The Economy: Big Picture

In the last month, we’ve participated in at least six economic forecast presentations or discussions with experts (economic, banking, investment, manufacturing). Although they each had nuances, common themes emerged. Adding our expertise into the mix, we see volatility on the horizon. 

The bottom line is that inflation is likely to continue, interest rates are unlikely to decline near-term without creating additional down-the-line inflation, unemployment will have fits and starts and trend up slightly yet the labor participation rate will remain lower than pre-pandemic. From a jobs standpoint, low skilled jobs are being automated, yet high-skilled jobs are experiencing a severe skills gap. Overall, the economy will be slower than it has been. Last but not least, geopolitical risks are concerning every expert, leaving volatility the name of the game in the foreseeable future.

The Economy & The Data

A summary of findings from recent research on the state of the economy includes the following:

• Stimulus (COVID money flooded the economy): Inflation would need to rise by 30% to absorb the stimulus. So far, inflation has gone up around 20%. Thus, there is around 10% left to absorb to get supply and demand in alignment. If interest rates stay put, the COVID funds will run out in about a year. Otherwise, we will have spurts & starts.
• Government spending: Government spending has continued at historic levels. For example, in 2023, nominal GDP was up $1.5 trillion yet federal debt increased $2.5 trillion, leaving a gap. Debt is increasing at what some see as an alarming rate.
• Inflation rate: It has gone up by 20%, but to absorb the stimulus, there is still 10% to go. It is likely interest rates will remain flat to work through the COVID money. If not, there will be bursts of inflation and recession (volatility). Inflation is likely to stay higher than the goal around 3-3.5%.
• Unemployment rates & labor participation rates: Layoffs surged 136% in January to the second-highest level on record with financial companies, the technology sector, food production companies, and retail with the highest levels (in order of sequence). On the other hand, these findings led the experts to think employers would show the latest hiring at 180,000 workers yet the number came in double that amount (353,000). The unemployment rate stayed about the same at 3.7% with the labor force participation rate at 62.5% (which close to 1% lower than pre-pandemic, 63.4%). There is 1.3 jobs for every person looking for a job. From a client point-of-view, they simply do not have the high-skilled resources required although they are automating low-skilled jobs, and depending on the industry, they have put a pause on hiring.
• Wages: Workers’ wages are improving but they still have not caught up with inflation. In the last three years, real average hourly earnings are still down 2.4%. Thus, people are not feeling better.
• GDP (gross domestic product): Real gross domestic product has largely recovered. It increased 3.3% in the 4th quarter and consumer spending has remained relatively strong. It shifted from goods to services, but has held up overall even with the interest rate hikes thus far.
• Banking: There is concern about the regional banks. They hold most of the commercial real estate loans that will need to be refinanced at higher rates over the next few years. Also, bank’s liquidity requirements are driving concerns with the changing of bonds prices with the quick increase in interest rates.
• Geopolitical risk: Every expert mentioned concern around geopolitical risk. It will lead to inflationary pressures with reshoring, increased prices (for example, the Red Sea rates, diversion costs, and/or expedite costs), impact on energy prices, etc.

The bottom line can be summed up in with the misalignment of demand and supply, the shrinking workforce (with Baby Boomer retirements – by 2030, the youngest of the largest generation in history will be older than 65) combined with the divergent needs for high-skills vs low skills, and the emergence of high geopolitical risk. Thus, volatility and uncertainty will remain.

What Should We Take Away

Smart executives will take bold actions to ensure they can supply their key / ideal customers while pruning low margin/ non-value added customers. They are adding customer/ product profitability, pricing, and costing trends into their SIOP (Sales Inventory Operations Planning) processes to evaluate options, set strategy and make decisions.

They will invest in the best high-skilled resources, supplement with additional options (refer to our article, Where the Talent Has Gone, and create a high-performance culture. Strong leaders will be pivotal to ensuring success. People follow leaders; not companies.

