Things are getting more stable. Why is supply chain planning still so hard?
Several months ago, I wrote about the notion of simple COVID-19 recovery patterns, a “Recovery Alphabet Soup”. While the stock market pattern so far has been a V (plunge and recover), the rest of the economy has been very choppy at best. The more that you drill down, you see it looks nothing like a V or any other letter. This pattern-less, on-going volatility gets worse at the level at which companies have to plan supply chains – especially related to manufacturing specific SKUs and getting them into the right DC. Why is it still so hard to plan? The answer to this lies in unpacking what’s really happening with this volatility at the SKU/DC level.
Are things really getting more stable? Not as much as people think…
The world is slowly emerging from the coronavirus pandemic that has resulted in the most severe global economic contraction since at least the 1930s.1 Likewise, consumer sales at the brand level are more stable, but this is deceiving. Within many product portfolios, there are dramatically different behaviors across SKUs, even within a category or product family. The total looks more stable, but underneath there continue to be spikers, decliners, and some settling back to February levels.
There are also massive channel shifts and ongoing pandemic challenges effecting where products are purchased. These are the levels at which consumer goods companies plan, and it is still dramatically more volatile than the beginning of the year.
Why is it hard to plan? Planning tools were not designed with this volatile environment in mind.
The legacy retail/consumer goods value chain was set up to slowly adjust to changing consumer trends with significant manual planner intervention required to address spikes and dips. ERP and concurrent planning tools are best suited to planning on a 3-12-month horizon.
Scenario planning is helpful for big decisions about capacity but is not feasible with 1000’s of volatile SKUs over the next 13 weeks. In that horizon, many companies continue to utilize 10-30-year-old execution systems with “frozen” horizons and rudimentary planning capability. Finally, the swings in volatility routinely break safety stock-based approaches.
Bottom line – It’s not likely that planning will get any easier in the next year. Additional uncertainties about disease spread and consumer economic hardships will make planning very difficult.
What’s a Supply Chain leader to do?
I was a supply chain leader at a global multi-billion-dollar consumer products company and here’s what I did before I left to join Noodle: bought Noodle.ai supply chain applications. At Noodle, we have invested 4 years to develop the AI-powered Athena Supply Chain AI Suite that enables planners to predict where the supply chain will break and get ahead of it. Our products are live at leading global brands, helping them effectively navigate these challenging times.
Here’s the issues that Noodle.ai products help you unpack:
- While things appear more stable at an aggregate level, still lots of volatility at lower levels (SKU/DC/week/customer):
- Category volatility decreasing
- SKU level a mix of stable and very unstable SKUs – still tough to plan.
- Traditional supply chain planning tools have inherent failure modes which are exposed by the on-going volatility:
- Traditional ERP/APS planning tools, even the new ones, are primarily designed for the operating horizon (3-12 months)
- Execution has often remained in brittle legacy tools. These feature frozen horizons and need constant attention and firefighting from planners
- Growing planner burnout presents a risk to many companies
- What can be done to mitigate these issues?:
- Start planning process with a dramatically better weekly demand baseline
- Install AI predictive control towers that find issues and recommend actions in the 0-12 weeks horizon.
As I said, things won’t get any easier anytime soon. To move from volatility to visibility, learn more about Athena Insights, our introductory Supply Chain product, to fast forward to insights, recommended targeted actions and value realization in weeks, not months.
1. “Pandemic crisis: Global economic recovery tracker” Published Aug. 5, 2020.
For the full article (behind a paywall) view on: Financial Times