Most companies face supply chain planning challenges of some kind, thanks to stretched-out global supply chains and constantly-rising customer expectations. Some companies, however, meet those challenges with a lot less stress and strain than their peers.
A new knowledge brief written by Bryan Ball, Vice President and Group Director of Supply Chain, ERP and GSM Practices at the Aberdeen Group, explains how they do it. Titled Maximizing Supply Chain Effectiveness with Superior Modeling, Planning and Analytics, this knowledge brief explores the “planning, modeling and analytics capabilities/strategies that Best-in-Class companies have in place, compared to their competition, giving them a significant performance advantage.”
Aberdeen defines “Best-in-Class” as those companies ranked in the top 20% in their respective industries, based on performance metrics. These companies perform better across a range of measures, including one of the most critical—customer service. Best-in-Class companies achieve a level of “on time and complete” customer service at a rate of 93%, compared to only 79% for all other companies.
Demand planning is the first step
Supply chain planning starts, as Ball explains, “with a demand signal based on some kind of forecast, projection or actual order . . . driving material and capacity requirements.” Demand planning professionals create forecasts at the aggregate or product family level, all the way down to the level of the individual SKU.
SKU: a “stock keeping unit” refers to an individual item of inventory, such as a shirt of a specific style, size and color.
Ball observes that, “To create a forecast, there are several functions [i.e., job roles] within an organization that are likely to be involved.” The goal is to “develop a consensus from multiple inputs and distill them into one forecast for a given SKU.” Thanks to “strong internal collaboration, plus a tight, analytical, disciplined process,” Best-in-Class organizations are able to achieve significantly higher forecast accuracy than their peers.
Aberdeen found that “Best-in-Class forecast accuracy is commonly at 70%–85% at the family level and 60%–75% at the SKU level. The accuracy level for All Others is often below 50%.” For organizations in the All Others category, this difference in forecast accuracy creates “significant execution problems from the constant need to course correct.”
Data access drives forecast accuracy in supply chain planning
Siloed functions and siloed data are persistent problems that hinder forecast accuracy. Critical data stuck in a silo could lead to critical supplies being stuck in a shipping container halfway around the world. Ball observes that “the more complete or representative the model of the ‘end-to-end’ supply chain is, across one or multiple transaction systems, the better the perspective is to understand the impact of any changes.” No surprise then that Best-in-Class organizations are “77% more likely to have an ‘end-to-end’ supply chain model for decision making.” (For more on the importance of keeping finance and operations aligned in this way, see my recent post on better data access.)
Prepare for the unexpected with “what-if” modeling
In addition to planning for actual orders in the pipeline, Best-in-Class companies prepare for the unexpected with extensive “what-if” modeling and scenario planning. They test assumptions and examine options on both the demand side (customer) and the supply side (capacity and materials). Thanks to this, Aberdeen found that “Best-in-Class companies are 27% more likely to respond to unplanned events in a timely manner.” With volatility so common in markets and customer demand today, “Even if the proposed scenarios do not happen, the planning and preparation generated by running them pays off with better organizational readiness.”
Smart planning keeps chaos at bay
The capabilities and business practices employed by Best-in-Class companies are available to any organization with supply chain planning needs. They can truly make “the difference between chaos and a smoothly operating supply chain.” To learn about more of the ways that Best-in-Class companies achieve their superior supply chain planning results, read the Aberdeen knowledge brief, Maximizing Supply Chain Effectiveness with Superior Modeling, Planning and Analytics.
Also, please be sure to access our free on-demand supply chain planning webinar. The webinar features presentations by Aberdeen’s Bryan Ball and Jim Collins, Performance Management Strategy Executive at IBM.