SUSTAINABILITY

STEWARDSHIP

EXECUTION

EFFICIENCY

PROGRESS

How to

SUCCEED with Supply Chain Planning

By Clarence Chen and Nirmal Hasan Clarence Chen (cchen03@prtm.com) is a principal and Nirmal Hasan (nhasan@ prtm.com) is a manager at PRTM Management Consultants. Advanced planning and scheduling (APS) solutions are supposed to solve the big supply chain problems of flexibility and responsiveness and they can do so. But first companies have to navigate through three valleys of despair that bedevil and can derail an APS deployment. Heres how to identify those crisis points, minimize their impact, and ultimately persevere for supply chain planning success.

hen products such as mobile phones can become obsolete in less time than it takes the supply chain to move them from drawing board to store shelf, it is clear that producers cannot succeed unless they plan and execute their supply chain operations with great precision, speed, and exibility. In such casesand they are increasingly typicalthere is almost no margin of error for big shifts in demand, let alone for serious supply chain disruptions. Yesterdays sequential, inexible manufacturing resource planning tools have long since ceased to be effective for managing supply chains of any size or complexity. They have given way to advanced planning and scheduling (APS) solutions whose sophisticated algorithms can ensure that raw materials and production capacity are optimally allocated to meet demand. Designed to address complex trade-offs between competing prioritiesbetween meeting a tight delivery window or adding a shift, sayAPS tools have existed as a distinct class of applications for more than 10 years. They are offered by best-of-breed vendors as well as by the enterprise resource planning (ERP) giants such as Oracle and SAP. They are purchased by almost all mid-sized and large manufacturers. Implementations take from nine to more than 18 months, and then require more time for the business to start seeing the benets. APS solutions pave the way for broad operational changes such as sales and operations planning (S&OP) or lean supply chain initiatives. When properly deployed, APS can improve supply chain operations signicantly, as gauged by traditional measures such as inventory and customer delivery performance. One electronics company, for instance, found that with APS, it could respond to customer order demand and determine the
www.scmr.com

30

Supply Chain Management Review

July/August 2008

impact on the supply chain in a matter of minutes versus the previous response in a week. On-time delivery improved as much as 15 percent as a result. But the key word here is properly. APS deployments have often garnered negative publicity for their failures, and many more failures no doubt remain undisclosed. In our experience, most companies are likely to encounter a set of common challenges regardless of whether they are considering APS solutions for the rst time, extending them, or re-implementing them (and even though they may have ample assistance from a vendor or a systems integrator). In this article, we describe the peaks and valleys of typical APS deployments and identify effective strategies for anticipating and tackling these com-

mon challenges. In addition, an accompanying sidebar spotlights a company that successfully rolled out an APS solution in only six months.

Mapping the Valleys of Despair APS deployments typically follow a well-dened pattern, with predictable periods of difculty that we call the three valleys of despair (See Exhibit 1). Minimizing those valleys and maintaining the momentum of the deployments are the keys to ensuring that the solution ultimately delivers the intended benets. The rst crisis usually surfaces right after the design phase. The second occurs in the period immediately before and after the go-live event. The third emerges
J u l y / A u g u s t 2 0 0 8 31

