Take your blinkers off and build an “Outside – In” Supply Chain Planning Process

Take your blinkers off and build an “Outside – In” Supply Chain Planning Process

The recent pandemic has put supply chain leaders under the spotlight. From the backroom, they have been vaulted into the limelight of the board room. Today company boards have supply chain strategy and execution as important agenda items in the board meetings. From a function which was seen as a cost centre, companies are slowly realising that supply chain can also positively impact revenues, customer service, financial efficiency etc.

Companies struggle to make accurate forecasts and the inevitable bull whip effect kicks in distorting the forecasts and leading to sub optimal fulfilment, lower OTIFs and low inventory turns. The typical response to improve forecasting was to use demand signals like past sales / orders to forecast future demand using statistical models. Companies also rely on sales teams' and marketing teams' forecasts to determine a reliable number to drive downstream supply planning processes. Unfortunately, all these forecast streams suffer from their own biases. While this "inside out" approach was fine during the 'old normal,’ the severe supply disruption, changing consumer preferences and the demand volatility caused by the pandemic have made these approaches redundant. All the assumptions around stable supply lead times and minimal demand volatility had to be thrown out of the window as companies realised that these traditional models got the forecasts grossly wrong. During the pandemic and for large periods after the pandemic subsided, we have seen instances of retail shelves running out of items which had a very steady demand. We have also seen huge delays due to lack of capacity to move shipping containers around and disruptions caused due to factory closures etc. This is the "new normal" we need to get adjusted to and reinvent our supply chain planning processes. Even in normal times, the demand latency, which is the time taken from actual consumption to an order in supply chain can vary from days to weeks inhibiting the ability of the company to respond at speed. This combined with the "new normal" of supply disruption and demand volatility has created havoc in the supply chain.

This inside out model is now ripe for disruption. What is the new approach? In an interesting webinar, Anne Robinson, Chief Strategy Officer of Kinaxis in discussion with the foremost authority on Supply Chain Planning, Lora Cecere discusses the contours of an emerging model which is the "Outside-in Supply Chain Planning Process". I found this webinar very fascinating, and I am summarising below the key takeaways from this webinar and the broad steps to build a truly “outside-in” supply chain planning process:

1. ?Companies should start with a relooking at the supply chain strategy. Some of the key concepts include segmentation of supply chain to deliver different supply chain metrics around cost, service, agility, inventory efficiency etc based on the product group and customer segments. Also, the supply chain network model should not only look at the physical location of suppliers, DCs etc but also look at strategies like postponement strategy, multi sourcing, near shoring etc.
2. A paradigm shift is required in demand planning and that is the evolution of the model of "outside in" demand planning using market signals. These market signals include actual consumption data, supply data, transportation data etc. These signals may include social media buzz, product reviews, weather etc. The core of the new process is to arrive at "market potential". This is the likely unconstrained demand for the product without the noises in the demand planning process. While some companies have used demand signals, what is also important is to use supply side signals in the planning process. Demand needs to be viewed and managed as a flow in a connected system rather than as a discreet set of spikes / troughs.
3. ?Companies need to create a continuum by linking market signal driven demand planning in real time with supply planning process and create the ability for a bi-directional orchestration all along the supply chain from customer to supplier. This calls for a supply chain re-design which "balances" the aspects of cost, service, speed, returns on invested capital etc. They need to use a balanced scorecard to evaluate various options and settle on the best and do all this in quick time.
4. Companies also need to ensure a unified data model to make sure that IT systems in the supply chain work on a common definition and finally they need to build processes which are seamless across these systems.
5. A static supply chain planning process needs to be replaced with a ‘scenario based’ supply chain planning process giving the planners the crucial ability to view outcomes by simulating various scenarios both on the demand and supply sides.
6. Smart use of emerging analytics capabilities and behaviour changing gamification strategies need to be embedded in the supply chain planning processes.
7. Supply chain planning processes also needs to show boundaryless behaviour not just within the enterprise but also with the extended ecosystem of customers and vendors.

From the context of companies in India, some of the above concepts may seem like a pipe dream especially when most of the planning happens on spreadsheets and companies struggle with basic issues around data availability, data accuracy, process visibility etc. My take on this is that for long, Indian companies have been prisoners of a monolith ERP system (which incidentally has 3 letters in its name ??) which was the default option for them and which, they believed would be a panacea for all problems. This blind faith of the” ERP Bhakts” insulated themselves from the wonderful innovations happening around the world in terms of rapid improvements in technology especially the multi-dimensional and in-memory computing models which made planning a different ball game. As a first step, Indian CIOs and CSCOs should take their blinkers off and start exploring the options available for them to transform their supply chain planning and build truly “Outside-In” supply chain planning processes.

My thoughts are based on the wonderful insights which Lora Cecere shares on her website and blogs, and the webinar which I referred earlier. The links for all of these are given below and I would urge you to explore these. Look forward to your comments / criticism / thoughts etc.

Webinar Link: Defining outside-in supply chain planning processes (kinaxis.com)

Lora Cecere’s website: Supply Chain Insights – Services Designed for the Supply Chain Leader that Wants to Rise Above the Rest

#LoraCecere #Kinaxis #SimbusTech