Prescriptive analytics and artificial intelligence are coming
In my previous blogs I talked about integrating finance into supply chain operations, including outlining how integrated business planning (IBP) can help. Now it’s time to look at how IBP can take your supply chain to the next level of performance, and bring finance right alongside with you. Just as with other areas of supply chain management, machine learning and artificial intelligence (AI) are likely to find roots in IBP, primarily through the introduction of prescriptive analytics.
Unlike descriptive analytics, which looks at what happened and why, and predictive analytics, which explores what will happen, prescriptive analytics suggest actions and shows the implication of each potential option. It tells you the best way to get to where you want to be.
Modelling financial and operational business constraints and using prescriptive analytics alongside IBP provides enhanced visibility and the ability to better manage change. The result is a more holistic picture of the organization and faster decision-making by executives. IBP done well provides a periodic rolling forecast, highlights gaps between the budget and operations and helps direct the company to where it wants to be.
Adding dynamic data integration and assumptions like capacity, downtime and material availability directly from intelligent machines will create an automatically updated plan and forecast, which could then trigger warnings to managers if misalignment occurs. You’d be able to intervene before critical thresholds are breached. We’re already getting closer to this reality, but prescriptive analytics could take over tactical and strategic decisions when looking further out. This would create prescriptive execution, where self-learning and self-sustaining algorithms not only outline the best solution and implement it, but also make changes afterwards to incorporate changes in circumstances.
Stuart Harman, a partner at Oliver Wight Asia Pacific, believes the future of IBP lies in the improvement of short-term planning and execution to ensure medium-to-long term plan deliverables. He says companies are unfortunately, “… being held back by the absence of a robust, formal, daily/weekly planning and execution process that integrates demand, supply, product management and customer service activities in the short-term planning horizon (typically the next 12 weeks).” Improving this area means senior management spends less time being sucked into short-term activities unless their attention is actually required (exception management), and allows them to focus on the longer-term planning horizons associated with IBP.
Hand-in-hand with this improved execution will be an emphasis on better understanding where growth is coming from and how an organization’s products and services provide value, all of which will be updated through the IBP process. More organizations will adopt IBP as a way to plan for uncertainty and volatility, using it to identify areas of risk and where their supply chains are most susceptible to change.
As Harman notes, “Having the right processes in place will allow companies and supply chains to improve their understanding of the potential outcomes and ultimately enable them to prepare for uncertainty. The companies that do this the best will be able to seize the opportunities that always accompany change.”
The future of IBP lies in its ability to plan across the extended end-to-end value network, not just inside your own four walls. This requires understanding and incorporating constraints from interdependent supply chains and commodities across global boundaries. But the result will be a better corporate-wide understanding of constraints, risks and opportunities.