How Operational intelligence helps Supply chain managers deal with extreme volatility
With the finalization of Brexit and the reintroduction of border formalities between UK and EU countries, many European manufacturers have found themselves with shipments of critical spare parts stuck in customs for extended periods of time, causing tremendous disruption to the supply chain.
This is just the latest addition to the long list of pain points faced by Supply Chain management teams in the industry. Their job is to strike and maintain balance between fluctuating demand & supply to ensure that the plant gets the parts and materials it needs — a real challenge in a high-volatility environment.
Until Operational Intelligence solutions come to help cut through the fog of uncertainty.
Supply Chain Management: the Goldilocks Syndrome
When managing the flow of supplies needed to produce industrial equipment, it is essential to make sure you get the exact right amounts of the right spare parts and materials at the right time.
Just like you can’t bake a cake without flour or sugar, no plant can put together an aircraft wing without the right components. The problem is that the recipe for an aircraft wing is a tad more complicated than for your regular Key lime pie. The bill of materials listing the supplies needed to manufacture the end product doesn’t only lay out thousands of very specific parts and consumables. It also takes the form of a complex hierarchical tree involving sub-assembly of sub-components, intermediate assembly of intermediate-components, with up to 15 different levels of parent-children relationships. And each of the production or assembly operations needs to be performed at a very specific time in order to synchronize and enable timely assembly of the finished product.
Now imagine that you miss one critical bolt to complete one of the sub-sub-components that needs to be pieced together with others. The event will impact multiple branches of your bill of materials. You can’t just run to the corner shop to grab what you’re missing: for your suppliers, manufacturing such high-precision parts can take up to months. While you wait for the faulty bolt to finally get there, hoping that you’ll be able to deliver the wing within deadline, millions of dollars’ worth of equipment are sitting idly in your stockroom.
Which brings us to the second nightmare of Supply Managers: unneeded inventory. In addition to the cost of storage itself, that boils down to tied-up cash that can’t be leveraged to create value. From a business perspective that’s just aberrant. In fact, plant executives usually monitor inventory metrics very closely and will grill Supply Managers in case of gaps between stock levels and production needs.
So you really need to get it just right. Ideally you’d have the exact amount of parts needed. No more, no less. Remember the story of Goldilocks! But it’s not that easy to achieve.
Coping with extreme volatility in demand and supply
Unexpected shifts in purchase orders happen every day. Clients may cancel or push out orders for equipment with 2-year lead times — because of the COVID impact on civil aviation for example. As they’ve usually placed their supply orders already, Supply Managers end up with a pipeline of inbound spares and materials that they no longer need — at least not at the moment. So they have to reschedule supply delivery, pushing out supplier orders accordingly in order to avoid inflating the plant’s inventory.
Conversely, customers might decide that they want an aircraft engine delivered early, compelling Supply teams to try and pull in delivery of supplier orders in order to get the required spares in time.
Suppliers have their own agenda and challenges. Whenever one of them fails to deliver a critical latch shipment in time, same problem for you: your inventory no longer matches your needs. Any shift has a cascading effect on the whole Material requirements plan, which needs to be revisited. Some suppliers will also set fixed batch sizes for delivery, further complicating the puzzle.
Finally the disruption may come from within the plant — for example when the teams in charge of equipment Maintenance, Repair & Overhaul tap into spares inventory in order to meet unexpected needs on their end. Here again, part availability is no longer aligned with the bills of materials, jeopardizing either the plant’s ability to deliver on customer orders or its financial viability — or both.
A matter of data intelligence
Adjusting the Supply Chain to constant shifts of this nature requires making smart decisions on complex issues. The transactional systems and tools that have traditionally been used in plants are not designed to do that. Supply Managers usually have an ERP that does a great job of establishing the Material requirements plan and syncing with the systems of the various suppliers to ensure that the timelines dovetail nicely. But ERPs reach their limitations when it comes to managing unexpected shifts. When faced with a change in a purchase order, the machine comes up with a mathematically-perfect but practically-flawed response (e.g. pulling in or pushing out delivery of multiple supply orders without consulting the concerned suppliers). In addition to impacting the whole supply plan at the plant level, this would spark a wave of panic across the supplier ecosystem.
So it’s up to the Supply Managers to find a solution, usually based on manual calculations.
They’ll try to evaluate the impact of a shift in customer order on cost and production to figure out whether it is feasible at all (and, if so, under what conditions: Paying assembler overtime to make up for slightly belated part reception? Contracting new suppliers?). They’ll try to determine which supplier deliveries can be pushed out and which should be kept as scheduled. They’ll reach out to suppliers to try and negotiate new delivery dates, as long as the supply agreement allows it and as long as the suppliers can realistically meet the revised schedule. Or they may ask Sales to negotiate with the customer to recoup the extra cost incurred.
In any case, they need sound insights and reliable information to make decisions and engage negotiations. But that quality data is usually not readily available. The information about purchase orders, stock levels and supplier deliveries is scattered and siloed in the ERP or across disconnected systems.
Just identifying and understanding the issues is a struggle. Supply Managers have to manually review a list of hundreds of parts and orders to make sure that supply still matches production requirements and that movements and shifts are accounted for. As the typical Supply Manager coordinates an average of 30 different suppliers, and as shifts in orders occur on a daily basis, that’s a lot to review, handle and calculate.
Most importantly, it’s impossible for them to know which of the many issues they should tackle first, because they can’t know which yield the highest impact on cost and inventory before they perform the time-consuming review. As a result, they’re wasting time understanding which supplier orders they should prioritize instead of actually addressing the problems. With a snowball effect on stock coverage, inventory levels, and overall value.
Pelico: smart prioritization for insightful decisions and effective action
What Supply Managers need is data visibility and intelligence to help them assess the impact and cost of the hundreds of delivery pull-ins and push-outs they have to manage, with automated calculations to save time and gain productivity. They need a prioritized list of the most critical operations to be processed, of the most urgently needed missing parts, and of the most impactful actions they have to perform to improve performance against the objectives set at the plant level (reducing extra stock, curtailing operating costs, etc).
They need the ability to simulate and quantify instantly the consequences (on deliverability, on turnover, on cashflow, etc.) of the various mitigation decisions available to them. They need a data management system that automatically aligns with the reality of constantly shifting purchase and supply orders and that provides the impact visibility required to engage in negotiations with suppliers or report performance to their management.
They need the support of reliable historical data to improve knowledge of supplier behavior and better anticipate delays. They also need collaborative systems to work effectively with other teams and with suppliers, with automated notifications, instant interactions and escalation mechanisms.
That’s Pelico. Our Operational Intelligence solution empowers Supply teams to cut through the fog of uncertain operations and achieve predictable outputs. Acting as an intelligent layer that sits on top of transactional systems (ERP, PLM, Time Tracking…), it reconstitutes a digital twin for operations. An AI engine crunches the data to detect and anticipate issues, offers insights for smart prioritization, and powers Supply-Chain-oriented applications designed to assist in reducing missing parts and inventory.
The collaborative-by-design platform aligns all teams over a common view of operations and enables context driven collaboration to accelerate feedback loops and improves consistency and cohesion at the plant level. All that in a user-friendly environment delivering the seamless, almost playful experience that today’s smartphone users have grown to expect from technology.