In a previous blog titled Supply chain gridlock and the hunt for more capacity, we observed that Group planning in the tactical or S&OP horizon could simplify this SKU complexity in Supply Planning and empower planners to produce a better plan. The key to effectively transitioning between long-term planning to near-term planning is to eliminate sequential, siloed planning and abrupt handoffs and to treat the entire plan as a single continuous plan across the entire planning horizon. A foundational, critical building block to a single continuous plan is to manage Group-Member, or Group-SKU, Adherence intelligently. In this blog we delve into the relationship between SKUs and Groups and how Replan effects a smooth transition of plans across time horizons.
What is Group-Member Adherence?
Several business situations require gathering related entities (Members) into a collection (Group) based on certain attributes (such as colour, size, location, allergen list and so on). Members and Groups are related to each other in single- or multi-level hierarchies, often referred to as tree-structures or parent-child relationships.
Such structures serve to organise and simplify data for further analysis. Certain other elements of information (such as sales or production volume, revenue, price, cost, run-rates, capacity and so on) are then analysed using a variety of techniques ranging from simple “math” and rules all the way to complex optimisation algorithms. This grouping and associated analysis is what we refer to as Group-Member Adherence
Supply chain planning offers several use cases in both Demand Planning and Supply Planning where such Group-Member Adherence approaches are required.
Demand Planning – simple relationships, straightforward math
Various dimensions of demand or forecast volumes – such as Product, Location, Sales regions and so on – are organised in hierarchies. For example, Sales regions may be organised as Global → Europe, Americas, APAC, Middle East → Nordics, DACH, Southern Europe. Similarly, SKUs are grouped into Product Families. Sales volumes may be forecast or recorded at any level. They may then be rolled-up (aggregated up) usually using simple addition or summing up. They may also be rolled-down (disaggregated down) using simple rules such as percentages or proportionality. Absent any constraints or complicated business policies, such simple aggregation/disaggregation logic suffices for analysis and decision-making.
Supply Planning – higher complexity, greater sophistication
Supply Planning is inherently more complex than Demand Planning. Supply planners grapple with planning objectives such as demand fill maximization, cost minimization, resource utilisation maximisation and stock minimisation, often trying to balance competing or contradictory goals. They tackle constraints such as capacity availability, material availability and stock targets, production run-rates, yields, lead-times and various costs.
Secondly, Supply Planning is characterised by having to manage production complexity and plan a large number of products and their variants, giving rise to thousands of SKUs. This is especially prevalent in Process Manufacturing industries such as CPG, F&B, Chemicals and Pharmaceuticals. This SKU-explosion results in planners having to manage thousands of SKUs across the entire planning horizon from Strategic (long-term) through Tactical (mid-term or S&OP and S&OE) through Operational (near-term or S&OE and Scheduling).
In our previous blog titled Supply chain gridlock and the hunt for more capacity, we argued that Group planning in the tactical or S&OP horizon could simplify this SKU complexity in Supply Planning and empower planners to produce a better plan. Plants, production lines, resources, parts, raw material and storage locations can all be represented as Groups and Members. For example, a meat processing plant may group all its production lines into kosher and non-kosher lines, with individual lines within each group. However, current planning techniques, processes and systems, including those from leading solutions providers, often force planners to use the same level of SKU and part number specificity even in long-term planning.
In the same blog, we also discussed that in the quest for improved operational outcomes (such as increased capacity availability), mid-term or tactical planning plays a mission-critical role. Mid-term planning 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.
The key to stepping down from long-term planning to near-term planning is to eliminate sequential, siloed planning and abrupt handoffs and to treat the entire plan as “a single continuous plan across the entire planning horizon”. This is a recent innovation we announced earlier this year and discussed in a blog.
A foundational, critical building block to a single continuous plan is to manage Group-Member, or Group-SKU, Adherence intelligently. Current approaches, including those from several dominant solutions like SAP APO, rely on simple aggregation and disaggregation, as used in Demand Planning. This is insufficient and often results in incorrect or “suboptimal” plans. The complexity involved in Supply Planning requires that the approaches used to roll-up and roll-down production- and stock- quantities be more intelligent and advanced than simply summing up or proportioning down. Applying advanced algorithms in this area empowers planners to manage the complexity well, improve the quality of analysis and accelerate the speed of decision making.
The Replan solution for Group-SKU Adherence
Replan’s solution for a single, continuous plan incorporates intelligent Group planning, which in turn is powered by our solution for Group-SKU Adherence. The solution for Group-SKU Adherence is comprised of three main components:
- Group membership management: This enables planners to create and manage Groups based on attributes and affinities that are meaningful to the business. Individual SKUs (or more generally, Members) are assigned to a Group, and can be a part of multiple groups. For instance, a 1 liter can of Red paint (a SKU) can be a member of a group of all Red paint (Product Family 1) and also a member of a group of all 1 liter products (Product Family 2). Replan allows planners to specify constraints and objectives both at SKU level and Group level.
- SKU-to-Group Adherence: Once SKUs have been assigned to one or more Groups, Replan’s planning optimisation algorithms can utilise user-provided constraints and objectives at the Group or SKU level. Alternatively, Replan’s algorithms can compute Group-level constraints and objectives from SKU-level inputs using a variety of techniques, including a simple sum or maximum if applicable.This enables planners to set constraints at a Group or SKU level and be confident they will be respected across the complete planning horizon. Where constraints are set at SKU level, Replan enables planners to control how those constraints are maintained at Group level.
- Group-to-SKU Adherence: Once a Group-level plan has been created that respects constraints and objectives set at a Group-level, it may become necessary to break the Group-level plan down to its SKUs and create a SKU-mix plan. This is most critical when transitioning a plan from one part of the planning horizon to the next, such as from the S&OP horizon to the S&OE horizon. In order to ensure a smooth breaking down or transitioning of the plan, advanced algorithms ensure that SKU-level constraints and objectives are adhered to even while Group-level objectives continue to be respected.
Benefits with Replan
Replan’s approach to Group-Member Adherence is being proven out at our customers through superior Group planning. Our customers are experiencing measurable benefits even as they embark on their journey to a single, continuous plan.
A leading F&B manufacturer, implementing Replan’s supply chain planning solution, addressed all the key challenges the planning team was struggling with before. Mid-term group planning capability has improved forecast accuracy by smoothing out variation and reducing clutter. It relieved the planning teams of manual, time-consuming tasks, allowing them to focus on more strategic assignments.
The results include:
- 12% increase in production volume throughput (with no additional investment)
- 10% increase in capacity availability
- 25% decrease in changeovers
- Significant gains in team productivity and morale
In addition, users can access the solution to rapidly run and solve complex scenarios on their own production data, enabling them to further reduce risk and quickly answer strategic questions in meetings.
Another customer is the largest B2B specialist supplier of pre-cooked meat, plant protein, fermented and dried sausage ingredients outside of the U.S. With what Replan has proven, the customer expects a potential margin contribution increase of over €1 million within 12 months.
Read more about our customers and their experiences here.
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