Integrated Business Planning – (Finally) a reality for Automotive Suppliers
Strong statement: Right now is the most exciting time in my almost thirty year career in the automotive software industry. Not for the obvious reasons like great, innovative product or the value suppliers put into today’s automobiles. But from the perspective of the kinds of business processes Suppliers can today legitimately seek to automate; the capabilities now available are creating unprecedented opportunity.
We’ll look here at one specific example – enabling planning for volume, capacity and profitability from the end of the operational horizon to ten or more years out.
The process itself is not novel, all companies do it. And the challenges are well defined and understood:
How do we understand the financial and capacity impacts of our current business when faced with less than perfect forecasts from our customers?
- How do we understand the utilization of our global production resources as current programs transition from Production to Service and new business is pursued?
- How does the fit of these opportunities with our supply chain’s capabilities impact our aggressiveness in quoting?
- How can we quickly explore alternatives to make effective decisions on new business, and new plants and equipment
And, more tactically:
- How can we best respond to incremental opportunities with existing customers?
- How can we most effectively react to external events that impact supply or demand?
Many approaches have been used in the past, and arguably none have been fully successful. As a guy who works with ERP systems, I can tell you ERP doesn’t do it – much as I’ve tried to believe otherwise. Neither does Sales Force Automation software, which often seems genetically incapable of dealing with sales opportunities expressed in run rate over time rather than discrete sales.
What can work is an integrated business planning process based on a common set of data that is integrated with one or more operational systems, and models the business at a level of detail sufficient for decision making and also at a level of abstraction that enables ease of modeling and understanding. By “abstraction” I mean a concept analogous to the APICS term “rough cut” – we are concerned with the capacity of a Cell, or Line, or “500 Ton Press” in aggregate, not individual machines, tools or inserts. That level of detail either doesn’t exist, or is best left in the operational systems.
There is, however, no simplification of products and customers – the model must embrace the full complexity of customers, customer plants, platforms, model years, products sold, production plants, and even key component and supplier relationships.
With this enabling detail, the planning process can capture multiple sources of demand. Of course, customer releases are included. Best in class companies also reality check releases against industry forecasts at the platform level, exploding through penetration percentages to yield a forecast that can be compared against customer releases in the near term, and to project program demand past where customer forecast is valid. By comparing the two you enable development of a consensus that can accurately inform volume and capacity planning, as well as extend price and cost to drive projections of
revenue and profit to ensure alignment with financial goals.
Integrating supply planning with demand is essential; both to validate ability to comply with firm requirements in the near term, and to effectively balance business development while freeing capacities and capital investment across the planning horizon, regionally and globally.
Finally, recognizing that “every plan is perfect until it meets reality”, the planning tool must be able to respond rapidly, enabling real-time evaluation of alternatives through “what if” analysis and scenario modeling under the governance of a managed process.
You may have realized by now that we’re talking about Sales and Operations Planning, and you’re right. But with a twist – adapting the basic concepts to the specific needs of automotive components suppliers. The excitement is not the ideas I’ve expressed here. It’s that technology today has caught up to the vision, That’s the excitement – to be able to deliver at long last what customers have been asking our industry to do for them for years. With the help of an SAP Partner – Intrigo Systems – we have created a purpose built model for Automotive Suppliers using SAP’s S&OP product that delivers on all of these process enablers and more.