Companies are showing increasing interest in supply chain transformation as they want to create predictability, scalability, agility, and sustainable, profitable growth. Yet the key question is, “what is supply chain transformation?” Depending on the client, they might be thinking about supply chain network design, setting strategy for their end-to-end supply chain, upgrading their demand planning or supply planning processes, better utilizing their ERP system and advanced supply chain technologies in conjunction with their supply chain processes, deciding what to produce where (internal, external), upgrading their e-commerce and distribution processes, optimizing inventory, freight, and margins, or a myriad of other topics. Although clients use the term for a wide array of topics, the work they typically are asking for includes upgrades to the supply chain planning/ order fulfillment processes in conjunction with the use of ERP and advanced technologies. We will address what supply chain transformation means to LMA and how SIOP (Sales Inventory Operations Planning), ERP and artificial intelligence / advanced technologies fit in the picture.

We’ll talk through supply chain transformation, what’s included, how it relates to SIOP, ERP, and AI, and review a case study example.

What is Supply Chain Transformation?

We see supply chain transformation as an organized, enterprise-wide effort to redesign how a company plans, buys, makes, moves, and delivers products in a way that improves supply chain performance so that it is faster, more reliable, more scalable, and more profitable. In essence, it transforms the supply chain from a reactive and fragmented one to a proactive, aligned and high-performing one. A transformation includes the end-to-end supply chain from planning and procurement to manufacturing and operations to logistics (distribution, warehousing, fulfillment transportation) and systems and data. The bottom line is that it is an integrated change across people, process, and technology to upgrade business maturity to deliver customer value and profitable growth. We see a supply chain transformation resulting in business systems maturity that reflects a predictable, profitable, and intelligent supply chain.

What Is Included in a Supply Chain Transformation?

Since a supply chain transformation is an integrated approach to upgrading supply chain maturity with a focus on prioritizing the results most relevant to success, it will emphasize different aspects of the supply chain yet consider the full scope of supply chain processes. We see it as an upgrade to whichever of these process areas are important to the company’s objectives including:

