less patience than pre-pandemic (according to Netomi’s State of Customer Service Report). As forward-thinking executives see this opportunity, there will be vast opportunities for growth.

Although companies have struggled to satisfy customers, they must flip the equation to drive growth. According to the Digital-First Customer Experience Report by NICE, 95% of consumers say customer service impacts their brand loyalty, naming easy access, self-service, and professional agents as important factors. Every client has numerous examples that reflect this priority. For example, a customer of a building products manufacturer requested an expedite to satisfy a customer request. Because the manufacturer was willing to prioritize what their key customer needed, that customer looked for opportunities to expand business with them down-the-line. They knew that service was essential during turbulent times, and so proactively decided they wanted to partner with suppliers they could count on.

Backlog Management Processes

Although one of the best ways to improve customer service is to improve planning processes so that the “right” products are in the “right” place at the “right” time (read more about these processes in our article, “Proactive Planning to Grow & Scale“), one of the most important processes to ensure success is a proactive backlog management process.

An effective backlog management process sounds quite simple although no matter the type of business, it can prove to be essential to ensuring high customer service levels and OTIF (on-time-in-full). Backlog management can be as simple as downloading an open order report and “working” the report. In businesses that solely ship from stock, it can be essentially simple, assuming the “right” inventory is in stock. In this situation, the Shipping Department would go down the backlog report and ship orders with the only nuance being if they scheduled trucks or if customers picked up orders.

In most situations, the backlog will include orders that require more than just shipping. Typically, orders can be in multiple statuses. Several that pop to mind include:

• Customer orders with inventory to ship
• Customer orders with not enough inventory to ship
• Customer orders waiting on a replenishment order (transfer order) from another facility
• Customer orders waiting on a purchase receipt
• Customer orders scheduled in production
• Customer orders that have to go through multiple production steps in production
• Customer orders that have to go through an outside processing step
• Customer orders that require testing prior to shipment
• Customer orders waiting on customer approval of drawings
• Customer orders waiting on production engineering
• Customer orders waiting on design engineering
• Customer orders in a pre-engineering status
• Customer orders that are ready to ship but waiting on the truck to be scheduled or the customer to pick it up
• Customer orders waiting on international shipping paperwork.
• Customer orders waiting on payment. This could be payment upfront or a customer on credit hold.
• Customer orders waiting on quality holds.
• Customer orders waiting on customer holds.
• Customer orders waiting on responses from the customer.
• Customer orders changes.
• Customer orders that are backordered
• Customer orders that are past due
• Customer orders waiting on additional lines, items or orders so that they can ship efficiently
• Customer orders that are waiting on items that must ship together. For example, in aerospace, there are often right and left parts. Without both, the customer cannot proceed.
• And the list goes on……

Proactive Backlog Management Processes

Thus, given the number of statuses and situations that can arise during the order fulfillment process, proactively managing backlog includes determining which status orders are in and what it will take to get the order out the door on time. The reason it becomes complex can be due to several factors:

• The number of order status possibilities
• The number of people/ departments involved in the process
• The communication links between the departments
• System visibility of the order statuses and timeliness of transactions
• Reporting capabilities to support the backlog management process

Our most successful clients put together a cross-functional process with a daily and weekly cadence with key touchpoints.

Client Success Stories on Backlog Management

A building products manufacturer that was 80/20 make-to-stock with a small segment of make-to-order products struggled with OTIF levels. Thus, instead of constantly looking in the rearview mirror and trying to explain past due, we worked with them to look forward. We developed a view of the backlog report that was due to ship in the next week.

Next, we developed logic to assign the orders due in the next week to specific people or departments. For example, if it was on customer hold, it was assigned to Customer Service. If it was for the Canada location, it was assigned to a different group. If it was a certain product line and didn’t have inventory to cover all orders, it was assigned to the appropriate planner to see if it was scheduled and on track. If it had inventory, it was assigned to Shipping to check on the shipping schedule and to follow up on transportation.

Although reviewed daily, we set a weekly cadence to get together as a cross functional team. We met each Friday to review past due, reasons for past due (which were summarized by category), projected shipments and/or projected past due, reasons for projected past due and action items if there was anything that could be done to get the order done on time. We also discussed recommendations and improvements to the process. By following this backlog management process as well as working on production and replenishment planning improvements, service levels went from 38% to the 90%’s. To hear from our supply chain consulting client directly, listen to our client success story video.

