An industry analyst, mentor and researcher whom I truly respect is Bob Parker, Group Vice President for IDC Industry Insights.  Bob authored a rather thought provoking article, Purchasing capacity, not products, in the Quarter 2 2009 edition of CSCMP Quarterly.  (CSCMP membership required for access).  I recommend Supply Chain Matters readers have a look at this article since it does provide some meaningful arguments regarding the use and benefits of capacity-driven planning.  Another summarized, and less restricted view of this article can be found in a posting on Supply Chain Digest.

The premise of Bob’s article is that in an era of evolving supply chain volatility and risk, manufacturing companies may find more benefit in reserving capacity (Capacity-Based Sourcing (CBS)) vs. the buying of individual parts.  Bob further points out that this concept has been discussed for some time, but is not widely implemented because few companies have been able to justify the tremendous effort that would be required to change from traditional practices to CBS.

I myself can attest to some of the history of CBS thinking.  In today’s era of predominantly outsourced manufacturing on a global basis, the stakes are far higher in getting the product or production forecast as accurate as possible.  But, most supply chain planning professionals are keenly aware that forecast accuracy is an elusive challenge.  As global product marketing manager for mySAP Supply Chain Management in 2003, I fielded a number of inquiries from SAP APO customers regarding how they could plan for capacity vs. parts.  Back then, there were very limited options for doing so within SAP.

In my view, the most important takeaway to Bob’s article is the section which outlines the various challenges that need to be overcome, and how supply chain groups can deal with these challenges.  Two of the most important challenges are addressing the need for changed skill sets and information systems support.  Convincing procurement professionals who’s world was about tactical, part-driven purchasing to transform themselves to “capabilities manager” does require change management concepts.  Skills in process-orientation and strategic buying are clearly different, but can be acquired.

In information systems, I’ve found that the web-centric applications that focus more on collaboration among a network of suppliers have more flexibility in supporting a CBS process.  Rather than a grounding in MRP parts explosion, these systems have, and readily deal with capacity or other planning factors.  If you are considering supporting a capacity-based planning process on your SAP platform, you can evaluate SAP Supply Network Collaboration as a tool.  In the area of non-ERP based applications, Kinaxis and Amitive have had experience in supporting capacity based planning across a network of contract manufacturers.

Bob Ferrari

Author’s Note: Kinaxis is one of the sponsors of the Supply Chain Matters blog.