Posted by: malstott | March 22, 2010

Simple Planning in a Complex World

My husband and I recently traveled to Ireland. For the first week of our journey I planned each day with food, lodging and attractions all mapped out. Then I ran out of energy and time and decided to leave the next week unplanned. We would wing it!  Both approaches were wrong. In the first week we had no latitude to adjust to the weather, our moods or even serendipity. The second week we were spending too much time figuring out how to get from point A to point B. Something in the middle would have been the best.

The same dichotomy exists in the world of manufacturing. Some companies design tightly managed and intensely collaborative forecasting and planning systems.  Their communication through the supply chain is daily or even hourly. New demand triggers new orders. Cancelled demand cancels orders. If the sales team is bullish there is a redo of the plan and the whole supply chain revs up for a higher rate of production. If the demand doesn’t materialize the orders get pushed out, inventory stockpiles, FGI gets reconfigured.

The other alternative is to design a flexible, responsive supply chain that can withstand the uncertainty and fluctuations of today’s demand profile. In this business climate it is impossible to know what a full quarter will look like. Change in market climate can take place within weeks.

Lean methodology, a highly integrated value chain and flow of information are the keys to success.

  1. Lean methodology is simply laying out manufacturing through the external and internal process such that material is pulled through. Buffers or Kanbans are used to stage material for the next process but they can not be overfilled. Thus, material isn’t shoved forward if the demand drops off. The challenge is to design the buffers so that an increase in demand can be accommodated in an acceptable amount of time. The advantages of a lean flow are numerous and include lower inventory costs, lower costs to rework should a problem come up, and more visibility to the material and therefore the risk and upside. A huge benefit comes simply from the process of setting a lean flow up in the first place. It requires that you understand demand swings, leadtimes and dependencies.
  2. A highly integrated value chain is not a reference to vertical integration. It is a reference to the communication and responsiveness of the full supply chain. It should be very clear who owns which supplier and who will evaluate performance, communicate changes in demand and handle the exception management.
  3. Information is life in a well run operations organization. Drowning in data is death. The right information that allows management to deal with exceptions and trends is the goal. Metrics should be clearly posted, regularly updated and used to run the business. Owners should be assigned to each metric. The metrics should be reviewed quarterly to make sure that they are the right ones for the control process. The information should include summarized data about real time sales pipeline and orders. Material drive through the supply chain should be adjusted but the oscillations should be dampened.

A simple planning system can be crafted with the three pillars above in place. Complexity does not add value and can mask the real issues. Don’t wing it but take care to avoid distracting complexity. Then, enjoy the trip!

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