Proactive clients are upgrading ERP systems to ensure the basic processes (blocking and tackling) are in place. Additionally, they are rolling out advanced technologies including artificial intelligence (AI) to automate, digitize and thrive. To read more about these strategies, refer to our article, Automate, Digitize and Thrive in Supply Chain. It will be cornerstone to success in the next decade.

Additionally, smart clients are upgrading business processes, cleaning up their data to better utilize their ERP and peripheral systems, and building flexibility and scalability into their future thinking. The core processes include demand planning, production planning, engineering (for engineer-to-order ETO and configure-to-order CTO companies), production and inventory control, and replenishment/ distribution planning processes. From a data perspective, it is important to review bills of materials, routings, work centers, item masters, customer and supplier masters, and MRP parameters. Proactive clients are ensuring the basics are intact and they are focusing on the roadmap to stay at least a few steps ahead of changing conditions.

If you are interested in reading more on this topic:
Supply Chain Volatility, Risk & Capacity Remain Critical Priorities

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Disruptions have not stopped. China has been flying balloons over Taiwan. North Korea is threatening South Korea. Russia continues its war with Ukraine. Israel is at war with Hamas which has spread throughout the region, diverting container ships from the Suez Canal in addition to causing a bunch of other negative consequences. The Panama Canal is experiencing a drought and has reduced the number of container ships that can pass. It got so bad that tankers are now avoiding it altogether which has improved pricing to jump to the head of the line for container ships.

And this is before we bring up one of the hottest topics for companies – the skills gap. In essence, although the high level numbers have improved a bit, if you talk with executives, they are challenged to find resources with the appropriate skill sets. Only the companies advancing technology will thrive; however, it requires additional resources with technical skills to pursue these avenues. It is a complete jumble. If a client thinks they have the resources, it turns out they don’t know what the executives expect them to know. Or, as conditions change (new ERP system, new company ownership, changing economic conditions), they fall short. To read more about where the talent has gone and strategies for success, read our blog article.

Why The Issues All Fall to Planning

At multiple clients, the issues are stockpiling in Planning. We consider Planning to include the following areas:

• Demand planning
• Production planning & scheduling
• Replenishment planning (transfers, distribution)
• Materials planning
• Logistics planning (warehouse, transportation, international)

Here are the common causes that are flowing into the Planning Teams. Executives are frustrated and often think the people are the issue when it is the process, the system, the way the organization is set up etc.

• Customer Service: If Customer Service doesn’t proactively manage customer requests, push back when appropriate, handle customer concerns proactively, enter sales orders with the appropriate fields filled in correctly, every issue will fall in Planning’s lap. As Planning plans and schedules, these issues will arise, and they will have to reschedule, expedite, etc. Additionally, as customers change their mind or orders are pushed out or in, if Customer Service isn’t on top of these issues and proactively communicating cross-functionally, the issues flow to Planning’s desk.
• Engineering: In CTO (configure-to-order) and ETO (engineer-to-order) companies, the product is not finalized until it goes through Engineering. If delays or mistakes occur during this process, the issues flow into Planning’s lap. Also, typically if customer approvals are required, the follow up falls to Engineering. If the customer is delayed in providing approval, they typically still want it on the original request date, even if the company has a policy against this occurring. It happens anyway and falls to Planning to resolve.
• Transactions: If the warehouse doesn’t ship, receive, and transfer on a timely and accurate basis, if production doesn’t enter production and issue materials on a timely and accurate basis, if whoever is responsible for scrap and usage adjustments don’t handle them on a timely and accurate basis, if the inventory team doesn’t cycle count, research and resolve root causes on a timely and accurate basis, the issues pile up in Planning. To determine what to plan, inventory must be accurate and performed on a timely basis. Another issue that arises related to transactions are design decisions made on the basis of minimizing transactions in one department that pushes the workload to Planning. Unfortunately, the fact that the workload will end up in Planning isn’t typically known, but it is what happens as someone needs to figure out what to do. If you don’t track at a detailed level yet you need to plan at a detailed level, Planning will have to figure it out manually.
• Suppliers: If suppliers struggle or transportation is delayed (such as the Suez and Panama Canal or via strikes), production must be rescheduled. Again, the issues wind up in Planning to resolve before moving on.
• ERP setup and use challenges: There are millions of setups and processes tied to how an ERP system is rolled out or upgraded. Thus, there are many ways the system can drive incorrect actions. For example, if an item is set up to flow through MRP when it should flow through a min-max planning process or vice-versa, the planner will not receive the appropriate signals. If your branches are not set up properly and in conjunction with your sales forecast, you can send the wrong product to the wrong place at the wrong time. If lead times and safety stocks are not monitored, you can run the plant out of materials or create an overage quite easily. If there are ECNs (engineering change notices) but the ERP system cannot handle them, the Planners might be left updating countless work orders to know what to produce and order.