Similarly, in an aerospace manufacturer, past due was climbing, and so we worked with the client to implement a backlog process. In this situation, there were multiple steps to the manufacturing process. Thus, the main focus in managing the backlog report was to trace the progress through the shop. For example, as the item was staged for production, it went into a staging status. As it went through the first machine, it was labeled as step 1 (noting the machine name). Although it was planned for steps 2, 3 and 4 based on standard run rates and queue times, knowing the order started production in step 1 alerted future steps of progress. If materials were short that impacted step 3, the issue was noted and status tracked daily.

By meeting with cross-functional group on a daily basis, service levels were improved from the low 60%’s to the low 90%’s. Once they gained visibility to upcoming work with better clarity, they saw capacity shortfalls. By adding capacity where required, they improved to the high 90%’s. Once ahead of the backlog process, we looked for advanced technology solutions to automate and improve visibility across order statuses to minimize meeting time and to focus on exceptions instead.

The Bottom Line

A secret to success in improving service levels is to roll out a proactive backlog management process. Depending on the complexity of the business, a proactive approach to backlog management could be as simple as prioritizing shipping based on customer due dates or it could involve tracking multiple steps and statuses across multiple departments. Changing from reactive to proactive will rapidly improve customer service levels. If you are interested in talking about implementing a best practice backlog management process tailored to your business needs to improve your customer experience, contact us.

Did you like this article?  Continue reading on this topic:
Production Planning Best Practices to Recover Capacity

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Prior to Uber, a medallion (a transferable permit that allows a taxi driver to operate) cost $1 million dollars in New York city. It was a powerful permit with substantial value. After Uber started up, the low point for a medallion was around $25,000. That is a 40-fold reduction in perceived value! Alternatively, Uber brought customer service up several notches, added customer value and growth exploded. Customer service mattered.

On the other hand, although Uber exists in Japan, it is not well known. Taxis continue to rule the road. Why? This is because taxis are clean, efficient, and provide value. Uber wasn’t filling a gap in perceived customer service deficiency.

Fast-forward several years, and the current value of a medallion is around $137,000. It is up 4-fold yet remains less than 20% of its peak value. Could this be related to service? Absolutely! I used to take Uber or Lyft home from Ontario airport. However, the last 3+ times, it took forever to get a driver, it cost a lot, and it was a frustrating experience with poor customer experience. Taxis are starting to look more reliable and faster. I decided I’d rather drive and pay for parking for more reliable and quicker service for close to the same price. If this spreads, the value equation will continue to change.

How does this boil down? Customer service matters and can drive millions to the bottom line.

Customer Service Rules

The best clients prioritize customer service and customer success. A superior customer experience will create customer loyalty. As the world becomes more volatile, customer loyalty will matter more than ever before. How can you distinguish yourself from the competition? Both simple and advanced strategies can be incredibly effective.

• OTIF (on-time-in-full): Although OTIF seems like a no-brainer (after all, who doesn’t expect products on time), we’ve seen many client examples of significant business growth and success stemming simply from “doing what you said you would do”. Starting with the simple strategies can go a long way.
• Quick deliveries: Amazon has proved that quick delivery has value. When my Mom (who has never ordered directly from Amazon since she calls me to place orders) thinks next day delivery is ‘late’, you know quick delivery has become the standard.
• Reliability: Beyond OTIF and delivery performance, ensuring your products and services are reliable is important. This includes receiving the expected quality in product and service and communicating issues upfront.
• Going the extra mile: There are countless examples of employees going the extra mile. For example, when my car broke down, my mechanic picked me up and took care of my car. When I asked for something a restaurant didn’t have, they made it anyway. And I could keep going with endless examples.
• Customer collaborative programs: We worked with customers to develop processes to figure out what their customers’ needed, where their customers’ needed it, and when the customers’ needed it (collaborative ordering, vendor managed inventory). In essence, our customer took over the ordering process and made sure their customer’s distribution centers/ branches had the right products at the right place at the right time to provide excellent service while minimizing inventory and product costs (production, transportation, distribution, etc.) for the customer and supplier. A win-win.
• New products: Bringing products to market before customers realize they need those products can be risky yet transformational. Just think about the examples. When Toyota wanted to introduce vans in the U.S. market, they drove vans across the country to see what customers might need that they wouldn’t realize or mention in a customer survey. Who knew they needed that cup holder or USB port before they had it? Similarly, who knew they needed an iPhone or even an iPod when walking around with a Sony walkman?
• New services: Figure out what would provide value and what your customers need even if they haven’t requested it or thought about it. Pay attention. Who knew they needed an Uber before Uber existed? Anyone who was picked up in a dirty taxi with an unfriendly driver could figure it out.

