Here is part 2 of the ten critical data issues to be considered in structuring the outsourced supply chain data model. Click here to check out part 1. Model Contractual Terms
As demand fluctuates and supply plans are adjusted, it is important to be able to quickly determine if contractual terms are being violated.
5. Tolerances, demand and supply changes
Outsourcing agreements often put limits on demand and supply change within specified periods to determine excess inventory liability. In the supply planning process, forewarning of potential liabilities is certainly desirable. By capturing these tolerances, planners can simulate different supply plans and evaluate demand and supply changes outside of agreed tolerances to provide some mitigation against excess inventory liability.
6. Inventory rebalancing expectations
Brand owners often expect their contract manufacturers to source component inventory from existing excess at other nodes before purchasing more. Rules must be understood so that inventory transfers can be simulated.
Simulate Supply Alternative Strategies
Perhaps the biggest benefit of having this data model in place is the ability it provides to brand owners to simulate supply alternatives across the entire supply chain. While contract manufacturers and component suppliers are responsible for managing manufacturing operations, brand owners, with this visibility, can actively collaborate with them and ultimately coordinate activities to manage supply and minimize risks for all partners. A successful collaboration process will increase trust levels and ultimately strengthen the relationship between brand owners and suppliers.
7. Alternate supply plans
Product availability based on existing supplier commitments compared to product availability based on projected supplier capability using the supply chain model is often the starting point for analysis. It should be possible for the brand owner to simulate potential supply alternatives by:
- changing rules for end item selection
- changing sourcing rules for suppliers,
- transferring existing inventories
- simulating other changes in planning policies, such as lead time
- Planners can use those simulation results as the basis for collaboration with suppliers.
8. Supply sourcing: strategic end item selection
One alternative strategy to improve supply may be to change the mix of equivalent products that are planned. This end item selection can be complex in many environments. Item selection could be based on purchase agreements for strategic components, customer qualification status for specific end items, end-of-life plans for products, etc. Selection rules should be made visible in the data (perhaps as part of the bill of material or represented as part to part transfers), so that planners can review and adjust them for simulation of alternatives.
9. Supply sourcing: supplier selection
Use of alternate suppliers is one of the most common strategies for supply improvement. It is advantageous to be able to identify all potential supplier relationships, not just those currently active, if planners are to be able to simulate and evaluate potential supplier changes. For example, all demand may be sourced to a single supplier, but, in the event of a demand increase, the planner may want to simulate splitting supply across two or more sources, perhaps on a percentage basis, perhaps on absolute quantities, or perhaps based on supplier capacity. Rules should be structured in such a way that planners can simulate time-phased rule changes or can simply override supplier information on particular orders.
10. Metrics for supply plan evaluation
What makes an effective supply plan? Clearly the decision making process will be unique to an organization and will usually balance key performance indicators (KPI) relating to customer service, revenue, costs, potential liabilities. Change will be frequent, and it is important for brand owners to be able to respond to change by simulating supply alternatives and measuring the impact on the overall plan. Building a set of metrics for this comparison of alternatives is a key component. Planners should be able to compare several alternate strategies before selecting the optimal one in the event of supply constraints. The impact of alternate strategies on KPIs should be able to be ranked and compared across scenarios to obtain a balanced scorecard and an objective way of determining the best course of action.
So, Is it worth it?
Yes. Increasing supply chain complexity is driving the requirement for more complex data models. The complexity can be overwhelming without the proper tools and processes in place. But the challenge cannot simply be ignored because it is daunting. The market is driving the complexity and companies are required to manage it. For many organizations, current processes are unsustainable and unacceptable. To survive and thrive in this dynamic environment, companies must adapt. And while it is certainly not without its challenges, it is also not without great benefit when done right.