The credit crunch and recovery have exposed manufacturers to volatile demand. The earthquake in Japan has exposed manufacturers to volatile supply. The key to effective management of supply and demand lies in a manufacturer's planning activities.
In this series of bi-weekly tips, we break down the secrets to effective replenishment planning and shop scheduling. Pemeco Consulting is a leading vendor-agnostic provider of Supply Chain and ERP services to companies running Infor LN and Baan ERP systems. Learn about our niche speciality Infor LN and Baan ERP services and our Planning Dashboard for ERP LN and Baan.
A planning engine is a lot like a high-performance athlete. It can only perform if it’s well-trained, in shape and well-prepared. Like an athlete, if it’s only fed a steady diet of junk food, it’s simply not going to perform optimally.
And, planning is critical to the success of every manufacturing company. I don’t think I'm far off when I say that replenishment planning and shop scheduling collectively forms the central logistics hub of every manufacturing organization. All departments – including sales, finance, production, supply chain and materials – depend on the timely arrival of inventory. And, the word “timely” is deliberate. I chose “timely” instead of “available” because a company needs to strike a delicate balance among inventory costs (carrying and obsolescence, among others), competing cash requirements and the availability of goods. Ideally, and subject to safety stock requirements, inventory should arrive just in time. This all depends on an ability to have a realistic understanding of a business' supply and demand.
A company’s planning department is responsible to ensure that inventory arrival is well-timed with demand (actual and forecasted). And, the planners need an integrated ERP system to help them do their jobs. So, what inputs does a planning engine need to issue useful buy, make and distribution recommendations? For starters, the software requires:
- Accurate data, including: item settings, bills of material and routings;
- Correct inventory levels; and
- Timely registration of all inventory movements
If the base data is inaccurate, the planning engine will issue recommendations that don’t reflect the true state of the company’s operations. It’s like feeding a high-performance athlete junk. You simply won’t get a good performance. In the manufacturer’s case, this means that its desired goal of achieving that delicate balance among inventory costs, competing cash requirements and the availability of goods will remain elusive. It will continue to operate with too much fat, too many inefficiencies.
In our experience, companies should aim for inventory accuracy rates of at least 95%. If inventory accuracy rates are below 90%, the engine will issue replenishment suggestions that are of limited use.
In summary, the recommendations issued by the planning engine are only as good as the underlying data. Garbage in, garbage out. Before relying on the recommendations issued by an ERP system’s planning engine, a company first needs to ensure that the engine is fed a balanced diet of accurate data, correct inventory levels and timely material movements.
In the next tip, we’ll dig a bit deeper into the first of the planning accuracy prerequisites – accurate planning data.
Your POV (post comments below)
- What's your biggest challenge to getting accurate and timely data into the ERP system?
- What change management issues does a commitment to planning accuracy raise? Which departments are affected? In what ways?
- In your experience, at what rates of inventory accuracy does a company truly start to see an appreciable improvement in the accuracy of planning recommendations?