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

An Industrial Equipment Manufacturer Case Study

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

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

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

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

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

Master Scheduling & Production Planning Results

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

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

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

The Bottom Line

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

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Production Planning Best Practices to Recover Capacity

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

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

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

An Industrial Manufacturer Case Study

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

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

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

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

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

SIOP Maximized Production Output & Capacity

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

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

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

SIOP: A Look Forward

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

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Optimizing Business Decision Tradeoffs with SIOP

The post SIOP / S&OP: Proactive Approach to Maximizing Production Output & Capacity appeared first on LMA-Consulting Group, a supply chain consulting firm.

Originally published in Brushware, July-August 2023

Manufacturing is in a state of flux. After seven straight months of contraction in manufacturing, it is not surprising manufacturers are thinking about cutting back. On the other hand, in many industries, manufacturers continue to have a robust backlog and are growing faster than their capacity. Simultaneously, there is significant transition and movement around the globe including dual source suppliers, reshoring, nearshoring, consolidation, and other changes. In this volatile environment, opportunities will abound for those manufacturers focused on creating predictable revenue and resilient operations.

How to create predictable revenue?

Smart manufacturers are getting ahead of customer demand instead of waiting to respond to changing conditions. A few of the best practices in addition to reviewing historical trends and growth patterns include getting on top of sales quotes, getting in sync with key customers, bringing market and industry conditions into the mix, and asking your customer facing team members for input.  proactively and aggressively managing inventory. These factors roll up into the demand planning and sales forecasting process within your SIOP (Sales Inventory Operations Planning), also known as S&OP process. Once you establish a sales forecast, you cannot rest. Depending on your situation, you must review exceptions and changes on a monthly if not weekly cadence.

For example, in working with an aerospace and defense manufacturer, the team was unsure if the demand was predictable enough to order materials and hire resources. Thus, we analyzed data, collaborated with sales and marketing, reviewed customer portals, and evaluated historical trends with contracts. Although the team was uncomfortable, we didn’t enable analysis paralysis. Instead, we took the plunge and piloted forecasts with 70% confidence. The team’s success seemed in direct opposition to their discomfort as their forecast accuracy was one of the highest in almost 20 years of consulting. Most importantly, by creating predictable revenue, Operations had time to prepare. Customer service rates (OTD, on-time-in-full) shot up and costs went down. Margins improved by 5%.  

How to create resilient operations?

Although having a directionally correct demand plan will provide an automatic boost in operational performance with solid leadership, it is no longer enough. To navigate volatility and prepare to take advantage of opportunities, manufacturers must be ready to scale on a dime or pull back without losing momentum. Creating resilient operations is key to success. SIOP remains integral to evaluating alternate strategies to fulfill demand such as make vs buy, dual source suppliers, reallocating production among sites, etc. Adding flexibility into operations is also important by cross-training, utilizing temporary employees, evaluating contract resources, outsourcing support functions such as maintenance, evaluating shift configurations and overtime strategies, and much more. Utilizing technology with automation, robotics, 3D printing/ additive manufacturing, and other strategies can provide quick scalability while maintaining profitability.  

For example, a food and beverage manufacturer invested heavily in cross-training and advanced skills development so that critical resources could respond quickly, and they developed strong relationships with temporary resource partners to be prepared to fill in rapidly when needed or scale back without losing meaningful critical talent. They also focused attention on automation, technology, and labor scheduling to ensure efficiency and scalability, and they were able to take advantage of opportunities to substantially grow the business.

The bottom line

Smart manufacturers will prioritize key customers’ needs and monitor quotes, sales orders, changing market conditions, and forecast closely. From an operations perspective, they will create flexibility, resilience, scalability, and utilize technology to not only save money and create a superior customer experience but also to ensure rapid scalability and flexibility. Leverage SIOP, best practice demand planning processes and uncommon common sense operational programs to ensure manufacturing success.

The post Predictable Revenue & Resilient Operations for Manufacturing Success appeared first on LMA-Consulting Group, a supply chain consulting firm.

The State of Affairs in Manufacturing & Distribution

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

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

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

What are the Implications for Capacity Planning?