In the last six months, we’ve seen Planning get bombarded with these types of issues across multiple clients in multiple industries and multiple geographies. It is a common situation.

Path Forward: Reactive to Proactive

Unfortunately, there are no easy solutions. In fact, that is how “we” have got into this situation. Someone has to figure out the path forward. If no one else does it and the ERP system hasn’t been designed to handle it yet, Planning will be your last resort. Thus, ensure you have the appropriate skills on your Planning teams. If they are supposed to catch whatever goes wrong throughout the lifecycle of an order, make sure your planners are ready to do that for an interim period of time. Have you provided ongoing training and education? Have you hired consultants to help your team upgrade the process? Have you invested in additional technology to support your team?

Look around you. Have you had several retirements of long-term employees? Are you sure someone has absorbed ALL of the relevant tasks? How sure are you that the tasks will be automated? How sure are you that they are no longer required if you’ve implemented a process change? How sure are you that your new resources understand the big picture? In several situations, smart executives wondered why these tasks couldn’t be automated. Of course, the answer is that they can be automated, but ONLY with a high-skilled resource(s) with practical experience that can ensure items don’t fall through the cracks. Don’t wait for retirements to occur to go backwards and think about the process. Plan ahead, develop career paths, and transition plans.

Have you implemented a new ERP system or new ERP functionality? Most likely, the ERP team said we will start with base information and add your requests to future phases. How sure are you that those requests will be covered in the interim period? Have you planned to bring on board the appropriate resources for the workload in the interim? Do your employees know what should be done? They might just know what doesn’t seem right, but not know what to do to make it better. Are there a few of those items that should be fought for instead of postponing to a future phase? If you don’t want your business waiting on the Planning Team, re-review if you hear any of these watch-outs. Supplement your team, provide support, and tie rewards with the outcomes you want to achieve for not just the ERP team, but also for those required to ensure success.

Pivot from reactive to proactive is the message. Think forward, invest wisely, provide training and education to your people, communicate clearly, hire leaders with the experience to “jump in” and take on tasks to “see” what their team members are experiencing and help their team climb out of holes. We are in a business environment that is not for the faint of heart. Strong leaders that are willing to take on smart risks, work hard, and pivot with changing conditions will deliver strong results.

SIOP: Reactive to Proactive

Smart leaders are rolling out a SIOP (Sales Inventory Operations Planning) process to proactively plan demand and supply. SIOP will alert you to bottlenecks, issues, the need to pivot etc. Forward-thinking companies are gaining an advantage as they have planned ahead to be agile, pivot quickly, and most importantly, are ahead of the curve in securing capacity, materials, and key resources.

Think ahead and pay close attention to what’s going on in your Planning Team. If the ball is rolling downhill, put stopgaps in place to catch it while proactively addressing the topic.

If you are interested in reading more on this topic:
Master Planning & Production Scheduling Case Study: Gaining Visibility for Results

The post Why Planning Is Impacted As Disruptions Abound appeared first on LMA-Consulting Group, a supply chain consulting firm.

