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.

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

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

Building Products Manufacturer Case Study

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

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

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

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

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

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

Results with Better Utilization of ERP

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

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

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

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

The Bottom Line

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

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Better Utilize Your ERP System

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

An Industrial Equipment Manufacturer Case Study

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

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

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

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

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

Master Scheduling & Production Planning Results

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

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

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

The Bottom Line

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

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Production Planning Best Practices to Recover Capacity

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

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Best Production Planning Software

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

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

Key Features

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

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

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

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

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

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

To read the full article, click here.

The post Best Production Planning Software – SelectHub appeared first on LMA-Consulting Group, a supply chain consulting firm.

Does Production Scheduling Matter?

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

Are There Best Practices for Production Scheduling?

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

Client Example: Succeeding in Process Manufacturing with Production Scheduling

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

Client Example: Succeeding in Job Shop Manufacturing with Production Scheduling

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

Client Example: Succeeding with Kanbans with Production Scheduling

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

What’s In Common No Matter the Consulting Client?

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

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

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

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

Why Balance Customer Orders, Inventory, & Profitability?

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

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

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

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

How Do You Balance Sales, Inventory & Operations?

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

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

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

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

How SIOP Fueled Growth for a Biotech Manufacturer

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

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

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

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

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

Path Forward

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

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

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

The post SIOP / S&OP: Balance Customer Orders, Inventory, & Profitability appeared first on LMA-Consulting Group, a supply chain consulting firm.

Originally published on Adhesives & Sealants Industry on September 23, 2022

Logistics costs have been staggering. According to the 33rd Annual State of Logistics report produced by the Council of Supply Chain Management Professionals by the global consulting firm Kearney and presented by Penske Logistics, U.S. business logistics costs rose by 22.4% last year. The bottom line is that the global supply chain is out of alignment, and it remains out of alignment. Unfortunately, it isn’t a simple or quick fix to re-balance and right-size the supply chain and curtail inflationary pressures.

Current Challenges

Look no further than recent occurrences in the global logistics landscape. Shanghai was under lockdown for two months, and wait times reached a peak of 69 hours before reopening. During that lockdown, factories had to wait on raw materials, creating potential future disruptions in the supply chain. As Shanghai started shipping again, there are concerns of a new wave of container ships arriving at the U.S. ports, creating new congestion and delays. On the other hand, labor negotiations are creating concerns at the West Coast ports, and so some shippers are diverting containers to other U.S. ports, causing congestion, delays, and increased costs throughout the system.

From a shipping point-of-view, costs will remain high with rising interest rates, historically high fuel prices, increasing wages, and inventory carrying cost pressures. Fuel prices are likely to remain high with the Russia-Ukraine war, energy policies, and the inability to change the situation quickly. Inventories are up by double-digit percentages in the second quarter and warehouse vacancies are at historic lows, and so inventory management is taking on greater importance. Unfortunately, the right inventory is not in the right place at the right time. 

Successful Inventory Management

Those that manage inventory well will have the opportunity to grow and thrive, and the rest will lose customers, and/or be saddled with debt and have limited cashflow. Strategic decisions will have a direct impact on inventory levels. For example, a lawn and garden tools manufacturer had to keep a minimum of 16-20 months of inventory on hand to satisfy customer requirements and to offset the 13-week supplier lead time from Asia. Although most of the inventory was built into lead time, the manufacturer was able to minimize inventory levels vs. its competition with effective inventory management disciplines.   

Successful inventory management processes require exemplary planning disciplines. Thus, the tools manufacturer implemented best-practice demand planning processes to forecast future sales and product mix. The resulting demand plan was provided to manufacturing and purchasing so that the production schedule and purchase plan would make sure that the right items are available at the right time to best support customer requirements at the lowest cost. The distribution (replenishment) and logistics plans took it from there and made sure that the right product was distributed to the right location (its internal warehouses or its customers’ distribution centers) at the right time by the optimal modes of transportation to support its customers’ frequently changing needs in the most efficient and effective manner possible.  

