Seamless “Operative” Supply Chain Planning for the Entire Value Added Chain

Published on August 7th, 2020

A supply chain is an interorganizational, multi-enterprise network including such diverse processes as sales, order processing, purchasing, suppliers, factories, and logistics. All of which should function as efficiently and economically as possible. If, however, any of these member organizations decided to make rogue decisions about production or inventory volumes, this would quickly result in a chaos of excessive inventory and missing parts. The manufacturer’s ability to react quickly to changing market demands would suffer and potential opportunities for increased profitability would be lost.

SCM, as a management system, was developed to streamline the productivity and costs of all the organizations along the supply chain by seamlessly integrating the planning processes for sales, inventory, raw material procurement, production and distribution into a cohesive whole.

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  1. The Two Primary Functions of SCP
  2. The Goal of day-to-day Supply Chain Planning
  3. Challenges in Operational SCP
  4. Planning Accuracy and the Planning Cycle
  5. Operational SCP currently in use
  6. Asprova SCP and APS

 

I. The Two Primary Functions of SCP

A software for Supply Chain Planning (SCP) has two core functions: to support management in strategic planning, and for day-to-day operational planning along the entire supply chain.

 

  1. Management support functions

This is a forecasting function that supports management in making tactical decisions for mid- and long-term planning, e.g. to safeguard production capacities, finished goods inventory and raw material inventories against demand fluctuations.

Software for demand and sales planning is widely available on the market today and is used by most major manufacturers. Demand and sales planning are basically predictive forecasting based on past knowledge and expectations. It is relatively easy to develop this software with Excel add-on programming and uses a method of numerically parameterizing the past values of demand factors and sales factors in each industry. It is sufficient as a strategic planning tool but has little to do with day-to-day supply chain planning.

 

  1. Day-to-day Operations Planning

A planner receives perhaps thousands of sales orders each day and must use this information to create an optimal execution plan (production plan, raw material inventory plan, finished goods inventory plan, purchase plan, transportation plan, ...). The operations plan must be valid for execution across the entire supply chain network and simulate all sales and demand forecast orders daily, for a planning horizon of 8 weeks to 36 months (depending on the type of industry).

An optimal supply chain planning system should contain daily, rolling plans for the optimization of lead times, delivery times, inventory as well as cost for manufacturing and logistics:

  • Delivery times (short, medium, and long term)
  • Raw material inventory (medium and long term)
  • Finished goods inventory for multiple distribution centers (medium term, long term)
  • Raw material procurement for each supplier (short, medium, and long term)
  • Multi-facility capacities (medium and long term)
  • Assignment of production orders to multiple sites (short and medium term)
  • Sequence production for each resource at each factory (short term: 2-8 weeks)
  • Finished goods transportation (short and medium term)

 

II. The Goal of day-to-day Supply Chain Planning

The value-added effectiveness of daily, operational supply chain planning presupposes that all organizational teams are aligned with the company’s strategies and goals and make efforts to:

  • calculate the shortest possible delivery time for all orders
  • strictly adhere to the delivery date promised to customer
  • monitor and optimize raw material inventories and take initiatives to reduce inventory costs.
  • prevent parts shortages, avoid understocking
  • optimize finished goods inventory levels, and thus inventory costs
  • level the production load at each factory
  • synchronize all processes at each factory in order to produce with the shortest possible lead time
  • improve the productivity of production resources at all plants
  • optimize production costs
  • optimize overall logistics costs
  • respond quickly to rush orders and unexpected events
  • create a unified, consolidated execution plan which synchronizes the operations of the various administrative departments and improves employee productivity.

SCP has one of the most important functions in an organization and contributes to customer satisfaction by ensuring short and consistent delivery performance. It also has the collateral benefit of contributing to improved resource productivity, optimal logistics /production costs, and improved cash flow.

 

III. Challenges in Operational SCP

Any plan created to support management decisions for mid- / long term strategies, no matter how good it may be, is still only a theoretical plan. On the other hand, operational SCP represents the practical, functional, day-to-day planning that guides a large inter-connected organization, and therefore it must also be executable, feasible and realistic. All rules and constraints related to products, customers, suppliers, raw materials, inventories, warehousing, production sites, processes and resources must be fully considered within the operational SCP software. This is of course an immensely complex task and 100% of the functions listed above, plus their restrictions, must be considered in developing a competent SCP.

