Laying the Foundation for Advanced Supply Chain Planning Capabilities in the F&B Industry
As a former Director of Supply Chain Management for a multi-national, multi-channel food manufacturer, I experienced first-hand the variety of challenging problems faced by supply chain planners in the unforgiving Food and Beverage Industry. Many difficult days and restless nights were spent worrying about how to overcome challenges associated with long raw material lead times, volatile commodity price fluctuations, safety and quality issues, high demand uncertainty and seasonality, high promotional activity, perishability, frequent new product introductions, exacting distribution requirements, complex manufacturing constraints, strict legal and regulatory requirements, and ever increasing customer expectations. I definitely earned some grey hair while leading supply chain activities in the F&B industry.
As the first person with a title of supply chain management at a $2.5B F&B company I was lucky (using that term loosely) to be given the opportunity to develop a 3 to 5-year improvement strategy covering supply chain people, process, and solutions. The company, like many of its peers, was lagging behind in their development of advanced supply chain planning capabilities. Early efforts revolved around education, building consensus, and developing financial business justification for improvement efforts. However, once the plan was approved we quickly got down to business making significant progress building modern supply chain planning capabilities.
Then as is now, there are certain critical components of a strong supply chain planning foundation. As Glinda the Good Witch says in The Wizard of Oz, “It’s always best to start at the beginning.” In supply chain planning that equates to developing robust demand planning capabilities. A highly accurate forecast of demand makes all supply chain planning and execution more efficient and effective. Indeed, the accuracy of your forecast has a direct impact on the amount of inventory you carry, the number of unplanned production changeovers, and the amount of expedited material shipments. Luckily, today’s advanced demand planning platforms provide the capabilities needed to improve forecast accuracy automatically without having to have a PhD in Statistics.
With new products making up an increasing portion of revenues and profits in the F&B industry, the successful introduction of new products is key to survival. Lack of data demand data for new products makes it difficult to forecast using time series or qualitative techniques. However, attribute-based modeling techniques that use Chi-squared analysis to develop demand profiles based on attributes such as package size, flavor, or geographic distribution can significant improve new product forecasting accuracy. As a product’s actual sales volume is established in the market, a demand profile can be automatically adjusted or a new demand profile created to maximize forecast accuracy.
Product Demand Profiles
Slow and Lumpy Demand
Manufacturing planning should use inputs from demand, inventory, and replenishment planning to determine how much of what products to produce when to minimize total supply chain costs while meeting customer requirements. F&B manufacturers that have more than one manufacturing facility need two different levels of manufacturing planning. First, aggregated levels of production quantities need to be assigned to production sites based on expected demand and known capacities. Second, detailed batch processes need to be planned at each plant to meet customer orders. These two planning levels need to be synchronized and aligned. Advanced manufacturing planning solutions will develop optimal aggregate and detailed production plans to minimize total supply chain costs while considering all supply chain constraints and objectives.
End-to-End Supply Chain Optimization
Sales and Operations Planning (S&OP) rounds out a robust F&B supply chain planning foundation. Helping to align and synchronize expected demand to available capacity, S&OP has been a critical supply chain planning process for close to 30 years. Although the focus of S&OP hasn’t always been clear, it should be squarely focused on identifying misalignments and risks far enough into the future to provide time to make significant changes. Instead of examining detailed manufacturing or distribution schedules, S&OP should be focused on the aggregate to analyze long term staffing, equipment, facility, partnership, product, and market scenarios. S&OP provides that longer-term focus to determine optimal tactical and strategic supply chain decisions that is often missing from supply chain planning operations.
Robust demand, inventory, replenishment, manufacturing and S&OP capabilities provide the foundation on which to build more advanced supply chain planning capabilities. If you haven’t built out this foundation now is a good time to start. Computing power is a better value than ever enabling complete end-to-end supply chain optimization using advanced algorithms. Today’s modern supply chain solutions have been built to take advantage of this increased computing power while incorporating user friendly interfaces and powerful data analysis and display capabilities. Big Data is here and is providing competitive advantages to those companies that have figured out how to use it. Machine learning and artificial intelligence capabilities that help automate planning tasks and free up planners to tackle more value added activities are available today. However, without a solid foundation trying to adopt Algorithmic Planning, Big Data, and Artificial Intelligence can be an exercise in futility. The war for supply chain planning talent is fiercer than ever. The Millennial workforce will migrate to those companies that provide advanced tools with powerful user interfaces that help them maximize value-added contributions. Think of an investment in supply chain planning capabilities as a way to attract and retain the best talent.
Are you considering improving your supply chain planning capabilities? If so, what steps are you taking to build a stronger foundation?
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