Are you confident in your company’s ability to optimize inventory in shops, warehouses and DCs? Do you trust your supply planning data? Is your forecasting automated? Can your inventory management and supply planning team orchestrate a quick and effective response to widespread supply chain disruption?
If you can answer yes to most or all of these questions, then you work for a company with high inventory management and demand planning maturity. The benefits of achieving this start with saving money, lowering inventory and reducing stockouts. High-maturity inventory management and demand planning also enable you to stay nimble and better navigate crises,like the black swan event and resulting global disruption that 2020 will be remembered for.
Slimstock’s Inventory Optimization Maturity Model helps you understand where your business is at now, and what you’ll need to gain the benefits of high-maturity inventory management and demand planning.
THE BENEFITS OF IMPROVED PLANNING
As a leading forecasting and supply planning solution provider, the goal of Slimstock’s maturity model is to help companies better understand their own supply chains. The model’s structure is based on Gartner’s Supply Chain Planning Maturity Model. However, where their model focuses on general supply chain planning, Slimstock’s model is specifically focused on demand & supply planning.
We’ll see what criteria go into each of these later, but first, let’s look at the model itself.
STAGE 1 – Chaotic Planning
Planning is performed by Processors – There is no dedicated demand planning team. Inventory and sales data are entered into a spreadsheet and the resulting outputs become the order. Inventory management and demand planning are unconnected and transactional in nature.
STAGE 2 – Reactionary Planning
Planning is performed by Interpreters – A dedicated demand and supply planning team exists, but they are mostly self-taught. Information is taken from an ERP and fed into spreadsheets to generate an order. Inventory management and demand planning are integrated.
STAGE 3 – Proactive Planning
Planning is performed by Analysts – A dedicated team of trained forecasting and inventory planners use best practices to identify and prioritize fast moving and/or high-margin items. Basic forecasting tools such as predictive planning and exception management are used to increase forecast accuracy and streamline processes. Single node optimization can be achieved.
STAGE 4 – Collaborative Planning
Planning is performed by Catalysts – The forecasting and inventory management team understands how decisions in forecasting adjacent departments affect their own and work with them to achieve better outcomes. More advanced forecasting tools are used and tasks such as generating business rules and orders are automated. Multi-Echelon Inventory Optimization and supply chain optimization are possible.
STAGE 5 – Optimized and Integrated Planning
Planning is performed by Orchestrators – Companywide, each departments’ impact on forecasting and supply planning is understood and quantified. The demand and supply planning team drives vertical alignment of strategic, tactical and operational plans. Departments collaborate on new product introductions and lifecycle management. The company realizes inventory optimization via a well-orchestrated and aligned supply chain.
With concerted effort, companies can rapidly achieve the first 3 stages of the maturity model, especially with the right tools and process automation. Going beyond stage 3 requires building a more responsive supply chain. Doing this takes focus, investment, and commitment from all branches of company leadership, not just the supply chain team.
THE PILLARS OF DEMAND & SUPPLY PLANNING
Four primary pillars make up demand and supply planning.
Tools & Automation
Data is the fuel of demand & supply planning. Without this fuel, planners get stuck doing manual labor such as data collection, order entry and manual calculations. Data enables an organization to gradually automate tedious tasks, and allows planners to start prioritising responsiveness, decision making and tasks that add value.
The data you collect must be complete and correct and accurate. The two kinds of data to focus on are:
• Transactional data – You must know your exact inventory levels, exactly how much you’ve sold and when you sold it, and exactly what is coming in.
• Planning parameters – These are your lead-times and vendor master data (e.g., minimum order quantities). Start with collecting the basics. As your company matures, the level of detail required for your planning parameter data will increase.
Collecting the right data is team effort. This is because your whole company needs to use the same data in order to improve supply chain efficiency. For instance, if your accounting team codes carried stock in a way that doesn’t reflect total inventory value, it can be difficult for your operations team to know which item group to target for lowering inventory.
For each type of data you collect and each source you pull from, make sure these factors are considered:
As you build your team, it is important to view demand and supply planning as a combination of analytics, negotiation, planning and firefighting. If we translate these factors into different job functions, we can look at building a team that consists of:
• Demand planners
• Supply planners
• Inventory planners
Demand planners are typically involved in analyzing forecasts, patterns and other data. An analytical mindset that can turn data into decisions is required. Talented demand planners will provide you with reliable data generation to execute your supply and inventory plans.
Supply planners typically have a firefighting and negotiation mentality. Their goal is to ensure a steady stream of supply, at reasonable costs and great quality. Their organizational skills allow them to quickly respond to events and ensure product availability.