According to Polaris Market Research, the market size of artificial intelligence (AI) in manufacturing is predicted to grow more than 41% during the next decade. Although the latest Sikich Industry Pulse found that less than 20% manufacturers have started to implement AI, the ones that want to thrive in the next decade are pursuing AI strategies that make sense to support their business objectives. AI can help manufacturers target where to focus and automate mundane tasks.

There are many uses for AI in manufacturing. A classic example is predictive maintenance. Instead of preventative maintenance, target where to maintain with predictive maintenance to maximize your efforts. Collaborative robots (cobots) work alongside people and often can perform tasks such as those requiring heavy lifting. Digital twins are virtual models of physical objects or layouts, and they can receive information about the object through sensors to get information about maintenance needs etc. On the software side, manufacturers are using robotic process automation (RPA) to handle high-volume, repetitive tasks that can be automated. 

For example, in working with a water tank manufacturer, we wanted to upgrade the use of ERP and start using MRP (material requirements planning) recommendations for purchasing. Before turning MRP on, we had to perform a cleanup of data and add routing data steps in the system. The team was lean, and it was estimated to take a few months to prepare for go-live. The executive team did not want to wait to improve service and increase efficiencies, and so a technical expert on the team used RPA to write a code to automate the setups. We completed the preparation in three days instead of three months and started gaining results.

Another application for AI in manufacturing is a lights-out factory which runs with robots. Although full lights-out factories are rare, this application is gaining momentum across the globe especially as workforce participation rates remain low, manufacturers realize they need to gain control of their success and are reshoring, and margins remain tight with high material and labor costs. Robots can operate around-the-clock without lunches, breaks, and workers compensation claims.

For example, an industrial manufacturing client struggled to find the talent to run its manufacturing operations. They couldn’t keep up with demand, employees were frustrated, and customers were unhappy. They purchased a robot to perform production in a key bottleneck area of the facility; however, the robots couldn’t produce around-the-clock because there was nowhere to store finished product on second and third shift without material handlers. Thus, the engineering team developed an automated way for the product to be moved from the point-of-production. Past due deliveries plummeted as the system came online.

AI is also prevalent in supply chain applications that support manufacturing success. For example, sales forecasting and demand planning is supported with AI algorithms to better predict demand. Even in the most industrial of manufacturers, demand patterns have been difficult to predict, creating a need for AI to get in front of demand. AI is also used in inventory management and to prevent bottlenecks and predict what’s needed.

AI requires proactive design so that you can limit expense and minimize the high-skilled resources required to go live. Start with a rapid assessment of your business requirements, process and technical infrastructure and resources. Select a pilot to test your plans and results will follow.

Originally published in Brushware Magazine, January / February 2024.

The post Integrate AI in Manufacturing to Raise the Bar appeared first on LMA-Consulting Group, a supply chain consulting firm.

Manufacturing Challenged with Supply Chain Chaos

Manufacturing has struggled to produce what customers want on-time without spending a fortune and tying up excess cash unnecessarily in the wrong, “just-in-case” inventory. It is a tough environment spiraling out of control with supply chain chaos.

In the current state of affairs, there are historic levels of supply chain disruption and shortages, causing significant inflation and creating a bullwhip effect. When companies cannot obtain the materials and products required to keep production running and satisfy customer demand, they tend to over order, hoping they’ll get product sooner. This creates inflated demand, further extends lead times and inflates prices in addition to causing “fake” demand down-the-line (bullwhip effect). Suppliers try to keep up with demand, attempt to hire people and procure additional materials, and this continues down-the-line.

At some point, demand falls off (at least for some of the products, even if total demand stays intact), and the wrong materials and products end up in the wrong place at the wrong time. This creates panic in the opposite direction with customers postponing and canceling orders, and the effects are felt down-the-line once again with a new bullwhip effect. The bullwhip started at the beginning of the pandemic, and it has been swinging from side to side and creating volatility ever since with no signs of slowing down. Disruptions abound with the Russia-Ukraine war, the China-Taiwan tension, the computer chip shortages, and typical weather events. Check out the latest events to consider in our Supply Chain Chats video series.