Companies that follow these simple and advanced strategies add value for their customers. They will grow faster and more substantially than their competition, and they will add more profit to their bottom line. In fact, they will add more profit to their customers’ bottom line as well.

Please contact us with your stories, issues, and ideas on customer service. And, please keep us in the loop of your situation and how we can help your organization prepare to thrive and mitigate your highest risks. SIOP (Sales Inventory Operations Planning) is one of the strategies and toolsets to help you achieve customer service objectives. If you cannot get ahead of changing conditions and needs, you won’t be able to provide a superior customer experience. Learn more about this strategy in our book, SIOP: Creating Predictable Revenue and EBITDA Growth.

The post Does Customer Service Matter: Uber vs Taxis? 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.

Did you like this article?  Continue reading on this topic:
SIOP/ S&OP Playbook: Creating Predictability & EBITDA Growth

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Material Availability: State of Affairs

Since the pandemic, it has been a constant battle to ensure material availability, let alone to proactively manage cost and service. Even the most proactive and successful clients have experienced brief shortages of key materials and extended lead-times. The rest have been plagued with these issues.

Material costs have been skyrocketing as inflationary pressures persist. We don’t need to look further than the impact of oil and gas prices. No matter the industry (food and beverage, building products, aerospace and defense, life sciences and healthcare), the increase in oil and gas prices has had an impact. Typically, oil and gas prices will relate to a material used in the manufacturing process somewhere in the end-to-end supply chain, if not in every link in the supply chain. And, of course, the price of oil and gas will directly impact the transportation costs in every supply chain. The same is true for labor cost and, unfortunately, a whole host of other inflationary impacts on materials.

During these inflationary times, every piece of material (or ingredient) is significant and will impact cost. Clients are experiencing escalating prices yet limited availability and extended lead times, negatively impacting service and margins. For example, a consumer products manufacturer experienced successive price increases with every purchase order for several months in a row. In a life sciences manufacturer, suppliers didn’t pass on successive price increases with each order; however, the price increased dramatically early on. It became a race to pass on price increases to keep up with changing conditions. Unfortunately, another industrial products client hadn’t kept up with price increases, and so when we helped them develop a customer and product profitability model, it became apparent that quick adjustments had to be made before customers refused to absorb the changes.

The Impact on Material Planning

Material planning becomes increasingly critical during these volatile times. Not only is production not possible without materials and components, but if schedules have to change or manufacturing runs cut short, the increased waste and reduced efficiencies have become increasingly costly. Certainly, if production runs behind and expedited transportation is required, not only will freight costs be higher due to rising fuel prices, but expedited freight charges will be staggering – if you can find someone to deliver it on an expedited timeline at all.

From the service viewpoint, it is quite clear that if you cannot produce to customer demand, your customer service will suffer. Although the most proactive clients have put a full-court press on managing OTIF (on-time-in-full) and jump through hoops on a daily basis to minimize impacts to the customer, the vast majority of companies have seen a negative impact on OTIF and lead times. The “average” companies have truly suffered. It is no longer good enough to be “average”.

Given the significant impacts, there should be an all hands-on deck approach to upgrading material planning capabilities to best serve customers and minimize negative consequences on cost. It is a frustrating position to navigate on a daily basis, and so the best clients are also realizing that they must invest in these employees (provide support, training/ education, outside resources, etc.) to simply retain this critical talent.

Material Planning & Relevant Factors

Material planning (also known by many names including purchasing, buying, and production control depending on the company) focuses on how to ensure the “right” materials arrive at the “right” place (facility) at the “right” time. Frequently, material planning is also associated with MRP, material requirements planning from a process perspective.

