Are your Plans working?

10/05/2021

Educational | Time to Read: 3 mins

The world of supply chains is full of uncertainty-demand supply constraints and to streamline this very constraint are a set of planners who are vested with the task of planning raw materials alongside planning production with an input of forecasted sales. Time series or moving averages all these methods are theoretical and best suited for a particular scenario-like a shoe, these too do not fit everyone's needs. So how do you select one over the other? Would your plan work and hit the bulls eye? More often than not the planners never get it right and hence there's extra inventory or a shortage. So why doesn't it work out? For one I personally am not a fan of forecasting-you look at historical data to predict what could be the future; usually it doesn't work out. Neither Nostradamus nor any fortune teller has ever been absolutely right. So, what should firms do? Go by actuals. Some do that, and there's a supply demand mismatch again. Why? Buffers added across the chain of planners causes excess inventory. Which mans excess cash outflow (not touching the carrying costs). So should planning be centralised-just have one person to share information on the production plan the raw material plan and the like? It can be a good option but how would you decide the input from the sales end is appropriate? They could might as well add a 10% to the previous month's detail and continue with their gift of the gab. Sticky wicket isn't it? Well or production plans, sales forecast is very useful and thus this too may require a central system to have it in place. The best bet, get one single entity to plan the sales requirement. Honestly there's never anything to plan on this-take it as what the demand or the order is for that particular product. Then you check your plants' capacities, alter the production shifts and see which particular schedule matches the requirement. Relay this finding into the quantum of raw materials required per product required to be made and there you have your plan. Will this require additional buffers, perhaps not. But could some products be ruined during the make process-yes possible. So here's is where the slight buffer can be added. How much is it, is again a matter of planning requirements. Go with geographic proximity, vendor rating, quality comments etc.

JIT systems follow a systemic plan of what reaches the production table. These are perfectly executed plans and definitely geographic proximity does aid in ensuring a seamless flow of parts. On the other end of the spectrum, lets look at the fact that products are made as per the orders. The product is ready for sale, the duration it stays in the plant prior despatch is a caveat. Proximity aids here too. At a strategic level to minimise the hassles on both ends, credit fines aid the way things function and keep the vendor as well as the despatch units in a planning mode rather than the chasers. So, the burning question is- should all teams have a planner? Or should the planner, purchaser and recipient of goods be the same person? I would go with the latter as it ensures transparency and more ownership. The scenarios of pilferage and theft as well as corruption can be easily reduced by ensuring a strategic kick-off of a contract that states what needs to be bought and made both. With fines and an ERP system that maps this entirely would ensure the seamlessness of the operation and lack of corrupt behaviour.

To test whether your plan works all you need to ensure is that it follows a reverse profit law-that is in a business the cash flow is paramount. Profit implies cash inflow is more than outflow. For plans to work it would make sense to have more goods outflow than inflow at a material level and value level. Additionally the speed of movement of goods displays the agility of the supply chain altogether. However, you may combat with arguments of e-commerce being agile but break even itself having hit after 3-5 years into the business, or a car is in itself just one good coming out of the system but several raw materials flowing into the system. The car is a resultant of all the parts into the system flow, similarly the e-commerce business would require capex cash flows too. Thus, at the end of the day the inverse law works beautifully as a litmus test. Check it out and let us know how it works. Or if you want us to carry it out for you-drop a line to letsgetitdonetoo@gmail.com An easy way to find this out is to carry out a walk through as a VSM wrt only parts flow and trace it to the finished product. Lets get your plans working for you.

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