Proactive Planning to the Rescue

Successful manufacturers will get off the bullwhip swing. Instead, they will take control of their end-to-end supply chain with proactive planning. This starts by getting a better handle on their sales forecast by developing a demand plan. Given the level of volatility and complexity in today’s simplest of supply chains, they must get a picture of future demand. A combination of statistical formulas, sales and market input, customer demand, and proactive management will go a long way to providing a view into demand.

Next up, you’ll need a master schedule which will provide a long-range production plan and capacity plan. These proactive plans will allow you to determine the machinery and equipment required to support your production plans, the staffing and training plans needed to bring your plans to fruition, the purchase and supply plans (inclusive of insource, outsource, offload, and outside processing) needed so that you can proactively work with suppliers and source partners, and the storage and distribution plans required to support your customers. The best planners are constantly evaluating alternatives to maximize customer value, efficiency and profitability, and working capital. These plans do not address the shorter term.

Handoff to Production Scheduling

Production scheduling picks up where master planning leaves off and addresses the short-term planning horizon. Since the strategic decisions typically arise with the master planning data, the powerful value of production scheduling is often overlooked. Plans rarely fail in formulation. They fail in execution. The production schedule is that execution.

Production scheduling provides a plan of what will be produced on which line, in which operation, in which sequence, at what time to achieve three objectives simultaneously:

• Customer service: Satisfying the customers need on-time as measured by OTIF (on-time-in-full) or OTD (on-time delivery) and to the customers’ expected lead time.
• Profitability: Scheduling the production facility in the optimal manner to maximize output with the least amount of labor, minimize scrap, and minimize operational resources and costs.
• Working capital: Achieve high levels of customer service and profitability with the least amount of inventory throughout the network to support production and customer demand.

Good production schedules will maximize service, profit and working capital. Bad production schedules will not only suboptimize these three outcomes, but chaos and confusion will follow.

Production Scheduling Factors

Material planning should consider the following factors when production scheduling:

• Run size – the best set run quantity based on economic order quantity concepts. It is rare to see a client with full information to complete an official analysis on EOQ; however, every client has at least directionally correct information to make an informed decision to get the process rolling.
• Run frequency – typically, you’ll set a sequence that makes sense with your customers’ demand patterns (volumes, frequencies), operations and quick-change capabilities, lead time requirements, etc.
• Service policies – your production schedule and changes to the production schedule will have to be configured around your service policies
• Constraints – your production schedule will also have to be configured around your capacity constraints (machinery, tools, labor, storage), maintenance and quality constraints, bottleneck operational constraints, material / ingredient constraints, etc.
• Sequencing – you’ll also need to consider sequencing priorities to support operational performance objectives.

Production Scheduling Sequencing

A critical priority in production scheduling is sequencing. Following the graphic, you’ll see the sequencing priorities in a beverage operation:

• Customer demand: Items, volumes
• Packaging and/ or sizes: If you are producing soft drinks or power drinks, you start with packaging (6-pack cans, 8-pack bottles, 2-liter, etc.) and sizes (12oz, 20oz, etc.). Packaging and sizes will dictate which production line(s), equipment, and machinery will be required to support the production schedule.
• Manufacturing capacity: Once you know you are running cans on the production line, you will want to make sure you have enough machine and equipment capacity to run enough cans to meet your needs.
• Labor capacity: Assuming you have enough machine capacity, you will need to make sure you have enough labor capacity on the appropriate shifts needed. If not, you’ll need to find a way to allocate capacity from a different line, cross-train resources, and/or hire resources.
• Flavors: When it comes to sequencing, you’ll want to start at the top level (bottles), go packaging and sizes (8-pack 12oz), and then go to flavors (coke, diet coke, cherry coke) to minimize changeovers.
• Allergens: When it comes to food and beverage, you clearly need to segregate allergens and sanitize between allergens and non-allergens. You would not want to sanitize after producing for an hour!

