Demand balancing: from requirement to solution!
Sometimes ago, I wrote an article on Inventory Balancing & Optimization which is a solution we specifically developed at DOWAP, to cover a recurring issue in Supply Chain.
At the same time and very correlated, any Inventory Balancing come often with its contrary! Why balancing inventory and supplies and not simply balance the demand itself over the Supply Chain Network?
You are right! Both concerns are valid and represent the two face of the same coin.
This post debates around the concept balancing process and its particular application against the demand.
Root causes
Like a few other methodologies (DDMRP, KANBAN and LEAN) whenever in Supply Chain, you think balancing goods between locations or balancing the counterpart, the demand, that means somethings is going wrong and you have to intervene. My concern here is not to state on the other methodologies which are all good, no worries, only on the balancing aspect. We all know how sensitive it is to try comparing methodologies. Often out of any sense.
So when you need to balance, this means something went wrong in planning. Not everything happened as expected, as planned.
Questions may be:
- Are you bad in mastering your Supply Chain? May be, I guess not.
- Did you miss anticipation in demand shape or deployment of goods? May be yes, I guess not.
In fact, no one on earth can really be 100% accurate in planning. Many reason to that like MRP base concept states too many pre-requisites which never come together, therefore deviation exist. Take a little time to read from DDMRP around this, Carol Ptak and Chad Smith have outstanding arguments.
Pending such methodolical changes, in a classic environment running an MRP logic, being calculated by an APS or an ERP solution, reality rarely matches with planning. Solution then for you is to cope. To cope with context, with priority, with feasibility etc. In a single word: Cope, alternatively Expedite.
On the other hand, shall you blame yourselves so doing. Of course not. Your company Supply Chain setting represented a huge investment, a long implementation time and provides you with actual and tangible results. As long as you expediting represents only a little part of your big picture, this is not to be blamed by anyone. By so doing I say you optimize the flow of goods, or information.
Balancing Inventory and Supplies or Demand?
They all are expediting options about the same issue. The demand, orders or forecast, do not sit on the same location where the inventory and the supplies are. This mismatch leads to uncovered demand on one hand, and to overstocking issue on the other hand.
Balancing Goods means extra cost in material handling and transport, however it also means you are going to match a demand that will bring revenues. As long as the extra cost does not reduce the overall margin, you are optimizing the company’s revenue! Isn’t it? Is it the maximum? Not really, however better than not doing the revenue.
Balancing demand is of 2 kinds, depending it is an actual demand originating from sales, or from a forecast demand.
Balancing forecast will drive the planning to position the stock where the forecast is. So imagine that analysing short term order portfolio you observe mis-positioned forecast, it becomes interesting to relocate the forecast to drive the replenishment plan to the proper locations. This will helps not moving goods later.
On the other hand, in the short term if orders are really erratic and coming to the wrong delivering locations, you may find some optimization potential to be able to state that such demand may be served from another location instead of bulking in the backorder list.
How to balance
Actually most of the companies worldwide run this balancing options MANUALLY!! Not so bad in fact, however repeating and repeating same tasks is not rewarding and lead to high stress, particularly in peak season for instance. It is not a sustainable situation.
The more advanced companies have implemented an advanced planning to run things like Global ATP (See APO-GATP) to balance the orders between locations, or Optimized their planning (See APO-SNP Optimizer) to balance the inventory and supplies. In both case, the solution is sensitive, meaning a lot of data to be maintained carefully. No doubt it is not comfortable, leading to lack of data maintenance in the best case. Even worse when planners do not understand all elements of the solution, like optimizer cost. Too complex for me, let’s see what Excel says…
Solution: Pragmatic and quick! Go balancing with DOWAP with a simple application.
Here the idea is to remain simple and pragmatic so that anyone can quickly grab the concept and introduce his own rules. No optimum required, feasible shall be already enough. Go Inventory balancing, go order balancing, go forecast balancing as simple as running a one screen program that detects potential balancing options for you and lets you choose to take action or not.
Balancing proposition can take place before planning run or after.
While running, balancing analyses the projected elements, like stock, forecast, orders, in the company network, so as to determine a virtual rebalancing plan between location.
3 options depending the cases. Via transport propositions, for inventory and supplies balancing. Via switch of locations of forecast whenever forecast balancing is requested. Via delivering plant switch whenever sales orders are concerned
Implementing our solution is a matter of couple days/weeks before it runs and provide already first results.
You wish to further understand this, feel free asking us about IB&O or DF&B for a webinar request on our site