It’s Time for Constrained Supply Chain Planning

The promise of summer is warm, sunny days ahead. Unless you’re a supply chain prognosticator. For those working in supply chain and manufacturing planning, the weather is as cloudy as ever – and it doesn’t seem to be getting any better.

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The promise of summer is warm, sunny days ahead. Unless you’re a supply chain prognosticator. For those working in supply chain and manufacturing planning, the weather is as cloudy as ever – and it doesn’t seem to be getting any better.

Why the grey skies? Although most organizations have begun to reverse the effects of COVID-19 related shortages and shutdowns, the pandemic dealt a blow to the old ways of thinking about supply chain. Instead of being able to rely on a normal flow of goods from manufacturers, businesses are racing to stock up on items in fear of the unknown, sending demand – but not supply – for raw materials skyrocketing. In fact, a McKinsey study in late 2021 found 61% of companies are increasing their inventory of critical products.

As manufacturers push their forecasts and deadlines out while looking to pull materials from their supply chain wherever they can find them, global supply chain shortages will continue to mount. But instead of panicking, your business can succeed by thinking strategically about how you can meet demand without getting on the raw material roller coaster.

Here’s how:

1. Assess your suppliers’ capabilities

When it comes down to it, an organization can only manufacture as much as its suppliers allow. It’s crucial to monitor suppliers’ capabilities to ensure that they align with an organization’s finalized demand planning, as any surprises in raw material availability can tank a forecast.

Supply chain managers should be asking current and prospective suppliers how they are built to overcome a crisis. How many other businesses are they committed to, and do they have the capacity to keep up with that demand? Do they have enough staff to keep production moving in the event of a rise in COVID cases? Do they expect costs for their materials to rise in the next few months?

Depending on the responses, supply chain managers may want to rely on multiple suppliers – the McKinsey study found 55% of organizations choose that route. If so, consider using a supplier portal. This allows your business to streamline and enhance communication with multiple suppliers, helping you keep an eye on availability to detect potential hiccups with enough time to order additional materials from another supplier.

2. Use a Constrained Planning System

As the supply chain crunch wears on, the notion of a “pull” model – where manufacturing and distribution is driven purely by customer demand – isn’t an effective way to operate. Unavailability of raw materials, or a quick shift in product popularity, will reverberate through the entire supply chain.

Instead, focus on developing a Constrained Planning System using the “push-pull” model. Identify what level of inventory you need for which product and where, ensuring manufacturing and distribution availability in those regions. Then, optimize your product mix and push demand in the direction of the goods for which there’s no shortage of raw materials and can be delivered to customers quickly. This allows you to optimize your service level revenues and margins. 

Once you have a “push-pull” model in place, don’t forget to continually simulate disruption across your supply chain. Within your new constraints, would you be able to quickly respond to a crisis that can impact even goods you thought would be available? How might you shift operations (e.g. transfer routes, change in production shifts) to counter these impacts? Have a plan in place. 

3. Get cross-team involvement

How do you make a “push-pull” approach work? It takes a village. You’ll need to involve stakeholders throughout your company to help determine which products should be pushed, and how you can ensure the demand you created will be met.

Start by working with your sales, R&D and marketing teams. They can provide historical data around peaks and valleys in product demand, and ultimately have a say in which products are placed front-and-center in seasonal promotions. R&D can help you understand the manufacturing requirements of products that are coming down the pipeline, and marketing can build campaigns to focus on “push” goods.

 Then, work with your logistics team to speed up your flows and ensure your “push” goods can get to shelves, or customers’ doorsteps, as quickly as possible. This might mean investing in shorter or quicker delivery routes, or technologies that can speed up internal work (e.g. software such as warehouse management systems or tools such as conveyors). Instead of putting dollars toward raw materials that will take too long to arrive, put them toward getting available goods out the door.

What it all comes down to

Supply chain managers need to increase overall visibility – both for themselves and their supporting teams. To stay ahead of demand, and even create their own demand, they must maintain a full view into product and raw material availability all while pinpointing regions where each product levels should stay high.

You can cut through the cloudy skies and improve that visibility using both your external and internal partners. By taking steps such as investing in a supplier portal to detect challenges ahead, collaborating across your business, and moving to a “push-pull” model, your future forecast will show sunny skies ahead.