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FinanceJuly 19, 2023

4 signs it's time to improve your supply chain planning process

What are indicators that your supply chain process poses a threat to operations? Here are four signs it’s time to improve your supply chain planning process.

In recent memory, supply chain issues have plagued every manufacturer, retailer, and industry.  Find us an industry untouched by disruption, inflation, or shortages, we’ll wait.  

Indeed, supply chain planning, and the ability to re-plan, are more important than ever. And while supply chains have always been vulnerable, their biggest threat isn’t just external disruptive forces (those are a given.) It’s supply chain planning process itself.  

Fragmented, inaccurate, manual, rigid: these are four things a supply chain planning process should not be, yet it’s the hand many supply chain managers were dealt. 

So, what are indicators that your supply chain process poses a threat to operations? Here are
four signs it’s time to improve your supply chain planning process.
Supply Chain Planning
Align the supply chain. Balance supply and demand. Collaborate across functions.

Sign 1: Supply chain plans completed in isolation

Each link of the supply chain — demand, supply, production, inventory, finance, sales, operations — hinges on the plan before it. Despite the inherent interconnectedness of supply chain plans, many managers find themselves manually cobbling together a patchwork of applications, processes, and systems to create and adjust plans.  

It’s both common and problematic for sales and operational data to live in one system, while demand forecasting is executed in another, and production data is housed in an entirely different region. With an isolated process like this, the manual assembly of each plan does nothing to foster an agile or complete response when supply or demand changes. One study by Supply Chain Dive found that 39% of respondents believe manual processes are the root cause behind slow reaction times to change. Another 20% identified disconnected core systems. I’d venture to say, it’s a combination of both.  

What’s more, I would add that disconnected supply chain plan creates accountability issues. If plans are fragmented and isolated, who’s responsibility is it to adjust the plan or communicate changes down the chain? Without clear ownership, it’s easy to see how communication issues can have significant downstream effects.  

Sign 2: Declining service levels, increasing costs

Customer service levels going down, month over month, could be indicative of bigger supply chain management problems. Two reasons for declining service levels could be: 

  1. A disconnected supply chain: A cost-cutting measure in one area that results in a spike in another area is the hallmark of a disconnected supply chain. When one part of the supply chain can’t see the domino effect in other areas, good intentions can lead to costly financial outcomes or operational issues that trickle down to the customer’s experience.  

    It’s difficult to get an accurate picture of what’s happening when data doesn’t efficiently flow through the chain. The result? Inventory orders that are disconnected from working capital, supply that’s divorced from demand, and supply chain decisions that are made without paying mind to the bottom line.

  2. Inaccurate forecasting. Whether inflated or underestimated, incorrect forecasts impact service levels and costs. Let’s say you’ve over-anticipated demand. The symptoms of an inflated demand forecast manifest in inventory — specifically, excess inventory and lower inventory turns. Of course, this doesn’t just mean you’re holding onto more stock. It means you’re hemorrhaging capital across supply, labor, production, and transportation for every forecast that’s off the mark. 

    If you’ve underestimated demand, you’ll be faced with supply constraints. This manifests as stockouts and inventory shortages which prompt the entire supply chain to change course. To remedy shortages, production must be expedited, supply must be procured, and production lines must change over. Of course, like anything on a short timeline, changes are billed at a premium.  

Sign 3: You’re faced with financial disconnects

Every supply chain decision eventually shows up on the balance sheet. Excess inventory eats away at working capital. Rising delivery costs can blow budgets. Models by McKinsey show that “a single prolonged production-only shock would wipe out between 30 and 50 percent of one year’s EBITDA for companies in most industries.” 

Changes to labor, suppliers, orders, delivery methods, the production line, demand, and procurement can happen in an instant. Without a direct link to the financial truth, reactions are made blindly to the long-term or down chain effects. Difficulty setting COGs targets, predicting revenue, or adjusting budgets to deal with fluctuating delivery costs are clear indications that supply chain plans are disconnected from finance.  

Sign 4: Sudden change causes chaos

Supply chains are under constant stress. Change comes with the territory. Of course, traditional planning methods enable you to anticipate some things — seasonality, weather, customer surges, and economic cycles.  

But a pandemic? A sudden war? A factory fire? A labor strike? Under these circumstances, rigid, manual systems do nothing to enable a hasty response. Traditional forecasts are one-dimensional and fail to accommodate the swift finance-forward, multi-level response required by a sudden change.  

As Vice President of Supply Chain Services at ARC Advisory Group, Steve Banker wrote in Forbes, “Traditional demand management is based on time-series trend forecasting. Time-series trend forecasting means taking an inside-out approach, relying on an organization’s historical, internal data to predict demand. This works OK … until the world changes.”  

Planning is the key to avoiding chaos. You can minimize chaos by planning for different chaotic elements — and being able to adapt plans when external chaos ensues. 

Supply chain planning software isn’t a nice-to-have, it’s a must-have

Supply chain plans are interdependent, data-heavy, and subject to change. The question isn’t if supply chain planning software is needed; it’s abundantly clear that automation is necessary to improve resilience and responsiveness. Instead, the question is, what should you look for in software? We have the answer. 

Download The ultimate buyers’ guide to supply chain planning software to learn everything you need to know to choose a supply chain planning solution for your organization.

Alessio Lolli
Vice President, Global New Client Engagements

Alessio has over 10 years experience implementing and enhancing the CCH Tagetik solutions based on customer’s specific needs.  Alessio’s experience encompasses a wide range of activities including  helping the consulting team secure the best application design to meet customer’s specific requirements and helping the development team deliver best of breed functionality.

Alessio is now Vice President, Global New Client Engagements.

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