Material planning should consider the following factors:

• Order frequency – have you set up purchase contracts or commitments to receive on a daily, weekly, monthly, seasonally, or sporadic basis?
• Order size – what minimum order size requirements have you set up in your supplier agreements? Is the order size by item, shipment, or blanket purchase order?
• Supplier reliability – how predictable is your supplier’s performance? Will your receipts arrive +/- a day, week or month? Do you receive advance notice?
• Supplier lead time – what is your standard lead time by supplier or commodity? How much notice do you receive for delays or shortages?
• Transportation lead time – where is your supplier located, could they produce and ship from multiple facilities and what is the typical mode of transportation and associated lead times for each?
• Service policies – what service policies have you negotiated in your supplier contracts? What has been their performance?
• Supplier network flexibility and recovery capabilities – if your supplier has multiple plants and/or locations that could produce and store your material, have you discussed this possibility? Have you worked with your supplier to run appropriate trials to support flexibility?
• Safety stocks – have you set up a safety stock agreement for critical materials and suppliers?
• Forecasts and/or consumption information – are you sharing consumption and/or forecast information with suppliers so that are in the loop with changing demand patterns, expected opportunities and/or deviations from the norm?
• ABC value – have you set up your items as A B or C based on volumes, value or another method to designate frequency and importance?
• Storage constraints and warehousing costs
• Inventory objectives

Material Planning Strategies

A material requirements plan should take the factors described above into account when building a plan. Typically, you’ll start with near-term work orders, and review longer term demand to determine your material plan based on what’s needed to support this master production schedule while considering your supplier agreements and associated service policies and your inventory objectives.

Depending on many factors including your manufacturing environment, supplier network, level of collaboration and agreements, your product and commodities mix, your tools (ERP and related technologies), and your objectives, there are multiple material replenishment strategies you could follow. Conceptually, consider the following options:

• Reorder point / Kanban strategies – in essence, your suppliers replenish an agreed upon reorder quantity when as materials are consumed.
• MRP strategies – in essence, you purchase based on the latest mix of work orders, sales orders, forecasts, and transfer orders as needed when reviewing your inventory and purchase orders in process.
• DDMRP strategies – demand-driven material requirements planning (MRP) which is more sensitive to variations in demand and supply.
• Supplier managed (also known as vendor managed inventory) – the supplier makes sure you have the appropriate inventory to support production requirements, managing within agreed upon service and inventory policies

There are tradeoffs, benefits and costs to each approach depending on your demand, supply, factors, and objectives. Frequently, we see a combination of approaches based on the supplier, commodity, relevance to the business, etc.

Incorporate Material Planning into a Monthly Review Cadence

Review your material plan summary information and related impacts as a part of your monthly SIOP/ S&OP process. Gather inputs from appropriate parties, compile and synthesize data, and design a monthly review of the material plans required to support the master production schedule and related customer requirements. This will impact inbound freight, storage requirements, and production capabilities to support customer orders, and it will be directly impacted with changes to production sourcing (production facility, reshore/ nearshore, offload), supply chain networks and stocking strategies.

Refer to our blog for many articles on planning, capacity and related systems. . Also, read more about these types of strategies in our eBooks such as The Road Ahead: Business, Supply Chain & the World Order. If you are interested in talking about what it would take to purse the replenishment planning and SIOP journey in your business, contact us.

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Improving Service Levels, Logistics Efficiencies, and Inventory Turns with Replenishment Planning Best Practices

The post Material Planning Best Practices to Proactively Manage Cost & Service appeared first on LMA-Consulting Group, a supply chain consulting firm.

According to the Wall Street Journal, consumer prices are the highest in 40 years. It certainly doesn’t seem to be letting up. In fact, with the Russia-Ukraine war, there will be continued inflationary pressures on products related to oil, gas, commodity, and food at a minimum. Clients and colleagues are seeing record increases in the costs of raw materials, components, and supplies. The strong companies are prepared to thrive during these inflationary times. They are resilient and willing to take action as conditions change.

There are several strategies to create resiliency to thrive during inflationary times. Several of these strategies are better supported with a SIOP/ S&OP (sales, inventory, and operations planning) process to stay on top of the information required to keep your demand and supply plans aligned. For example, a building products manufacturing client was concerned about inflation, and so did a deep dive into their customers’ forecasts. Their concern was to answer the question of if prices continue to rise, would their customers’ demand continue to be robust or would escalating prices curb their demand? In their case, their customers expected continued increases in purchases. Thus, they made slight adjustments to their forecast based on customer input and re-ran their capacity figures across their network to determine where to prioritize resources. They also reassessed their material requirements plans and got in touch with key suppliers to secure the appropriate level of supplier capacity and transportation resource commitments.

