Effectively Managing Volatile Supply Chains. Carol A Ptak, Partner Demand Driven Institute

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1 Effectively Managing Volatile Supply Chains Carol A Ptak, Partner Demand Driven Institute

2 Our World Today? Global supply relative to global demand? Global oversupply The practical life of Asset/Infrastructure? Shorter recovery life The massive effort invested in Forecast improvement? Forecast error is still on the rise - building the wrong things The effect of off-shoring and outsourcing to lower cost? Service levels declined, inventory up and expedite costs have increased The effect of billions invested in ERP? Companies are doing the wrong things sooner and faster and paying a premium to attempt to recover The effect of billions invested in Improvement Methodologies? Gains in resource productivity have not translated to sustainable system ROI Clearly Organizations Do Not Understand What Drives ROI Demand Driven Institute logo is a trademark of the Demand Driven Institute. All material copyright Demand Driven Institute. All rights reserved.

3 MRP MRP II ERP APS Deloitte University Press DUPress.com The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

4 Traditional Thinking Old Rules and Old Tools Inside most modern ERP systems is MRP 79% of ERP Buyers implement MRP Conceived in the 1950 s Codified in the 1960 s Commercialized in the 1970 s and it hasn t changed The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

5 The New Normal A Challenge for Flow Global sourcing and demand Shortened product life cycles Shortened customer tolerance time More product complexity and/or customization Pressure for leaner inventories Inaccurate forecasts More product variety Long lead time parts/components Worldwide there are more complex planning and supply scenarios than ever the past is NOT a predictor for the future The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

6 Today s Reality The Bullwhip Effect Bullwhip Effect: An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain. (APICS Dictionary, 15 th Edition) Distortions to relevant information Foundry Component Sub- Assembler OEM Distortions to relevant materials The more connections the worse the effect! The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

7 A Bullwhip Example The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

8 A Blueprint for Sustainable Success 1. Install the Right Thoughtware in the Organization. 2. Embrace Flow to Become Demand Driven. 3. Deploy Smart Metrics to Operate and Sustain the new model. Demand Driven Institute logo is a trademark of the Demand Driven Institute. All material copyright Demand Driven Institute. All rights reserved.

9 System Flow as a Strategy Foundation All benefits are directly related to the speed of FLOW of materials and information through a George W. Plossl, a Father of MRP system. Information & Cash Materials & Information Caveat: Both Materials and Information must be RELEVANT Demand Driven Institute logo is a trademark of the Demand Driven Institute. All material copyright Demand Driven Institute. All rights reserved.

10 All Benefits Means: Service is consistent and reliable when a system flows well. Revenue is maximized and protected. Inventories are minimized. Expenses ancillary and/or unnecessary are minimized. Cash flow follows the rate of product flow to market demand. Protect and Promote Flow = ROI Maximization Demand Driven Institute logo is a trademark of the Demand Driven Institute. All material copyright Demand Driven Institute. All rights reserved.

11 Step 1 Thoughtware - Manage Flow With Relevant Information Visibility Variability The Solution Visibility to the flow of relevant information and materials across the supply chain ensures system coherence and speeds flow: Aligns priorities, schedules and execution Speeds conflict resolution Defines when and where to act People will self organize to solve/act You can t measure what you can t see! Demand Driven Institute logo is a trademark of the Demand Driven Institute. All material copyright Demand Driven Institute. All rights reserved.

12 Four Prerequisites to Embracing Flow Understanding Relevant Ranges Flow-Based Operating Model Flow-Based Metrics Strategic and Tactical Bi-Directional Reconciliation The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

13 Step 2 - Become Demand Driven 1. Embrace Flow and it s implications; 2. Design the Demand Driven Operating Model; 3. Protect Decoupling and Control points from variation; 4. Bring the model to the organization; Demand Driven Institute logo is a trademark of the Demand Driven Institute. All material copyright Demand Driven Institute. All rights reserved.

14 Demand Driven Adaptive Enterprise (DDAE) Model Operational Relevant Range Tactical Hub Strategic Relevant Range Model Configuration Business Plan Parameters Actual Demand DDOM S&OP Strategy Variance Analysis Model Projections & Strategic Recommendations The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved. The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

15 The Four DDAE Model Principles 1.Change is Constant 2.Flow is the Primary Lever for ROI 3.Visibility to Relevant Information Mitigates Variability 4.Constant Adaptation is Necessary

16 The Five Components of DDMRP Demand Driven Material Requirements Planning Strategic Inventory Positioning Position 1 Buffer Profiles and Levels Dynamic Adjustments Protect 2 3 Demand Driven Planning Visible and Collaborative Execution Pull 4 5 The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

17 MRP - Everything Dependent versus DDMRP - Strategically Decoupled MRP Everything Dependent Strategically Decoupled The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

