Bridging the Reality Gap Between Planning and Execution Part One: The Problem

The Problem

Despite the fact that many manufacturers have invested in enterprise resource planning (ERP) systems and supply chain management (SCM) systems, most continue to use inopportune batch reports and pesky spreadsheets to manage their operation's performance. These have proven to be inefficient and error-prone methods of supporting decision-making, resulting in a reliance on "educated guesswork" rather than on accurate dynamic analysis to align decisions with strategic objectives. For that reason, some innovative enterprise software vendors intend to do the same for manufacturing and operational decision-making as has already been done to financial decision-making by some business intelligence (BI) applications. (See Financial Reporting, Planning, and Budgeting as Necessary Pieces of EPM).

This means leveraging a manufacturer's investment in the most important enterprise solutions (such as, BI, ERP, product lifecycle management [PLM], manufacturing executions system [MES], enterprise application integration [EAI], warehouse management system [WMS], etc.), to provide advanced real time analytics and enhanced decision support capabilities across the organization.

One can notice a trend of converging planning and execution functionalities, given neither area could stand on its own when it comes to managing a holistic supply chain (i.e., spanning all the way from supplier's suppliers to customer's customers). At sites where both planning and execution modules are stand-alone implementations, neither deliver enough benefit because there are almost always manual connections and processes between these two crucial SCM areas.

To refresh our memory, supply chain planning (SCP) applications are designed to provide forward-looking predictions of events with probabilities for the future (as almost no company knows enough about any business initiative to proceeds with 100 percent certainty), which can encompass medium and long-term time horizons. Given the fact that decisions should be based on information, an SCP application suite sits on top of a transactional enterprise system to provide planning, what-if scenario analysis capabilities, and near real time demand commitments.

The key challenge for planning is to determine the type, location, and magnitude of customer demand (and the probability of these events taking place), and to organize resources required to fulfill them. Typical SCP modules include network planning, capacity planning, demand planning, advanced planning and scheduling (APS), and distribution and deployment planning. These modules enable the following planned programs: sales and operations planning (SOP), outsourcing decisions, inventory reduction programs, new product introductions (NPIs), setting manufacturing planning policies, transitioning to new business model, and so on. For more info on some SCP capabilities, see Advanced Planning and Scheduling: A Critical Part of Customer Fulfillment.

On the other side of SCM is supply chain execution (SCE), which encompasses applications that enable the efficient procurement and supply of goods, services, and information across enterprise borders to meet customer-specific demand. Modern SCE suites have evolved through consolidating SCE components such as warehousing management systems (WMS), yard management, transportation management systems (TMS), distributed order management systems and supply chain inventory visibility (SCIV), to eventually provide a single solution to manage the outbound logistics process.

Discussed in the earlier article, SCP and SCE Need to Collaborate for Better Fulfillment, there are two typical important business problems associated with today's manufacturing planning, materials planning and supply chain environments:

1. Supply chain planning (SCP) applications need to address the lack of accurate logistics costs and service information that would enable more optimized decisions across the entire supply chain. SCP typically generates weekly or daily plans (in a better case scenario), but without adequately addressing the issues that arise almost every instant in dynamic logistics environments. Thus, plans often become invalid as soon as they are made, while a mere re-planning does not answer the question of what went wrong in the first place (in other words, there is no facility to learn from prior plans' inadequacy).
   
   
2. Supply chain execution (SCE) applications need to further address the lack of real time inventory visibility and event management feedback information needed for SCP to respond to frequent supply chain changes when building and executing manufacturing and materials plans.

Much has been said lately about the SCE market seeing its heydays and its SCP counterpart being one of the worst performing enterprise applications segments during this ongoing economic downturn. While core back-office ERP and the possibly even more cumbersome SCP systems might have traditionally excelled at planning, conceptual optimization, and financial integration functions, they have not, however, addressed warehousing, yard management, or transportation and logistics management, which all belonging to the execution side. Yet, increasingly, every user company's success is contingent upon its ability to make almost immediate, finished product or service delivery to customers. Additionally, data inaccuracy and inconsistency problems, complex planning algorithms or models requiring sophisticated user skills, lack of easy integration to other applications, and plan timeliness have all contributed to traditional SCP products' steep fall from their early grace.

This is Part One of a two-part tutorial.

Part Two will address the manufacturers' perspective.