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

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

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

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

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

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

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

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

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

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

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

Final Thought

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

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

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Production Planning Best Practices to Recover Capacity

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The “Solution” to Successfully Dealing with Shortages, Delays & Inflation

Supply Chains: There is No “Return to Normal”

There is no “return to normal”. Non-stop disruptions are the norm. Proactive clients are still struggling to hire the “right” talent in the “right” place at the “right” time. Material lead times are extended and shortages remain yet, in other situations, there is surplus supply. Unfortunately, the bullwhip effect ensured that companies went from scarcity to excess and experienced a whip saw effect.

There are countless examples. At the airport on the flight home from a client, the restaurant was out of several items. While at the client, we held several meetings about offload suppliers that were short on capacity for a variety of reasons related to labor, materials, changing requirements, and capabilities. In talking with another client on a Teams call, there were shortages of minor yet required items to keep customers orders flowing. In the interim, one of the parts for my car will take an extra week, delaying the entire job. And these were just in one week.

Inflation Is Real

In listening to the news, there is a lot of talk about how inflation is cooling. I guess it is all relative. My recent flights were less expensive than they were a year ago, but still higher than pre-pandemic. My car’s engine and surrounding parts are FAR higher than they were pre-pandemic. House maintenance and upgrades are steep. Building materials are cooling vs skyrocketing prices during the pandemic, yet they are MUCH higher than they were pre-pandemic. A few 10-20% price increases take a bite out of affordability! Even if the current prices are stagnant or 1-3% up, prices are a minimum of 30-50% higher than pre-pandemic.

When it comes to food items, 30-50% would be welcome. Eggs increased 70% in the last year. The media doesn’t even horrify us with the statistics in comparison to pre-pandemic. Milk is up over 40% since pre-pandemic. These prices will have a direct impact on hospitality, restaurants, etc.

Manufacturing clients are experiencing these same cost increases for materials, components, and outsourced products. It depends on the type of manufacturer; however, 100% of clients are experiencing these issues. The only question is whether the price increases have leveled off or continue at aggressive rate increases. For example, multiple clients had substantial material price increases that couldn’t be completely offset in customer price increases, thereby reducing margins. In one case, margins went down by 5-8%. That is not pocket change!

How Can SIOP / S&OP Help?

SIOP (Sales Inventory Operations Planning), also known as S&OP, is a process that starts by enabling clarity and predictability with the sales forecast (demand plan) and then determines the best way to fulfill that sales plan from an operations, supply chain, warehousing/ distribution, and transportation perspective. So what does that really mean?

How Does This Relate to Resolving Shortages & Delays?

In our first example, SIOP has proven effective in helping clients over the shortage and extended lead time scenario. Of course, SIOP is not a magical solution that solves “world peace”; however, as you improve the predictability of your revenue plan (sales forecast), the supply plan can be stabilized. For example, when we started working with a life sciences manufacturer, spikes in sales drove variability and volatility in manufacturing. This was especially challenging with the aggressive growth expected. Not only did they have issues in determining the appropriate number of people and skills required for specific timeframes, but they also had continual issues with long lead-time materials and equipment needs.

Once we built a collaborative forecast based on historical sales and growth rates, incorporated feedback from the Sales team, Product Managers, R&D, and customers (inventory agreements, etc.), we stabilized the demand plan. It was not perfect on an item by item or customer by customer basis; however, when looking at meaningful groups (such as a product line that required the same machinery, skills or materials), it was directionally correct, thereby stabilizing the supply plans.

From the opposite point-of-view, we had to get a better view of capacity in the base unit of measure so that we would know how many people are required for which work center. After converting the custom units of measure to a base unit of measure, we were able to visualize the required capacity. Similarly, we dug into available capacity. One would think that would be easy, but it is rarely easy. There are always many exceptions and nuances when it comes to skills, cross-training/ shared resource complications, etc.

As we gained clarity of capacity by work center and related to specific groups of products, we could see our gaps to the supply plan and address accordingly (hire, transfer, reallocate etc.). Now the supply plan was stabilized, which enabled stability in the demand plan. Similar to a teeter totter, it is never one-sided. Demand creates challenges for supply and vice-versa. SIOP helps to align the two sides on the same plan.