  • Raw materials:
    • current inventory and fluctuations
    • delivery lead time
    • supplier delivery capability
    • supplier-specific terms and conditions, delivery, transportation, prices, quantities
    • delivery rules and schedules for each supplier
    • alternative raw materials, with selection rules, costs
    • alternative suppliers, with selection rules, costs
    • product shelf life
  • Customer:
    • customer-specific terms and conditions, delivery rules, dispatching rules
    • customer priorities
    • primary facility / alternate facility
    • primary distribution center
  • Production:
    • rules specified in BOM and routings
    • parallel, merging, branching processes
    • calendar and shift plan for all production resources
    • production resource loads and availability
    • production capabilities and production times for production resources
    • setup time matrix of all resources
    • rules for reducing setup time
    • alternative factories and selection priorities
    • alternative production resources and selection priorities
    • waiting time between processes
    • yield and scrap rate per product and per resource
    • resource maintenance planning
    • subcontractors and their capacities
    • delivery rules of the individual subcontracting factories
  • Logistics:
    • maximum inventory capacities at logistic centers
    • daily fluctuations of finished goods inventory at each distribution center
    • logistic center’s handling capacity
    • logistics routes and times for each transportation resource
    • loading capacity of transportation resources (dimensions, weight, volume)
    • loading rules for transportation resources
    • costs related to each transport resource
    • transportation times and distances - for the various types of transportation resources
    • departure timetable for transport resources

Although the number of constraint parameters which need to be set for the supply chain of a single company can be quite large, in SCP planning it is imperative that all of these constraints be considered and calculated with finite capacity and capabilities.

Opinions are still divided on whether all constraints, in minute detail, must be taken into account in SCP calculations and I have often heard software vendors make uninformed comments such as:

 

  • The equipment setup time is only about 3% of the total, so it doesn’t need to be considered.
  • It isn’t necessary to consider the waiting time between processes.
  • The scrap rate is only 1%, so it doesn’t need to be considered.
  • Outsourced production is only 3% of the total, so it isn’t necessary to consider the delivery times and rules from subcontracting factories.
  • Only the availability of main resources needs to be considered in the production plan, not sub- resources.

 

Although a single constraint may only account for 1 % of all planned orders or resources, it does not necessarily follow that there will only be a 1 % error in the total planning result. One error dynamically affects all other orders and if you ignore this and tolerate even a couple of errors from the list above, the planning result will gradually become more and more unrealistic.

 

The following illustrates my point, in this case the sub-resources were considered superfluous to the overall planning. A major European manufacturer of aluminum window frames has seven factories and 40 logistic centers throughout Europe. The main factory has five extruders. The extrusion processes need a variety of dies (sub-resources) and each factory uses 9000 dies of varying shapes and sizes. Each mold can be allocated to multiple extruders and the production process time varies by ±20 % depending on the combination of main resources (extruders) and sub-resources (molds). One would assume that if the company created their supply chain plan omitting mold availability then the planning error would be a ±20 % error per single production order. However, the cumulative effect was thousands of errors in the production orders, the planning result became less and less realistic and eventually unusable. The manufacturer’s delivery performance suffered, processes were out of sync, high levels of work-in-process due to stagnation times, huge finished goods inventory. Finally, the situation became impossible to manage and they were forced to search for a better SCP solution.

 

There can be no compromises or gray zones in supply chain or production planning. The planning results are either 100 % correct or incorrect and inaccurate.

 

IV. Planning Accuracy and the Planning Cycle

Operations Planning

Who Benefits

Planning Horizon

Planning Unit*

Planning Cycle

Delivery time calculation

customers, sales, purchasing, production, logistics, control

1-36 month rolling plan (depending on the industry)

Day, hour, minute, second

Several times per day

Raw material inventory plan

purchase, logistic, controlling

Day, hour, minute

Several times per day

Raw material purchasing plan

purchase, suppliers, logistics, control

Day, hour, minute

daily

Finished goods inventory plan

logistic, sales, control

Day, hour, minute

daily

Assigning production orders to multiple plants

production, production planning, control

2-12 weeks rolling plan (depending on the industry)

Day, hour, minute

daily

Delivery plan - from each production plant to each distribution center

production, logistics

Day, hour, minute, second

daily

Delivery plan - from each distribution center to the customer

sales, logistic, control, customers

Day, hour, minute, second

daily

Production sequence plan for each production resource

production manager, line manager, logistics, control

Day, hour, minute, second

Several times per day

*) planning in hour or minute time units has a significant impact on the planning results, especially affecting production lead time and inventory levels.

  • If the planning unit is one day, planning will be accurate for a one-week production target.
  • To achieve planning accuracy for daily targets, scheduling should be calculated in hourly time units.
  • For hourly planning accuracy, the plan must be calculated in minute time units.
  • For minute-level accuracy, the plan must be calculated in a time unit of seconds!

