Turn on your radio or TV, pick up a newspaper or read your favorite news feed – and you’ll see supply chain is once again in the headlines. As 2024 got underway, the awful situation in the Middle East continued to disrupt global supply chains. On January 12th Tesla announced the company was shuttering production in Belgium due to parts shortages caused by shipping delays as cargo vessels avoid the Red Sea and Suez Canal (and Volvo quickly followed suit). Many European retailers have reduced their financial predictions for 2024, noting uncertainty in the supply chain resulting from issues in the Red Sea… as if we needed reminding supply chains impact top-line and bottom-line results.
Traditional supply chains have been designed to strike an equilibrium between cost, cash and service. As a result, most organizations lack the competence to drive real resilience in their supply chains in a way that can support top-line benefits to the organization.
Here’s your wake-up call: Your CFO is worried! The Institute of Chartered Accountants for England and Wales (ICEAW) has just published advice to all of its members: Boards must seek assurance on supply chain security | ICAEW. It states, “A new report paints a stark picture of the potential fallout for businesses and consumers from supply chain disruption, including empty shelves, damaged reputations and business losses.”
It would be very tempting to refocus investments on agility rather than planning, given the current situation and our experience over the last four years where supply chains have faced unprecedented disruption, a US-China trade war, a war in Ukraine and now a conflict in the Middle East. CFOs and supply chain leaders are beginning to look at each other and wonder why they're putting so much investment in supply chain planning technology when external factors repeatedly disrupt those carefully crafted plans.
The issue is that planning processes that have worked well for the past 30 years are not really fit for purpose in today’s climate. Even the term “chain” suggests a sequential process –organizations create a plan which is then passed on to functions responsible for execution there is often no feedback loop between planning and execution.
In this blog, I’ll explain how a modern planning process works as an integral part of modern supply chain management and why it is so critical to building resilience and ultimately protecting your organization’s top line.
I believe there are three critical areas to consider as part of a modern planning process:
1. Governance
Without correct governance, a supply chain can never be properly orchestrated. The best supply chains have strong, clearly defined governance structures. Governance covers the use of people, processes, technology, and the use of AI.
2. Goals, strategy and plan
A goal without a plan is a wish. Planning connects the goals and strategy with execution. Strategy enables us to leverage a beautifully designed network in the way that it was intended. Planning takes inputs to what is actually happening on the ground in real-time and ensures that forward-looking plans have the agility and resilience necessary to meet business needs.
3. Playbook / tactics
To bring a plan to fruition, every supply chain needs a playbook and a clear set of tactics. It’s not only critical to staying on track, but it enables the team to visualize how to bridge the gap between what is happening in real-time and how events impact the plan, so adjustments can be made.
Governance
As we consider the future of supply chain planning as part of supply chain management, we must include the importance of supply chain governance.
For many years supply chains have yoyo’ed between global and local governance. At a previous company, it was a joke that every three years supply chain planning would switch between global and local management. The theory goes that globally managed supply chains leverage economies of scale – but the flip side to this is that local supply chains have greater customer centricity and gain more timely and accurate market insights.
For many organizations, this constant change means that planning and scheduling are not aligned to sales or business strategies and instead focus on controlling inventory and meeting orders just to keep up. In these cases, companies tend to have separate functional, operating and costing systems. Decision-support happens through spreadsheet models. There is a reactive approach to variation and a break-fix approach to defects.
Fortunately, advances in planning processes and supporting technology allow organizations to become global and local at the same time. Even as the focus shifts between local and global management, today’s advanced technology helps leading organizations extend their supply chain’s scope to cover both supply strategy and operations, including quality and risk management. Supply planning and scheduling are now integrated with supply chain execution systems. Multitier supply network transparency helps organizations manage their end-to-end supply chains rather than trying in vain to optimize siloes.
Ultimately, this governance structure enables a supply chain response that’s dynamically optimized for revenue, profitability and sustainable value creation across multiple tiers of the value chain.
As AI gains ground, the governance structure also should use it to support decision-making. It can be used to support decisions, alternatively, AI based decisions may be required to be validated by people, and finally we can have fully autonomous AI-based decisions. What is needed is clear guidelines to what extent AI should be used.
Goals, strategy and plan
Planning must start with a clear set of goals. Let’s consider the current crisis in the Suez and Panama canals. This situation is impacting the affected companies’ supply chains – yet corporate goals are unchanged and customer expectations remain, which means that somehow the supply chain goals should also be maintained.
Resiliency through crises is dependent on having a goal-oriented supply chain. Three questions I often ask supply chain leaders are: What are your goals? What does success look like? What are the business expectations for the supply chain?
In my experience, the planning process needs to start with a clear set of goals: What is the north star? How can the supply chain add the greatest possible value to the business? It doesn’t matter if those goals are unachievable in the short term – in fact, those goals should be aspirational, but they also need to be realistic.