In working with hundreds of manufacturers across multiple manufacturing environments (process, job shop, configure-to-order (CTO), engineer-to-order (ETO)) and industries (aerospace, food and beverage, building and construction, healthcare and life sciences), these same principles apply. Sequences are determined by the following: size, material type, surface finish, accessories, labor requirements (# of people needed to run the item), subsequent operations, and many more.

Production Scheduling Strategies

Production scheduling is art and science. The best planners use a combination of art and science. There are a few alternative strategies although the best figure out the “right” combination of strategies that best supports the business:

• Reorder point / Kanban – in essence, you schedule to an agreed upon reorder quantity when your item falls below a specified level (reorder point).
• MRP – in this case, you schedule to customer or forecast requirements within a time period in quantities based on the economic order quantity (assuming you’ve set that quantity in the system).
• Production wheel – this strategy level loads across changeover groups to create a sequencing of changeovers that is optimized for production yet meets service policies.

There are tradeoffs, benefits and costs to each approach depending on your customer demand, service policies, operational constraints, production sequencing factors, bottleneck operations, and other issues. Frequently, we see a combination of approaches based on what makes sense for each unique situation. Common sense production scheduling yields the best results!

Client Example

Sticking with the food and beverage example, a food bar manufacturer wanted to gain significant improvements in operational performance from an optimized production scheduling process. They successfully satisfied customer requirements and had recently upgraded their manufacturing facility and equipment to gain operational efficiencies. Thus, the next logical step was to optimize the production schedule to gain full production runs in optimized sequences which they thought would provide a 10-point improvement.

After resolving related bottlenecks that clouded the production scheduling picture, we worked with sales to stabilize the demand plan for a 4-month window and then translate that demand into a level loaded monthly production wheel. Of course, no operation can be fully level loaded because business conditions and customer requirements change. However, by gaining the 4-month window into demand, grouping like-items, sequencing in a logical order to minimize changeovers and disruption, integrating an ABC flow with certain groups of items running more frequently than others (weekly, monthly, quarterly), and allocating capacity for non-forecastable orders or supply disruptions, we optimized the schedule and were able to maintain resiliency with changing conditions. Of course, conditions changed (ie. pandemic arose, inventory became a higher priority), and we were able to pivot to changing conditions and deliver significant results.

A solid production schedule will turn chaos into stability. As stability is achieved, operational costs are reduced, expedite costs minimized, inventory turns increased, lead-times reduced, obsolete and slow-moving inventory minimized, employee morale improved, etc.

Refer to our blog for many articles on planning, capacity and related concepts. 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 optimize your production scheduling scenario, contact us.

Did you like this article?  Continue reading on this topic:
Improving Service Levels, Logistics Efficiencies, and Inventory Turns with Replenishment Planning Best Practices

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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

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Increasing Throughput with Production Planning

Every production planner has the challenging job of managing a complex set of conflicting priorities – meeting customer requested ship dates and new product trials, supporting manufacturing and logistics performance objectives, and addressing finance’s objectives as it relates to inventory levels and cash flow. Almost every plant manager or production planner believes their customers and sales organizations throw large orders over the wall with unrealistic due dates. If they don’t ramp up quickly enough, they will be blamed when the customer complains. If they do ramp up, the customer changes its mind, leaving manufacturing holding the bag with obsolete inventory, extra costs, and excess people they will have to get rid of when corporate or the Board meets again. So, how do we schedule the customer’s orders while not left holding the bag?

There are production planning and scheduling strategies and techniques that provide a directionally correct production plan that Operations can execute against to deliver customer requirements while increasing throughput and accelerating working capital. There is no magic bullet as each situation is unique with different circumstances (types of skills and availability of people, work center and machine capacity and utilization, equipment flexibility, surge capacity flexibility, backup capabilities). Instead of thinking there is one road to success, get a handle on your situation and start with a dose of common-sense questions.

