Beyond demand planning

By William C Copacino -- Logistics Management, 5/1/1998

Demand planning has emerged as a critical enabler of superior supply-chain performance. There are several reasons why an effective sales and operations planning (SOP) process, which links forecasting, inventory planning, and manufacturing scheduling and sourcing, is critical to supply-chain performance.

First, it serves as an integrating mechanism by which sales, marketing, logistics, and operations can synchronize their activities. Second, it creates significant economic value by reducing uncertainty and generating lower inventories, smoother production operations, and higher levels of customer service, particularly improved product availability.

Over the past decade, most companies have focused significant attention on enhancing this SOP process and employing the powerful planning software that now is available. For most of them, these efforts have dramatically enhanced their supply-chain performance and competitiveness.

A few companies are going beyond demand planning and are experimenting with a new breed of software that is just now emerging--real-time inventory deployment. Real-time inventory deployment permits continuous monitoring of inventory in the entire supply chain. It also signals when actual demand and inventory availability differ from planned levels.

Here is an example of what real-time inventory-deployment software can do: When sourcing a shipment of tires from Europe to replenish four distribution centers in the United States, the traditional approach would be to forecast demand in each market area served by a DC, project net inventory availability against expected demand, and generate a replenishment quantity for each of the DCs.

Real-time inventory deployment can supplement this demand planning process by continually assessing supply and demand imbalances. For example, suppose the Atlanta DC has experienced much greater demand than had been forecast. When the shipment reaches the U.S. port, the software can redirect a greater portion of the shipment to Atlanta. Similarly, it can signal the need to expedite or alternatively source a shipment if supply-side delays occur. In essence, real-time inventory-deployment software provides real-time status and decision support for inventory throughout the entire supply chain.

As we move to a more global business environment, capabilities such as real-time inventory deployment will be an important value-added tool for enhancing supply-chain performance.

William C. Copacino is managing partner of Andersen Consulting's Strategic Services Practice for the Americas. A frequent speaker before business and professional groups, Mr. Copacino has a number of publications to his credit, including the book Supply Chain Management: The Basics and Beyond (The St. Lucie Press, 1997). He is based in Andersen Consulting's Boston office, 100 William St., Wellesley, MA 02181. Phone (617) 454-4480.