The dividing line between IT vendors offering planning systems, and those offering execution systems may no longer hold.
In April, as the Icelandic volcano filled European air space with ash clouds, leading to much of its closure, the assembly lines at Ford’s Flat Rock, Michigan plant ground to a halt–an outage that was to last four days. The plant was held up by a parts shortage, as was a sister plant at nearby Wayne. Meanwhile, farther south, production slowed at BMW’s plant in Spartanburg, South Carolina. In Germany itself, Volkswagen, Europe’s largest carmaker, reported that it too could face production difficulties.
Such is the inter-connected nature of automotive supply chains that even plants as far away as Japan were affected. Nissan was forced to halt production at two plants in Japan.
The eruption forced carmakers to re-think their global supply chains on the hoof, making snap decisions aimed at balancing the trade-off between foregone revenues and added logistics costs. While Ford changed production schedules to manufacture models for which it actually had parts, GM maintained production through a combination of chartering special services and switching to long-distance trucks.
Perhaps the most remarkable aspect of the disruption was the speed with which these changes could be made. Not so long ago, unable to nimbly and quickly reconfigure their supply chains, events like these would have seen carmakers face much more serious disruption to their schedules.
Nevertheless, the whole volcanic ash cloud episode throws into sharp relief a fundamental dichotomy that lies at the heart of supply chain management: the question of supply chain planning versus supply chain execution.
A decade ago, the distinction between the two was sharper than it is now. Some systems did one, some the other–and managements, generally, were clear about which they were seeking. AMR Research, for instance, regarded the two application areas and markets as different, speaking of ‘supply chain planning’, and ‘supply chain execution’, but rarely of ‘supply chain management’ as a whole. Supply chain planning was generally regarded as the hotter prospect.
“In the early days of supply chain management, businesses focused very much on coming up with a good plan,” observes Kelly Thomas, the automotive lead and senior vice-president for manufacturing at supply chain software vendor JDA.
But times have changed. “These days, there’s also a strong focus on supply chain execution, and on responding in an agile way to changes–in part because the pace of those changes is generally much faster,” he says.
So in an automotive context, then, does the distinction between planning and execution still apply? Which is now the most important? Where do their respective main contributions lie? And could a single combined solution or system credibly incorporate best practice and best-of-breed in both supply chain planning and supply chain execution?
Ten years ago, to be sure, supply chain planning was seen as the tougher nut to crack, says Paris-based Patrick Lemoine, senior industry principal for industry business solutions at enterprise software giant SAP. And cracking it, he notes, called for hefty computing horsepower and the clever algorithms that were coded into advanced planning and scheduling (APS) systems from vendors such as i2 and Manugistics.
“There wasn’t much choice–and you had to go to a best-ofbreed APS vendor, because the large enterprise application vendors such as SAP hadn’t at that point entered the market,” he explains.
But more recently, the focus has shifted to execution. “A lot of companies saw that they had systems in place for supply chain planning, but they then didn’t have the systems to turn those plans into reality,” says Matthias Berlit, head of industrial solutions at supply chain planning vendor Inform.
Shifting organisational attitudes, too, have played a part in the transformation. Even a few years ago, the rigid organisational silos seen in automotive businesses meant that supply chain planning and supply chain execution tended to be carried out by very different parts of the organisation.
“There was a culture of handing off monthly plans to the execution people, and then starting off the planning process the following month, looking in the rear view mirror to see how the previous plan had turned out,” recalls JDA’s Kelly. “But the world is different today: you can’t wait a month any more to see how you’ve performed in terms of the original plan.”
And vendors, too, have re-thought some of the once-rigid boundaries that they saw between supply chain planning and execution, as well as within the planning arena itself.
