Australia, Companies, Features, Logistics, Supply Chain, Supply Chain Management

Complete supply chain planning software is a must

A disconnected supply chain plan creates accountability issues. Image: ASCI.

Alessio Lolli, Vice President, Global New Client Engagements Wolters Kluwer, speaks to MHD about supply chain planning software and why it’s an essential tool.

Looking for a new sofa, bike, or car parts? How about a Nintendo Switch? Or, simply, eggs? Over the last three years, supply chain issues have plagued every manufacturer, retailer, and industry. Even as supply chain strains start to ease, the most optimistic economists report that there will be another year of shortages barring other unanticipated disruptions.

Supply chain planning, and the ability to re-plan, is more important than ever. And while supply chains have always been vulnerable, their biggest threat isn’t just external disruptive forces (those are a given.) It’s the supply chain planning process itself.

Fragmented, inaccurate, manual, rigid: these are four things a supply chain planning process should not be, yet it’s the hand many supply chain managers were dealt.

So, what indicators point to areas in the supply chain process posing a threat to operations? Here are four signs it’s time to revamp the companies supply chain planning process.

Sign 1: Supply chain plans created in isolation

Each link of the supply chain — demand, supply, production, inventory, finance, sales, and operations — hinges on adjacent plans. Despite the inherent interconnectedness of supply chain plans, many managers find themselves manually cobbling together a patchwork of applications, processes, and systems to create and adjust plans.

It’s both common and problematic for sales and operational data to live in one system while demand forecasting is executed in another, and production data is housed in an entirely different region. 

With an isolated, disjointed process like this, the manual assembly of each plan does nothing to foster an agile or complete response when supply or demand changes. 

One study by Supply Chain Dive found that 39 per cent of respondents believe manual processes are the root cause behind slow reaction times to change. 

Another 20 per cent identified disconnected core systems. My take? It’s most likely a combination of both.

What’s more, a disconnected supply chain plan creates accountability issues. If plans are fragmented and isolated, who is responsible for adjusting the plan or communicating changes down the chain? Without clear ownership, it’s easy to see how communication issues can have significant downstream effects.

Sign 2: Declining service levels, increasing costs

Customer service levels going down month over month could indicate bigger supply chain management problems. Two reasons for declining service levels could be:

1. A disconnected supply chain: A cost-cutting measure in one area that results in a spike in another area is the hallmark of a disconnected supply chain. When one part of the supply chain can’t see the domino effect in other areas, good intentions can lead to costly financial outcomes or operational issues that trickle down to the customer’s experience.

It’s difficult to get an accurate picture of what’s happening when data doesn’t efficiently flow through the chain. The result of loose links? Inventory orders that are disconnected from working capital, supply that’s divorced from demand, and supply chain decisions that are made without paying mind to the bottom line.

2. Inaccurate forecasting: Whether inflated or underestimated, incorrect forecasts impact service levels and costs. Let’s say demand is over-anticipated. The symptoms of an inflated demand forecast manifest in inventory — specifically, excess inventory and lower inventory turns. Of course, this doesn’t just mean companies are holding onto more stock. It means they are haemorrhaging capital across supply, labour, production, and transportation for every forecast that’s off the mark.

If demand is underestimated, companies are faced with supply constraints. This manifests as stockouts and inventory shortages, which prompt the entire supply chain to change course. Production must be expedited, supply must be procured, and production lines must change over to remedy these shortages. Of course, like anything on a short timeline, changes are billed at a premium.

Sign 3: Companies faced with financial disconnects 

Every supply chain decision eventually shows up on the balance sheet. Excess inventory consumes working capital. Rising delivery costs can blow budgets. Models by McKinsey show that “a single prolonged production-only shock would wipe out between 30 and 50 per cent of one year’s EBITDA for companies in most industries.”

Changes to labour, suppliers, orders, delivery methods, the production line, demand, and procurement can happen instantly. Without a direct link to the financial truth, reactions are made blindly to the long-term or down-chain effects. Difficulty setting cost of goods sold (COGs) targets, predicting revenue, or adjusting budgets to deal with fluctuating delivery costs are clear indications that supply chain plans are disconnected from finance.

Sign 4: Sudden change causes chaos

Supply chains are under constant stress. Change comes with the territory. Of course, traditional planning methods enable the company to anticipate some things — seasonality, weather, customer surges, and economic cycles.

But a pandemic? A sudden war? A factory fire? A labour strike? Under these circumstances, rigid, manual systems do nothing to enable a hasty response. Traditional forecasts are one-dimensional and fail to accommodate the swift finance-forward, multi-level response required by a sudden change.

As Vice President of Supply Chain Services at ARC Advisory Group, Steve Banker wrote in Forbes, “Traditional demand management is based on time-series trend forecasting. Time-series trend forecasting means taking an inside-out approach, relying on an organisation’s historical, internal data to predict demand. This works OK …until the world changes.”

An integrated planning environment is the key to avoiding chaos. Companies can minimise the disarray by being able to adapt plans based on a holistic view of cause and effect when external disarray ensues.

An integrated supply chain planning system isn’t a nice-to-have – it’s a must-have 

Supply chain plans are interdependent, data-heavy, and subject to change. The question isn’t if supply chain planning software is needed. It’s abundantly clear that an integrated supply chain planning process is necessary to improve resilience and responsiveness. Instead, the question is, what should companies look for in software? Here is the answer.

How does a company choose supply chain planning software?

The Ultimate Buyers’ Guide to Supply Chain Planning Software is an eBook that will help companies: 

  • Assess the company’s needs for new or updated supply chain planning software;
  • Define the company’s software requirements;
  • Make a business case for a new finance-forward supply chain planning system; and
  • Identify a list of top vendors to explore 

For more information on the Australasian Supply Chain Institute, click here

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