It seems like almost every day that we hear of an emerging development in the global trade environment, whether it be the fallout of US-China trade talks, United-States-Mexico-Canada Agreement (USMCA) or Brexit. This is, however, only one of the key trends that is affecting the supply chain in 2019.
Key Supply Chain Trends in 2019
What does all this mean for Supply Chain Planning? In its simplest form Supply Chain Planning is the management of demand and supply-facing activities to eliminate or reduce mismatches, reduce waste and maximize productivity and profit. To be successful it requires for there to be an effective decision-making process, supported by strong cross-functional co-ordination and high-quality plan execution. Increasing uncertainty in global trade, labor shortages and increasing customer expectation place real pressure on these processes. Advances in technology may provide some relief, but require thoughtful integration, especially where legacy solutions are foundational to existing processes.
In the face of these pressures what should organizations be considering?
I. Strengthen the decision-making process
One of the great challenges of Supply Chain Planning is that decisions must often be made without perfect clarity about future demand, available production capacity and sources of supply. Even where there is good information that data can often be difficult to interpret and apply to the decision-making process. Every effort should be applied to improving the quality and timeliness of data sources, including not just transactional data, but also planning data. It is not uncommon for organizations to have pristine transactional data from their ERP systems to then devalue it with incomplete or unrealistic master data, such as production rates.
Improving the quality and horizon of the forecast is also a critical step. The latest results of the M4 forecasting competition** suggests that the application of hybrid combination models (statistical and machine learning) beat statistical and machine learning techniques on their own. Adding human judgment to these outputs remains important, and measurement of those changes essential.
With uncertainty also comes the requirement to evaluate scenarios and the impact on the Supply Chain. For instance, the increase in global tariffs has 93% of companies in China considering making some changes to their supply chains to mitigate the effects of trade tariffs***. If you source production in China how should you interpret that potential risk or opportunity in your planning process? Including alternate scenarios and using an assumption-based process to evaluate the supply and associated financial impact is essential.
II. Improve cross-functional coordination
The Supply Chain Planning process is a cross-functional effort. In most organizations, each functional area has responsibility for its own part of the process – the sales organization is responsible for creating and managing the demand of customers, finance is responsible for the financial plan and stewardship of that, and so on. With each functional team owning their own specific “area” it is inevitable that there are conflicting priorities and trade-offs that need to be managed. For instance, the sales organization may want perfect service, but the trade-off for that may come in operations in the form of high inventory levels. Supply Chain Planning requires a clear cross-functional understanding of the state of the supply chain, needs of the organization and a clear set of shared goals. The process must then be coordinated, most effectively through a Sales & Operations Planning process that periodically reviews the “state-of-play” and provides a decision-making forum on how to respond to changes in the marketplace or supply. The success of the S&OP process should be judged not just by how well it meets service-level and profit objectives, but also how it enables the organizations agility, and its ability to respond to change to meet emerging priorities.
III. Improve execution
Too often improvement in the quality of plans does not result in improvement of end-to-end performance of the supply chain. Frequently this is because there is poor connectivity between monthly S&OP routines and execution on a weekly and daily level. To close this gap many organizations have successfully implemented Sales & Operations Execution (S&OE) routines that connect the output of the monthly S&OP routines. Commonly these replace existing management meetings, avoiding duplication and overlap, but are critically restructured to drive focus on the execution of the plan versus a misaligned set of executional priorities. Essential is a focus, not just on traditional metrics such as quality, line efficiency and asset utilization, but also critically on measures of plan adherence.
Achieving improvement in these three areas is often difficult, in part because it requires a good baseline understanding of existing processes and how these match up against best practice benchmarks, process descriptions and people capabilities. In an area as broad, and as cross-functional as supply chain planning, without this understanding it is difficult to make process changes[PH1] . At Argon & Co, we have developed scprime®, a supply chain improvement approach that identifies performance weaknesses and prioritizes improvements and ensures alignment of the supply chain with overall business strategy. In contrast to other approaches, not only does scprime® identify performance gaps and support target-setting, but it also shows how to close the gaps, directly translating actions into project plans so the business can quickly implement changes.
To learn more about scprime® or the supply chain expertise of Argon & Co, please email us.
As of September 8, 2020, Crimson & Co (formerly The Progress Group/TPG) has rebranded as Argon & Co following the successful merger with Argon Consulting in April 2018.