I chose “Revisiting Supply Chain Planning” as the title for this blog post because I believe the phrase captures both the current focus of my research agenda (what I am doing) and the heightened priority SCP has taken on the agenda of many supply chain executives (what practitioners are doing). Earlier this week, I began updating ARC’s Global Supply Chain Planning (SCP) market study, last published in 2013. It’s worth noting that the SCP study was also the first one I developed as an ARC analyst back in 2006. Shortly after I completed the SCP study in 2006, a colleague of mine implied that the SCP market would not change much, because most vendors now offered optimization (known as APS back then) and they all had access to the same algorithms. I couldn’t disagree more. A lot has changed over the last 10 years – including the operating environment (supply chains), planning processes (the depth, breadth, and frequency of analysis) and SCP software (speed, capacity, scope, ease of use, and breadth of functionality).
The Changing Operating Environment
Global Network Modifications
There is evidence that a tectonic shift in global production and distribution processes is currently in progress. This trend is nearshoring – where many North American and European-based manufacturing companies are relocating production from historically low-cost but geographically distant locations such as China, to locations closer to the point of consumption. In fact, David Simchi-Levi recently wrote an HBR blog titled You Can’t Understand China’s Slowdown Without Understanding Supply Chains that suggests China’s recent slowdown may be a result of this global nearshoring trend. According to a study by AlixPartners that I recently referenced on LogisticsViewpoints, rising labor costs in China are hindering that region’s cost advantages. At the same time, other important inputs, such as natural gas prices and the premium placed on supply chain agility, are encouraging practitioners to reexamine their supply chain networks. I am particularly interested in learning during my research process about the ways in which strategic network design applications are currently being utilized to model the nearshoring options available to these firms and the degree to which this trend is impacting the SCP software and consulting markets.
Structural Shifts in Order Fulfillment
The growth of e-commerce and the demand for next-day delivery are changing the status quo in e-fulfillment from large, rural distribution centers to a greater number of smaller DCs proximate to population centers. This is another structural shift in supply chains that requires network redesign, scenario analysis, and updated fulfillment planning models. Similarly, retailers with stores are evaluating the merits of omni-channel flows to determine the potential benefits and costs of these options. As an example, an executive from one large retailer informed me that they are engaging in a smart fulfillment sourcing initiative to determine the merits of more widespread ship-from-store operations. Including store locations as sources of fulfillment and reverse logistics creates a step change in network complexity that will benefit from robust cost-benefit analysis.
Planning Process Sophistication
Planning processes have become much more sophisticated over the last ten years. Practitioners are currently engaging in planning optimization runs more frequently. At the same time, planning processes are more integrated than they were in the past – considering a broader range of inputs, factors, and constraints. The increased adoption of sales and operations planning (S&OP) is a prime example of more holistic planning that enables robust scenario analysis considering cross-functional factors. Also, data has become more readily available and more granular, leading to greater insights. Finally, all of this has been supported by cost-effective, high-speed in-memory computing capabilities.
SCP Software Performance Improvements
I do agree with the essence of my colleague’s statement in 2006 that vendors have access to the same algorithms. However, I also believe that the application of the data to the optimization algorithms, the degree to which the objective function represents reality, and the extent of variables and constraints built into the models varies by vendor and specific end-user. Some examples of distinctions include multi-echelon inventory optimization as opposed to single level optimization, use of POS data to adjust replenishment plans (demand sensing applications), replenishment planning that includes warehouse constraints (integration of planning with execution), and the ability to distinguish product sell-through from sell-in.
As I update ARC’s study of the global SCP market, I would like to hear about interesting SCP processes and novel applications of supply chain planning software. Please reach out to me at email@example.com if you are a practitioner with an interesting story or a SCP software supplier with a novel solution.