This combined with an austere economic climate requires businesses to deliver higher service levels at a lower cost with less investment in inventory.
So exactly why is this a seemingly impossible task? First, we need to understand how businesses have evolved.
In what we might call ‘the age of manufacturing’ – 1900 to 1960 – there were few variants to any manufactured item. Business was ‘product led’, forecasting was all but irrelevant and, quite simply, if a product was made it would be bought. Take the Ford ‘Model-T’ as an example of this: there was one model in one colour with no optional extras for the buyer. There was little need for planning.
The ‘60s to ‘90s could be regarding as ‘the age of distribution’. This was the period when manufacturers such as Toyota pioneered new concepts in manufacturing and supply chain, and saw the emergence of JIT, kanban, MRP/MRP11, ERP, lean manufacturing, etc.
Leaving the ‘90s and heading into the new millennium ‘the age of information’ saw focus shift towards advanced forecasting systems, product diversification, supply chain globalisation and increased outsourcing.
We’re now in what we might term ‘the age of the consumer’ which has revolutionised the markets we all serve. There are now more variants in everyone’s product portfolio, more potential routes to market and a more complex (more ‘web like’) supply chain than we’ve ever known before. Product lifecycles are shortening, the consumer’s tolerance time (how long they are willing to wait for an item to come into stock) is also shortening while at the same time global sourcing is increasing material lead times.
What does this mean for the future of the supply chain?
Well, in many ways forecasting systems are no longer as relevant as they once were; businesses are becoming ever more reactive rather than proactive. Companies can try to become better at what they’re already doing with their supply chains, but evolution of existing systems and processes is offering ever diminishing returns. This is combined with the fact that the MRP ‘engine’ at the heart of most ERP systems’ planning functionality is based on a concept conceived in the 1950s and which since its commercialisation in the 1970s hasn’t changed.
A revolution is needed: a new model to enable businesses to keep pace with the shift in power from the manufacturer to the consumer. Companies have to embrace an unpredictable world, stop chasing the forecast and execute their plans based upon demand, replenishing by ‘pull’, not ‘push’. Demand must also be segmented to allow for better, more focussed handling of groups of items with disparate demand patterns.
We know that manufacturers and suppliers are ever following the long and winding road of specialisation in terms of outsourcing supply of components and materials – whichever material supplier on the planet offers the best opportunity to add value to the business is the one every purchasing manager has in their sights. So why is it that when it comes to the systems and processes used to manage the business, the ‘one size fits all’ approach of the major ERP system providers is still the norm for most?
It seems like common sense to also move towards specialisation in supply chain systems and processes, doesn’t it? So why are so few companies doing it?
In short, they’re scared to.
They have an emotional and financial investment in their current software and have, effectively, been brainwashed into believing that expending further capital and effort in improving forecasting is the answer. The simple truth is, it’s not.
The real answer lies in niche, specialised software providing that vital demand pull planning capability, while still taking advantage of an existing ERP system’s capability as a system of record, and offering fast and risk free implementation with rapid ROI.