Working together for better forecasting and planning

For manufacturers, forecasting and planning in collaboration with customers and suppliers, instead of in isolation ought to yield a veritable cornucopia of benefits, both in terms of cost saving and improved delivery. And in theory, the Internet and web technologies make the whole process much easier than ever before, because of its speed, ease of access and low cost. Andrew Dalziel, supply chain planning project manager at e-ERP software firm Intentia, cites potential benefits as including better forecast accuracy, improved on-time delivery performance, slashing obsolete stock, optimised resource utilisation, fewer rush orders, no more expediting, dramatically reduced inventory and work in progress – plus too many more to mention. And the returns are very real. Motorola, an Oracle software customer, by using collaborative forecasting claims an error reduction down from 85% to about 20% in volume forecasts alone, as well as reduced stock levels and increased stock turns. And Ford North America’s success with its Synquest supply chain solution has led to its implementation now in Europe. So why do manufacturing users seem so reticent to fall upon this potential gold mine? There are several key points. Among them is an expectation of the need to embark on seriously big projects, and those that went through the hell of implementing ERP (enterprise resource planning) systems are unlikely to want to repeat the experience. Then there are considerable cultural barriers to overcome: moving from the old ways to the new, considering suppliers and clients as partners rather than adversaries, depending more on systems – all of these cannot be taken lightly. In short, there are issues of perception, people and ingrained business culture to resolve, rather than technology per se. Dealing with these point by point, first size does, of course, matter. And with most of the reported attempts at collaborative planning being in the high profile retail-orientated sector, it’s easy to understand the common perception of big, long term, complex projects, with commensurate costs, disruption and risk. Few, for example, can have failed to notice Nike’s financial difficulties which it blamed on its supply-and-demand software implementation from e-supply chain software and web exchange leader i2 Technologies. Commenting on this unfortunate episode, Tom Harwick, analyst Giga Information Group’s research director for supply chain management, stresses the importance of proper implementation. “Implementing a supply-chain management solution is like crossing a street,” he says. “High risk if you don’t look both ways, but if you do it right, low risk.” Doing it right means taking a few precautions, he says, such as appropriating adequate resources, understanding how a system will improve business processes and managing participants’ and users’ expectations. And instantly we’re back to people problems. Needn’t cost the earth But an example that gives the lie to the perceived scale barrier at least is that of Cott Beverages UK. Cott shows that collaboration at some levels doesn’t automatically mean mammoth projects. This company has implemented a system from automotive supply chain software IT firm Wesupply (the founders came from SSA Acclaim as it was) that will give its suppliers 24-hour a day, seven days a week continuous access to real-time supply chain information, using an Internet browser. “We will be giving our suppliers total visibility of what we want and an analysis of how our requirements have changed. In return, we’ll gain a greater understanding of what they can deliver,” says Gavin Totman, Cott Beverages IT manager. System roll-out continues successfully and it hasn’t cost an arm and a leg. As for the cultural and people issues, many will have to face that age-old challenge that always rears its head when any new technology is scented. And it’s a matter or recognising it and certainly not underestimating it. For a start, “replenishment managers, materials managers and purchasing personnel are going to have to trust the system a lot more,” says Nick Ford, vice president of business development Europe with i2. “In fact, where i2 does the bulk of its work in pilot schemes is in persuading the suppliers to adopt it from a process and data viewpoint, and getting the customer processes designed around the forecast. And it’s a real challenge in the retail environment to get actual sales data shared down the supply chain.” Inevitably, it’s a matter of awareness, inculcating and maintaining a willingness to change, driving the process from the top while involving the troops early on and throughout the development – and indeed, managing expectations. Clearly, a lot depends on just how far you want to push collaborative forecasting and planning. Indeed, it almost goes without saying that it’s important at the outset of any initiative, forecasting or otherwise, to be clear what your business/manufacturing goals are. Peter Klein, vice president Europe at supply chain optimisation IT firm Synquest, challenges: “Why are you forecasting? Most businesses today have been working on cost reduction, but we have taken it from a different perspective.” And he means also using the technology to make more money. “You have to throw away the old rules and start again from first principles – and remember the 80/20 rule.” Klein believes that supply and demand are just part of the picture, and certainly not enough: you have to include cost and profit as well. “You cannot solve your forecasting problem for a particular customer service level in isolation, for example – you need to look at profit optimisation too. It then becomes a very complex operation,” he observes. Profits and savings Profit isn’t neglected by the other vendors. The Intentia solution, for example, is based on Movex Demand Planner and Supply Chain Planner. As a first step, this brings together the two main parties involved in the forecasting process – sales and marketing, who traditionally prepare the demand plan, and production, who usually produce their own forecasts. “You create a demand forecast in the demand planning tool, and then use the supply chain planner to see if you can deliver it with maximum profitability,” explains Dalziel. The next step is to take in information from other parties, says Ford. “To make more accurate plans, manufacturers want to bring customer, sales and marketing forecasts together, and take manufacturing, distribution and logistics constraints into account in the planning process.” But a little caveat here, and it’s back to basics: for any of this to work you absolutely must start from a foundation of accurate historical data. Although in a changing world the future cannot be known precisely, it is a fact that the more accurate history you have, the more accurate your forecasts will be – and the more the system will be believed, used and succeed. Also, you must ensure that data captured is complete – that it includes, for example, not just information on what you’ve shipped but also on what you haven’t shipped, whether because of stock-outs or for other reasons. That done, the next step is to start by integrating planning processes internally, combining the efforts of sales and production, for example. The old metaphor about walking before you run comes to mind. From then on, it’s a matter of making provision for being able to share forecasts on several levels – three-monthly strategic plans, monthly or weekly operational plans, and day-to-day exceptions and changes makes sense for many. Private web exchanges One way to achieve Ford’s holistic vision of demand and planning data is via private web exchanges. Says Russell Johns, Baan’s strategic alliances marketing director: “You will always get the best out of any collaboration if you work together with your favourite suppliers – a private marketplace of suppliers that collaborate together to build up a solution electronically. Because you can drill down into individual systems on all sides, you are taking accurate costs into account.” Whatever the precise mechanism, the Internet plays a key part. In the case of self-styled supply chain profit optimisation specialist Manugistics, demand forecasting is carried out with its NetWorks Demand application, and with its NetWorks Collaborate you can create and maintain that most important of new concerns – partnership business processes and rules that don’t yet exist. But the key that ties it together is WebConnect, which supports integration not just between different systems and departments within the enterprise but also between enterprises themselves. Peter Woodward, automotive market leader at eERP and web platforms giant Oracle, describes how his company’s solutions use a totally Internet-based architecture to consolidate information. “This allows us to collect data from many different sources in a controlled manner. Then, through the Internet you can use the Oracle workflow to manage the process, route the information – and monitor performance.” Smaller organisations will be reassured to know that Internet-based solutions can take many forms. As Sam Brown, marketing director with Manugistics explains: “Our main challenge remains persuading companies of the value of all internal optimisation and then collaboration without necessarily making the big leap into those multi-million exchange projects that tend to get mired in system integrators and consultants for months or even years.” However, before any organisation can look at the technology, something else needs attention first. It’s been alluded to already – the processes. As Dalziel points out: “Since forecasting starts at the customer end, it’s down to your relationship with your customers. Many organisations have to look at the entire process, which often starts today with faxes, telephone calls and manually-created spreadsheets.” For others, like Cott Beverages with collaboration facing more in the suppliers’ direction, the same points apply, but naturally concerning the relationships and processes with them. Processes, people and then technology – that’s the message.