Refining planning capabilities for Fast-moving consumer goods (FMCG) companies has been a way of life for many years – one of the permanent results of COVID-19 is that the rules of the game have changed. If you used to think your planning capabilities were good enough, now may be the time for you to reassess. Both sides of the Supply and Demand equation have changed:
Demand-side: Uncertainty has always been something which supply chain professionals have had to contend with, the difference now is the intensity of this uncertainty. The word “unforecastable” entered the vocabulary of our Supply Chain Clients at a frequency which we have never experienced before. Who could have predicted the phenomenal peaks in Toilet Paper, Pizza and Paracetamol which were well publicized, but also spikes in less publicized goods such as Bread Machines, Dog Food and Weight Training equipment, and also the decline in Luggage, Bridal Wear and Gym Bags?
Supply-side: As never before we are experiencing disruptions in the Supply-side, whether that be disruption in goods or severe reductions in manpower, this change is turning long-held beliefs and practices upside down.
Combine the problems on the two sides of this equation and you have a new Planning Cycle to master. This is not a temporary situation, so master it fast.
Efficiency has been the goal in Supply Chain Planning for decades with initiatives based around cost reduction, waste, and service level. The essence of mastering the new Planning Cycle tips the balance away from Efficiency and towards Speed, overturning decades of best practice.
This paper will set out the three key elements that will prepare you for the new planning cycle.
1. Key considerations to increase the responsiveness of your Supply Chain
2. Empowering your team to make decisions
3. Starting to Master the new Planning Cycle?
Key considerations to increase the responsiveness of your Supply Chain
When you can’t predict, a good strategy is always to ensure that you prepare yourself to react fast. But how can you achieve this in your Supply Chain? Increasing responsiveness will come down to focusing on 3 P’s:
No amount of artificial intelligence and data analytics could have provided foresight into the specific problems and challenges that have been faced in your supply chain recently.
Data and Analytics does have a role in mastering the new Planning Cycle, but when financial resources are constrained, prioritize the creation of flexibility and capacity in your production line.
- Create stand by teams
- Build additional production lines
- Design in supply diversity to provide a mix of local and global suppliers
- Reassess your safety stock inventory
Supply Chain professionals would have previously avoided such measures as they were not the most efficient. Now the value equation has flipped however as we are forced to consider:
- Mass absenteeism
- Integrated cash flow planning
- Long linehaul dependence
- Currency fluctuations
- Regulatory change
The ability to service demand and meet the commitments made through sales now outweighs the traditional gains which were sought by making efficiency improvements.
The key here is a shift in intensity. That intensity takes three forms – the intensity of the planning window, the
increased focus on visibility along the value chain, and the now existential nature of your partnerships.
The Annual Plan seems a distant reality now and a monthly S&OP cycle sounds terminally unresponsive.
Weekly planning and daily monitoring have become the new Planning Cycle windows in which you can most effectively
meet the changing demands of your quarterly financial cycle.
What was weekly before should be near real-time, what was summarized before should be detailed order by order.
Visibility up and down the Value Chain:
Visibility has always been important in the supply chain but the focus previously was mainly cost reduction. The
purpose now is different, it is about resilience and responsiveness.
Visibility up and down the chain with clear levels and limits will ensure that you:
- See the orders as they feed into the weekly planning and control
- Can anticipate orders for critical inventory items as they become available in the Supply Chain
- Know the trade inventory and understand your sell-out dates to improve your forecasting
The key to making this new Planning Window and the Visibility work is the increased integration of your Supply Chain, both internally and externally.
You rely on each other like never before, in fact, your survival as a business could come to rely on it. The nature of these conversations, therefore, needs to change.
Firstly, the frequency needs to change so that they are more often and they should be more than a data exchange as that misses the subtleties and nuances of problems which are being experienced and miss the opportunities to be innovative together.
Secondly, discussions which have been long term and high level need to become much more focused on the new planning window time horizon and the mindset one of true partnership.
Whether you are talking to your clients, your internal teams, or your suppliers you should be used to discussions which look much deeper inside your business.
- Capacity Levels and Lead Times
- Cash Flows and Financial Strength
- Payment and Credit Terms
- What is the win-win scenario for you, your customers and suppliers in this new equation?
