Editor’s Note: The following article is brought to you by Logility in partnership with the Supply Chain Network.
The vast amount of information vying for our attention can make your head spin. When you think about how much this has changed over the last 10, 20 or more years, it is quite dizzying. It has been 11 years since the iPhone was introduced. Just 10 years prior, I remember purchasing my first Motorola flip phone, which in 1997, was the pinnacle of mobile technology, and you just had to have one. Without it, you had to find a landline or a pay phone! There was no remote access to global information, personal assistants or instant messaging. How did we ever survive!?
If you could transport a supply chain professional from 20 years ago to the present day, they would not recognize today’s supply chain operations or the technologies we apply to try to solve supply chain challenges. That is because today’s supply chain operations are faster, more complex and less predictable than ever. Volatility due to shrinking order to delivery cycles, rapid shifts in distribution channels, SKU proliferation, global competition and upstream supply fluctuations are all amplified in today’s “normal” business environment. Volatility has become a major challenge for companies across all verticals and managing this challenge in a cost effective manner can lead to significant and sustainable benefits including lower costs and higher customer service levels. Today’s supply chain periodicals and blogs are flush with discussions around continuous planning, concurrent planning, unplanned event planning, demand sensing, sense and respond, etc. as ways of dealing with volatility.
Recently I was asked, “If we implement operational capabilities to quickly respond to unplanned supply chain events, do we still need periodic supply chain planning?” Most industries have moved towards pull-driven or demand-driven operations so logically there is a tendency to focus more attention on where demand is coming from, the customer. If we produce exactly what the customer wants and have it available where they want it, then everything is good, right? Well, unfortunately for most companies, replenishment lead time is longer than customer order lead time. In other words, it takes longer to produce the item then the customer is willing to wait for it. Therefore, some if not all of the replenishment has to happen prior to the customer’s purchase decision. This is where periodic planning becomes important.
Periodic demand planning provides the foundation for all periodic planning. Forecasted demand is used to determine when and what to purchase and manufacturer, and where to position it to meet projected customer demand at minimal cost. Aggregated forecasts along with production capabilities are used in Sales & Operations Planning (S&OP) to ensure longer term supply capabilities are sufficient to meet expected longer term demand projections. The S&OP process should be focused far enough into the future to make decision around people, process and capital investments in enough time to mitigate risks and maximize opportunities. Are forecasts perfect? No and they never will be. Unless someone invents a way to instantly make anything when and where it is needed (i.e., Star Trek Replicator) then we are stuck trying to predict future demand.
However, because forecasts are never perfect, we also need a way to deal with unplanned events. This is where continuous planning becomes essential. Customers will not wait a month, a week or even a day for you to run your periodic planning process to determine whether you can meet an unplanned request for a product. Consumers have been conditioned through instant access to everything to expect an immediate response to their question of “when can you deliver it?” If you can’t answer that question quickly and in a satisfactory way (short lead time) their business will be lost. So you have to sense a problem or opportunity, determine an optimal or at the very least a feasible solution, and then quickly execute a response.
Obviously, the answer to the original question is that you need both periodic and continuous planning to be successful in today’s complex, fast paced volatile business environment. Periodic plans provide the starting point to meet company objectives through optimized supply chain operations. Optimized periodic plans provide the baseline for what is possible if no unplanned events were to occur. Starting with the optimal plan, continuous planning creates feasible derivatives to effectively respond to unplanned events.
Periodic and continuous planning are highly interconnected, and it is essential that both are managed with the same integrated platform to capture differences between the plan and what is actually happening and ensure that reality and plans remain aligned.