Once the two are aligned, shortages and delays are minimized. It will also help with supplier related shortages and delays because you can give your suppliers better notice and clarity about what is needed to support your sales plan. If they have issues, you can proactively address and build into your demand and supply plans. For example, you might be able to use a like-material or contact a backup supplier. On the other hand, you could also adjust your supply plans to account for issues or proactively prioritize customer orders, price changes, and take other actions to address until supply is rectified. The bottom line is that SIOP can create predictability in your revenue plan (and the fulfillment of that revenue plan).

How Does This Relate to Dealing with Inflation?

In our second example, SIOP can also help clients proactively address inflationary pressures. By better aligning demand and supply, you can provide forecasts to material and component suppliers. Many clients use those forecasts and better view into changing demand patterns to set up supplier agreements which can help offset inflationary price pressures. For example, an aerospace and defense manufacturer improved margins by 5% largely through material price reductions with supplier agreements after stabilizing demand.

A key part of SIOP is also to analyze customer and product profitability. This information will provide key insights into how to manage inflationary pressures. Every client has passed on price increases to customers. Some were quickly on top of changing conditions and were able to pass on price increases immediately. Others responded quickly although the price increases didn’t take effect immediately due to lead times.

Additional clients absorbed a portion of the price increases but not the full price increase depending on market conditions, margin impacts or other factors. In addition to price increases, clients re-evaluated low profitability products, deprioritized unprofitable customers (extended lead times or increased prices), added service level tiers, prioritized customers and/or suppliers to partner with to redesign, repackage, and streamline, and utilized other strategies to proactively address inflationary pressures. SIOP will support margins, profitability, and EBITDA growth.

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 address several issues such as supply chain disruptions and inflationary pressures. It also supports capital spending requirements, cash flow management, and several supporting items. The bottom line is to take control of your manufacturing and supply chain to support growth and profitability.

Refer to our SIOP webpage for more information, our blog 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 reshape your supply chain, get in front of it with a SIOP process, and successfully navigate these waters, contact us.

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Getting Ahead of Inflationary and Deflationary Pressures Using S&OP

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Lisa Anderson facilitated a panel discussion at the New England Supply Chain Conference and Exposition on managing capacity in complex and volatile environments with Shari Ruelas General Manager of Commercial Products Chevron, Alejandro Bustamante Senior Advisor to CEO & Board of Directors of Poly/HP, and Dan Raatjes SVP & COO King’s Hawaiian Holding Co.

To learn more about NESCON click here.

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Managing capacity during these turbulent times in a complex, volatile, long-lead time environment has proven quite the challenge. During the pandemic, sales volumes either dropped like a rock or skyrocketed with no middle ground. Most manufacturers have not been able to keep up with demand in the last year or two and extended, prolonged lead-times have become the norm. How can you thrive during this time of volatility, uncertainty, complexity, and ambiguity (VUCA)?

Expert Panel’s Challenges & Opportunities

Not only is this an area that frequently arises in client projects since we work with several engineer-to-order (ETO), configure-to-order (CTO), and other complex manufacturing companies such as high-volume CPG (consumer products) companies, but I led an expert panel for NESCON (New England Supply Chain Conference & Exposition) on just this topic. We had experts from several diverse angles of the global supply chain:

• Chevron: Shari Ruelas, General Manager Americas Commercial Products
• Poly: Alex Bustamante, Sr Advisor to CEO & Board; Former Executive VP Global Ops
• King’s Hawaiian: Dan Raatjes, SVP & Chief Operations Officer

A few of the challenges that arose during the conversation:

• People, people, people
• Managing capacity when your product is selling at negative numbers 
• Figuring out how to navigate extended port delays
• Keeping up with dramatic increases in volume

Trending Strategies for Success

A few of the common themes that arose during the discussion include the following:

