Comment: four ways to manage successful demand planning in the supply chain
Klaus Rüth, Senior Director, Supply Chain Management, from HAVI offers top tips to businesses to fine tune their demand planning strategies to deliver better supply chain management.
In today’s competitive business environment, companies will always need to respond to shifting customer demand. In some cases, this activity can span entire continents and fluctuate according to all sorts of disparate factors: the weather, trends, changes in consumer spending power, employment, climate change and government regulation.
The success of a supply chain is often linked to its efficiency, which can be traced back to the ability of managers to plan for revenue and inventory challenges. Those two facets of a business are tied to a crucial process in the world of supply chain: demand planning.
But peek under the bonnet of the modern supply chain and you’ll find all the original parts are still there: visibility, communication, a low-cost base and a reduction in waste. And even if they are a little rusty, they will always be important to the mechanics of supply chain optimisation. Keeping on top of an ever-changing consumer landscape is key.
This is a great challenge. Therefore, let’s take this opportunity to look at examples of how demand planning can influence better supply chain management.
- Use simulation modelling for demand planning
The American multinational General Electric (GE) first chose to use demand planning after it opened a giant battery manufacturing plant in 2012. The Durathon battery production had over 27,000 variables. This meant that GE had a lot of data.
GE wanted 20-20 visibility to make real-time operational decisions, such as: “do I need an additional operator in the next eight hours?”. This is where simulation modelling paid off, allowing GE to run ‘what-if?’ scenarios and optimise the results whenever they needed.
For GE, it was mission accomplished. They achieved real-time production optimisation by determining a baseline capacity that allowed for some variability. This also incorporated the systems dynamics to identify bottlenecks, plan production ramp-ups and control a gradual expansion of the plant – all of which enabled overall improvement of the whole manufacturing system.
- Use predictive analytics for competitive advantage
Since the 1950s, the needs of both the consumer and businesses have grown and diversified and the supply chain engine now needs road-testing for any eventuality. Enter predictive analytics. Demand planning is essential for supply chain management and predictive analytics can help customers to model an efficient business as the industry continues to change and evolve.
All businesses with a supply chain spend valuable time making sure it adds value, but new advanced analytic tools make it possible to dig deeper into supply chain data in search of savings and efficiencies. This is important today, as profit margins are being increasing squeezed, due to business competition.
- Choose the right demand planning tool
A yacht manufacturer in Italy needed to simplify is planning process. Yet luxury yachts require a huge amount of time and care because the manufacturing process is complex, and the quality and craftsmanship cannot be sacrificed. Fair Dynamics and DSE Consulting provided a demand planning support tool developed with a hybrid approach. This solution, which combined the simulation of human and automated decision making, provided scheduling, resource, review stage planning alongside production planning data analytics – all in a matter of seconds.
- Ensure your forecast planning is up-to-date
For businesses today, the cost of failing to maintain an accurate forecast can be catastrophic financially. In today’s market, a company may see benefits in sticking to the traditional model for operational excellence, but in the long-term it could be outperformed by a competitor using simulation modelling to predict demand from thousands of new scenarios. As businesses – who are likely to be your competitors - begin to modernise their approach to supply chain management, you must ensure your business modelling and forecasting tools are helping you gain competitive edge.
As businesses continue to improve and grow, demand planning has become increasingly important and predictive analytics have become a crucial area of expertise – helping customers to model an efficient and cost-effective service and solution in the face of ever-changing demand.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”