Advanced Planning and Adapting

Although the tools manufacturer could reduce inventory to three months with effective inventory management, it decided the built-in lead time was no longer acceptable. Thus, for this reason among others, it also decided to move the bulk of its manufacturing from Asia to North America, thereby decreasing the inventory required to support the built-in lead time. These inventory strategies created a competitive advantage so that it could be more resilient with changing conditions.  

By implementing advanced planning principles across your organization, you will most effectively manage your assets and best support your customers. Since there are widespread supply chain disruptions, those companies that have the “right” inventory available for key customers and potential ideal customers will have the opportunity to grow and thrive while their competition struggles to navigate the supply chain chaos and inflationary pressures. The strong will continue to get stronger, creating more opportunities in the next few years than at any time in history except for during the Great Depression, while the weak get weaker. Reevaluate your strategic decisions as inventory gains in importance and focus on proactive inventory planning processes to take control and thrive during these turbulent yet opportunistic times.

The post Gaining a Logistics Edge with Inventory Management 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.

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

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As originally published in Brushware Magazine on March-April, 2022

According to FactSet Insight, revenue growth is predicted at 7.5% for 2022 which is substantial when considering it is following record-breaking growth in 2021. Clients and colleagues are seeing record increases in sales revenues and pricing. The companies that have product and can satisfy customer needs are continuing to grow faster than the average as they take market share from the competition whereas the companies struggling and waiting for supply chain disruptions to ease are deteriorating. The strong are getting stronger, and the weak are getting weaker.

There are several operational and supply chain priorities required to be ready to absorb additional sales. A critical one is to have base planning and scheduling processes with an eye to collaborative and concurrent planning processes with programs such as SIOP/ S&OP (sales, inventory, and operations planning), what if scenario planning and advanced insights into down-the-line impacts. In essence, the best way to say ‘yes’ to profitable revenue growth is to have the ability to rapidly assess capabilities and impacts and be assured of your ability to execute.

Base supply chain planning processes include demand (forecasting), capacity (machinery, equipment, resources, suppliers, storage, transportation), production, inventory, replenishment, material, and logistics planning. Read our supply chain planning category blog articles for best practices. People in these positions are often seen as analyst level and are underappreciated given the gravity of the impact on the ability to successfully grow and scale. Clients start to appreciate the relevance of these processes as the strategic aspects are incorporated with SIOP and IBP (integrated business planning processes). As executives realize that when they create a predictable revenue forecast (at a product or customer group level) and determine the best and most profitable way to fulfill it, their service levels increase, lead times decrease, profitability and efficiencies soar, working capital accelerates, and team engagement increases, their interest is peaked.

It is no longer enough to plan in a bubble. As supply chain disruptions occur, material shortages and extended lead times impact production schedules. As COVID causes absence rates to peak or the Great Resignation impacts the production workforce, production schedules change, customers are prioritized, and logistics plans are thwarted. The base planning processes cannot work in silos. Instead, immediate what-if scenarios should be reviewed, down-the-line impacts should be evaluated, and options assessed (offloading volume to a supply chain partner or using a backup supplier). Planning has become strategic and should go from customers to suppliers and include the links in between the two.

For example, a building products client ran out of a critical material. They quickly assessed which products and customers would be impacted and were able to determine the degree to which they should pivot to a more expensive alternate material that would meet customer specs. Based on this what-if scenario, they were able to reallocate manufacturing resources, replan trucks to replenish their service centers, adjust orders with customers to make sure priority needs were met, and evaluate storage impacts so that they could divert loads to nearby branches as needed. They served their strategic customers when the competition couldn’t, thereby gaining customer loyalty and expanding sweet spot business,

By having a monthly focus on the strategic with a SIOP process, the executive team is agile and able to pivot quickly with changing customer needs and end-to-end supply chain impacts. In addition, by focusing on a solid planning base, the right product is delivered at the right location at the right time at the right profit margin. The strategic and tactical are constantly realigning, optimized and in sync. The strong grow and scale, and the weak shrink.

The post Proactive Planning to Grow & Scale appeared first on LMA-Consulting Group, a supply chain consulting firm.

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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