Order Slotting in the Automotive Supply Chain
Brian Hoey - October 23, 2018
It’s still about a month until Thanksgiving, but you may already be deep into the planning process for the big event. Some of your friends and family are flakey, so you won’t have a full list of RSVPs until much closer to the holiday itself, meaning that when you sit down to sketch out what dishes you’ll be cooking and what ingredients they’ll require, you’ll have to use a combination of confirmed and projected attendees. For some dishes, it might be easier to wait until a few days before Thanksgiving to get the necessary ingredients, but you’re worried that your nearby grocery stores might run out of a particular brand you like if you wait too long, and there are some items that need to be purchased well in advance because they need to be stale or overripe before they can be used, like bread for stuffing or bread pudding.
As a cook/party planner, you can probably get away with playing these things by ear—and there’s no downside to having leftovers at the end of the meal! But when these same considerations arise on a larger scale, say in the context of the automotive supply chain, questions like how much of what part to procure before your orders have come in can have big implications for your operational scheduling as well as your bottom line. How do you answer these questions in a way that yields smooth production scheduling and minimum of slowdowns? One potential answer is to implement order slotting.
What is Order Slotting?
Most likely your first question here is, “what on earth is order slotting?” Simply put, an order slotting workflow takes a combination of real and forecasted production orders (based on real-time predictive analytics) and creates a “BOM explosion” far advance for each bill of materials (BOM) contained within the orders. It then compares your total parts needs to real-time information about parts availability and constraints, in order to help you manage both the ordering of materials and inventory management in an optimal way. As real orders come in and forecasted orders change, new BOM explosions compare your new needs with your existing stock and orders in a dynamic way, so that you can avoid parts shortages or disruptions caused by large, unexpected orders.
Let’s say your current inventory planning workflows operate on a series of set rules, rather than in an adaptable, real-time environment. A larger than expected production order comes in from a regular client, and because there is no order slotting workflow in place, there is a lag time between receipt of the new order and the necessary adjustments being made by inventory planners in order to match materials with actual orders. Because of this lag time, there is a small production slowdown, which requires your company to spend additional funds on premium freight in order to avoid a late delivery. With order slotting, on the other hand, this lag time is eliminated by the use of real-time cross-functional notifications, meaning that planners can avoid premium freight by adapting to changing conditions in a more agile way. Given that order slotting typically involves creating workable, forecast-based plans months or even years ahead of time, any adjustments in a robust order slotting workflow would likely be fairly granular to begin with.
Planning in Parallel
In the above example, we gave some sense of the way in which order slotting promotes and rewards increased visibility across teams. Indeed, one could even understand order slotting as a workflow that’s designed to connect demand planning, capacity planning, and inventory management into one cohesive supply chain planning funnel. In this way, order slotting can help facilitate a transition from each of the above planning processes being performed sequentially (i.e. one after another) to all of them being performed in parallel (i.e. simultaneously, with each one responding to changes in the other two as they occur). How does this add value? Think back to the inventory management hypothetical above: planners were being hampered by potentially long lead times on parts for orders that should have been forecasted in advance, but that wasn’t the only pain point that came into play. We also saw the planning and information silos between demand, capacity, and inventory planning that prevented quick, cross-functional collaboration.
This lack of cross-functional agility is simply a fact of life in many supply chains, and it results in lost value in the form of added freight costs or even late deliveries. By implementing order slotting, on the other hand, manufacturers can unite these disparate processes with a real-time interface and analytics workflows that work to create alignment (and highlight areas of disconnect) between orders and materials as far in advance as possible—often even while a product is being designed for its initial production run. In this way, value is added by bridging the operational gaps that prevent agile responses to supply chain planning issues.
In addition to helping to bring about a parallel planning structure that unites capacity, demand, and inventory management, order slotting can also help planners at all levels asses risk in a more granular, part-oriented way. Because order slotting is designed to inject visibility into the actual parts that make up a completed automobile, it also empowers planners to track individual parts over time and keep tabs on any constraints or restrictions in their ability to get those parts that may potentially arise. In this way, businesses can avoid the common pitfall of losing out on materials that unexpectedly become scarce (thus endangering the smooth operation of production processes) by managing materials in a more proactive way.
To think back to our Thanksgiving dinner hypothetical from the outset of this article, order slotting would present you with a means of tracking individual ingredients over time (relative to your projected need for them), so that you get as much as you need before it’s too late. Combine this with the rest of the benefits of order slotting, and you can ensure that your pantry is always stocked with exactly the ingredients you’re projected to need going forward—just as important in the automotive supply chain as it is in the kitchen.
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