How should a global manufacturer make a decision? And how can supply chain planning help?
Reflection
A month has passed since my last post. As the weeks, and days passed, I dug in my garden throwing five pallets of mulch in what has turned out to be a hot summer. My goal was to think harder about how to best implement Advanced Planning before I wrote my next post.
In parallel, I am involved in several research projects. In one project, I am interviewing over fifty supply chain leaders on their perceived impact of advanced planning, what makes a good plan, and how effectively they use the technology. In other studies, I am working with data scientists and statisticians to glean insights from over sixty quantitative research projects over the last decade. I am also writing the new edition of the Supply Chains to Admire. In short, the research tells me that the manufacturing industries are stuck. I see a few companies making progress, but most are going through the endless cycles of trying to implement a technology project. As I throw the mulch in my garden, I wonder how we got so off track on delivering value through advanced planning.
Insights
Let me start with a discussion on “what is value?”
The starting point of a planning project is clarity of objectives. Teaching an organization how to use a planning system to drive value takes 3-4X longer than the technology implementation. This discussion should be the start of supply chain planning readiness. In small, regional distributors, the goal may be better replenishment. In contrast, for a global manufacturer, the answer is more complex. What defines a feasible plan? What is the role of make, source, and deliver? How does a company define supply chain excellence.
In my qualitative interviews, few global companies larger than 5B$ rate their projects successful. Here I share some insights.
- Focus on Value. Don’t assume that saving costs within a function will translate to an operating margin reduction. In our work with Georgia Tech using data from 1982-2023, we find that the R² of the Regression analysis of Cost-of-Goods Sold/Inventory Turns when compared to correlations of Operating Margin/Inventory turns to Market Capitalization/employee is 40-65% lower. (Coefficient of Determination or R² measures how well a statistical model predicts an outcome.)
| R2 Operating Margin and Inventory Turns Regression Analysis to Market Capitalization/Employee | R2 Cost of Goods Sold and Inventory Turns Regression Analysis to Market Capitalization/Employee | |
| Food | 0.464 | 0.170 |
| Pharmaceuticals | 0.532 | 0.361 |
| Chemical | 0.601 | 0.349 |
2. As a Supply Chain Leader Build Political Capital. Organizationally, and culturally, companies reward action. As a result, leaders reward firefighting and planners holding onto spreadsheets like Linus holds onto his security blanket. Define a proactive approach and the value/economies of scale of planning manufacturing/transportation and sourcing together. Be purposeful in building a global coalition and defining governance. Define the roles of the regions/divisions and global organization by division, and align the manufacturing, distribution and procurement functions. Help companies visualize shifts in policy and flow through the building of a digital twin to help business leaders align on what makes a good plan. Don’t assume that this will be easy. Planning effectiveness will threaten many plant managers, organizational fire fighters, and divisional presidents. Use political capital to drive alignment and clarity on the mission. Be clear on the size of the prize, measure effectiveness, and actively market the program. Watch the naysayers that feel their power threatened by a model that is optimizing the organizational response and directing resources.
3. Side-Step Shiny Objects. Avoid terms like the autonomous supply chains, digital transformation, and artificial intelligence. Instead focus on a business-driven mission. Define the demand drivers, supply levers, and overcome the issues preventing customer service. Make data available for business users using descriptive analytics and build dashboards to drive action.
4. Avoid RFPs, Strategic Consultants, and Technology Installations. The best use of advanced planning is a culture shift for most companies. The focus needs to be on testing, training and organizational design. Don’t start with technology. As a result, don’t build RFPs or select using frameworks like the Gartner Magic Quadrant (that are far too simplistic). While many strategic consultants have strong relationships with the executive teams, recognize early that effective implementation of APS by a strategic consultant is a null set. I struggle to find any strategic consultant knowledgeable on Advanced Planning. And, whatever next step you take realize that success seldom is the result of a technology implementation. Instead, the best results happen through training, alignment, and process definition of how to use planning systems help to drive better decisions. While companies need technologies, this is not the place to start. A technology implementor should not serve the needs of planners. Instead, the goal should be making the executive team believers and building a planning culture. This is tougher than it sounds.
5. Make the Executive Team Believers. One of the barriers of success by current technology providers is a focus on making planners successful. Large manufacturers are complex, and the multitude of planners have little influence on outcomes. Just as the sales cycle is the result of complex selling, the implementation should follow a similar pattern. The goal is to enlighten the executive team. One of the biggest traps today comes from well-intending technology solution providers bending over backwards to make planners happy when the planners do not reflect the needs and requirements of the executive teams. A planning culture has few surprises and is data driven. Decisions are made at the speed-of-market based on market drivers.
Conclusion
My arms and back hurt from throwing mulch. Glad to have the time to think and glad to be back to work writing. I hope that this helps you and your team.
