“I think most [supply chain executives] are under financial pressure because so much working capital gets tied up in inventory…, and much of it is inventory they don’t really need. It’s the wrong stuff.”
That’s what Raymond Brown, Director of Operations for Orchestr8, said recently in an interview.
Marching to the wrong plan
So, how is it that so much inventory (and cash) gets tied up in “the wrong stuff,” while customer orders are delayed and significant waste of time, energy and money is incurred for expediting inbound shipments from suppliers and outbound shipments to customers?
The answer, according to Brown, is simple: “Most companies and supply chains are marching to the wrong plan!” They are executing based—not on actual customer demand, but—on forecasts of demand. And, the one thing every supply chain manager and executive knows about forecasts is: they are always wrong.
Damages and expenses stemming from executing to forecasts don’t end with late shipments and high expediting costs.
No! Brown says, “When supply chain managers bump up against actual customer demand,” they all too frequently find themselves “breaking into their production schedules,” breaking setups and further disrupting flow. They find themselves adding overtime to compensate and to catch up to the actual customer demand that differs from their forecasts.
They also end up pay “too many planners” and expeditors who, all too often, spend the first half of each day trying to figure out what needs to be expedited, and the second half of their day scrambling to expedite based on their findings.
“The majority of companies” we meet today, Brown reports, “have already been on their journey”—their search for lasting improvement in their supply chains and profits—“for two years or longer.” By this time, according to Brown, they have begun to recognize that “fixing forecasting is never really going to happen or produce long-term positive results.”
Brown has accolades for the work being done by Chad Smith and Carol Ptak of the Demand Driven Institute (DDI), as well, saying that the Institute has contributed effectively to worldwide awareness of the principles upon which DDMRP (demand driven material requirements planning) is built, and to its ability to deliver rapid ROI (return on investment) when the principles are applied conscientiously.
Many enterprises that might previously have sought improvement through “an upgrade” or new “bolt-on for their existing ERP [Enterprise Resource Planning] system” are now turning to companies like Orchestr8. When the see what Orchestr8 is capable of doing for them, the executives and supply chain leaders simply say, “Hey! Wait a minute. Let’s just get Orchestr8 and we will get far better and faster ROI.”
“Hey! Wait a minute. Let’s just get Orchestr8 and we will get far better and faster ROI.”
What makes DDMRP and a solution like Orchest8 so effective?
In the interview, Brown outlined several crucial factors that make the demand-driven approach—especially as implemented in Orchestr8—highly effective for those who adopt it:
- Standardization – In a diverse, multi-echelon supply chain (even within a single enterprise) it is not unusual to find different plants, divisions, or departments all managing their supply chains and supply chain decision-making in different ways. Frequently this is because the managers have already discovered that their existing “standard” tools—like MRP, MRP II and others—are not effective for them. So, they have developed their own tools (in Microsoft Excel, for example), implementing their own concepts, rules-of-thumb and calculation algorithms. However, once they see the simplicity and effectiveness of the demand-driven approach and Orchestr8’s implementation of these methods, the can finally agree on an effective and standard approach to managing supply chain execution.
- Ease of use – Unlike the complex—sometimes extremely complex—algorithms that underlay MRP, MRP II, and the forecasting systems that feed into MRP, the algorithms employed by DDMRP and Orchest8 are simple. So simple, in fact, that during the initial training and implementation stages, the users will be asked to work out the calculations for buffers using paper, pencil and a handheld calculator. As Brown says, “Orchest8 is definitely not a ‘black box.’ People understand it and trust it.” This makes it easy for the use it and adopt it comfortably.
- Unanimous decision-making – The data presented by DDMRP solutions like Orchestr8 are so clear, so concise, and so trustworthy that the typical S&OP arguments about what should be done, and how priorities should be set, evaporate entirely. The simple color-coding and value assignments let everyone from the C-suite to the shop floor find unanimity as to where the priorities lie.
What about getting started with DDMRP?
According to Brown, getting started is really quite simple. “Typically,” he tells us, “we begin by asking our clients to describe their current S&OP process.” From there, Brown says, “We simply show them how what they are doing today will translate simply and effectively into standard processes with the DDMRP solution (Orchestr8).”
“When they see how easily and effectively their planners will be able to assess and prioritize any situation that might be encountered—with a fraction of the effort—they are anxious to get going,” adds Brown.
So, what about you? Are you still struggling—trying to balance inventory, forecasts, and the conflicts between actual and forecast demand? Isn’t it time to see if another approach will work more effectively for you?
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[Also published at Orchestr8.com.]