The Great Balancing Act of Demand Capacity Planning
Nick Ostdick - May 26, 2016
I recently took my daughter to the circus for the first time and she was completely enamored with the tightrope walker. As we sat and munched on cotton candy and Cracker Jacks, she watched in awe as he slowly tip-toed hundreds of feet in the air from one end of the tent to the other, clutching a balance bar in his grips to help keep himself centered on the razor-thin line.
Of course, it wasn’t until much later when my daughter noticed the safety net stretched the length of the line far beneath the tightrope walker, which also prompted her to ask me why the tightrope walker held onto that long, thin rod the entire time he was crossing the tightrope. But I explained to her the net was to catch him if he fell and the rod was to help him keep his balance - that because the tightrope was so thin and there were so many variables in play, the rod helped steady him as he crossed from one side of the tent to the other.
It struck me on the drive home from the circus that the tightrope walker and his methods of balance and safety are not unlike the current conversations surrounding demand capacity management and the strategies manufacturers must leverage in order to adapt to the complications and variables often associated with demand planning and planned production issues.
Concerns such as order modifications, short and mid-term production fluctuations, and other supply disruptions can create a domino effect of delays across the entire value chain, and demand capacity planning solutions can help planners anticipate and correct these disruptions before they even occur.
Unlike our tightrope walker scenario - very few would argue the benefits and legitimacy of a balance bar and safety net - the conversation around demand capacity planning is not quite as black and white. Particularly in variant-rich industries, the proposition of balancing demand and capacity - the amount of product or component parts needed to successfully fill orders and maintain efficient production schedules versus the sheer volume of components and parts required on-hand at all times - is intricate and complex. Many supply chain analysts and industry insiders believe, even given today’s technology via integrated planning systems, that this issue is at the core of supply network logistics, especially given expansion and growth into emerging markets in new parts of the world.
However, differences of opinion aside, there are a number of widely agreed upon, concrete aspects of demand capacity management and planning that help emphasize and remedy the challenges and complications many companies face in using demand capacity management strategies to combat bottlenecks and ensure on-time production and order fulfillment.
BOM Explosion: We’ve talked before about BOM explosion and its benefits in linking component parts or parts production to a certain place under certain restrictions and variables to gain insight into production capacities, facilities, schedules, and inventory. With this in mind, it’s not difficult to see how BOM explosion can cut through the complexities of demand capacity management by providing planners and managers with real-time insights into the factors and restrictions associated with certain planned productions at certain facilities at certain times. Utilizing BOM management strategies, companies can leverage demand capacity planning to assess customer orders down to the part level, which not only allows for greater insight into the correct inventory and production levels for each order, but also allows for reverse calculations of part capacities and volumes to help identify order scenarios that could be problematic in the future.
Forecasting: Any good planning or production strategy must include some aspect of forecasting in order to ensure fluidity and efficiency across all touch points in the value chain. But demand capacity planning solutions, in part to provide enhanced levels of supply stream agility and flexibility, incorporate more robust forecasting and modeling applications that allow companies to actually incorporate real-life complications into existing orders in real-time to assess the impact and create solutions to combat these disruptions. Through this high-performance information processing and scenario generation, ‘what-if’ situations can be played out on the demand and capacity planning sides of the spectrum to simulate the effects and appropriate responses to supply bottlenecks and disruptions, the results of which can be shared in real-time with those across the supply chain to enhance overall communication and coordination.
Thinking back to our tightrope walker, it’s pretty obvious the advantages provided by the safeguards utilized as the tightrope walker embarks on his journey - not plummeting to his death being the one that comes to mind first. But companies who don’t leverage demand capacity planning strategies or solutions are more or less facing the death of an efficient, cost-effective supply network free of bottlenecks and disruptions that can severely impact supply and production throughout the entire value chain.
While you may already be able to visualize some of the advantages based on our discussion in previous passages, it’s important to reiterate a couple of the value propositions created by incorporating demand capacity planning solutions in today’s complex, global supply stream.
Security of Part Supply and Inventory: Demand capacity planning, as we’ve seen, has its roots in mitigating the impacts of modifications and alterations in orders and volume in all stages of production and supply. Concerns about the relationship between product necessary for planned production of certain projects versus overall inventory and the ability to respond to changes in orders are significantly reduced as planners and managers can review and analyze in real-time this relationship between parts dedicated for production and inventory to ensure on-schedule production and delivery.
Calculations of Bottlenecks and Impacted Orders: Whereas many optimized planning solutions allow users to create, evaluate, analyze, and share data resulting from simulations, demand capacity planning provides the power to actually insert what-if scenarios into existing orders to review and analyze the potential implications and disruptions in real-time. This increased visibility into how supply or production disruptions could impact real-life orders not only provides planners with actionable data relevant to actual scenarios, but it also offers greater insight into how future orders - whether from the same customer or new customers - could be impacted or damaged by the variables of the ‘what-if’ scenario. Part forecasting and part real-time modeling, this mode of simulation is more comprehensive and precise in terms of creating a more response supply stream.
Just like how the tightrope walker’s balance bar and safety net provide him peace of mind in his journey, demand capacity planning solutions can provide companies the visibility and transparency necessary to operate an agile manufacturing and supply network that is well-equipped to respond to fluctuations in the planning and production stages via complete control and insight into production variables and environments. And as companies continue to scale to new heights in today’s rapidly-expanding supply network, more and more safeguards will be key drivers in ensuring companies balance themselves properly on the tightrope of global production and supply logistics.
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