18 Demand Driven S&OP Demand Driven Sales and Operations Planning (DDS&OP) DDS&OP is a bi-directional tactical reconciliation hub in a Demand Driven Adaptive Enterprise (DDAE) Model between the strategic (annual, quarterly and monthly) and operational (hourly, daily and weekly) relevant ranges of decision making. DDS&OP sets key parameters of a DDAE Model based on business strategy, market intelligence and key business objectives (strategic information and requirements). DDS&OP also projects the model performance based on the strategic information and requirements and various model settings. Additionally, DDS&OP uses variance analysis based on past model performance (reliability, stability and velocity) to adapt the key parameters of a Demand Driven Operating Model and/or recommend strategic alterations to the model and project their respective impact on the business. PORTFOLIO DEMAND DDOM MODEL CONFIGURATION NEW ACTIVITIES CAPABILITIES PERFORMANCE TARGETS S&OP Model Projections & Strategic Recommendations Variance Analysis The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

19 Which of the 5 portfolio models best describes your market segment, brand or business unit? YEARS 4 YEARS YEARS 4 YEARS YEARS 4 YEARS 5 Line Extension and Promos Existing Portfolio 0 2 YEARS 4 YEARS 0 2 YEARS 4 YEARS Copyright Richard C. Ling Inc. all rights reserved used with permission

20 Demand & Supply through Life-cycle Discovery & Adoption - R&D/Mktg Investment and Responsiveness Diffusion & Adaptation - Consumer Investment and Responsiveness Penetration & Distribution - Customer Investment and Responsiveness Acceptabl e Forecast Range Profit & Cash Maximisation - Investment Effectiveness and Efficiencies Options to extend/ maximise value Developmen t Launch Growth Maturit y Decline Exit The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

21 Managing Demand Understanding the Assumptions behind the Shape Of The Future Historic Data Providing Trend and Seasonality Baseline? Detail Operational Focus HISTORY SHORT-TERM 2-3 YEARS The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

22 Capability is in the Demand Driven Operating Model Design Make to Stock Assemble to Order The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

23 The Five Components of DDMRP Demand Driven Material Requirements Planning Strategic Inventory Positioning Position 1 Buffer Profiles and Levels Dynamic Adjustments Protect 2 3 Demand Driven Planning Visible and Collaborative Execution Pull 4 5 All material and content copyright 2015 Demand Driven Institute. All rights reserved.

24 Demand Driven Adaptive Enterprise Model Operational Flow Management Operational Relevant Range (Hourly, Daily, Weekly) DDS&OP Strategic Business Management Strategic Relevant Range (Annually, Quarterly, Monthly) Model Parameter Management Model and part parameters Plan Parameters Strategic Direction Actual orders Demand Driven Operating Model (DDMRP, DDDRP, Demand Driven Scheduling & Execution) Business Plan (financial expectations) Strategic Planning (market intelligence, business objectives, strategic decisions) Demand Driven Variance Analysis Demand Driven Model Projections Strategic Options & Recommendations Control, Measure, Adapt & Project The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

25 How Does this fit together? Operational Flow Management Operational Relevant Range (Hourly, Daily, Weekly) DDS&OP Strategic Business Management Strategic Relevant Range (Annually, Quarterly, Monthly) Model Parameter Management S&OP Model and part parameters Plan Parameters Strategic Direction Innovation Strategy Actual orders Demand Driven Operating Model (DDMRP, DDDRP, Demand Driven Scheduling & Execution) Business Plan (financial expectations) Strategic Planning Overarching Business Strategy Aligning & Integrating supporting strategies GTM Strategy Financial Strategy Demand Driven Variance Analysis Demand Driven Model Projections Strategic Options & Recommendations Operations Strategy Measure, Adapt, Project & Innovate The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

26 However good our research may be, we shall never escape from the ultimate dilemma that most of our knowledge is about the past, and all our decisions are about the future. Ian Wilson

27 STEP 3 Deploy Smart Metrics Smart Metrics Drive Flow AND ELIMINATE CONFLICT Metric Objectives The Message Behind the Objective Strategic Operational System Reliability System Stability System Speed/Velocity System Improvement & Waste Reduction (Opportunity $) Local Operating Expense Control Strategic Contribution Execute to the model, plan, schedule and market expectation; Pass on as little variation as possible; Pass the right work on as fast as possible; Point out and prioritize lost ROI opportunities. Spend minimization to capture the market opportunity Maximize system return according to relevant model factors (volume and rate) The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

28 Tackling the Biggest Hurdle - Thoughtware Stage 1 Net Profit Cost Cash Velocity Investment ( ) ROI Cost-Based Efficiency Emphasis Stage 2 Net Profit Flow Cash Velocity Investment Flow-Based Efficiency Emphasis ( ) ROI The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.

29 Case Study

30 Questions? Demand Driven Books: Find out More Online: ondemand.demanddriveninstitute.com (free downloads, cases, webinars, company presentations) The DDI logo is a trademark of Demand Driven Institute. All content copyright Demand Driven Institute. All rights reserved.