One Multinational’s Supply Chain Transformation Journey
A large multinational is undergoing an impressive supply chain transformation that will run through 2023. While the company has several different goals, two key focuses are improved agility and resilience, and more autonomous planning.
A Complex Supply Chain
This is a public, multinational providing different types of electronic and machinery products for different industries. Their revenues exceed €25 billion.
Not surprisingly a company this big, delivering different solutions to a variety of industries, has a complex supply chain. They source from approximately 15,000 suppliers with a sourcing spend of over €7 billion. Those materials flow into over 170 factories in over 40 nations. The company has over 300,000 products. On any given day, 150,000 order lines flow through 90 distribution centers across 50 nations. For some customers, they manage the inventory using a vendor managed inventory program. In some case they manage inventory at the customer’s site.
“We don’t have one supply chain,” this vice president of supply chain explained to me, “we run very customized supply chains.” Customization is provided for 5 different supply chains (for example, make-to-order, make-to-stock, etc.) across 17 different segments and customer personas.
A Transformation Journey
The company has been on a supply chain transformation journey since 2005. It started in manufacturing and spread, step by step, to improvements in the way the company runs its supply chain. But their latest supply chain transformation program, aimed to finish by the end of 2023, is a significant undertaking. The intellectual pillars of this transformational sprint are a recognition that everything begins with the customer. First, the supply chain group truly needs to understand buying behaviors and key attributes of their customers. But breakthroughs that boost customer centricity can’t come at the expense of a poor bottom line. The company also needs to drive cash efficiency and improved productivity.
Secondly, hindsight is not good enough. Being able to look at a service failure and get down to root causes is necessary for continuous improvement. But really, this multinational wants far better visibility to problems before they occur so that these issues can be mitigated, or even better, avoided.
Resilience and Agility
COVID has led many companies to talk about improving their resilience. But achieving this goal is not easy. It takes time. This manufacturer already has business continuity plans in place. But the company understands this is not enough; they need more visibility to the end-to-end value chain.
Many companies understand that having more suppliers can help protect against supply disruptions. But even multi-sourcing is not enough. Visibility into sub-tier suppliers is necessary. It might be that a component supplied by a Tier 2 or 3 supplier becomes unavailable and makes it impossible to build certain core products. The value chain needs to be fully mapped.
One lesson this manufacturer learned during COVID, is that when lead times around a particular family of components starts to get longer, this is a danger sign. It is a sign those components may soon be in short supply.
Products can also be designed with resiliency in mind. Some of their products have a lifespan of up to 15 years. But key components, like computer chips, don’t have nearly that long of a lifespan. How can these products be serviced if the chips stop being produced? The company is doing more work around product phase outs and trying to better anticipate component obsolescence. Further, the company needs to look ahead. Will copper be in short supply in the coming years? If so, what can they do to lock up a sufficient supply?
If resilience is about working to avoid bad things happening, agility is more about reacting quickly when bad things do happen or better yet, sensing that they are about to happen. The companies that can react the fastest, often do the best job of mitigating or sometimes even avoiding negative consequences. Agility is more about reacting in the next day or two, or even the next hour or two, to potential supply chain disruptions.
The company has built Control Towers for this purpose. They built them between 2012 and 2014, and then enhanced them when better supply chain risk management solutions became available. Two years ago, they implemented Resilience360, now called Everstream.ai. A supply chain is mapped, where components are source from, how they flow through a supply chain to factories and out to customers. Then key terms are identified, terms like “factory fire,” “bankruptcy” are married to the names of suppliers and ports and partners. There can be tens of thousands of terms. The SCRM tool is continually reading hundreds of thousands news sites, social media, and other sources to search for these terms. When a potential problem is detected, an alert is generated. With the addition of the SCRM solution, this manufacturer believes they have achieved mature Control Tower capabilities.