• Nearshoring: Companies realize they need more control over their supply chain and should locate manufacturing closer to the customer.
• Supply Chain Optimization (Quick insource/ outsource/ offload/ change supplier decisions): During the pandemic, the successful companies quickly pivoted on their make vs. buy decisions. In fact, the successful companies insourced and outsourced simultaneously if needed to meet customer demand. For example, Poly did all of the above in addition to pivoting away from the Long Beach port and moved to a Mexican port and saved a month in lead-time.
• Productivity & efficiency: The proactive responded to changing conditions and figured out how to gain productivity and efficiencies rapidly. Chevron did what had never been done before and made significant productivity improvements.
• Scale rapidly: With proprietary intellectual property, scaling quickly is the key to success. King’s Hawaiian is building multiple facilities simultaneously.
• People, people, people: As is typical with every expert panel I’ve led over the years, it was unanimous that the key to success is considering your people as your #1 asset. 
• Technology advancement: Technology, innovation, automation, digitization

Check out our article on the best practices in capacity planning covering rough cut capacity planning, manufacturing capacity, supplier capacity, and logistics capacity. Unfortunately, the situation is quite simple. If you don’t plan ahead and have the capacity to support your customers, your competition will.

Please keep us in the loop of your situation and how we can help your organization thrive during these times of volatility and disruption. There will be more winners created than at any other time than since emerging from the Great Depression. To gain additional ideas and insights on how to best navigate these volatile times and thrive, read our new eBook Thriving in 2022. Learning from Supply Chain Chaos. Download your complimentary copy.

The post Managing Capacity in Complex, Volatile, Long-Lead Environment appeared first on LMA-Consulting Group, a supply chain consulting firm.

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.

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Sales Growth: Can Operations & Supply Chain Keep Up?

Almost every client has the opportunity to grow substantially. The question is whether their operations and supply chain can keep up. Unfortunately, across the board, planners are wringing their hands to expedite orders, prioritize customers, schedule additional production, understand the impact on inventory across their facilities, and increase capacity.

If that wasn’t enough, customer orders are changing on a daily basis (due to shortages from other suppliers, changing market conditions, etc.), forecasts are in a constant state of flux, manufacturing capabilities are constrained (due to lack of people, flexibility, trials and/or difficulties in running with substitute materials, etc.), and the extended supply chain (material purchases, warehousing/ distribution, transportation) is in chaos. Thus, how should we answer the question on whether operations and the supply chain can keep up?

Rough Cut Capacity Planning

From a best practice point-of-view, in order to answer the question on whether you are prepared to grow, you need to focus on rough cut capacity planning. 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 capacity plans.

At a minimum, review last year’s sales and current customer orders, incorporate key trends and mix changes, and start there. 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, purchase, replenish, and/or store.

Start your capacity planning process with whatever data you have. Ideally, you have a long-term production plan, purchase plan, and/or replenishment/ distribution plan. From a systems perspective, these can be referred to as a master production schedule (MPS), material requirements plan (MRP), and distribution requirements plan (DRP) although they also can be all rolled into an ERP/MRP system. Don’t worry about the debate of MRP vs. Lean as both are valuable for different purposes. For capacity planning, you’ll need a longer-term view of requirements, and it doesn’t matter if you use MRP or Kanbans.

From a technology perspective, you might not have an ERP system that supports these functions. Don’t despair as you can start by converting your sales forecast into a directionally correct production, materials, and/or replenishment plan.

Manufacturing Capacity

Let’s start with a long-range view of a production plan in units or hours. Break your production into product groupings ideally by work center groups or production cells if possible. If not, break into whatever groups make sense from a manufacturing point-of-view that you can do quickly. You can always evolve over time. From a rough-cut perspective, there is no need to worry about days and weeks. Think in terms of months or quarters, depending on the needs of your business. There is also no reason to worry about items. Stick to larger product groupings when dealing with rough cut capacity. This is a pitfall several clients fall into. They get bogged down in item details and never get a directional view of required capacity.

The tricky part is that you’ll need to put your requirements into a base unit of measure. For example, you cannot add boxes, pieces and ounces together and make sense of capacity figures. This is a constant challenge even with sophisticated clients. For example, we worked with a life sciences manufacturer, and we thought it would be an easy exercise to convert milligrams and grams, into milligrams. Although that issue was solved with a simple calculation, there were also custom products with different units of measure. Unfortunately, 1 unit could be 1 microgram or 1 unit could be 1 milligram, but they both said 1 unit. Thus, we had to design a directionally correct way to convert custom products into the base unit of measure so that the data would make sense for capacity analysis.