Common Sense Questions

From a best practice point-of-view, get on top of your demand. Ideally, you have a SIOP/ S&OP process (sales, inventory & operations planning) process with a clear picture of demand. However, in 80% of the situations, this is not the case. Thus, start with demand although don’t get too wrapped up in creating the perfect demand plan that you lose sight of your production plan.

Use a directionally correct approach, look at historical sales and growth rates and include input from Sales, Marketing and Customer Service to quickly develop a base demand plan. For more details on developing a demand plan, read about creating predictable revenue with demand planning best practices. The bottom line is that you’ll need a place to start with what to produce, but don’t waste time. Focus your energies on your production plan and start by thinking through common sense questions:

• How does your demand plan (orders, quotes, forecast) translate into a base unit of measure such as hours or units?
• Which machine groups require additional attention to meet your forecast?
• Do you have capacity bottlenecks in meeting your customer commitments?
• Will you need to move and/or cross-train people to meet your production plan?
• Do you know the optimal sequencing for your key machines?
• Can you focus continuous improvement lean efforts on reducing changeover times and increasing flexibility on your critical machines?
• Can you level the production schedule by planning ahead with capacity requirements?
• Can you plan ahead for peak season by producing lengthy production runs of C’s during low season to prepare for peak season?
• Can you better balance capacity from other facilities to meet customer demands while maximizing throughput?
• Can fix the production schedule to the timeframe required to create stability in your manufacturing process (but not longer)?
• Can you stabilize the schedule so that you can ensure a reliable supply of materials/ ingredients will replenish the line without creating disruption?
• Can you schedule to produce the products requiring additional skills and/or maintenance and engineering support when those skills are available?
• Can you utilize outside processors and/or offload capacity of machine operations to maximize the capacity at your key constraints?
• Can you create strategic inventory and/or capacity availability to support changing customer needs?
• Can you allow for a certain percentage of your production schedule for drop in orders?
• And keep thinking…..

Develop a Master Production Schedule

Start with whatever products are required based on orders and forecasts, and start by putting into groups by work centers, production lines, or cells. You’ll have to start by prioritizing by due date or time periods. At this point, you’ll have items or work orders required in certain timeframes. Then, you’ll evaluate these requirements vs. inventory levels, economic order quantities, order multiples, and other variables. If you have systems / tools such as ERP/ MRP, it will do the 80/20 for you so that you can review the recommended work orders. Otherwise, you’ll have to manually calculate. This will create your base schedule.

Now comes the tricky part that is as much art as it is science. How you will account for and incorporate the answers to the questions above into your production schedule will be important. Frequently, the key is who to prioritize, how to account for the impact on throughput and efficiencies, and how to create flexibility in your scheduling process. The way these issues are incorporated into the production schedule will dictate your ability to grow and will determine your level of customer service, inventory, obsolete and slow moving inventory, underutilized capacity, manufacturing performance etc.

For example, in a food manufacturing client, it was important to create a product wheel cycle of products to increase reliability, level load the facility and maximize throughput. As you can imagine, it makes sense to produce light colored food items (such as vanilla) prior to dark colored items (such as chocolate) for the same reason it is easier to replace white paint with black paint rather than vice-versa. Thus, you create a product wheel from light to dark with key changeovers as you go. Of course, it is never that easy. You need to account for difficult to run flavors such as caramel, and you have to be careful not to mix allergens and non-allergens. In certain circumstances, you had to plan for a Kosher Certification. How these nuances are incorporated into the production schedule will recover capacity and increase throughput or not. Listen to a client success story to hear more about the results that can be achieved with a solid planning and scheduling process.

Incorporate the Master Production Schedule into Monthly Review Cadence

Review your master production plan as a part of your monthly SIOP/ S&OP process. Gather inputs from Planning, Purchasing, Operations, Maintenance, Engineering, Quality, Continuous Improvement, New Products and whoever touches the manufacturing process. Continually update your master production schedule, compare with available capacity and make adjustments to product wheels and/or production groups or realign across sites so that you can increase and recover capacity from a directional point-of-view. If you are chasing pennies, don’t bother. Spend 80% of your time on the 20% of your product groups or machine groups that will drive a directionally correct master plan on a rolling 12-month basis. This will highlight strategic decisions and/or bottlenecks that require attention to meet your customer needs.

