I interviewed Ara Surenian who discussed Lack of a Fundamental Understanding of How Planning Works in Most Small to Middle Market Enterprises.
It’s nice to speak with you today, Ara, and I’m looking forward to hearing your views on the lack of a fundamental understanding of how planning works in most small- to middle-market enterprises. Can you first provide a brief background of yourself?
Sure. My background is, I’m a mechanical engineer by training; worked in manufacturing, production, distribution environments as engineering, plan manager, and so on. Also received my M.B.A. later on but, frankly, used my engineering more often than not. I’ve worked in industry and, back in 2004, started my own practice focused on lean-manufacturing implementation to help drive productivity, efficiency improvements in companies.
Back in 2006, I started to develop DemandCaster, which is a Web-based software product focused on forecasting and planning functionality for companies. This was largely done in response to me identifying a general shortfall in how companies manage and plan demand and supply in companies.
How does planning work in most small- to middle-market enterprises?
One of the things I’ve discovered since 2007—since we’ve been doing this as the only part of our business—is that a lot of companies really struggle with the fundamentals of planning and setting their MRP systems to properly manage the requirement-planning process. Case in point: lead times are not entered correctly and, in some cases, are never entered; order points and safety stock values are missing. As a result, a lot of companies—because MRPs and ERPs are inherently complex and need constant management oversight to update and change settings over time, what happens is, these companies stop managing these, and they go into more reactive mode, where, instead of allowing the system to churn the requirements—particularly if they’ve got long lead-time items they’re procuring or producing, they end up working in a very short-term mode, and then they pull out the might spreadsheets and pull the data out of their systems and start managing the planning process using spreadsheets.
Virtually every customer we work with is doing that. They weren’t able to really understand how their system works; as a result, they go to the old standby Excel spreadsheet to help drive their plans forward. They build requirement-planning functionality in a spreadsheet in order to try and keep up or stay ahead of demand. The interesting thing is, Dustin, that it’s not just limited to a small company; I see this in small companies, midsize companies, and in some larger companies as well. It’s because managing ERPs and MRPs is inherently complex. Also, the amount of people who are really knowledgeable in that field are hard to come by; there aren’t many APICS-type certified folks who really understand in a high level, at a deeper level, the detail how this function works. Many of them have come up through the ranks or they’ve always done purchasing, so they were hired and put in place, and then they build their systems off to the side and manage their work in an appropriate manner.
Why should planning be done this way?
I would say planning shouldn’t be done this way; it should be done more allowing the system to do it. The reason it’s not done that way is because it’s hard. One of the things I’ve discovered is, as a provider of planning software, our system requires that all these attributes be set properly, and because it’s a very visual tool, what it actually allows people to realize is the importance in managing these factors effectively so they see the implication of not having lead time. By seeing and experiencing it in a visual manner, it allows companies to start changing those attributes and then driving it back and implementing it into their MRP/ERP system to allow it to run more effectively.
The inherent problem is because people don’t understand how MRP works because they’re not trained in it; they’re scared of it. By bringing all the data out and putting it in front of them in a visual way, it allows them to see the implication of the poor planning policies they’ve adopted or were forced to follow. In turn, it allows them to start fixing the core data issues that plague their ERP and then allows the ERP/MRP to function as it was designed.
That’s one of the unintended consequences of the type of service we provide. We spend a lot of time teaching and getting folks to understand how planning is supposed to function and how requirement planning is supposed to function. In doing that, it allows their systems to start operating accurately.
Case in point is that with a company today, we’re working through some issues, and we saw a lot of negative on-hands. This was an issue that was plaguing them, and the way they would deal with it was to ignore it. Now, because the planning system is forcing them to look at these things, they’re addressing it, they’re implementing cycle-counting processes, they’re more actively addressing the inaccuracies in their data, setting proper lead times so they can order and provide enough notice to their suppliers so they can be delivering on time. People see the value and importance in having a system run with the proper attributes and drive that forward.
Can you share some success that you’ve seen?
We’ve seen companies where they were 50 percent service levels hit 80, 90-plus percent service levels within six months by following a disciplined process of applying realistic values in their planning process and then following through on those values in a consistent manner. Seeing inventory be cut in half, seeing improvements in cycle time, improvements in service levels, reduction in stock outs just by understanding how systems are working, time phasing, planning properly, setting appropriate safety stock levels, and understanding how safety stock levels are actually calculated. It really transforms these companies into much more proactive entities.
These are things that APICS teaches, but a lot of people are never exposed to that. Small- to middle-size companies tend not to be able to hire the best of the best out there and the most experienced, so they do with what they have. We feel our role, as we provide a tool and a service, is to also help them make their entire sales-and-operation process function more effectively as well by dealing with and addressing some of the shortfalls in their planning attributes.
Thanks, Ara, for sharing today on this topic, which is very relevant to the supply chain community on this blog.
Thank you, I appreciate you reaching out.
About Ara Surenian
Provider of the Demand Caster Demand and Supply Planning and S&OP platform.