- How can you support each other during these peaks and troughs?
- How do you build your mutual strength by increasing your empathy, understanding and intimacy of knowledge?
By adapting to these three key shifts, you will be ready to invest time in developing the necessary breadth of “what if” scenarios. Being able to build multiple simulations from the bottom up will be greatly assisted by:
- Being closer to your supply and retail partners
- Being more integrated with internal teams
- Having better visibility of inventory levels and financial flows
The challenge has moved from working with base case forecasts with constraints, bottom-up simulations covering a larger breadth of factors. Aiming for accuracy is less possible now. Spare no effort in developing your “what if’s” and your simulations, choose the path which reflects your reality today and use the new dynamics and simulations to make the necessary adjustments.
In discussion with a major sporting goods company, before and during the crisis, they were taking actions to improve their responsiveness. Key elements of this were:
- To nearshore their Top Selling items in combination with having significant manufacturing capabilities offshore
- To support their supplier base at the peak of the crisis by honoring every single payment to their suppliers.
The responsiveness which this client has built into their operation has meant that they were able to assure a steady servicing of their clients which directly contributed to a gain in market share. As they gained their market share, the support which they gave their suppliers ensured that as demand rebounded their suppliers were able to prioritize and fulfil all orders.
Empowering your team to make decisions
Empowering your teams to make decisions locally should not be an abdication of responsibility from the centre.
Local teams will be best placed to see their local reality and make necessary adjustments.
They should do so at a pace without concern for the occasional mistake. Making no decision or being too slow in decision making is likely to be more costly than the occasional mistake.
A major client whose business is the export of food products has faced shifting health regulations country by country.
This, in addition to the normal peaks and troughs of commodity pricing, and challenges of demand not being aligned with what nature has supplied.
This client responded by setting a clear Command line that set guidelines on pricing parameters and markets with multidisciplinary inputs from sales, supply, and production executives. The responsiveness, however, was driven from the factories and fulfilment centres that were provided with the autonomy to change production priorities (shift patterns and composition, line scheduling, order prioritization etc.) to navigate profitably through the uncertainty.
To ensure that your teams are empowered to have this improved decision-making capability and freedom to exercise it, the accompanying governance and culture should:
- Strongly reinforce the company values and goals
- Provide clear principles to act as a guide for all local decisions and adjustments to adhere to
- Practice absolute forgiveness for any mistakes made in the pursuit of these goals and principles
- Actively assist and remove roadblocks from the centre which are constraining the local teams
- Promote the importance of collaboration and unity of the team from many different disciplines within the local operation
Starting to master the new planning cycle?
There are five elements to Mastering the New Planning Cycle, and as we have advocated pragmatism in this article we should offer a pragmatic set of questions to help you assess your readiness for mastering the New Planning Cycle.
1. Process Simplicity
- Do you have an agile process in place that executes with speed and diligence in equal measure?
- Have you shortened your time windows and horizons to allow you to react faster to the shifts and subtleties on both demand and supply sides?
- Have you generated flexibility in your critical capacities?
- Have you shifted towards developing multiple scenarios to guide your ability to adapt, rather than aiming for singular scenario accuracy?
2. Internal and external value chain integration
- Have you established mutual goals, functional objectives, and a common language with which you can talk to all parties in the Value Chain?
- Are you able to consume and leverage sell out and inventory data?
- How are you working with your clients to build their confidence in your ability to deliver consistently and helping them to make planning decisions?
3. Empowered teams
- Have you moved the focus of decision making from the centre to the most appropriate place closest to the activity?
- Have you reduced the number of layers in your organization to minimize hierarchy and encourage agility?
- Has the team mindset moved from analysis to action?
- Do your teams feel they have the freedom to fail and learn?
- Is there clear governance, roles and responsibilities in place to ensure that the right support mechanisms exist for the new ways of working?
5. Reality Check
- Do you have the tools, communication, culture, and governance in place to reassess the situation frequently and make necessary adjustments?
- How have you built your safety nets which will afford you the time to react fast and continue meeting your clients’ needs?
4. Digital and Tools
- Do you have the right balance between technology and human engagement for the maturity and complexity of your business?
- Do you have sufficient tooling to develop the breadth of scenario generation required?
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- On 12 October 2020