  • Demand Planning/ Sales Forecasting: Forecasting what customers will buy – sales revenue and/or units sold over a predefined period of time. This process combines historical trends, sales pipeline opportunities (opportunities, quotes), customer commitments and contracts, seasonality and market conditions, customer demand and POS (point of sale) data, sales and customer input, and other information. Sales forecasting systems and CRM (customer relationship management) systems such as Salesforce mainly support this function.
  • Quote Conversion/ Configuration: In engineer-to-order (ETO) and configure-to-order (CTO) custom manufacturing environments, converting quotes to orders (also referred to as estimating, project management, configuration, and developing parts lists) is vital to success. Moving potential sales from opportunities to quotes to orders (while gaining additional product and unit of measure clarity) is at the heart of these businesses. CRM and CPQ (configure, pricing, quote) systems support this function.
  • Customer Service/ Order Management: Customer service, order management, and service policies are the disciplines that ensure customer orders are captured correctly, fulfilled reliably, and managed consistently across the organization in a way that provides a predictable and superior customer experience at scale and efficiently. Customer relationship management (CRM), available to promise (ATP), EDI, e-commerce systems such as Spotify, customer portals, and artificial intelligence technologies support these functions. In ETO/ CTO environments related to building and construction industries, installation schedules and release sets are at the forefront whereas in e-commerce environments, the digital shopping experience and returns functionality (Amazon-like) is of paramount importance.
  • Master Planning/ Scheduling: Master planning, also known as Master Production Scheduling or MPS, translates demand into a time-phased plan for what a company will produce (by product and by period) while considering and optimizing capacity, inventory, operational efficiencies, and customer service levels (OTIF, lead times). Advanced planning systems (APS) and MPS/ MRP systems support these functions. APS capabilities can dynamically reallocate production among sites and reroute incoming materials and shipments to optimize service, capacity availability, operational performance, freight and logistics costs, and inventory levels.
  • Capacity Planning: Capacity planning is the process of determining whether your business has enough resources (labor, equipment, space, tooling, maintenance, supplier capacity, transportation capacity) to meet demand, addressing gaps, and optimizing resources across the business. Labor planning for high-volume environments with multiple shift types, schedules and requirements provide a good example for optimization software. CRP and APS functionality supports these processes.
  • Production Scheduling: Production scheduling is the process of determining the exact sequence and timing of work on the shop floor (what gets made, on which line or machine, and when) to ensure a superior customer experience, greater operational efficiencies (labor, waste, throughput), and optimized inventory. Work orders/ production orders, related planning workbenches (MRP), production wheel and kanban systems typically support this function.
  • Procurement: Procurement includes the processes of sourcing, purchasing and managing supplier strategy, cost, risk and performance of buying the products, raw materials and components, equipment, packaging, and outside services that a company needs to operate. Blanket orders, supplier portals, EDI and APIs (application program interface), and MRP is typical functionality that supports these processes.
  • Engineering: Engineering processes ensure products and processes are designed in a way that supports manufacturability, supply continuity, cost control, and scalability. In a custom environment (ETO/ CTO), Engineering drives the supply chain. From configuring and estimating quotes to determining lead times, feasibility, and material/ capacity constraints to designing products, developing specs and producing bills of materials to managing change orders and revisions, Engineering is embedded in supply chain transformations. Product configurators (CTO), design programs, document and drawing control software, ELM, ECO/ ECN (change notices), BOMs, items and attributes, routings, and other functionality supports these processes.
  • Manufacturing Operations: This topic includes the supply chain components that impact scheduling, capacity, throughput, efficiency, waste, and other operational principles to ensure effectiveness, flow, and performance. ERP functionality such as bills of materials (BOMs), routings, work centers, labor and capacity settings (CRP, labor tracking), manufacturing execution systems (MES) are prevalent to driving success.
  • Replenishment / Distribution Planning/ VMI (Vendor managed inventory): Replenishment planning is the process of determining what and how much to send distribution centers, manufacturing sites, stores, branches, service centers, or customers to keep inventory at the appropriate levels while meeting customer needs. MRP/ DRP and inventory replenishment/ optimization, and VMI system functionality support success.
  • Distribution & Warehousing Operations: Distribution and warehousing is the part of the supply chain responsible for storing, moving, picking, packing, and shipping inventory efficiently and effectively to customers with high levels of service. Inventory management (levels, accuracy) is embedded in efficient and effective operations. ERP functionality (shipping, receiving, transfers, inventory, cycle counting), WMS, automation technologies, and returns (RMAs) functionality (ERP and e-commerce) support these functions.
  • Transportation & goods movement: Transportation and goods movement is the part of the supply chain focused on moving materials and finished goods between suppliers, plants, warehouses, and customers safely, on time, and at the lowest total cost. TMS and supply chain visibility functionality support these functions. Import/ export is also ingrained in these processes.
  • ERP Systems, Data & Advanced Technologies: The better utilization, optimization and upgrade of ERP systems, reporting and analytics (business intelligence), automation and robotics, artificial intelligence and advanced technologies enhance visibility, scalability, repeatability, sustainability, serviceability and profitability. The key for supply chain transformation is to upgrade processes in conjunction with the use of systems. Typical ERP systems range from SAP and Oracle to Microsoft Dynamics, JD Edwards, Epicor and Sage to specialty systems. For supply chain transformation, CRM, CPQ, demand planning, advanced planning, WMS, TMS, and supply chain visibility systems are key. From a reporting and analytics standpoint, business intelligence systems such as Power BI are integral.
  • SIOP (Sales Inventory Operations Planning): SIOP is a cross-functional process that aligns sales demand, inventory strategy, and operational capacity so the company can meet customer needs while hitting financial goals. SIOP replaces parallel plans with a single one. SIOP cuts across much of the functionality and technologies in addition to performing data normalization, business logic calculations, what if scenario analyses, virtual model simulations (digital twins), business intelligence (BI) and predictive analytics. Depending on the client’s technology platform, we roll out the appropriate upgrades and/or leverage our SIOP platform (that we translate into data software and/or Power Queries and BI for sustainability) to fuel results.

Although a supply chain transformation will typically encompass upgrades across several of these functions, that alone is not sufficient. Instead of a collection of silo upgrades, a supply chain transformation must provide step level change in enterprise-wide maturity. A supply chain transformation progresses from silo focused to repeatable and defined processes to managed, data-driven processes to integrated, embedded and optimized processes to scale for growth and profitability.

How Does SIOP Relate to Supply Chain Transformations?

SIOP fuels supply chain transformations.

