Laying the Foundation for Advanced Supply Chain Planning Capabilities in the Food and Beverage Industry
As a former Director of Supply Chain Management for a large multi-channel food manufacturer I experienced first-hand the variety of challenging problems faced by supply chain planners in the unforgiving F&B 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 could keep going but you get the idea. The F&B supply chain is complex.
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 technology. The company, like many F&B companies, lagged 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.
Planting the Seeds — Elements for F&B Success
Then, as is now, there are certain critical components of building 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. 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. A highly accurate forecast of demand makes all supply chain planning and execution more efficient and effective. Luckily today’s advanced demand planning solutions provide the tools needed to improve forecast accuracy without requiring a PhD in Statistics.
Listed in the balance sheet, inventory tends to attract a high level of attention from senior management. So even though supply chain professionals understand that inventory levels are a byproduct of other business decisions such as customer service, supply chain design, product quality, and the ability to predict customer demand, they understand that minimizing total inventory while supporting business objectives is a career sustaining imperative. Advanced inventory planning solutions provide the power to automatically determine the best inventory positions based on forecasted customer requirements and business objectives. Optimal inventory control parameters can then be used to drive manufacturing, purchasing and distribution to ensure the right products are available at the right place and time through demand centric and time-phased replenishment and manufacturing planning.
Replenishment planning allows you to resolve potential availability issues before they happen by projecting detailed demand, supply, and inventory levels into the future. Advanced replenishment solutions provide the ability to run “what-if” scenarios to develop optimal strategies to overcome future potential shortages or surpluses.
Manufacturing planning should use inputs from demand, inventory, and replenishment planning to determine how much of what products to produce 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.
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 sales & operations planning 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 less expensive and more powerful than ever allowing for 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. However, without a solid foundation trying to use Big Data can be an exercise in futility leading to lots of data with little insight. The war for supply chain planning talent is fiercer than ever. The Millennial workforce will migrate to those companies that provide the tools to manage by exception allowing more time for 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 strong foundation?
White Paper: Supply Chain Planning in the Food and Beverage Industries