Success in
an Improving Economy
Business is picking up for many companies and we see
evidence that some companies are experiencing an event that has been absent for
years ŕ demand is greater than supply!
While there are not yet many actual capacity
shortages, there are many imbalances and times when unexpectedly high demand is
leading to customer service failures. This can be significant for those
companies that operate with a quarter-end hockey stick demand pattern.
As the economy improves, you need to evaluate your
ability to react to unexpectedly high demand. The last couple of years have
been a period of aggressive cost reductions. Many companies may find that their
upside flexibility was eliminated or is simply rusty from lack of use. Now is
the time to assess the following key processes to ensure they leverage best
practices required to support upside flexibility in times of rising demand:
A.
Demand Management
B.
Supply Management
C.
Sales & Operations Planning
A. Your Demand
Management processes need to leverage a collaborative approach
with your key customers and utilize a Weekly Bookings Review. A
collaborative approach with your key customers will ensure that you have
visibility into true customer requirements. This is not the time to fall victim
to the “bull whip effect.” You need
frequent updates on actual end-user demand such as POS data and on actual
inventories through-out your extended supply chain. The weekly bookings review
ensures that incoming orders are routinely compared with the demand forecast.
Waiting until the end of the month or end of the quarter is too late. A
frequent analysis combined with an aggressive pro-active approach to addressing
variances will help minimize the impact of unexpected increases in demand.
B. Your Supply
Management processes need to leverage a collaborative approach
with your key suppliers and utilize the concepts of High Flexibility Scheduling.
A collaborative approach with your key suppliers will ensure that you have
visibility into their “capable to promise.” You should also share information
on your planned production so you do not pass the bull whip effect onto your
suppliers. Through high flexibility scheduling concepts, you need to leverage
the technique of “Plan to a Forecast;
Execute to an Order.” This is not the time for unrealistic expectations of
high forecast accuracy and the last thing you want is an atmosphere where all
forecasts become too high in an effort to drive up inventory and “control” the
shortages.
C. Your executive team should be directing your
supply chain to competitive advantage through use of a Sales & Operations Planning (S&OP) process. This critical
process ensures everyone is on the same page and also provides top management
with the visibility and tools required to navigate in a period of rising
demand. Companies with an exceptional S&OP process are able to analyze the
financial implications of various alternatives and will also direct project
and/or capacity initiatives required to take advantage of new opportunities.
To summarize, the improving economy is creating the
need to leverage processes that may be a little rusty when addressing the need
for upside flexibility. Now is the time to assess your Demand Management,
Supply Management, and S&OP processes to ensure they are up to challenges
ahead. As a final note, an improving economy may lead to increased employee
turnover. Your assessment of these critical processes should include the status
of cross training and documentation to reduce the risk of losing critical
knowledge.
For additional
insights, please visit our website for more information from our Benchmarking
study on Managing Imbalances in Demand and Supply: www.transformanceadvisors.com/publications.htm