Meanwhile, their tactical planning is focused on achieving more autonomous planning. Whereas, agility is focused on short term planning horizons, tactical plans at the multinational go out 18 months. These are plans that marry projected demand with an understanding of how that demand can be met based on the constraints of the supply chain. The company had an Integrated Business Planning (IBP) process where that plan is updated monthly. Changes to the plan are based on changes to the forecast, manufacturing capacity, supplier constraints, and a host of other factors.
A monthly cadence around the IBP process is standard. But this company wants to spin the process faster. They are working toward the ability to update the IBP plans on a weekly basis. Faster planning cycles lead to a more responsive supply chain. That in turn improves customer service while reducing supply chain costs. In times of uncertainty, like the COVID era, the value of responsive planning increases greatly.
To move to faster planning cycles would be hard to achieve without more autonomous planning. This multinational has implemented a supply chain planning solution from Kinaxis to reduce many manual time-consuming tasks associated with tactical planning.
One example of more autonomous planning is the ability for the system to automatically update key parameters using in planning, like supplier lead times. The longer it takes a supplier to deliver their goods to a manufacturer, the more inventory that manufacturer is forced to hold. It is critical that lead times be updated so that plans can be accurate. Machine learning is also being used to update other forms of master data that are key inputs into the plan.
But autonomous planning goes beyond that. In the IBP process, a plan needs to be created for exactly what should be made, when, and where; where inventory should be stored; and how goods should flow to customers. Making good decisions requires running many scenarios. The more autonomous the planning, the easier it is to generate intelligent scenarios.
The Kinaxis supply planning solution has concurrent planning capabilities. This is a key reason the company selected them. Concurrent planning is based on the platform’s ability to continuously synchronize the end-to-end supply chain without data duplication or waiting for time consuming batch runs. Multiple planners can create on-the-fly what-if scenarios simultaneously, make multiple changes, and then instantly understand the scenario’s impact to all teams, and quantify against cross-functional metrics and financial targets, without the planning getting out of sync. Concurrent planning is kind of amazing.
This giant European multinational is also using Kinaxis for demand planning. Most companies use shipment history as the key data for forecasts. During COVID, this data had much less predictive value. The company is moving to include more industry and government data on macroeconomic trends to improve their long term forecasting. Machine learning will be applied to those data sources to help determine which data sources improve the forecast and which do not. This allows for more autonomous forecasts without the need to employ data scientists.
Historically, supply chain organizations employed both demand planners and supply planners. This company is following an emerging best practice by working towards having “network planners” create both the demand and supply plans. This allows for the creation of intelligent scenarios with fewer handoffs, leading to more and better scenarios. This requires a mind shift, from a narrow focus on forecast accuracy, to the more impactful focus on how scenarios impact the business.
The manufacturer wants both fast and connected planning. They are working to expand the supply chain model – which is at the heart of the SCP application – to encompass supplier constraints more fully. This will improve the accuracy of the plans. This also involves ongoing collaboration with suppliers. By the end of 2021, the company had achieved this with over 90% of their spend on electronic components. This model, and the spend, encompasses spend down to Tier 3 suppliers. This is quite an accomplishment!
No transformation journey is problem free. Moving from doing supply chain planning at the site level using older tools, to end-to-end planning based on the creation of business scenarios is a significant culture change. The company is continuing to work with Kinaxis to make the user experience better and easier.
They also learned some lessons along the way. One key technology lesson is that integrating Kinaxis to all the different ERP solutions they use was a significant resource and time commitment. They have moved to creating a data lake populated with data from the different ERPs. The Kinaxis solution than is integrated to the data lake instead of a plethora of ERPs. However, at the time, data lakes were still relatively immature.
So, what benefits has this company achieved? This vice president explained that concurrent planning has made the connection between what the supply chain intends to do, and how that plan impacts the company’s key market and financial goals, much more transparent. The planning teams are now “focusing more and more on scenario and decision planning rather than creating the plan. It (concurrent planning) has been a critical asset to support our solid growth in a very challenging environment for our supply chain.”
This year’s Kinaxis user conference, Kinexions, is May 9-12, 2022 in San Diego.
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