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

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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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Today’s Supply Chain Disrupted World

We live in a supply chain disrupted world, and there is no end in sight. It started with the pandemic as the global supply chain got out of alignment. The ‘right’ inventory wasn’t in the ‘right’ place at the ‘right’ time to support basic needs let alone nice-to-have items. For example, there were shortages of hand sanitizer and meat at first which expanded into computer chips and building supplies as the pandemic raged on. Further complicated by port congestion, the ship stuck in the Suez Canal, TX storms, the Russia-Ukraine war, China lockdowns (for their zero COVID policy), and much more.

The most successful companies are focused on logistics planning best practices to get in front of these disruptions and create a more resilient and superior customer experience. As service shines and products are available when and where customers want them, there will be opportunities to increase market share. As baby boomers retire and sell their companies and some struggle to navigate a high interest rate, inflationary environment, there will be more opportunities for smartly-run companies to thrive.

Distribution & Warehouse Planning

If you don’t already have one, implement a SIOP process (Sales, Inventory & Operations Planning, also known as S&OP) to make the appropriate strategic decisions on how many distribution centers/ warehouses you should have in your network and where they should be located. Although plans fail in execution, not in formulation, if you don’t have a distribution center in the appropriate location to service customer needs at the lowest cost, flawless execution won’t help you.

Beyond your supply chain network, a critical component is to fulfill your network with the “right” product in the “right” place at the “right” time while minimizing inventory levels, shortening lead times, and maximizing customer service levels. Accomplish these results by implementing best practices in replenishment planning (also known as distribution planning or VMI vendor managed inventory if related to a supplier or customer).

Based upon your SIOP and replenishment plans, you’ll want to set up your warehouse to best support service and efficiency. If very much depends on your unique circumstances as to what will make sense. For example, if 25% of your business is e-commerce and the rest is pallet or case shipping, you’ll have a different layout, equipment needs, and resourcing plans than if your warehouse ships bulky products. As a general rule, e-commerce and box or pallet shipping will not be done in the same warehouse. It could be the same physical address; however, every successful client has separate areas, separate locations, or has outsourced one or both operations. Bulk items require different storage, handling, and shipping requirements, driving a different set of best practices.

Warehouse Storage Requirements

Understanding your warehouse storage requirements as a part of your SIOP process allows you to make informed decisions about the size, quantity, and positioning of your distribution network. Similar to calculating the labor hours required for a particular work center, you’ll calculate pallet positions, cubic feet or bin storage requirements. This information will allow you to determine the best type of warehouse infrastructure (racking, forklift trucks, etc.), technology and automation systems, and resourcing required to maximize your storage utilization while meeting your customer requirements at the lowest cost.

3PL Evaluation

In some situations, it makes sense to evaluate outsourcing a portion of your business or your full logistics process to a 3rd party logistics provider (3PL). As with all situations, there are benefits and costs, and they change along the way. For example, in working with a value-add distributor to evaluate whether it made sense to continue with current warehouse operations or move to a 3PL, we found that the client was efficient and located close to customers. The 3PL would have to charge more to add a profit without commensurate value, and since the client had the warehouse space already or could solve the issue with a small overflow facility, it didn’t make sense.

Fast-forward several years later, and re-assessing the warehouse space analysis and 3PL evaluation, we came to a different answer. In this case, according to the SIOP process and sales forecasts, the client would be short on warehouse space, and more importantly, their e-commerce volume rose sharply. Although they could handle their current e-commerce volume, it made sense to evaluate outsourcing that volume to free up space, position inventory within a 1-2 day delivery window across the country, and utilize specialized expertise in e-commerce fulfillment inclusive of piece packaging, returns, etc. They would leave pallet shipping alone, at least for the foreseeable future.

Transportation Planning

Transportation planning starts with your network setup. For example, if you procure products from overseas, you will include global freight shipping considerations in your planning processes whereas if your network supports North America, you will focus attention on air or ground transportation. There are a plethora of options to consider in just trucking options ranging from over the road to LTL (less-than-truckload), to dedicated truck lanes, to multiple stop truckloads and much more. Rail is also a popular and less costly mode of transportation depending on your customer requirements and network capabilities.

Mode of Transportation

Typically, a client will set a strategy inclusive of mode of transport upfront. Our most successful clients are reevaluating transportation strategy on a quarterly, semi-annual or annual basis as a part of the SIOP process, and they will make adjustments as required. In today’s supply disrupted world with continually changing networks and manufacturing points, the frequency should be increased to stay ahead of changing conditions.

For example, a building products manufacturer reevaluated replenishment to a distribution center and determined that a hybrid strategy of shipping over the road and by rail made sense to best support changing customer requirements with optimal inventory levels instead of shipping all by rail. Clearly, transportation costs would increase, but they would be offset by improved customer service, reduced inventory and storage requirements etc. Similarly, an equipment and tools manufacturer reevaluated international shipping strategies as they transitioned manufacturing from China to Vietnam and later to Mexico. In the first instance, the mode of transportation didn’t change, but the ports and routes changed. In the second, the mode of transportation changed. In both cases, once in North America, they used over the road and rail to replenish their network.

Optimizing Transportation

Depending on your mode of shipment and network complexities, how you optimize transportation will vary widely. As an example, in a healthcare products manufacturer, they shipped partial loads relatively consistently to customers outside of the local region. Shipping LTL would be costly, require longer lead times, and proved unreliable. It made more sense to combine multiple customers on a truck and make 2-3 stops along a route. Thus, planning multiple stop truckloads provided the best service at the lowest cost. The transportation management system (TMS) would review customer orders within key routes and combine into multiple stop truckloads. It also would provide carrier options for review. The transportation planner would perform a similar role to a production planner or material planner to optimize transportation plans.

There are countless ways to optimize transportation. Since there are many variables, it leads to a multitude of options for satisfying customer needs at the lowest cost. You could also take a proactive stance by working with customers on their service policies to find win-win strategies to meet their needs while providing an advantage over your competition and minimizing cost. For example, an absorbent products manufacturer met with customers to provide additional demand data which allowed the company to optimize shipments to the customer yet providing improved service levels and reduced inventory levels with a collaborative replenishment (also known as vendor managed inventory or VMI) program. Additionally, they worked with key customers to use space in certain geographies to better serve customers and improve profit for both.

Refer to our blog for many articles on planning, capacity and related concepts. Also, read more about these types of strategies in our eBooks, Thriving in 2022: Learning from Supply Chain Chaos and Future-Proofing Manufacturing & Supply Chain Post COVID-19. If you are interested in talking about what it would take to 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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Improving OTIF and Reducing Cost and Inventory

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

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

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

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

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

Replenishment Planning Strategies

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

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

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

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

Incorporate Replenishment Planning into a Monthly Review Cadence

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

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

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Recovering Capacity with Production Planning Best Practices

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