Is your consumer product supply chain ready to remedy OoS at POS ?
Consumers Supply Chains in Consumer Products
Ideally, production and delivery of manufactured consumer goods would be triggered by the sales of units or SKU size units at point of sales (POS). The distribution of SKUs to retailers or other sales channels would be driven by the same.
However, at this stage while all information and data relevant to complete, accelerate and perfect the supply chain are known to the manufacturing company, supply chain still remain largely non dynamic and imperfect in reacting to sudden consumption volume changes at POS. Companies manufacture in theory to replenish to stocks as opposed to replenish both to stocks and address unplanned significant consumption variances. This means that an upward variance in consumption, if not anticipated by the manufacturer, will cause out-of-stocks (OoS), which will be in many instances remedied, with a time delay. These delays will be due to mainly 3 factors:
- Delay in acknowledging the variance is significant and real
- Delay in triggering additional production
- Delay in triggering additional or alternative logistics
Companies might argue these steps and delays are necessary because there is a need to understand also whether the variance is temporary and understand its causes.
However, it is reasonable to argue that the potential benefits of the capability to read additional or reduced consumption at POS in real-time is lost, if this “advanced” notice does not translate into “advanced” supply chain. Ideally, any variance of significance would trigger a chain reaction:
- Short term forecast revision
- Finished stock reservations
- Production orders to replenish stocks or to fill gap in stock availability
- Shipment orders
- Raw & Packing materials (RPM) orders from concerned suppliers and lastly,
- Longer term Forecast changes (which is mostly the only change which occurs already today)
These mechanisms should be in place and activated while the temporary nature or not of the variance and the causes are assessed for their relevance. Although, having said that the OoS risk is real.
In order to take full advantage of the consumption variance in real time, a number of pre-requisites need to be met:
- Significant variances need to be defined by POS and be monitored. The thresholds should be set based on:
- Production lot size and lead-time
- Customer priorities
- Priority of the category e.g. P/L
- Relative RPM Stock
- Supplier RPM stocks
- Supply chain lead-times
- Significant variances should be cascaded down to the relevant functions within the manufacturing organisations in real-time:
- Warehousing & Logistics
- RPM & other inbound suppliers
- Provide alternatives
- Substitution products?
- Alternative supply sources
- Alternative shipping units or means of transportation (air, train etc…)
Evaluate the impact of 1-3 and make a decision on the best alternative forward even before you understand the nature/cause of the significant variance.
What does it require from your ECC, Sourcing, Buying, Supply Chain, Supplier Management and MM, suppliers, 3PL …?
It requires your BOMs by SKU and SU to be available and referenced in your Sourcing solutions with suppliers qualified and pre-registered for delivering the RPM for each BOM so as to allow the buyers to monitor supplier performance, source additional quantities from qualified suppliers at short notice. These functionalities would be embedded in your Sourcing, Buying and Supplier Management solutions.
Ideally, suppliers within the company’s echo-system, would make their production capacities and stocks available to read and even secure to your production planning and forecasting teams. This should allow the company as a whole, to decide in real-time what the best options are to address the significant variance: produce, enrol alternative supply sources, anticipated deliveries, increase purchase order quantities with existing suppliers, move stocks between sites/countries, divert stock in transit, deliver partial orders, substitute products etc… This data and information as well as functionalities would be part of your Supply Chain solution.
The next phase is obviously to execute on your “Fast Action Variance Plan” (FAVP). To do this, you need interconnectivity and speed. You need to have a protocol in place with your suppliers and 3PLs with whom you would have shared your FAVP protocol/exigencies and expectations in advanced. You would have ensured that these have adjusted their processes to be able to help you execute your plan.
This means that your key RPM and 3PL suppliers are integrated ERP-wise so that all relevant information regarding your FAVP flows freely and timely between your company and their organisation/systems, but also among them. This can be achieved through a network integration whereby your ERP/Supply Chain/Buying solutions “speak” seamlessly and in real time with their ERPs (production and stock Management) and Supply Chain solutions to the tier level supplier needed.