Pearson on Excellence: Exception management is becoming the rule

Globalization and the quest for cost reduction have pushed supply chains into far-flung geographies. They’ve also forced companies to rely more heavily on contract manufacturers.

These changes often have positive economic consequences, but they’ve also made supply chains less stable and supply chain management more complicated. Plus, it’s all happening in the midst of a digital revolution that—by encouraging customers to be more demanding and capricious—has raised demand volatility and shortened product and service lifecycles.

Not surprisingly, the above events have increased the volume of exception management. It’s now not uncommon for companies to have increasing workforces whose job is to deal with the unpredictable. These professionals often have decent supply chain visibility, however their efforts are frequently undermined by functional silos and ineffective or nonintegrated technology.

To become exceptional at exception management, companies must first accept the fact that sequential planning is largely obsolete. Supply chain planning used to be pretty straightforward: match supply with demand via a linear, forecast-based process. However, in today’s business climate, customer demands can change so fast that forecasts may be obsolete even before they’re finalized. Exceptions often overwhelm the planning process, and even sales and operations planning (S&OP) may be unable to deal with the volume of exceptions.

It’s also important to acknowledge that supply chain visibility alone isn’t enough to master exception management. Real-time, end-to-end views of the supply chain are clearly important, but data—which is what visibility really gives you—is not innately useful. And all that information doesn’t necessarily reveal critical risks. Most surveyed executives understand this. Asked via a recent Accenture survey to describe the biggest obstacles to achieving supply chain optimization, only a small fraction cited “lack of visibility across the business.”

Not surprisingly, the master key in exception management is what you do with your data—how you optimize and industrialize exception management. There are several, particularly vital ingredients in this process:

Analytics-enabled segmentation—leveraging a catalogue of automated protocols governed by business rules—can make it possible for planners to tackle exceptions individually, based on a customer’s quantified importance to the organization. A low-impact issue might be resolved automatically. An event of greater importance—such as a delivery truck that can’t reach a coveted client—might require a planner’s intervention.

Scenario modeling—translating data into potentially feasible solutions—is also vital. Apprised of short-term changes, planners can make meaningful decisions by aligning events with pre-formulated scenarios that consider issues such as customer importance, cost-to-serve, and inventory availability. Of course, a problem deemed critical might need to be further reviewed. But even in this case, the planning team arrives properly equipped, able to present viable, modeled response options to leadership.

A centralized, cross-functional planning team—empowered to analyze exceptions, identify root causes, and coordinate appropriate responses—is a potentially superior way to address exceptions iteratively and consistently. The aforementioned research revealed that only 12 percent of companies coordinate supply chain processes via a central organization that makes and implements decisions, manages exceptions, and measures performance. As exception management gains stead, these numbers will likely swell.

In summary, a centrally orchestrated approach—underpinned by leading-edge technology—is what more and more companies need to quickly identify concerning demand and supply shifts. Such an approach can make every element of the business more connected, responsive, and agile.

Planners with access to supply chain-wide information can manage workflows digitally and change product flows to suit shifting customer needs. They make informed decisions that transcend individual supply chain functions, as well as business functions.

Organizations can start to build orchestrated supply chain planning capabilities by gauging the current amount of time, funds, and resources devoted to dealing with exceptions and determining if these approaches are economically prudent and, even more importantly, sustainable.

Chances are good that they are neither. It’s also likely that too much of management’s time is being consumed by requests to resolve complex exception challenges. For all of these reasons, it may be time to think beyond supply chain visibility and become exceptional at exception management.