In the world of manufacturing, supply capacity planning is paramount to success. Shorting supply leaves customers unsatisfied and at risk of attrition, while too much supply dilutes margins and can gridlock distribution networks.
This challenge has been especially difficult as the past few years have upended supply chains and demand trends, leading many manufacturers to adopt a more integrated planning approach, looking further upstream and downstream of core supply chain planning. This is generally defined as integrated business planning (IBP). Still, this is only part of the solution. Many businesses still struggle with outdated systems that only update supply capacity projections once a quarter or even less frequently.
These stale, reactive plans lead to a disconnect between actual performance and the company’s perceived capabilities, affecting crucial aspects such as pricing and customer satisfaction. But they also prevent companies from planning for the long term. If your company can’t match its supply to its current demand, understanding trends in capacity can help you make capital investments—staffing up or opening a new facility to take fuller advantage of the demand in the market. Manufacturers need a solution to supply capacity planning, and in this article, we will explore the challenges manufacturers face and how to use data to overcome them.
While capacity planning should be more flexible, just updating your existing benchmarks isn’t the solution. Certain aspects of manufacturing businesses benefit from less frequent updates to capacity projections. For one, manufacturers need a consistent standard for benchmarking—it’s difficult to chase a moving target. Manufacturers must be able to compare their actual performance against their understood capabilities, and a benchmark that changes as fast as performance numbers makes it hard to see clear trends.
Manufacturers also need a more static capacity benchmark to calculate pricing. Changing prices too frequently will annoy customers, or even drive them away, so manufacturers hesitate to change the inputs to their pricing calculations. These are good reasons—as far as these existing uses of capacity benchmarks go—so manufacturers will need to take a different approach for their more granular capacity planning data.
Instead of using their standard supply capacity benchmarks as inputs for IBP, manufacturers should use a different metric, built from actual performance data. This approach has two essential requirements from your systems:
The foundation of accurate supply capability planning lies in a comprehensive base data set. This data set should be continually refreshed from the company’s Enterprise Resource Planning (ERP) system. The latest set of actual ERP transactions should be reviewed and then broken down by product and process weekly, daily, or even in real-time. This granular analysis allows for a more precise understanding of supply capabilities and will also reduce the human effort needed to support IBP. With a faster modern platform, analysis that was previously done monthly can be done hourly or daily. Developing a foundational, centralized dataset is critical to the success of IBP.
To effectively utilize the base data set, manufacturers need a tool that can process large volumes of ERP transactions and consolidate them against a hierarchy. For example, if a company has 20,000 SKUs, they can be rolled up into 100 product groups for a more manageable analysis—no need to manage capacity data for every individual product you make. Still, this process requires technology that can consolidate these details into aggregate groups using hierarchy references. With the introduction of cloud data platforms, you can do this type of analysis as frequently or infrequently as you need. Once the data is consolidated, the next step is to calculate the standard values to be tested and identify exceptions.
Finally, it’s critical to be able to use the data as part of IBP. A visual interface can simplify the process of business owners’ review, enabling them to determine whether changes to the modeling standard are necessary.
It’s also worth noting that, for most end users, they’ll be most likely to actually use the data your system provides if it’s accessible through a system they already use. Consider using embedded analytics to make your data accessible.
By adopting this more accurate approach to supply capability planning, manufacturers can achieve numerous benefits:
While a more accurate approach to supply capability planning is just one aspect of IBP, it is a crucial component. By connecting business plans to a realistic understanding of production capabilities, manufacturers can unlock a range of benefits, from cost savings to improved customer satisfaction.
At Spaulding Ridge, we’ve worked with manufacturers around the globe to help them implement integrated business planning solutions. We can help you improve every part of the IBP process, allowing you to make smarter business decisions with the help of data. Want to learn more? We’d be happy to hear what’s working for you and provide advice on what’s not—just reach out.