“First, there’s a strategic dimension to consider: the overall design of the network, decisions around where to manufacture, where to hold inventory, and how to transport it,” says Frank Gesoff of Barloworld Supply Chain Software. “Then there’s planning: designing the flow through that network, and factoring in transportation costs, buffer sizes, and supplier choice. And finally, there’s execution: you’ve got a plan–so how do you execute it, and how do you react when things go wrong?”
For its part, enterprise application vendor Infor stresses the importance of time in differentiating supply chain planning from execution. “For us, execution is about the short term,” says Andy Killick, Infor business consulting manager for Europe. “It’s about the transmission of an order, establishing where a container of parts might be, or scheduling picking and packing operations in a warehouse.”
Planning, in contrast, he sees in terms of actions with a longer time horizon: network design, demand planning and forecasting, and APS-based optimisation. “And they are very different problems, calling for very different solutions,” he stresses. “For one customer, the requirement might be for better demand planning, and for another it might be better supplier collaboration tools.”
Perhaps perversely, the economic downturn has served to accelerate the process of bringing supply chain planning and supply chain execution closer together. “The recession has reinforced the link between planning and execution,” says SAP’s Lemoine. “Manufacturers are realising that supply chain management isn’t about implementing a better algorithm, or creating the perfect forecast–it’s about being able to respond to events and changes in demand as they happen, balancing production levels and inventory holdings and logistics flows in the context of the real world, and what is happening within it.”
Take the global truck industry, he suggests. As recession bit, construction and freight movement slowed substantially, prompting operators to mothball trucks and lay-off drivers. Orders for new trucks slowed, then virtually stopped.
“From an execution perspective, manufacturers had to respond by adjusting production shifts and altering the product mix towards any models for which demand remained,” he says. “But from a planning perspective, they needed to forecast parts requirements, and inform suppliers. One perspective in isolation is pointless: you need the two to be tightly integrated.”
Inform’s Berlit concurs. “In reality, you need both planning and execution. If supply chain planning on its own delivers no benefits without a way of turning those plans into reality, supply chain execution on its own simply fine-tunes the current situation, which might be far from optimal,” he notes. “Putting the two together brings important benefits.”
Berlit points to two opportunities where more closely integrated planning and execution could deliver returns. The first is improving finished vehicle logistics. “Plans are very static, with vehicle flows largely fixed,” he notes. “Being able to continually and dynamically re-plan that flow offers significant benefits: there are major opportunities to cut transport costs and improve ship, rail and transporter utilisation, for instance. Allied to this, of course, there are associated opportunities to reduce both space and vehicle movements in compounds and sea terminals.”
The second opportunity area–inbound logistics–is tougher, he concedes. “The flows are more complicated, and the number of variables greater, but the opportunity is still there,” he insists. “Milkruns, direct-to-line deliveries, dynamic re-planning based on executed changes in demand and extraneous events–the scope is significant.”
As an example, he points to VW’s plant in Wolfsburg, Germany, where Inform’s inbound control and appointment solution, SyncroSupply, recently won an award for the way in which internal capacities and demands are synchronised with daily incoming truck arrivals and loading bay capacities.
Internally christened ‘LKWcontrol’ by VW, the SyncroSupply system pulls together data from hauliers and the OEM’s materials requirement systems to establish time slots for deliveries on the basis of materials requirements and unloading capacity–the latter established through links to employees and systems involved in the unloading process.
The calculated slots are then communicated to hauliers via a dedicated web portal, confirmed by the haulier, and then followed-up with an e-mailed PDF document containing a barcode to facilitate checking-in and unloading at the gate.
“The result is an improved ability to plan, and greater reliability in terms of agreed deadlines and delivery times,” says Berlit. “Plus, the haulier is in a position to plan the use of his truck better, and Volkswagen benefits from reduced demurrage and lower cargo rates.”
Initially used only at Wolfsburg, the system has been extended to ten other VW Group plants, including large plants such as Kassel, Ingolstadt, Bratislava and Mladá Boleslav; and smaller sites, such as Györ, Brussels, and Salzgitter. Further rollouts during 2010 will see the system extended to four other plants, including the Seat plant in Portugal.
