Can we have it a little bit quicker? (Real-Time Supply Chain Planning)

Recently a friend told me about his visit to his local hospital. While he was waiting to be seen by the Doctor, a nurse walked up to him to inform him that they had not yet received the test results, which the Doctor was going to discuss with him during this meeting. Now this might not have come as such a big surprise to my friend if it wasn’t for the fact that it had been more than 6 months since he had taken the test. The interesting thing is that the clinic that did the test 6 months earlier is a mere 200m from the Doctors office where my friend was now waiting to be seen, making the test result travel at a earth shattering 0.00008 km/hr…. Now, I am sure, and sincerely hope, that this is a one off incident rather than a systematic problem.

While listening to this story I thought about the importance of the speed of information in Supply Chain Management. And, I am sure it won’t shock you if I say it is very important…. Let’s take Demand information; we all know that sharing information between the multiple partners in a supply chain helps tackle the infamous Bull whip effect. But how useful is it to find out about new customer demand changes after you have committed to production volumes?

Imagine a supply chain with 3 supply chain partners and every one of them updating their forecast once a month; it would take 3 months for the third, most upstream player, to see a change in customer demand. This might not leave enough time for this Supply Chain partner to adjust his production and procurements plans, resulting in having to find expensive additional capacity in case of an increase in demand or find additional last minute orders elsewhere to keep up capacity utilization in case of a sudden drop in demand.

A solution would be to turn the supply chain from make-to-stock into make-to-order, which would mean that you care less about forecast information. But few supply chains can simply be changed like this and in every supply chain there is always going to be an element of make-to-stock, if you go upstream far enough.

So what else can we do? Well, increasing planning frequency would be a good start. If every supply chain party would update their forecast weekly, and importantly relay this new forecast to the upstream partners weekly as well, they would reduce the time it takes information to travel through the supply chain from 3 months to 3 weeks. And why stop there…. why not increase the frequency even further and work toward the holy grail of real-time Supply Chain optimization?

A good place to start looking for inspiration on this subject is the retail industry. Here partners have been sharing information by applying CPFR. (Collaborative Planning, Forecasting, and Replenishment) for many years. They have been using point-of-sale data to give the most accurate, real-time, customer demand information to upstream partners. This process (Real-Time Supply Chain Planning) is not easy and requires commitment from all partners to work, but surely the rewards are worth the effort?

Oh, and for those interested, my friend will live to see many more days.

All the best
Richard van der Meulen