You’ll then convert production requirements into a base unit of measure that makes sense across all products. Compare these requirements by product grouping to your available capacity for that product grouping. It will give you a place to start. Advanced clients review requirements as compared with various staffing configurations, overtime, full capacity, transferring capacity among sites, and additional scenarios to find the optimal approach to meet customer needs while maximizing operational performance and meeting inventory targets. They also review improvement opportunities to increase output and capacity. In addition to staffing, review machinery, equipment, tooling, and other support functions vs. requirements. The key decision becomes how to adjust capacity in alignment with requirements in the optimal manner. It is rarely ever a straight line in manufacturing. For example, if you need 1 crew, 5 days a week on average, you are likely to need 1.5 crews during peak season and .75 crews during low season or you need 6 days a day on average throughout the year, making it difficult to run overtime continuously yet not requiring a 7 day schedule.

Supplier Capacity

Similarly, to manufacturing, once they have a long-range view of requirements in a base unit of measure by commodity groupings, they convert the base unit of measure into purchase plans. The most successful clients provide material and commodity level forecasts to suppliers so that they can plan for capacity. They also incorporate into contracts and pricing within ranges or they partner with suppliers to build Kanban systems with stockpiles of strategic materials. Frequently, there is significant opportunity for improvement in service, reduction in lead times and shared cost savings with collaborative planning so that suppliers can proactively plan capacity as well.

Logistics Capacity

Similarly, to manufacturing, once they have a long-term view of requirements in a base unit of measure, they convert the base unit of measure into space requirements to evaluate storage and material handling equipment needs. There are various storage strategies and associated equipment needs with tradeoffs depending on volumes, frequency, storage size, and several other factors. For example, you might evaluate storage needs in pallets, bins, cubic feet, and other alternatives. Order frequency, handling requirements, and picking needs are also relevant factors. After collecting your requirements by groups of products or customers (as there can be different requirements by customer), you’ll compare with available capacity. Similarly, to manufacturing, you can choose to increase capacity in several ways and you can build flexible options into your strategy.

Transportation capacity is also a key topic so that you can plan for the appropriate number of trucks, container loads, or packages and can optimize the mode of transportation, service levels and rates. For example, if you will need an average of 3 trucks per week to go across the country, you might plan ahead and send intermodal to save money. Or you might decide to put together a milk run with a consistent route that your transportation partner builds into a consistent plan. You might decide to build a multiple-stop truckload for certain routes if you don’t have enough product for one customer to fit on a truck. There are several options to evaluate; however, in order to ensure you have sufficient capacity to deliver your customer orders on time and to support your transportation needs, forecasting your transportation requirements ahead of time will not only ensure higher service levels, but it will also provide opportunities for cost savings.

Incorporate Capacity Planning into a Monthly Review Cadence

Review your capacity plans 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 required capacity vs. available capacity for your critical areas. Start with your key machines, overloaded people/ positions, and your most bottlenecked resources. This will quickly highlight strategic decisions and/or bottlenecks that require attention to meet your customer needs.

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

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Recovering Capacity with Production Planning Best Practices

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In working with clients across multiple industries including industrial equipment, food and beverage, building and construction products and healthcare products, there is no doubt that clients using a SIOP (sales, inventory and operations planning) and integrated business planning process are pulling away from the competition.

Clearly, we are experiencing extreme demand volatility and supply chain disruptions across the board. It is so bad that the most successful clients are simply losing less revenue than the rest. No one is having an easy time keeping up with demand. Labor shortages, material shortages, trucking shortages, soaring prices and much more is causing further adaptions, creating even more disruption. There are no magic bullets to solve these issues, but one key program that is helping clients far better than their competition is SIOP and Integrated Business Planning processes. Listen to the benefits one of our clients gained with SIOP which is helping them better navigate these crazy times.

The post Clients Using SIOP Pulling Ahead of the Competition: SIOP Case Study appeared first on LMA-Consulting Group, a supply chain consulting firm.