January 26, 2015 by Nathalie Regniers Infor SCM & PLM
Jan. 26, 2015 – Manufacturing is dramatically different than it was even a decade ago—and it will change even more radically and rapidly in the next few years, with far more emphasis placed on speed and customization.
Ready for real-time planning?
Today orders for existing products come from every corner of the globe—and disappear just as quickly when customers find cheaper goods elsewhere. This constant demand fluctuation only gets more complex, with online habits and social media activity serving as a precursor to future demand. Soon Google glasses and other wearable technologies will send data on products that consumers consider (in-person or online potential purchases), with manufacturers crunching those numbers in combination with market factors to determine demand by volume, acceptable price, and date.
Savvy manufacturers are tapping into data analysis trends today and, conversely, using digital tools to drive demand when and where they want it, aligning production schedules with their online and social media deep-discount campaigns. These predictive and proactive abilities put them light years ahead of the competition whose traditional demand forecasting methods, build inventory in anticipation of sales, are almost useless and certainly costly. Old forecasting methods force companies into waste that destroys profitability: excessive raw materials and parts, massive work-in-process and finished-goods inventories, and the wasted time, labour and assets to develop those goods (which may never sell).
Demand for new products is even more volatile. As product lifecycles accelerate, it becomes imperative that new product launches hit their market windows — or risk losing share to competitors and the higher margins of being first to market. This puts enormous pressure on manufacturers to develop products swiftly, from design to production, while guaranteeing quality, safety and profitability.
Even more challenging for manufacturers is that the number of SKUs produced has exploded as customers want more choices and customizations. What might have been one common SKU just a few years ago is now hundreds of versions based on one platform; tomorrow it will be thousands. Manufacturers are tracking and digesting online and social media comments and conversations to deliver the one product that a customer demands, when he or she demands it. Imagine ordering and quickly receiving a container of yogurt with precisely the calories, fat, sugar, and fruit and nut content you want.
Planning for success
Most manufacturing executives recognize that their firms must develop agile, responsive business processes and workflows. These start with how and where the company sells and promotes its goods, and extend through sourcing, production and fulfillment processes:
• Just-in-time (JIT) sales and new-business proposals
Leading companies start by identifying the right sales opportunities at the right margins. Chasing low-margin work ties up capacity that’s better applied to high-margin work.
• Proactive forecasting
Although demand fluctuates constantly, using analytics to identify underlying trends can predict the general direction and volume of demand. It doesn’t take a snowstorm to realize that snow blowers sell in winter. Scheduling promotions and discounts tightly in conjunction with production and supply-chain planning can yield even more predictable results. The key is timing these efforts to deliver optimum sales during predictable demand spikes (i.e., seasonal trends). But for this to be effective, it is critical to break down enterprise walls between sales and production.
• Flexible product — development platforms
Despite the dramatic rise in SKUs and volatility of customer demand patterns, there is still an underlying 80/20 rule: Expect the expected (80 per cent), but reserve 20 per cent of capacity to address the unique high-profit orders, using make-to-order and configure-to-order techniques. Continuously improving production processes to deliver just-in-time responsiveness benefits all these approaches, including make-to-stock (keeping stock to a minimum).
• Value-stream scheduling and procurement
Even the best production processes will be idle if suppliers are not in close step with demand signals and changes. Your suppliers and your suppliers’ suppliers need to be linked to all marketing and production schedules, anticipating the same demand patterns that your data is signalling.
• Lean techniques
Lean techniques applied to the supply chain, production and logistics help a manufacturer to manage volatile demand without excess inventory. Even in the digital age products still get physically made, packed and shipped; the more efficiently those activities occur, the better. Lean techniques can help you eliminate waste and improve speed.
Real-time planning is not just about process: Leadership must have a future-oriented vision and goals for real-time responsiveness, and be willing to invest in the strategy. Managers and supervisors (sales, production, logistics and procurement) must transform from firefighters to tech-savvy coaches capable of guiding empowered, problem-solving frontline associates. Real-time planning also requires the technologies that give leaders, managers and associates the information they need when and how they need it. Many of these tools are already in place (ERP, SCM, CRM, etc.), but they must be connected in new ways and augmented with new technologies, such as big-data, in order to:
• Predict future demand — Where will demand come from, and what will be needed? How can we create demand?
• See real-time demand visibility — Where is demand now?
• Coordinate demand with the supply chain and procure material and components — What comes from where, and at what price?
• Schedule production capacity — What can be made where (internally or externally) and how (ship from stock, configure from stock, make to order, etc.)?
• Coordinate support services — What are the workforce (HR), information technology, and capital requirements (finance) needed to support production?
• Ensure timely deliveries — Which are the most efficient and cost-effective delivery routes and schedules?
• Deliver value-added service and support — What additional business can be gained through swift follow-up? (Did you get it? Do you like it? What else can we offer? Will you order more?)
Establishing a real-time environment—by capturing the many, complex demand signals available to manufacturers and coordinating them with processes, people and technologies in new ways—won’t make today’s manufacturing challenges disappear. But it will allow your organization to respond to these opportunities more effectively. At the same time, your company can improve productivity across the supply chain; increasing the speed with which you deliver products and dramatically lowering costs that erode margins.
Are you ready to create a real-time manufacturing organization?
Based in Belgium, Nathalie Regniers has worked in marketing for Infor in a variety of different capacities since 2004.