In 2010, there’s clearly a more mature approach to what supply chain planning and execution entail–and how they fit together as part of an over-arching approach to logistics.
Bangalore-headquartered IT outsourcing and consulting firm MindTree Consulting, for instance, is working on just such a ‘crossover’ project for Honda Motors, reports programme director Parimal Goel, to improve the delivery of finished vehicles from the production plant to the dealer, by bringing planning and execution closer together.
“Honda wanted to take a monthly plan and break it down into an executable daily plan that made sense,” he explains. The challenge was the enormous number of variables. Looking at dealer preferences and locations reveals that some dealers are close, others are far away; some dealers want vehicles delivered at the end of the month, others at the beginning.
“The key is to be able model and plan the entire supply chain–including constraints and capacities,” says Goel. “And then to execute to the plan: manufacture to the plan, ship to the plan, and deliver to the customer according to the plan.”
Tier one supplier Delphi provides yet another example, recently using a 15-year relationship with supply chain planning vendor RedPrairie to support the delivery of built-to-order and sequenced wire harnesses to an OEM in Germany for a vehicle launch commencing in October 2008.
Low pricing was necessary to win the wire harness contract, but it involved basing the labour-intensive harness manufacturing process in two low-cost plants in Eastern Europe: Jelesnia, Poland; and Sannicolau Mare, Romania.
These locations, in turn, risked losing the proximity to the ‘demand pull’ signals that would be critical to feed the OEM effectively and reliably–which, when coupled to the 80-120 options associated with the typical harness could quickly lead to inventory bloat and schedule disruption.
Andreas Divece, Delphi manufacturing production control manager, explains that RedPrairie’s “Build-to-Order” solution schedules the production from order receipt, through assembly and in-sequence delivery. Several times a day, an external provider collects shipments from Delphi’s plants, and transports the wire harnesses by road to the plants in Germany. As the trucks leave the production plant, the buildto- order application triggers a backflush at Delphi’s ERP to establish how much material was used in the production of the relevant wire harnesses, as well as a goods issued document containing all information needed to invoice the car maker.
“Once we receive the call-offs from the carmaker via EDI, the build-to-order system verifies the orders to make sure that each order is unique, and that the production sequence, container sequence and slot sequence are correct,” says Divece. “If all are correct, then the system will allocate the orders to the lines according to the criteria we have set up. After this has been confirmed, production orders and assembly instructions are printed out, and the production can begin.”
If planning and execution have come together, the challenge is to have that interaction happen as close together as possible.
“The importance of taking inputs from execution into planning near real-time cannot be underestimated,” says Rajeshwar Dayal Mitra, head of the SCM practice at Wipro Technologies. “If the planning systems can ‘predict’ a missed shipment delivery before it happens, then prompt re-planning can ensure corrective measures such as expediting and re-scheduling to prevent such incidents from occurring.”
“The important thing is to see logistics as a process, and to then plan and execute that process,” adds Garth Parker, chairman of ProAct International. “Define the individual parts of the process, determine the applicable rules and attributes, plan in accordance with those rules and attributes–and then execute the plan, dynamically updating it in real time as the journey unfolds.”
But that calls for real-time data sharing, which the industry has been slow to adopt, warns Richard Barker, CEO of execution system provider Sovereign Business Integration.
“There’s a lot of data being passed on, but relatively little of it in real-time, correctly formatted, and made centrally available,” he says. “And until that happens, the industry will continue to see ships arrive at a port, discharge 2,000 vehicles– and only then does the port operator know what they’ve actually got to deal with, as opposed to what was planned to be on the ship.
“The automotive industry still needs to reduce its cost base–and it won’t do that by optimising its supply chains a single link at a time,” he warns.
In short, while supply chain planning and supply chain execution have undeniably moved closer together, their journey towards unity isn’t yet complete.