Replan | Supply chain gridlock and the hunt for more capacity

Group Planning to the rescue!

By now, you’re most likely feeling the impact of the global supply chain disruption, buffeted by the continuing effects of the pandemic, weather events, labour shortages, and returning consumer demand. As a manufacturer, that raw material, intermediate or finished product you desperately need from your global best-cost supplier is on backorder. Worse, it’s sitting in a distant warehouse waiting for a shipping container. Or it arrived but is waiting for trucks and drivers to bring it to you. All the while, that inventory is ageing and probably deteriorating in quality.

Global supply chains delivering a strategy of ‘buy, make and sell anywhere’ have long been considered the answer for resilient and de-risked business operations. However, the current gridlock has exposed significant vulnerabilities, with all indicators pointing to this situation lasting for months, if not years.

That additional capacity you were counting on from your suppliers seems to have evaporated. Your customers are drumming their fingers on the table and could soon start searching for alternative sources, taking your potential revenue with them. Over the long term, you may be able to execute strategies such as multi-sourcing and near-shoring to de-risk your supply chains, increase capacity and customer satisfaction. However, that long-term may mean little if you can’t get through the here and now. So, what can you do?

Unlocking capacity NOW

In the short-to-medium term, additional capacity may be hidden in your current operations, waiting to be released with the help of intelligent planning.

Our recent work with a European Food & Beverage manufacturer shows that up to 13% additional capacity could be unlocked by quickly adopting a new approach: group planning. This transformative supply chain planning approach is designed to quickly identify and manage capacity constraints in the mid-term planning horizon, increasing sales and meeting growing consumer demand.

Traditional approaches to supply chain planning

Before we delve deeper into group planning, let’s take a closer look at why today’s supply chain planners are finding it difficult to see capacity bottlenecks.

Organisations generally view plans and make decisions in three time-horizons: near-term (operational), mid-term (tactical) and long-term (strategic). Collectively, this is often called the planning funnel: broad in scope with fewer but bigger impact decisions at the strategic end, and progressively narrowing in scope, increasing in number and smaller impact decisions towards the operational end.

The traditional planning execution funnel

As you might expect, the near-term is concerned with what is to be bought, made, moved and sold immediately. It deals with SKUs, part-numbers, days-to-seconds level of specificity for the systems and humans to actually execute in the supply chains.

The long-term deals with big impact investments and decisions on how to structure and configure a supply chain to best meet the organisation’s objectives – revenue, cost, ESG and so on. Strategic planners usually work with very high levels of information and data abstraction and make significant assumptions around external factors, such as economy, competition or technology, and internal factors like product lifecycles, facility location, capital and inventory investments. They operate in monthly, quarterly or even annual time-buckets.

The importance of mid-term planning

Mid-term planning then carries the burden of effectively bridging the gap between long and near-term. The ultimate success of the near-term planning and execution perhaps disproportionately rides on how well mid-term planning has been able to ‘step down’ all the ambiguity and assumptions resident in long-term planning down to an acceptable level of specificity.

Mid-term planning, and by extension the human mid-term planners, carries two critical responsibilities:

To identify, alleviate and allocate constraints effectively
To establish the inventory operating boundary conditions (safety stock and max stock)

These constraint and inventory decisions become the operating limits within which the near-term plans must exist. Near-term scheduling will typically account for a period up to four weeks into the future. As a result, planners will rarely have the ability to secure more capacity or more inventory in the near-term planning horizon in which they operate. Therefore, as mentioned earlier, mid-term planning carries a disproportionate burden to ‘get it right’.

Current planning techniques, processes and systems, including those from leading solutions providers, often force mid-term planners to use the same level of SKU and part number specificity used by their near-term colleagues. This results in mid-term planners having to deal with several challenges, including:

Huge volumes of data which make it harder to hone in on true capacity problems in the supply chain by bogging the planners down in detail.
Demand at the SKU-level in the mid-term horizon tends to be highly variable from one planning iteration to the next.
Such variability creates a sense of constant change, which planners struggle to understand and explain to stakeholders, including their near-term planning colleagues who strongly rely on the accuracy of the mid-term plan.
Production and capacity realities such as product transitions and changeover time and costs often go unaccounted for.

All of these hurdles add to the instability in the resulting mid-term plan. Ultimately, more instability results in less confidence in the plan.

Accessing hidden capacity with group planning

Group planning is a transformative planning approach designed to simplify mid-term data so that planners can quickly identify and manage capacity constraints in the mid-term planning horizon. Planners can begin with SKUs and part numbers and quickly assign them into groups based on attributes such as colour, bottle size, pack size, chemistry, to name just a few. Subsequent planning and optimisation algorithms take this grouping into account while identifying, alleviating or allocating capacity and inventory constraints. However, most ERPs and planning tools don’t support group planning.

By aggregating SKU-level demand, both forecasts and orders, based on planner-controlled demand groups, it declutters planners’ worklists and helps them focus on the true bottlenecks. Allocating constrained capacity and inventory targets to demand groups instead of individual SKUs will increase plan stability and reduce variability caused by SKU-level demand shifts over time. By incorporating production realities such as production wheels and yields, it makes the subsequent mid-term plan more realistic and accurate. The result is increased plan stability, capacity utilisation and throughput.

How Replan’s group planning can help resolve supply chain gridlock

With the current supply chain gridlock is here to stay for a while, organisations should look into adopting the new approach of group planning to release additional capacity that quite possibly they didn’t know how to find before.

If you’d like to learn more about group planning and how you can get the most from your grouping logic to unlock capacity, get in touch with one of our experts today.