Supply Chain Commentary: Stop Reacting to Problems, Start Predictive Planning

Tags: Supply Chain Management, Logistics, Supply Chain

Cyrus Hadavi PhD is CEO, Adexa Inc., 310-642-2122

Most planning systems deploy a reactive strategy rather than a predictive one. When a problem is identified regarding a capacity shortage, material shortage, or arrival of a high-priority order, the system addresses the issue by rearranging the plan. This is not optimal. It’s a Band-Aid solution that should be avoided.

For example, if you release too many jobs to your resources (or factory), you build a big queue in front of resources, adding to your inventory and delaying delivery dates. In addition, you diminish your capability to address inevitable but unforeseen problems such as shortages, equipment breakdowns, and arrival of surprise orders.

The interesting part is that, most people try to resolve this issue by having better sequencing rules for each resource. As you can see a problem that could have been avoided was created and now we are trying to reactively resolve it by locally expediting, which is almost impossible.

This type of strategy is prominent in many sales and operations planning solutions which tend to operate at a high level not knowing how the plan can be executed. They assume a fixed lead-time and assume maybe ONE bottleneck resource for the entire plan for every site, and then expect to have an accurate plan.

However, when it comes to executing such plans there will be a lot of expediting and adding shifts and delays to name a few. Such an approach is no different from the use of spreadsheets for planning and fixed lead-times, which really implies infinite capacity planning. I remember MRP systems did that really well! Are we back to the technology of the 80s?

Beyond a Static Supply Chain

By looking ahead and taking into account probability of occurrence, predictive planning avoids the problems in the first place and diminishes the need for reactive solutions.

We also believe that any plan generated by the system has to be accurate enough so that it is executable. Spreadsheet type of planning (pre-defined bottlenecks, fixed lead-times, and bucketed capacity) deployed by most S&OP solutions are simply NOT accurate enough. They give you a false sense of hope and control as well as poor visibility into what can be accomplished, resulting in erroneous delivery dates.

By performing predictive planning, you can account for potential issues of shortages and breakdowns or even quality issues in advance. Furthermore, one can “release” the orders (virtually in subcontractor facilities or actually in your own) in a way that they do not have to wait for a long time in front of resources, reducing WIP and at the same time maximizing utilization.

By producing realistic plans based on shifting bottlenecks, one can also ensure realistic due dates, maximizing on-time delivery. Predictive planning is performed by having an accurate model of your supply chain (yours and your suppliers’) and understanding the mix of products that need to be built and how they compete for resources in a dynamic manner. In addition, account for probability of breakdowns, demand variations, maintenance schedules, supplier lead-time variations, and so on.

By taking all such variations into consideration, one has a realistic model of the supply chain and can precisely predict the behavior and how each order can be delivered through different choices of supply, make, and distribution.

The key is to take all such combinations into account and optimize the use of resources and inventory using an optimal order release strategy that maximizes delivery performance, minimizes inventory, and optimizes the utilization of resources.

It can be concluded that the simplistic techniques deployed in almost all S&OP solutions do not and cannot deal with this level of accuracy and optimization to produce plans that are sufficiently accurate, resulting in a lot of manual adjustments and changes just to make it work.