Supply chain managers are under ever-increasing pressure to optimize. We have to move goods faster, farther, and cheaper. At the same time, customer demand for door-to-door, next-day, free shipping makes it hard to really maximize efficiency.
As the old saying goes: When the going gets tough, the tough plan smarter. Planning for the future of your supply chain is not about incremental improvements; it’s about a change of mindset that leads to a transformation. Supply chain consultant Richard Cushing has been helping businesses make the change.
“Adopting demand-driven material requirements planning (DDMRP) and the demand-driven operating model (DDOM) dramatically reduces management’s frustration levels, empowers management to make timely and effective supply chain decisions, and significantly improves supply chain performance and corporate profitability from supply chain operations,” he says.
Here’s how to start moving your organization toward a demand-driven operating model.
Getting Started with Demand-Driven Supply Chain Planning
In his article “Understanding Supply Chain Dimensionality,” Richard explains that demand-driven planning starts with more fully comprehending bills of materials (BOM) and stock-keeping units (SKUs).
Supply Chain Dimensions: BOM and SKU
Efficiency in a demand-driven model is all about maximizing capacity and building strategic buffers. This type of planning requires more in-depth analysis of BOM and SKUs than you may have done before.
“The strategic placement and sizing of stock, time, or capacity buffers should be influenced by knowledge of how many BOMs any given SKU is consumed in,” Richard says. “This can be viewed both as a hard number (e.g., Part Number 1001 is used in 1,525 BOMs), but should also be reviewed in terms of percent of BOMs (e.g., Part Number 1001 is used in about 30 percent of all BOMs to which we supply).”
“This new thoughtware, accompanied by appropriately supporting technologies, produces rapid and dramatic improvements.”
When you have a better understanding of how each SKU corresponds to multiple BOMs, it’s easier to set priorities. “An item that is a component in 1,525 end-items across all your customers is likely more crucial than one that supplies only 122 BOMs across your customer base,” he says.
Of course, the raw numbers don’t tell the whole story, however: “You will need to further review priorities for each individual customer, and evaluate how critical each end product is in that customer’s relationship to you and your supply chain,” Richard says.
Internal Management: BOM Low Level
Knowing your BOM and SKU relationships can help you become more demand driven across your entire supply chain. You can also add an extra dimension of strategy by keeping track of your BOM low level (BLL) for the items you control.
“BLL represents the lowest level at which an item occurs for a BOM in your operations,” Richard says. “Typically, but not absolutely, you will find that the higher the BLL number, the higher the number of end-items that rely on that SKU as a component. This means that the failure to maintain flow of this component is more likely to also stop the flow of additional subcomponents and end-items.”
While this information is valuable for external supply chain as well as internal, it can be difficult to trace it beyond your four walls. Nevertheless, Richard says, “collaboration with a supply chain’s trading partners may prove very helpful and result in improved strategic buffer placement and sizing. This, in turn, generally leads to improved flow of relevant materials which, of course, leads to improved cash flow and higher profits for all involved.”
Data-Driven Supply Chain: ERP Data for Supply Chain Planning
Data is the fuel for demand-driven supply chain management. It’s likely your organization already has the data you need — it’s just a question of consolidating and activating it.
“In terms of internal values of component item usage frequency in BOMs or final assembly, many ERP systems make this data available out-of-the-box,” Richard says. “In any event, in any manufacturing system the data is available to be gathered in a properly constructed query or report. It simply needs to be done.”
Upgrade Your “Thoughtware”
Demand-driven supply chain management doesn’t start with investing in new hardware or software. It starts with changing the way your organization approaches the problem, seeking holistic solutions rather than bandaging pain points.
As Richard puts it, leadership needs a “thoughtware” upgrade. “This new thoughtware, accompanied by appropriately supporting technologies, produces rapid and dramatic improvements and leads, in fact, to a POOGI wherever it is conscientiously undertaken and applied,” he says. “This is clearly, in my mind, the most important trend and new technology for supply chains in the coming five years and beyond.”
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Richard Cushing, Principal Consultant, Cushing & Associates
Richard Cushing is a seasoned professional with a unique blend of experience and skills to help enterprises improve through re-engineered business processes and high-ROI demand-driven supply chain improvements.