No client has been able to procure the optimum number of raw materials or hire the desired number of people to fully ramp up production and support resources to the optimum level to keep up with customer demand and to prepare for the future during these inflationary times. Thus, the most successful clients have utilized their SIOP process to quickly reassess customers and products, both from a strategic point-of-view as well as from a profitability viewpoint. As has been commonplace across the board, the smart clients are taking the opportunity to set pricing in alignment with their objectives, and they are rationalizing skus and pivoting to a product portfolio that will weather inflationary times. Additionally, the strong are choosing which customers to prioritize and serve based on their business objectives. Similarly, they are taking the opportunity to ensure financial strength and strong operating cash flow.  

For example, a consumer products client couldn’t serve all customers with high service levels / on-time-in-full (OTIF) and margins. Unfortunately, because they couldn’t hire enough resources for production, they had to increase overtime, utilize higher cost resources, and ramp up more expensive outside suppliers to supplement their business. Before taking these actions across the board, they completed a customer and product profitability analysis and discovered that they were losing money on their bottom customers. Thus, they quickly pivoted to prioritize their most profitable customers, and implemented extended lead times and price increases on the bottom customers. Additionally, they utilized their SIOP to reevaluate inventory targets and align inventory priorities with customer and product priorities.

During inflationary and volatile times, it is essential to have the capabilities, capacities, and cash flow to pivot quickly with changing conditions and to respond rapidly to key customer needs. Creating resiliency in decision-making abilities with a solid S&OP process will allow you to take advantage of opportunities that arise while giving you the heads up required to take a sharp left turn as needed to shed the strategies that aren’t working. During these volatile times, the strong and resilient will get stronger, and the weak and stodgy will get weaker. Opportunities will abound for the resilient.

As originally published in Brushware Magazine on May-June, 2022

The post Resiliency to Thrive During Inflationary & Volatile Times appeared first on LMA-Consulting Group, a supply chain consulting firm.

If there is one thing in common with every client (big or small) in the current business environment which is characterized by significant volatility and uncertainty, it is the increased level of complexity of supply chains. As the old saying goes, you are only as strong as your weakest link in your supply chain! That has proven true and has led to unfettered complications in successfully navigating the current supply chain environment. In fact, it is why we are have been focused on helping clients become “the strongest link in your supply chain”.

Customers do not care about the complexities of our supply chains. They want the “right” products delivered at the “right” place at the “right” time at the “right” price. In fact, during this volatile post/emerging from pandemic timeframe, customers are laser focused on which suppliers can provide solid delivery performance as measured by high levels of OTIF (on-time-in-full) and a superior customer experience. They will give volume to customers that can deliver!

On the other hand, companies are laser focused on increasing operational efficiencies so that they can deliver to customer expectations while meeting profit objectives. Because of the significant level of supply chain disruptions and increased money supply, costs are escalating. Companies want to limit the price increases they have to pass on to customers as they will lose the business if substantially more expensive than competitors without a commensurate increase in product quality or service. Thus, there is an increased interest in increasing efficiencies, automation, and “doing more with less”.

Utilizing ERP to Improve Service & Decrease Costs

Almost every client has an ERP system; however. ERP systems perform the transactions required to support taking orders, purchasing materials, planning production, picking and shipping product, handling returns, and invoicing customers. NOT every client has a modern ERP system. In today’s world of global, complex supply chains and increasing customer requirements, advanced functionality is needed to support customers without adding armies of people to support the processes. Additionally, modern ERP systems provide additional opportunities to automate, digitize, predict what needs focus (example: predictive maintenance vs. preventative maintenance), and they enable the collection, assimilation and analysis of data for decision-making.

Performing a quick assessment of your business needs as compared with your system functionality and capabilities is a great place to start. When evaluating whether an ERP upgrade is needed to support customer and profit objectives, we recommend starting with a comprehensive yet directionally correct assessment of business process requirements. For example, when working with a control panel manufacturer, we quickly determined that their current ERP system would not meet their growth plans. Not only were they struggling with multiple add-on software options that didn’t seamlessly connect, resulting in double keying and a hodgepodge of data, but they also needed advanced functionality with customer relationship management (CRM), configure-to-order (CTO) and engineer-to-order (ETO) and related customer interfaces, and advanced reporting and analytics. Thus, an upgrade was required.

Therefore, we started a deep dive of business requirements to select the appropriate software. We talked through and observed the business process requirements that would support sales and customer relationship management, engineering design, order entry, configure-to-order, production planning, purchasing, operations, shipping, invoicing, accounting, quality control, data management, and reporting/ data analysis. Based on that, we documented business requirements and, most importantly, identified the critical success factors that were unique to their industry, company, specialized process, and /or unique system requirement. Armed with this data, we were able to develop a request for proposal, demo ERP systems, compare pricing, and decide upon the best fit system to meet their objectives for the best return on investment.

