Six secrets of supply chain planning masters
Mark Pearson -- Logistics Management, 11/1/2009
Consider the new landscape facing today’s supply chain managers: new global supply sources; customized products and services; faster product development life cycles; emerging markets and customer segments. Small wonder that supply chain planning is more complex now than ever. But what exactly are the toughest challenges and how are they being surmounted? Answering these questions was the goal of a recent Accenture research effort.
Not surprisingly, most of the 240 companies we analyzed struggle with one or more aspects of forecasting demand and planning supply. For example, respondents’ average forecast accuracy at the SKU level is just 75 percent. Companies tend to be more accurate (90 percent) with forecasting plant production (production adherence to schedule) and shipping complete orders (respondents’ mean fill rate is 95 percent). Across the survey population, delivery lead times average five days.
Accenture also sought to understand the nature of high performance when it comes to supply chain planning. What capabilities, in other words, are associated with industry’s best supply chain planners?
Toward this end, we identified companies that finished in the top 10 percent of all respondents in cost effectiveness and customer service. We titled this elite group supply chain planning “masters.” Those in the bottom 10 percent we labeled “laggards.”
As shown in the graphic, the difference between the two groups is dramatic. We then identified numerous noteworthy differences in how the two groups approach supply chain planning.
1 Planning masters collaborate with key customers and suppliers. Compared to the general respondent population, supply chain planning masters are better at reaching out to customers and suppliers. Consequently, they excel at integrating planning operations all the way from raw materials to the end customer.
Nearly twice as many masters as laggards tailor their planning processes by product segment. Masters are also more likely to have formal supplier agreements in place and to link financial incentives and penalties to the performance of suppliers. Lastly, masters work harder to systematically leverage customer data in supply chain planning.
2 Planning masters create dynamic planning models. Masters are exceptional at using up-to-date information and dynamic planning models to respond rapidly to supply chain disruptions and to mute the impact of those disruptions. Masters are also better than laggards at using technology to automatically monitor key events. They also extend that edge by accurately capturing “true” demand data when customers first place their orders.
3 Planning masters excel at demand shaping and demand sensing. Think of demand sensing as predicting what demand will arise, as opposed to simply reacting to incoming orders. Shaping demand, on the other hand, is all about steering customers toward available products and services. Compared to laggards, more than four times as many masters said they can predict demand with greater than 80 percent accuracy levels. And nearly twice as many masters said their ability to shape demand was “good” or “excellent.”
4 Planning masters emphasize total product life-cycle planning. The variables noted at the beginning of this article underscore why it’s so important for companies to know precisely where their offerings reside along the launch-to-retirement life cycle. Such knowledge can keep companies from over- or under-stocking product, spending too much (or too little) on marketing, and investing too much (or too little) on refinements.
This is the essence of “total product life cycle planning,” a discipline that supply chain planning masters typically pursue with vigor. For example, masters are more likely than laggards to proactively reduce inventory levels of products that are near the end of their lives. However, masters are less likely to base supply chain plans solely on the age of the product.
5 Planning masters create segmented supply chain plans. Segmentation (by product, market/channel, and geography) is an important key to understanding, managing, and shaping customer demand. Masters typically incorporate all three dimensions into supply chain planning. Our survey results show that they surpass laggards when it comes to generating detailed forecasts by product/family and channel as well as incorporating local market intelligence into forecasting and planning.
6 Planning masters are receptive to new technologies, processes and operating models. Masters are way ahead when it comes to investing in planning technology and generating sizeable returns on their technology investments. They’re more likely to have centralized supply chain planning departments for all products and channels, and to integrate supply chain planning processes and systems with financial and pricing operations.
Clearly, mastery in supply chain planning is a worthy goal, given its connection to efficiency and service excellence. But how have supply chain masters actually gone about achieving their planning-leadership positions? We’ll examine several strategies in the January issue of Logistics Management.
| Planning Masters | Planning Laggards | |
| Average inventory turns per year | 30 | 5 |
| Average customer order fill rate | 99% | 90% |
| Production adherence to schedule | 98% | 90% |
| Forecast accuracy | 82% | 75% |
| Average lead time for customer delivery | 5 days | 9 days |
| Average throughput time | 7 days | 15 days |
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