Last week we discussed the first requirement on why a collaborative transactional portal is a must have for establishing End to End (E2E) pull replenishment. Feel free to refer to the original blog that described E2E Pull and all the requirements.
In today’s blog we will move to the next requirement of “Customer Integration”.
Talk to any large manufacturing company and you will hear the similar storylines. My customers’ demand is very erratic, the orders do not match the forecast, and customer lead times are too short. When drilling down to the next level, it becomes obvious that the manufacturers are making several assumptions via their sales and operations planning (S&OP) process; these assumptions are made with very little input on actual demands or usage from the customers.
The Reason to Collaborate
Currently manufacturers are getting sporadic data from customers. Some customers provide monthly forecasts; there is also occasional usage data and some planning or promotion information. Manufacturing companies take this information, incorporate this data into an overall S&OP process (with a set of assumptions) and produce a production and inventory plan for the year.
These are inefficient techniques lead to part shortages, excess inventory, and disruptive production schedules. The primary reason for the disruption is lack of validated input from customers in the planning process. It gets worse for global brands that have more levels and multiple tiers that push them further from the end consumer.
“E2E Pull” by its very name suggests that customer demand should be driving the production in order to optimize inventory, reduce lead time, and improve service levels. There is an urgent need to engage customers through an E2E platform…it is the only way to accomplish these lean efficiency best-practice goals.
Best Way to Engage Customers
Customers are used to sending sales orders based on their MRP/ERP system; these orders result in input from their S&OP process. Sadly, and inaccurate customers’ orders are being driven largely by forecasts and assumptions made during their planning sessions.
Manufacturers MUST make it easy for their customers to provide this data. It should not be an IT exercise where data is pulled out of a data warehousing or a Business Intelligence (BI) system lacking real-time information.
Collaborative Real Time portal discussed in the last blog makes this process easier. Customers can feed the data in real time through RFID or scanners or manual inputs or integration with business systems or a combination of these. The portal becomes a demand repository that can then be effectively used in the S&OP process. It provides accurate data needed to utilize customers’ consumption or usage patterns, variability of consumptions, demand spikes, inventory levels and delivery performance.
Using the Collaborative Portal Today
Ultriva has customers who segment their customers based on the combination of product lines and markets they segment.
One manufacturer has a dedicated warehouse close to their tier one customer. The warehouse carries inventory feeding their customer’s production lines through hourly or daily deliveries. Customer is carrying no inventory at their facility. As they move goods out of the warehouse, it sends signal to the manufacturing facilities to replenish. The big advantage for the customer is no inventory with almost 100% service levels. From the manufacturer perspective they have captive customer while they carry the right mix of inventory based on customer usage. Shop floor is scheduling production based on the actual usage of the customer with a maximum time lag of one day.
There are many ways to sense customers’ demands, regardless of the distribution channel, incorporate them in to your S&OP process, and begin the E2E pull replenishment process.
Start measuring the inventory in Days of Consumption (DOC) instead of Days on Hand (DOH).
Collaboration is the key to success; learn more about E2E Pull.