Utilizing Other Technologies to Increase OTIF, Reduce Costs & Inventory

In addition to utilizing an ERP system, to meet the increasingly complex customer requirements without adding overhead, other technologies will add value. Similarly to evaluating business requirements for ERP systems, start by evaluating your needs to support customer and profitability objectives. Some of the technologies required to support success in the current volatile and uncertain business environment are as follows:

• CRM (customer relationship management) software to proactively manage customers and potential leads
• Forecasting software to forecast customer demand
• Advanced planning software to go beyond traditional MRP and simple planning systems to better navigate complex supply chains
• Warehouse management software (WMS) and warehouse execution system (WES) to increase warehouse efficiencies and achieve fulfillment objectives
• Transportation management software (TMS) to optimize transportation planning and freight costs, lead times and service objectives
• Predictive maintenance systems (using artificial intelligence and internet of things (IoT) to predict maintenance needs to target resources
• Manufacturing execution systems (MES) to monitor manufacturing performance and tied to machines with IoT
• E-commerce systems to support B2C and robust B2B effectiveness
• Business intelligence systems (BI) to analyze data and consider what if scenarios
• Predictive analytics to take BI and data to the next level
• Blockchain although this type of software remains in an R&D phase for the majority of businesses
• Additive manufacturing/ 3D printing to print products on the fly
• Digital twins, robots, drones, RFID, autonomous vehicles, virtual reality, and more

The key is not to get caught up in fads. Start with your business requirements and determine the “right” place to invest to support your business objectives where the efforts and investment will support critical customer requirements and/or provide a significant return on investment.

Turn Data into Insights

Data is especially essential to driving OTIF and efficiency improvements. Simply tracking information in your ERP system and related technologies is not enough. It is more important to use your data to evaluate progress towards objectives and make directionally correct decisions to move the business forward. The key is to turn data into insights.

When your data analysis is achieving directionally correct results, it will make sense to take it to the next level with dashboards and slicing and dicing ability with a business intelligence solution. Once you can slice and dice data and have a dashboard available with the push of a button, consider moving on to advanced data topics such as predictive analytics. Instead of solely using data for decision-making, you can take it to the next level and predict your future so you can get ahead of the competition.

The Bottom Line

To succeed in these volatile and uncertain times, there is no doubt you’ll need a modern ERP system and related technologies to automate, digitize, meet customer expectations, accomplish more with less, and make directionally correct decisions rapidly by turning data into insights. Don’t go overboard and do everything and accomplish nothing, but get started on your journey with an assessment of your needs immediately before your competition passes you by.

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Achieving Customer Growth by Turning Data into Insights

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Improving OTIF and Reducing Cost and Inventory

Every client wants to support growth goals while improving service levels (OTIF, on-time-in-full), operational efficiencies and inventory turns. These are timeless objectives for every planner. During the pandemic, the priorities shifted to service levels because clients struggled to keep up with dramatic increases in demand and extreme volatility. There has been an all hands on deck focus to improving OTIF (on-time-in-full), OTD (on-time-delivery), and fill rates.

As we did whatever it took to service customers, logistics costs started to skyrocket, even before the dramatic increases in oil and gas prices. Thus, logistics costs also came into closer focus. Depending on the supply chain network, logistics costs could relate to container costs (which have gone up four-fold since pre-pandemic levels), drayage costs, storage costs, freight costs, e-commerce fulfillment costs, and more. For example, a consumer products manufacturer supplied outside distribution centers across the U.S. and Canada to support short lead time customer requirements. As volatility increased, freight and logistics costs went up accordingly. Thus, additional focus was put on how to optimize logistics costs.

