In a prior published Supply Chain Matters Editorial commentary, we outlined our advisory as to the multi-industry supply chain management themes for the year 2021.
Some would like to believe that the year 2020 was the extraordinarily outlier, a global wide pandemic that tested the limits of many industry supply chains. That stated, the year 2021 and beyond, will present its own collection of product demand and supply network challenges.
As we transcend the final two months of 2020, many business and supply chain leaders have provided important observations, insights and learnings from this year’s challenges. They include among others:
- Clear focus on the health and well-being of people at all levels, along with added reliance and emphasis on the innovation and ingenuity of people and ad-hoc teams. This pandemic has molded deeper relationships as well as added insights among cross-functional supply chain management, line-of-business and external supplier teams related to re-thinking of process and eliminating unnecessary complexity.
- The realization that this pandemic exposed many of the cracks and fissures of existing industry supply chain business processes and capabilities along with the testing of abilities for business and their respective supply chains to pivot. Top performing supply chains were those that had already invested in risk mitigation and the foundations of business and supply chain digital transformation.
- The realization that strategic, tactical and indeed operational supply management sourcing decisions need to be weighted not only for lowest cost, but for factors related to added business agility or resiliency needs.
This Editor further shared a collective belief that the very likely themes for 2021 will be that of three aspects of Renewal, translated to:
New Definitions in understanding that the notions of supply chain agility, alignment, orchestration and resiliency are now essential, and that every organization needs to contemplate, define and communicate what these terms actually mean in relationship to interconnected product demand and supply network ecosystems in planning, collaboration and customer fulfillment driven response.
New Thinking in that the “next normal” requires integrated business planning and supply chain process capabilities for sensing and responding to accelerated disruption events. That next generation planning processes must be invested more in forms of connected, continuous, concurrent or simulation methods as opposed to sequential, time-constrained methods. Speed, higher levels of visibility as well as agility are indeed becoming a more important dimension of business competitiveness. Inventory and overall capacity must now be re-balanced for supply network risk, added agility to meet required customer service levels that are more Omni-channel driven.
New Directions in the sourcing and capacity management of either direct or contracted supply that assesses, weights and balances resiliency response and risk factors. That includes leadership in building the digital foundations for what the business requires in agility in decision-making, resiliency of supply and orchestration of response.
The Changing Notions of Capacity Planning Management
The planning and management of production capacity planning, whether process or discrete manufacturing based, has traditionally taken on a strategic focus. The reasons were obvious at the time in that the ability to invest and deploy added capacity often required an extended time horizon for capital appropriation, build-out and phase-in. Once capacity is deployed, especially in continuous process production environments such as chemicals or pharmaceuticals, and where high efficiency in production costs is essential, capacity must be optimized to bot cost efficient as well as customer service level needs.
Today’s increased deployment of contracted capacity has helped to buffer some of the time dimension, but the decision-making processes related to capacity management have tendered to remain more internally inside-out focused. They must now be more focused to an outside-in perspective as well as to narrower time windows.
Focus on Foundation Building
The rethinking of capacity in either continuous, batch process or discrete capacity requirements must thus shift toward building a broader foundation for digital transformation capabilities in providing added agility, efficiency as well as resiliency of production capabilities. It should take on the notions for building a reference architecture of capacity process needs at various levels. At the same time, such a rethinking requires sorting out the realities of fragmented or outdated data currently residing in multiple application systems or most likely multiple spreadsheets.
New directions are in building the foundations for connecting the physical state of production assets leveraging Internet-of-Things (IoT) technology to Cloud based business planning systems. The goal is deploying, managing and more dynamically adjusting capacity with the context of being able to determine the direct impacts of capacity decisions to specific financial implications and customer service level metrics. This foundation eventually leads to linking operational data within Edge systems to Cloud based analysis and reporting systems in holistically managing operational decision-making.
Transforming process or discrete production capacity management to an eventual Edge to Cloud capability requires a more data intensive approach where the data is the fuel for enhanced analytics and well as more predictive driven decision-making capabilities. The new direction considerations that need to be considered are:
- Unlocking Edge data that may already exist through more enhanced visibility and analytics-driven capabilities as well as identifying data that is no longer valid for more agile decision-making related to capacity adjustments.
- Identifying added data that has not been consolidated such as historic plans on day-to-day production rates, capacity adjustments to plans that have been managed through separate ERP based manufacturing scheduling systems such as SAP, planner spreadsheets, or operational decision-making groups.
- Investing in foundational capabilities at the Cloud level for metrics-driven dashboards supported by more enhanced visualization of layered data. The goal here to assist planners who today, do not have the right level of information.
Addressing all of the above reference architecture, data and information foundational efforts eventually leads to the ability to be able to leverage more advanced technology such as Artificial Intelligence (AI) and Machine Learning (ML) capabilities to more predictive and prescriptive decision-making actions related to the deployment of capacity, either in fixed or flexible contracted dimensions. At that point, Edge to Cloud coupled with Cloud based Digital Twin capabilities allow teams to take on new, more pertinent roles as digital analysts, capacity strategists, supply network operations management as well as simulation experts.
Systems Application Strategy
Building the digital foundation for capacity management processes can take on different approaches, all of which must be assessed in the context of a continued highly uncertain business and global economic environment that might constrain the timing of investment. A broad scale transformational approach and accelerated timeline may be appropriate for some, but for far others, smaller incremental stepping stones that build their own inherent value toward achieving an overall Edge to Cloud capacity management capability are possible as well.
Companies that have an SAP ERP systems backbone need to weigh the cost and time for having to transform to the Cloud aspects of SAP S/4 HANA as well as other Edge or Cloud needs. That could be a considerable implication in this uncertain environment. The good news is that today’s technology provider landscape does provides options to support either approach.
Given today’s economic and business uncertainties, we advise manufacturers to seek out technology providers that can provide the required foundational elements for digital transformation related to capacity management. One consideration is to initially concentrate on foundational needs for preparation and buildout of the desired Cloud based analytical and assessment needs which certainly have value in the ”next normal” of constant uncertainty and disruption.
New technology start-ups such as Expero’s Radiant Path applications technology are focused on such foundational capabilities, with an approach that factors needed integration to existing ERP or operational systems.
© Copyright 2020, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.