Get the right product to the right place at the right time and in the right quantity. This is the mantra for consumer packaged goods (CPG) companies. Sounds simple enough, but in today’s world of countless disruptions, it is not an easy task. Most manufacturers attempt to plan this out by defining their supply chain network, especially CPG companies. This is typically a strategic planning function where an expensive and time-consuming analysis of the entire connected supply chain is done once a year to choose the most cost-effective route for acquiring materials and shipping finished products.
This is How We’ve Always Done It
An established strategic plan sets up the entire supply chain network and is supposed to be the roadmap that the company will follow to deliver products to customers. The organization first extrapolates the long term sales forecast through all network possibilities. The roadmap begins with the sales point of the customer and weaves its way through the distribution network, then the production network, calculating basic material requirements. The best supplier network to provide ingredients is chosen along with packaging materials and other required supplies. This is typically done using an expert system, and it is time-consuming, but it sets up an initial plan. Once this is complete, all the assignments are entered into the ERP by part number, SKU number or material number. When MRP is calculated, customer orders are generated, or advance ship notices (ASNs) for distribution are processed, and the network setup from the strategic plan is used to determine production and shipping points.
For the most part, this works. However, in today’s world, this really is no longer the answer, at least at the tactical or execution level. Disruptions are the norm. And yes, we’re talking big disruptions like health pandemics, weather events and geopolitical crises. Manufacturers need the ability to change their preferred network structures on a dime, and they cannot be hard-coded into their master systems. ERP systems need to have the flexibility to be able to accept alternate network assignments instantaneously and on-the-fly to keep the business flowing.
Our Planning Didn’t Prepare Us for This
Case in point; COVID-19 spurred panic buying and hoarding of many day-to-day food, beverage and consumer products that most people bought during their weekly or bi-weekly trip to the market. Product supply from manufacturer to retailer was steady as was the purchasing by consumers. Toilet paper, shelf-stable foods, frozen meals and other personal care products always seemed available. Then the pandemic hit and the products most people don’t really think about were gone. Manufacturers had to ramp up to try to get these products through the network and back to the customer locations so that more people could grab them just as fast. Panic set in not only by the consumer but by the retailer, the manufacturer and the manufacturer’s supplier of materials to make the products.
When COVID-19 hit the world the hardest, the “nice and neat” supply chain network created by the strategic plan was broken. Manufacturers could not get the ingredients and supplies quick enough, so alternate suppliers had to be found quickly. They didn’t have enough capacity at manufacturing plants and had to find copackers to assist in getting product made fast enough. When they finally had finished products to ship, the normal network setups did not deliver products to the consumer to satisfy their demands fast enough. So manufacturers tried to send directly to retailer warehouses, or in many cases, directly to the retailer stores. This forced many to adopt an emergency direct-to-store delivery philosophy. What they found, however, was a nightmare.
Two scenarios occurred. First, their strategic choices could not be deviated from because their antiquated ERP system would not accept a temporary change. This held up trucks from leaving the factories even when they had product to ship. They had to wait for system overrides to allow the movement of products. This was a complete failure of the synchronization between the physical and digital supply chains. The second issue was that these companies are so used to making sourcing decisions on a strategic basis and operating with hard-coded strategies, that when disruption hits, they are not prepared to quickly change gears. Secondary and additional options are not readily available, and what resulted were a few very serious problems. Product was not delivered, the retailers went elsewhere to satisfy their customer’s needs and costs went through the roof. All because of the lack of flexibility.
Preparing for the Next Major Supply Chain Disruption
So, how can this situation be avoided the next time disruption hits. It starts with two solutions.
The first solution is to implement a flexible sales and operations planning (S&OP) process. An S&OP’s primary function is to analyze business scenarios and potential disruptions before they happen, if possible, and quickly when they happen. Network modeling tools are great for an initial setup of the plan but not when disaster strikes. S&OP is a fluid process that manages and sets up operations to handle risks and alternate plans to take action when a disruption forces a company to deviate from the original plan. The S&OP process is a business practice, a mindset that is used in conjunction with expert demand and supply chain planning tools and technologies to quickly analyze shortfalls in the process and support getting the business back on track. This is a continuous process that constantly analyzes any changes in the market, internal company delays and any supply delays. It also allows for a quick transition should a drastic situation occur.
The second solution is a bit more long-term in strategy, and that is to have an adaptive ERP system in place that allows for quick changes to network setups and primary locations for manufacturing and distribution. In a world where change is the norm, your ERP system should be able to change without having a team of computer scientists on standby to change the code. Business process mapping integrated into the adaptive ERP goes hand-in-hand with this solution, and it will work in conjunction with the S&OP plan and help with process execution through the entire organization and supply chain.
Finding Flexibility When It’s Needed the Most
Managing a manufacturing organization can be complicated, and even challenging for some. It’s not getting any easier as disruptions become more frequent and present themselves in ways the world has never seen. There are many stages to tackling these challenges, but the storm can be weathered. Flexibility is critical and the ability to change plans instantaneously is a necessity if a business is going to succeed. Having a strategic plan in place is a business necessity that needs to be in place as a game plan for the business. The winners are those who have the processes and tools to adjust the plan during the highly critical execution stage.