As the pandemic unfolded, consumers switched from services to products, thereby increasing demand. Similarly, as stimulus packages were passed, consumers gained cash, further increasing demand. Finally, as lockdowns ended, demand has stayed at high levels even though services are skyrocketing, driving inflation. As supply chain disruptions abound, product availability is limited, thereby driving prices higher. There is a combination of inflationary and deflationary pressures going on simultaneously which is further exacerbated by the Russia-Ukraine war. These incidents have led to a return of focus on managing inventory to free up cash.
Utilizing Planning Best Practices to Optimize Service, Cost & Inventory Objectives
From a best practice point-of-view, in order to optimize service, cost, and inventory objectives, you’ll want to upgrade the appropriate planning processes. No matter your business type and complexity, demand planning will be a priority. From a supply planning perspective, the priorities will depend on your specific situation. If you produce internally, production planning, material planning and supplier management will be a priority. On the other hand, capacity planning, purchasing, and logistics planning will be important regardless of your supply chain network although to varying degrees. Replenishment will be more relevant if you have a more complex distribution environment or if you replenish your customer’s network for them (also known as vendor managed inventory or VMI).

If you have a more complex distribution network, replenishment planning (also known as distribution planning or DRP) will be a critical component to achieving your objectives. Replenishment planning should consider the following factors:

• Order frequency – are you receiving orders on a daily, weekly, monthly, seasonally, or sporadic basis?
• Order size – when you receive orders, are you receiving several small orders over a period of time, one large order covering the same period of time, or another option?
• Order volatility – how predictable are your customer’s ordering patterns?
• Lead time requirements – how much time do you have to react to customer orders vs. the lead time to replenish?
• Replenishment lead time flexibility – do you have options to decrease your replenishment lead time by shipping via a different mode of transportation (such as rail vs. truck)?
• Replenishment cost with various modes of transportation
• Replenishment frequency – how often do you replenish the distribution center.
• Service policies – can your customers change their orders after placed? Can they change it until the last minute prior to shipping?
• Network flexibility and stocking patterns – if you have a stockout in a distribution center, are you stocking that same product in another distribution center that could supply the customer within standard lead time?
• Safety stocks – how have you set safety stocks to cover for variability in demand and supply?
• Forecasts and/or consumption information – do you receive collaborative forecasts from customers, or, better yet, consumption information real-time? For example, when working with an absorbent product manufacturer, our key customer Allegiance Healthcare provided us with our consumption data from their distribution centers so we could sell real-time consumption. Additionally, when consulting with an aerospace firm, we received consumption information from Boeing so we could see when they used our parts in production of the plane.
• ABC value – are your items set as A B or C based on volumes, value or another method to designate frequency and importance?
• Storage constraints and warehousing costs
• Inventory objectives
• Sales orders, transfer orders, and purchase orders

Replenishment Planning Strategies

A replenishment plan should take the factors described above into account when building a plan. Typically, you’ll start with demand and determine your replenishment plan based on what’s needed to serve the customer with the agreed upon service policy, and then evaluate replenishment strategies, logistics options, and resulting inventory levels to determine the optimal schedule.

Depending on your network complexity, product and customer mix, your tools (ERP and related technologies), and your objectives, there are multiple replenishment strategies you could follow. Conceptually, consider the following options:

• Reorder point / Kanban strategies – in essence, you replenish the reorder quantity when you hit the reorder point inventory level
• MRP/ DRP strategies – in essence, you replenish to sales orders, transfer orders, and forecasts as needed when reviewing your inventory and orders in process.
• DDMRP strategies – demand-driven material requirements planning (MRP) which is more sensitive to variations in demand and supply.
• Advanced planning – these systems take what if scenarios, capacity, capabilities and costs across sites into account in replenishing

There are tradeoffs, benefits and costs to each approach depending on your demand, supply, factors, and objectives.

Incorporate Replenishment Planning into a Monthly Review Cadence

Review your replenishment plan summary information and related impacts as a part of your monthly SIOP/ S&OP process. Gather inputs from appropriate parties, compile and synthesize data, and design a monthly review of the replenishment plans required to support customer orders. This will result in transportation volumes by mode of operation (truck, rail, air), storage requirements by distribution center, distribution / supply chain network changes and stocking strategies (and resulting inventory levels) required to support service policies, and appropriate resources and system capabilities to support the plans.

Refer to our blog for many articles on planning, capacity and related systems. . Also, read more about these types of strategies in our eBooks, Thriving in 2022: Learning from Supply Chain Chaos and Future-Proofing Manufacturing & Supply Chain Post COVID-19. If you are interested in talking about what it would take to purse the replenishment planning and SIOP journey in your business, contact us.

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Recovering Capacity with Production Planning Best Practices

The post Replenishment Planning Best Practices to Improve Service Levels, Logistics Efficiencies, and Inventory Turns appeared first on LMA-Consulting Group, a supply chain consulting firm.