Some companies are still doing their inventory and production plans using a weekly time unit. However, this method causes excessively high inventory and inflated production lead times, compared to planning with hourly timeframes.

 

V. Operational SCP currently in use

As said, supply chain planning plays a critical role in the day-to-day planning of all customer orders, production orders, inventory management, human resources and indeed, all resources involved in the supply chain. Although we are well into the 21st century, many companies are still doing their planning with outdated methods from the 20th century and basically rely on the hands-on experience and judgement of their planner.

Ausrufzeichen_blauManufacturers are now looking to the futuristic production methods being promised by Industry 4.0 and AI technology. But, why is there still no adequate software support for supply chain planning? Why are manufacturers still using manual planning in the age of IoT? The answer is obvious. There simply is no software for operational SCP on the market today that can adequately meet the above-mentioned requirements to create feasible and realistic planning results.

Below is a list of the most important features that an orchestrated end-to-end planning system should include:

Planning process

The planning tool is able to create realistic execution plans for each organization in the planning network, considering all the rules and constraints related to products, customers, distribution, and production within the group. An accurate delivery time is calculated for all orders quickly. Due to a realistic execution plan, the on-time delivery rate is very high. Even if order contents are changed or a rush order is placed, the planning responds quickly and simulates the entire planning and an alternative plan at high speed.

Information flow

Accurate customer information, sales information, order management status, production plan, raw material inventory status, supplier information, production process information, sub-contractor information, finished product inventory information, distribution information, and other data are shared between all departments in real-time.

Raw material flow

Based on sales forecasts, order status, and production status, appropriate quantities are supplied at optimum timing. Even though inventories levels are kept low, there are no material shortages.

Flow of finished goods inventory

Based on demand forecasts, sales data, and production status, appropriate quantities are stocked at optimum timing. (Strategies are different for build-to-order and make-to-stock production systems)

Manufacturing process

The production capacity load of each factory is leveled. The production processes and production resources in each factory are synchronized, and all orders are produced with the shortest lead time and at the lowest cost.

Distribution process

Route optimization capabilities ensure that the most economical distribution routes are chosen, lowering distribution costs.

KAIZEN (Continuous Improvement)

The methods and systems related to information flow, information content, distribution channels, production processes, production resources, transportation resources, etc. within the group are continually monitored and revised according to the Lean principles of continuous improvement. The amended results are immediately reflected in the supply chain planning system.

 

The design and development of SCP and APS software is a formidable task, especially if it is expected to be 100 % feasible and realistic. All rules and constraints across the entire supply chain must be effectively mapped into the software with 100 % accuracy and this is a problem that most SCP / APS software companies have been unable to solve.

Add to this is the necessity of programming an orchestrated end-to-end supply chain planning system with parameters specifically tailored to each new user and for each industry, then you can understand why most vendors have opted for generic add-ons in their SCP planning systems.

 

VI. Asprova SCP and APS

Asprova is a Japanese software company that has been at the vanguard of production SCP and APS system development for more than 25 years. Most of their customers in Japan were already practicing high levels of Lean production and were looking for a software to compliment the efficiency of their Lean supply chain management systems. In a competitive environment, they could not afford any compromises when it came to realistic and effective planning.

Asprova’s engineers and software developers were aware of the high expectations of these customers and were also familiar with the principals of Lean production. They set out to develop a response specific to the difficulties and challenges faced in production planning. They succeeded to such a degree that they can now offer one of the most comprehensive and effective solutions for supply chain planning.

  • Implementation is done without programming. Asprova has thousands of standard parameters that are inter-connected and logically consistent, which means the system is exceptionally stable and accurate.
  • Customers can adjust the individual order dispatching rules per item, customer, process, facility, production resources, logistics center, transportation resources, etc. These are unique for each customer but can be easily adjusted in Asprova.
  • Asprova optimizes the planning result using a stepwise planning system. For each run a targeted area is optimized and after multiple runs, the best planning result is issued. Asprova was developed and incorporates the knowledge from numerous industries.
  • Asprova is a rule based, white box SCP software system. All settings are logically consistent. The set parameters, rules and planning results are clear and understandable. Most SCP tools available today are black box systems, and the connection between the internal workings and output is not clear.

If you are struggling to get your operations and supply chain planning on track then perhaps Asprova can help you, just as they have helped hundreds of manufacturers turn their businesses around using efficient and effective operational SCP/APS.

 

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