Refer to our blog for many articles on demand planning / sales forecasting. Also, read about how to implement SIOP in our book, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue & EBITDA Growth. more about these types of strategies in our eBook, Future-Proofing Manufacturing & Supply Chain Post COVID-19. If you are interested in talking about what it would take to purse the demand planning and SIOP journey in your business, contact us.

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Creating Predictable Demand Revenue with Demand Planning Best Practices

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How can we not only “get through” today’s new normal business environment but THRIVE? In my 20+ years of experience as both an Operations Executive and as an entrepreneur and business consultant who has worked with multiple companies ranging from start-ups to multi-billion dollar enterprises across varied industries and geographies, there are a few common keys to success. One of them is to leverage trends. Watch for key trends, spot changes or deviations and adjust and/or leverage these hidden opportunities – long before your competition even sees them coming.

Thus, my focus is on partnering with my clients to take advantage of this often overlooked strategy and deliver bottom line results. As I recently returned from speaking at and attending the Association of Operations Management (APICS) International Conference and had lengthy discussions with a book editor on these topics, I thought it was a good time to highlight the latest supply chain trends. The top few include: 1) Demand driven MRP. 2) Supply chain risk. 3) Supply chain sustainability. 3) Supply chain fundamentals.

1. Demand Driven MRP – A game changer! Let’s start with the basics – this is the new, fancy name for what I’ve always found to be the optimal yet often controversial solution for optimizing inventory planning results – reducing inventory levels, improving service levels, increasing operational efficiencies, reducing multi-level bill of material complexity, etc. It supports what is obvious to exceptional inventory planners – traditional planning methods don’t work (MRP). If that wasn’t bad enough, even the “latest and greatest” concepts don’t work: TOC (theory of constraints) and Lean.Instead, demand driven MRP is a combination of MRP, Lean and TOC, and it “works”. Yet no system supports it fully, which is why it is often times extremely controversial. In my early days, I was thrown out of meetings and even roles for speaking a bit too loudly on this topic. Could I really be saying that I wanted to perform a critical function with Excel or Access (only utilizing system data) instead of fully utilizing a multi-million dollar system? I must be insane!

   Imagine how excited I was when I saw a name and process put to what “works”! There’s no doubt – if you’re interested in results, use logic for inventory planning (demand driven MRP). My track record speaks for itself – consistent 50%+ reductions in inventory levels, dramatically improved service levels to the high 90%’s, improved operational efficiencies etc.

2. Supply chain risk – Supply chain risk has skyrocketed in the last several years. We’ve extended our supply chains. Gone global. Added complexity. Experienced natural disasters. Had conflicts (ports, wars, etc.). Suffered dramatic swings in currencies. Seen increased regulation. It has become a staggering effort to minimize and mitigate supply chain risk yet it’s vital to success. Those who figure out how to simplify profitably and mitigate supply chain risk will have the opportunity to leapfrog their competition in the new normal business environment.
3. Supply chain sustainability – My alma mater (UNC) is a leader in this field, which isn’t surprising as UNC is an innovator and ahead of the curve with leading-edge topics. Although I view much of this topic as common sense (again combining what makes sense of best practice manufacturing concepts, lean, green, etc.), there is an increased interest and heightened awareness in today’s new normal business environment as it achieves the triple bottom line – people, planet and profit.
4. Fundamentals – I typically stick with 3 core points; however, this one is too important to overlook – those companies who block and tackle better than their competition will outpace their competition and grow market share when everyone else struggles to remain flat – or even in business at all.Think about how these trends impact your business. Since my brothers used to be heavily involved in ice hockey, one of my favorite analogies becomes applicable here: How can you skate to where the puck is going instead of skating to where it is?

The post What are the Latest Supply Chain Trends? appeared first on LMA-Consulting Group, a supply chain consulting firm.