Let's say you’re a chef at a fancy farm-to-table restaurant. You don’t have a set daily menu for your dinner service, focusing instead whatever fresh produce and other ingredients you can lay your hands on. This gives you a lot of room for creativity, but it also puts a lot of pressure on your supplier relationships. While the chain restaurant down the block places the same order (with small adjustments) through the same produce supplier every week, you need to consider seasonality, brainstorm potential dishes, and have a frank discussion with your supplier about which items in a given week are going to best meet the needs of your culinary mission.
The two most basic concepts in business are supply and demand, but as they play out in something as complex as the modern industrial supply chain they’re anything but basic. To wit, about 70% of supply chain businesses have adopted some kind of S&OP (sales and operations planning) workflow in order to more effectively match demand projections and production/operational plans on a quarterly or yearly basis. Though processes like these are a good start, even they aren’t the be-all-end-all. To wit, nearly two thirds of respondents to a recent survey said they wanted to take steps to improve their S&OP processes.
Let’s say you’re a kid, and you’re trying to set up a lemonade stand in front of your parents’ house. You go to the store (possibly with parental supervision) to get lemons and sugar, you come home and mix the two into a pitcher, and you set up a little folding table near the sidewalk. Since children are notoriously bad at big-picture thinking, you probably think of the lemons and the sugar as your only real costs, and you price the cups of lemonade (which are set out by the pitcher) accordingly in order to achieve a worthwhile ROI.
In supply chain management, as with anything else, it can often be difficult to see past the hype and figure out which technologies are worthwhile and which aren’t. With things like cloud-based ERP, blockchain-based tracking, AI, and other buzzy new technologies flooding the SCM technology market in recent years, you might find yourself wondering what features and capabilities to prioritize when choosing a software vendor. Do you really need neural nets to analyze vendor performance in the cloud in real-time, or would you be better off leveraging your resources elsewhere?
As the Harvard Business Review points out, the 2011 Fukushima disaster had a large and unexpected impact on the global supply chain. While most large supply chain players didn’t expect their sourcing workflows to be impacted (based on the locations of their first tier suppliers), they quickly realized that a tremendous number of second and third tier suppliers were being hit hard by the incident. The result was that planners had to scramble to find new sources for raw materials, or risk shortages, outages, and late deliveries.
Sales and operations planning (S&OP) is one of the most popular methods that businesses employ for creating a smarter, more responsive supply chains—and with good reason. S&OP can help you identify and take advantage of strategic opportunities that you otherwise might have missed, all through the careful collection and analysis of supply chain data that your value stream is producing anyway. It’s not a panacea—nothing is—but it’s a great start for manufacturers and other businesses who are seeking a leaner and more flexible way to administer supply chain activities.
The actual production of automobiles on the factory floor has been getting more efficient for decades. In the ‘80s, it would take General Motors about 40 labor hours on average to produce a new vehicle—today, that number is much lower. Since 2007, Toyota’s average labor time per vehicle has dropped from 29.4 hours to 17-18 hours. This is an encouraging trend from a planning perspective. And yet, we know that in reality the process of getting any single car made starts well before the stamping and welding. After all, the 30,000 or so parts that make up a typical car have to get produced first, and even then there are long lead times involved in the sales and planning process before the materials and time get allocated to a particular vehicle.
You’ve all heard the saying, “the left hand doesn’t know what the right hand is doing.” This encapsulates many organizations' approach to sales and operations planning, or S&OP. Too often, companies fail to include all the relevant stakeholders and departments in their S&OP process, leading to major sections of the supply chain being left out. For a process that impacts every aspect of a manufacturing concern, this seems not only short-sighted but also like a potentially catastrophic oversight. On the other hand (no pun intended), when a company’s S&OP process is run by an integrated team that includes representatives from the C-suite, sales & marketing, production, inventory, all the way to logistics—the outcomes can improve drastically.
We all have different ways of getting a handle on our supply chain activity. Some folks might check a series of KPIs every morning to see what small fluctuations in supply and demand have occurred overnight, while others might be more interested in the big picture, seeking out a comprehensive visualization of the supply chain at the end of every month. However you like to think about and analyze your supply chain data, your routine probably revolves around a dashboard.
If you ever go to Las Vegas, you should be advised that casinos heavily frown upon card counting, and it’s easy to understand why. A game like blackjack is supposed to be more or less random in terms of what cards are dealt when, which puts the house at an advantage. Over the course of several hands (before the entire deck has been reshuffled), however, a careful observer can note the proportion of face cards that have come out in order to come up with a rolling estimate of how likely or unlikely they are to come up in future hands. This puts the player at a real statistical advantage over the house—at least until the casino politely (or not so politely) asks her to leave.