Inventory plannersare the true architects of the business. They understand your recurring sales patterns, and make sure inventory levels are high enough to deliver great customer service, but low enough to prevent obsolescence. Inventory planners know where inventory should be, and when it should be there.
Many businesses will operate using mixed functions, which is perfectly normal. Not every process or person fits within a tight framework. As an organization, it is important that all facets are covered regardless of job title, and that people operate in functions closely reflecting their skills and capabilities.
Tools & Automation
Without useful and robust tools, planners will be stuck doing the kind of manual labour tasks that inhibit improvement. The two primary toolsets to look at are:
• Data Collection Tools
• Data Management Tools
Data Collection Tools
Collecting data is all about finding a “single source of truth” – your one place to get data that everyone trusts. For most companies, their ERP is a single source of truth. However, while ERPs are great for collecting data, they do not offer the kind of advanced forecasting and planning tools necessary to see the benefits of high-maturity inventory management and demand planning.
ERPs are transactional by nature, and are not designed to perform analytical tasks, or the aggregation / disaggregation of data for planning purposes. The transactional nature of ERPs also restricts them from linking demand to supply planning.
Demand planning requires you to know what data to include and what to leave out, e.g. excluding non-recurring sales from forecasts. ERPs are usually built to support accounting processes and protect the integrity of financial operations, so they don’t allow users to manipulate data by excluding sales. Hence, implementing a dedicated tool that is built to handle factors like sales data manipulation is necessary to improve demand and supply planning.
Data Management Tools
Excel is often praised for its flexibility and ease of use for tasks like tracking inventory levels. However, the disadvantage of Excel is that it’s not scalable. Excel and other spreadsheet programs aren’t designed for multiple people to share files across an organization, which discourages the inter-departmental collaboration necessary to optimize inventory.
Using Excel for demand-supply planning also means dealing with preventable calculation mistakes and a lack of accountability when issues inevitably arise. This limited visibility and security for data entry put your company’s data accuracy and consistency at risk, ultimately resulting in unreliable data.
Unreliable data is a serious liability and should never be used for automation. This is because every kind of automation for demand & supply planning is reliant on an exhaustive approach. Automated tasks cannot discern data integrity, and keep running until they break if bad data is fed into them. The resulting process hiccups and breakdowns cause frustration across the organization.
By improving these areas together, you can attain the best results with the least organizational impact.
Your processes will change significantly as your demand & supply planning maturity increases. Your processes will move away from manual, repetitive tasks to focus more on exceptional situations and become more analytical in nature. Mature processes cannot be sustained without the right tools, people and data.
The demand & supply planning processes to focus on are:
• Lifecyle Planning
• Demand Planning
• Supply planning
Managing new product introductions and the discontinuation of old products. Lifecycle management is often overlooked in companies with low planning maturity, and thus offers many opportunities to realize savings.
Properly executed lifecycle planning requires companies to coordinate cross-department or cross-organizational processes for product introductions and discontinuations. Phase-in and phase-out dates will have to be collected by the planning team. As the team collects this data, planners will focus on connecting products considered to be in supersession and performing obsolescence analysis. While this is happening, they must also plan for recurring / forecasted sales and non-recurring demand / pipeline fills.
This is the overarching term used to describe forecasting and other sales-related planning. It typically involves generating short-, mid-and long-term forecasts for the business. Demand planning also incorporates event planning (e.g. promotions, pipeline fills) and sales history management.
Low-maturity organizations should focus on automatically generating forecasts as a first step. Generating forecasts should be automated and be relatively low-effort. Only after you have built these capabilities can you make your processes more analytical.
As forecasts are generated automatically, planners have the time to focus on exceptional demand (e.g., outliers or demand spikes), and cleaning sales history to improve baseline forecasts. Once these processes are mastered, some repetitive exception management can be automated. This automation is very industry and company specific, and requires a good understanding of why and how these exceptions occur.
These processes ensure that product inventory can meet forecasted demand. It typically involves calculations on how much inventory is required, production management, and vendor expedite processes.
Improving demand & supply planning maturity begins with the all-important step of integrating your demand and supply plans. Doing so allows more advanced processes to be implemented, such as automatically generating inventory requirements, and automatic calculation of purchase orders.
As you progress, you’ll be able to generate lists of items that are forecasted to have shortages. Not only will you expedite products that are currently out of stock, but you’re also able to know when products currently in stock will run out. This will make your expedited process more efficient.
Your people, processes, tools and data are what make your inventory management and demand planning work. By assessing each of these pillars you can learn which state of maturity your company is at, and you can start planning for how to reach the next one. As a trusted inventory planning partner to over 1,000 companies around the world, Slimstock has the expertise and experience needed to help your company improve its inventory management and demand planning.