The years when manufacturers could profitably establish long production campaign runs and idealistic changeover cycles to drive efficiency are long gone.
Today they are being pressured from within to produce more varied products at faster speeds and lower costs — all while improving resource utilization and reducing overall inventory levels. At the same time, customers expect even higher service levels at lower, more competitive prices that consequently erode margins.
The best strategy to deal with these pressures is to integrate manufacturing and logistics functions. This will help them redefine rough-cut capacity planning; shift to daily planning and execution; and schedule production at the attribute level, including size, color and recipe.
Respond to Demand Signals
To bring manufacturing closer to the customer, it is necessary to create better transparency. Demand signals must flow through inventory and distribution planning activities all the way to manufacturing planning. Also, an accurate, up-to-date production plan must be available for inventory deployment and planning execution. Integrating planning and execution on a daily basis removes supply chain uncertainty, driving more precise order promising, on-time delivery and a gradual reduction in safety stocks.
It is possible to vertically link the planning process from finished goods distribution to finished goods production, as well as to work-in-process through raw materials. Many companies are launching aggressive, long-term initiatives to make integrated planning and execution a reality. The resulting improvements in customer service, inventory management, promotions and new product introductions, revenue and cost savings can be transformational.
Stanley Black & Decker Hardware and Home Improvement is an example of a company achieving integrated planning and execution. Challenged with managing complex offshore and onshore supply chains, the company implemented a solution at the plant level to improve component manufacturing and inventory management while synchronizing material and resource flow for multi-stage and multi-site production needs. With enhanced integration and visibility, Stanley Black & Decker HHI has been able to achieve an 11.4 percent reduction in finished goods inventory (against a 2.5 percent target), as well as ongoing service-level and fill-rate improvements.
The automotive industry was the first to adopt the concept of sequencing production based on unique attributes — such as color and feature — in order to more accurately utilize plant capacity, achieve feasible production execution and minimize production changeovers. However, this concept has become equally critical and applicable for consumer and pharmaceutical manufacturing businesses as product offerings have become more complex with a large variety of recipes, packaging sizes, promotional labels and other attributes that contribute to costly production line changeovers.
Swire Beverages is an example of a manufacturing company using this principle to reinforce its industry leadership position. As the franchise bottler for all brands of The Coca-Cola Company in Hong Kong, Swire is leveraging a product attribute-based sequencing approach with advanced production planning capabilities at the plant level to improve key supply chain metrics. By first considering unique product attributes, changeovers, complex bottling constraints and policies in the planning process, Swire is now able to generate a feasible manufacturing schedule down to the minute while ensuring that service level and plant utilization goals are achieved. The company has also been able to optimize material and resource capacities across each stage of the bottling process, improving plant throughput. Swire perfected the product mix of individual bottling lines, resulting in a 75 percent decrease in stock-outs and increased production line efficiencies.
Redefining Capacity Planning
Many manufacturing companies are still operating with traditional rough-cut capacity planning processes in which production plans are primarily constrained against a single production resource, such as the filling or packaging line. However, manufacturing today is a series of integrated constraints from raw materials to finished goods that cycle faster than ever before. Production constraints shift from one resource to another depending on the recipe, packaging size and lot sizes. If these factors are not taken into consideration, they can lead to unnecessarily high production costs, inefficient changeovers, lower resource utilization and potentially high obsolescence costs.
While manufacturing planners understand this issue, many are unable to address it due to limited planning capabilities and dated technology that require intensive, time-consuming manual production plan review and adjustment. This results in longer planning cycle times, limited time to make production plan adjustments when the market changes and typically higher safety-stock targets to address daily market variability.
Merck Serono International S.A., a global pharmaceutical and biotechnology leader, executed a holistic approach to production planning. To efficiently and accurately respond to fluctuating market demand, the company implemented optimization capabilities that consider all capacity and material availability, as well as production and sourcing policies across its global operations.
With a synchronized supply chain network from the strategic level through the operational level, materials and products can efficiently flow throughout the network and can be produced at the best facility. This significantly reduces Merck Serono's stock levels and manufacturing costs.
Daily Planning and Execution
Leading manufacturing companies — especially those in consumer goods industries — can no longer afford to operate under the traditional monthly or weekly planning cycles. This approach simply does not provide the agility or visibility necessary to succeed in today's dynamic environment driven by market demand changes, shipment optimization requirements and inventory consumption. Responsive production planning requires the ability to adjust plans daily.
One of the world's largest food companies has shifted from weekly to daily planning coupled with integrated planning and execution. To move from the common “plan weekly and adjust daily” method to the “plan and execute daily” approach, the company implemented technology that enabled production and distribution plans to be generated or regenerated every night. This allows the company's associates to manage issues by exception each day.
Since moving to the daily planning and integrated planning and execution model, the company has realized significantly improved customer service levels and reduced finished goods inventory levels.
Tighter integration between manufacturing assets and distribution activities can be a critical competitive differentiator. It means less variability between production lines and extends all the way up to raw material procurement, allowing companies to more readily address shifts in market conditions.
Danny Halim is vice president, industry strategies, supply chain at JDA Software (www.jda.com). He is responsible for developing strategic supply chain innovations for the consumer products industries.