Collaboration Complicates the Picture

The demand for near real time supply chain collaboration will, in turn, place an increasing emphasis on any company's ability to immediately commit itself to promising orders' delivery dates on a global basis and to consistently meet those commitments ever after. This available-to-promise (ATP)/capable-to-promise (CTP) aptitude will be made more complex as companies rely on an increasing number of business partners and suppliers to procure raw materials, assemble, and deliver finished goods. One should therefore take into consideration many more constituencies at both ends of the supply chain and within the organization, such as in research and design or engineering, sales, marketing, and finance.

For example, there is the need to drive suppliers and sourcing initiatives as far back into the design process as possible to ensure the lowest possible cost and the highest possible quality and delivery performance. Hence, product lifecycle management (PLM) and customer relationship management (CRM) are now a part of the supply chain equation, as are operational functions like procurement, supplier performance, spend management, and contract management. In fact, most traditional supply chain thinking has taken place on the supply side, involving operations planners and factory managers. SCE is, therefore, gaining increased awareness lately among companies that realize that planning can do only so much without the ability to make the correct and timely decisions and execute on the shop floor, in the warehouses or within the entire distribution chain.

Planning and Execution Are Converging

Yet, planning and execution in the supply chain are slowly but surely converging because no plan is useful if it cannot be executed. The irony is that the best plan cannot help when there is a shortage of certain items, though such an event is the reason for having a plan in the first place. Thus, it would be too nave to dismiss the need for proper planning. Regardless of how responsive a SCE system may be, waiting for chaos to happen and only then trying to act would be equally disastrous. It is the same as compiling nearly ideal plans (through cumbersome algorithms) and never doing anything about executing them or never obtaining feedback about their outcomes.

There are disturbance factors that make plans vulnerable, such as unplanned, demand increase from a customer; an engineering change as a result of a field failure; a capacity constraint from a production line or work center failure; inventory shortages or supplier notification of late order; and simple acts of nature. One should then imagine the complexities of coordinating and optimizing available resources within companies that produce thousands of diverse products that are sold through diverse channels and that are comprise of even more thousands of parts and components, each of which is sourced from a multiplicity of suppliers.

Thus, enterprises have for some time now begun to move beyond simple applications for balancing supply and demand to technologies that let them quickly analyze the impact of various decisions to improve product margins, lower costs, and so on. Consequently, operations such as sales and operations planning (SOP)—which aligns the production plan to the fulfillment plan to the product availability plan—needs to be a dynamic document, not a "set in stone" series of Microsoft Excel spreadsheets filed away for later analysis of variances to plans. Businesses need to determine the reason for these variances through analytic and other tools for planning revision.

Evidently, as supply chains become more dynamic and operate in near real time, the lines between planning and execution continue to blur, which bodes well for their functional convergence. Thus, some SCE vendors have started to move beyond pure execution to offer some planning and optimization capabilities, often with the "adaptive" moniker.

A new requirement is that beyond making plans happen, adjustments need to take place quickly with the ability to tweak the system to respond across a variety of organizations and functions. Companies need real time information from execution systems to develop and adjust optimal plans, while the execution side should benefit from more realistic plans for some readiness sake, rather than merely reacting after the fact in a firefighting fashion. The demand-driven supply chain requires a single, consistent, demand-based plan that optimizes marketing, inventory, and replenishment decisions.

We believe that planning and execution will become inseparable in a trend that will see ERP, SCP, SCE, supply chain event management (SCEM), PLM, CRM, MES, and analytics and CPM (i.e., decision support tools and multidimensional analysis on information aggregated from all levels of the commerce chain, and an extensive sets of predefined performance indicators, as well as strategic planning or forecasting and balanced scorecard functions) coming together into an adaptive system. Harnessing this technology should lead to the so-called "self-healing" or adaptive supply chain—when a software engine monitors all the numerous events taking place supply-chain-wide, identifies and escalates exceptions, sends notification, and reacts appropriately to those exceptions, ideally (and only in the long term) without human intervention.

The future will thus see a blend of real time event management (i.e., execution side for the tactical time horizon) and SCP with its strengths in inventory management and capacity planning (i.e. planning or optimization side for mid-to-long-term horizon), as to enable the successful execution of the plan given current conditions.

This concludes Part One of a two-part tutorial.

Part Two will address the manufacturer's perspective.