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16 Mar 2011
 

How to keep your promises to customers while keeping inventory levels low?

Jos Braam
Quintiq


by: Jos Braam (*)

(*) Senior Business Consultant, Quintiq

 

Let’s start with a few questions:

  • If one of your customers were to call you today and request information about an order they had placed with your company, could you tell them the status of their order immediately and reliably predict when it will be delivered?
  • If you were asked not only to provide current inventory levels but also accurately predict the following week’s inventory levels, could you do that in seconds?
  • Are the inventory levels in your factory tuned to the minimum necessary levels to cope with production and demand variances, meaning that there is no excess inventory needed to compensate for imperfect planning?  
  • If a production manager reports a machine breakdown and it will take two days before it is repaired, are you able to determine immediately the impact for your customers? And are you able to determine action plans for equipment, upstream and downstream of this machine?

 

These questions demonstrate how difficult it is to keep your promises to customers by delivering orders as promised. Usually managers find it challenging to answer every single question with an honest yes.

 

 

Why is it so difficult?

Process doesn’t work efficiently 
Supply chain and production processes are becoming increasingly complex in today’s dynamic environment. In almost any industry, companies battle with economic fluctuations, increasing competition, greater complexity due to larger product portfolios, and growing expectations of their customers. Customers nowadays order in smaller order sizes, demand shorter lead times and accurately promised delivery dates. Therefore it is becoming increasingly difficult to set up efficient processes and plan them optimally.

Not working with the right planning solution
Organizations usually use a tool to support their planning in order to achieve efficient supply chain and production processes. However, problems occur when the system does not provide the right level of detail. Either the system is not detailed enough, not offering the transparency that is needed to plan efficiently. Or it is too detailed, leading to a slow system, which is more complex than necessary.

Sales and Production do not communicate
One of the major problems companies encounter is the lack of communication between the Sales and Production Department. This leads to misunderstandings because Sales promises their customers delivery dates that Production cannot fulfill. Or Production manufactures orders that are not due yet and consequently other orders get delivered too late.

These are just a few reasons. This list could be continued by for example not executing a plan because of unpredicted incidents such as machine breakdowns, insufficient transparency of bottlenecks or planning against unlimited capacity and thus not taking into account resource constraints.

 

 

The right support

Creating plans that ensure optimal supply chain and production processes is challenging. In order to benefit from efficient plans, companies need to recognize the different planning horizons: strategic, tactical and operational. These horizons are based on different planning decisions taken at each level. Decisions regarding inventory levels and customer service are typically taken on a tactical planning horizon.

Intelligent planning systems such as Advanced Planning and Scheduling (APS) solutions support the creation of efficient plans on all planning horizons. On a tactical level, such solutions enable efficient order acceptance, optimal material replenishment, finite capacity planning and optimal material flow. They offer decision support by running “what-if scenarios” and presenting the results as key performance indicators (KPIs) such as inventory levels, percentage of on-time delivery, throughput, and resource utilization. This allows companies to evaluate alternative scenarios and take informed decisions that support their business goals. They benefit from improved delivery performance, optimized inventory levels, and increased resource utilization.

By applying the right planning strategy, embedding it in your organization, integrating it at all levels, implementing a link between Sales and Production, measuring and evaluating your company’s KPIs at the right level of detail and making use of the right planning solution, you can keep your promises to customers, find optimal inventory levels, and in the end ensure your company’s success.

 

For more information:
Carlo Gozio
Senior Sales Executive, Quintiq
mobile: +39 335 6824077
e-mail: Carlo.Gozio@quintiq.com

 




 




 

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