The key to success is to drive sustained, directional progress so that executives have the information required to make decisions to increase the value of their business – increasing market share, growth, profitability, and working capital. We view SIOP as inclusive of not just the SIOP process and cadence, but also the enhancement and progression of business systems maturity to fuel business performance and financial success. Progressive executives expect SIOP to drive supply chain transformation and ensure bottom line results. They understand the integrated value and essential nature of utilizing SIOP to set strategy while having the ability to drill down to the “right” level of detail to make quick yet fully informed decisions to drive business value and scalable growth. To learn more about how to rollout SIOP, download a complimentary copy of our book, “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth“.

How Does ERP Relate to Supply Chain Transformations?

ERP is integral to supply chain transformation.

ERP plays a foundational role in supply chain transformation because it provides the data backbone and process discipline required to run an integrated, scalable operation. Without ERP, supply chain transformation initiatives tend to stall, get stuck in silos, or rely on spreadsheets and manual workarounds. Supply chain transformations require visibility from demand through delivery, requiring significant use of ERP for customer orders, inventory levels across facilities, production schedules, purchase orders, and related financial impacts). Standard, repeatable processes are integral to scale without increasing complexity and include ERP functionality from order-to-cash, procure-to-pay, plan-to-produce, and forecast-to-fulfillment. Modern supply chains depend on coordinated planning, and ERP provides the transactional engine that supports MRP and DRP, production scheduling, ATP and safety stock / inventory policies. ERP also provides a single source of truth for key metrics such as OTIF (on-time-in-full), inventory turns, inventory accuracy, production output, supplier performance etc. Finally, ERP provides the backbone to scale across complexity and feeds advanced systems with data and executes their outputs.

How Does Artificial Intelligence Relate to Supply Chain Transformations?

AI enables and accelerates supply chain transformations.

Artificial intelligence powers smart supply chains and smarter decisions – better decisions, faster execution, and fewer surprises at scale. The best companies utilize AI to improve planning (demand planning, anomaly detection, inventory optimization, and scenario planning), enhance visibility and the speed of decision-making (exceptions, priorities, quicker identification of patterns/ bottlenecks, etc.), improve customer service and provide a superior customer value. Download our eBook to read more about strategies to utilize AI for manufacturers and in the supply chain to power results and enable supply chain transformations.

Supply Chain Transformation Case Study

An electrical equipment supplier struggled to provide realistic lead times to customers and meet customer needs as customer orders ramped up and the team struggled with a new ERP system. Thus, leadership requested a supply chain transformation to provide better visibility for communication with customers, better predictability for forecasting revenue for their private equity backers, and better forecastability in capacity and materials planning to scale profitably.

A supply chain transformation was required to upgrade foundational processes and the use of systems, uplevel with advanced processes, artificial intelligence and advanced technologies, and upskill the team. There were so many moving parts that the team had to jump into the details, track down the status of orders throughout the process (from configuration and order entry to engineering, planning, operations, assembly, quality and shipping), and follow the spaghetti diagram of logic to determine the product configuration and associated operational requirements. The team developed an interim toolset to automate and clarify order data and status while gaining a directional view of operational capacity and activity with a heijunka board to gain visibility into the revenue forecast.

Simultaneously, the team purused an across-the-board upgrade of supply chain processes and better use of their ERP system to sustain the progress. This supply chain transformation focused on the improved setup of item attributes, routings, phantoms, work centers, and other fields while also configuring, setting up and rolling out key planning and operations capabilities (capacity planning, MRP, production scheduling, and exception reporting). They accompanied these improvements with the upgrade of their SIOP (Sales Inventory Operations Planning) process to proactively align demand and supply and developed plans to utilize advanced planning system (APS) functionality. Finally, they focused significant resources, invested in consultants, and hired key resources to support and upskill the team, develop cross-functional capabilities, and elevate performance.

These improvements were significant and resulted in greater visibility to customer due dates, significantly improved predictability of revenue, enhanced availability of materials to support production plans, and greater operational efficiency with the foresight of schedules. These improvements supported record-breaking revenue and growth.

The Bottom Line

Supply chain transformation creates predictability in manufacturing operations and extended supply chains. The best companies are combining business system upgrades (process, ERP and related technologies) with the upskilling of talent, rollout of predictive and intelligent processes like SIOP and the exploration of advanced technologies.

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