The purpose of a planning strategy is to break down the goals into a series of steps, which are aligned with the overall business objectives. Most importantly a strategy needs to be achievable. As supply chains become recognized as drivers of both top and bottom-line improvements, they become important stakeholders in setting the overall business strategy. Consider companies like Amazon, where developments in its supply chain strategy have created huge competitive advantages so the brand now dominates the retail industry.
What’s the most effective way to create an achievable strategy? The S&OP process should be used to set and validate the supply chain strategy, ensuring that firm steps are put in place to achieve the strategy, to identify risks that could inhibit the strategy and to put in place measures to mitigate those risks. Scenarios play an important role in setting the strategy. The scenarios are business-led, predicting events that have not happened – for example in April 2023 there were indications already that the Panama Canal could be facing a water shortage in the autumn and winter 2023/2024.
Business scenarios should also be used to test the resilience of the supply chain, weaknesses can be highlighted at the S&OP process and corrective actions put in place. Planning these business-led scenarios allows the supply chain to be more agile, more resilient, and more efficient.
Legacy planning processes are outdated for today’s needs. In fact, many of the activities can now be performed far more efficiently and effectively with advanced planning tools like RapidResponse. Many of the complex spreadsheets are part of standard functionality – today, data from different systems are integrated into a single platform so we can collaborate with other functions and with external partners around a single source of the truth rather than on emails and Excel.
Artificial intelligence is helping us automate the obvious, making repetitive data entry tasks redundant and freeing up time for planners to really focus on the value-add tasks of planning. However, the most significant change is in new planning techniques enabled by concurrency and digital twins.
Duncan Klett, one of the founders of Kinaxis, says, “Latency kills supply chains.” Demand latency – the amount of time between an end customer consuming a product and the demand being visible to the manufacturer or supplier of parts – can often be measured in months. It is not unusual for the S&OP process to be based on information that is already 4-8 weeks old. Concurrency aims to eliminate data latency in our supply chains, allowing us to plan accurately and be as agile as possible.
A digital twin – a real-time representation of the end-to-end supply chain – allows planners to create scenarios and to understand in near real-time the end-to-end impact of those scenarios, and develop goals with supporting plans and strategies. When combined with AI, the digital twin and scenarios are the greatest advances in supply chain planning since the advent of spreadsheets in the 1990s.
Playbook and tactics
Historically, planning was a stand-alone function. Once the plan was finalized, other teams would be responsible for executing the plan and fulfilling orders. Planners can waste time and effort requesting suppliers expedite supply to try to mitigate potential delays elsewhere in the supply chain– or even worse, no one is proactive in revising the plan when an event occurs.
For proper supply chain orchestration, planning and execution have to work together in parallel, not sequentially. However, to do this we need a clear set of tactics or a playbook, which Gartner refers to as “process focus.” It starts with a clear definition of the S&OP and S&OE processes. S&OP’s focus is how to operationalize the strategy, and S&OE’s focus is how to respond to real-time events.
Going back to the crisis in the Red Sea, we need to reflect on the latest information in the planning process, even as the situation is developing rapidly. In response to extended lead times, we need to determine whether some material is urgently required and should be flown while other parts may be later than the plan, but will not create a shortage. Planning and execution functions need to work together in this type of situation.
Another scenario could be whether it is better to put a container on a ship leaving a bit later but has a very strong chance of being on time, rather than going for the scheduled vessel where there is a higher risk of delays later.
These tactics need to be agreed upon as part of the planning and execution processes, otherwise the level of chaos we saw during Covid will occur.
Summary
The origins of supply chain management as a corporate function emerged from the need to formalize supply chain planning. Today supply chain planning is the beating heart of supply chain management.
In a traditional supply chain process, planning is often a stand-alone function responsible for the S&OP process, demand planning, supply planning and inventory planning. Once plans have been finalized there is little interaction with the local functions responsible for supply chain execution. Organizations have also struggled with the degree to which supply chain planning should be localized or centralized.
While the fundamental supply chain planning functions and processes have changed little, the level of disruption that we’ve experienced for the past for years has exposed the weaknesses in traditional planning.
Planning starts with the long-term goals of the organization. Now that supply chain is recognized as delivering both top- and bottom-line benefits, it must take a seat at the strategy table, which means organizational and supply chain strategies need to be aligned and developed in conjunction. Of course, the scope of planning needs to connect to the organizational goals through the S&OP processes and connect to execution through the S&OE process.
To be truly agile going forward, we need to have a clear playbook/set of tactics that define at an operational level how planning and execution need to work together to ensure that we resolve issues and respond to disruptions efficiently and effectively. Doing so will help ensure supply chains will be making news headlines for all the right reasons.
Matt Spooner will be speaking about supply chain management and orchestration at The ASCM Europe event June 4-5 in Brussels, Belgium: https://eu.eventscloud.com/website/12989/.
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