www.scmr.com

Supply Chain Management Review

Planning

lies with the interpretation of the results. Typical Trajectory of APS Implementations Discouraged, the projEnlightenment, This will ect team struggles to deterAPS team solve all our in place mine whether the solution problems No one is using it is functioning correctly Business changed, and then incorrectly conSolution Steady, but model is outdated cludes that it isnt. When does not slipping work! back to Excel this period of uncertainty Valley of lasts too long, the project Despair This will Valley of #3 solve all our runs the risk of losing priDespair problems ority or of being cancelled #2 outright. Users continue Valley of Despair with their legacy tools and Progress #1 Towards processes, and the business Business A B C D E F G fails to achieve any benet Goals from its sizeable investment Installation and Pilot Phase Pilot and Robust Production Recovery up to this point. In fact, in most cases, Time the solution does work after the solution has been in use for some time. What exactly as it was designed to, but the APS output at this leads to each of these crises and what can you do to stage is difcult to interpret because of three factors: avoid or minimize their impact? Lets look at each crisis complexity of the underlying model, poor data quality and the teams lack of familiarity with the solutions algopoint in turn. rithms and rules. Moreover, those factors tend to interact with each other, making it extremely difcult for the The Solution Doesnt Work! Users meet the rst valley of despair when expectations team to diagnose the root cause of any specic problem. collide with reality. APS deployments are usually based Each factor merits a closer look. 1. Complexity of the Underlying Model. APS on a compelling business case and backed by signicant investments in software, hardware, and resources. It is solutions belong to a broader class of applications often typically the business users who identify the need and referred to as decision support systems. These differ initiate the search for an APS solution, although it is from transactional systems, such as ERP, in several key not unheard of for an IT organization to lead the charge. aspects (see Exhibit 2). One of the most important distinctions is that APS Evaluation can take three months or more; licensing solutions model business reality through some level of costs can run into several millions of dollars. However, as the implementation transitions from the abstraction and data aggregation instead of creating an design phase into the rst conference-room pilot, trouble exact representation. For example, when modeling a nal strikes. When the solution is run for the rst time with test facility at a semiconductor plant, APS planning solua production data set, the project team is likely to get tions often represent the capacity availability of a group of an unwelcome surprise: seemingly unintelligible output, similar testers by using one representative testers capacoften accompanied by system performance problems. In ity as the proxy for total capacity of all the testers. This one implementation we were involved with, the rst few as opposed to modeling each individual tester and its attempts at running the application with a full volume available capacity. Translating a business problem into a of data resulted in run times of over 24 hourswith no model with the right level of abstraction is as much art as it is science: Too much abstraction and the results may results to show for it. The gap between anticipation and reality is large. be too far removed from reality to be of any use. Too little Executives and everyday users alike have high expecta- abstraction and the system may grind to a halt given the tions (this will solve all our problems) that are often complexity and data volume required for the model. The choice of the model must be appropriate for a based on promises made by solution vendors. But in most cases, the vendor and systems integrator (SI) will companys particular operations strategy. Consider the be doing exactly what was asked of them. The problem examples of two companies with very different requireEXHIBIT 1

32

Supply Chain Management Review

July/August 2008

www.scmr.com

ments for supply planning. The rst, a consumer Decision Support and Transactional Systems Comparison electronics company, had Decision Support Systems Transactional Systems fully outsourced its manufacturing and had mature, Intended to help decision makers compile useful Intended to store and record day-to-day business trust-based collaborainformation from raw data, to identify and solve information, often structured around events, business problems, and to make decisions. processes, or business activities. tive relationships with its Designed for synthesis of solutions for specific business Designed for storing large volumes of data, but not contract manufacturers. problems through use of transformations, and/or other for analyzing that data; often is the system of record Although its chosen APS analytical techniques on transactional data. for the data. tool could model mulInternal data structures model real-world using some Internal data structures directly map real-world with tiple levels in the supply degree of abstraction. little or no abstraction. chain in great detail, the Typically focused on the future, i.e., have a Focused on the present. company decided that all component to them it needed was planning Typically enable business processes by providing inputs, Typically define the business processes rigidly and based on a single supply and thus can support larger variations in the processes. completely. commitment from the Output is more complex and requires interpretation of Output is typically through reporting, and requires the context of the underlying model. minimal interpretation; data used as inputs to nal assembly level. This decision support system. decision resulted in a simple and easily manageable planning model with relatively low data requirements example, insist on adding complex functionality to a that could be implemented quickly. demand planning application to publish a forecast at the In the second example, a fabless semiconductor weekly leveleven though the entire demand planning company had a less collaborative supply chain and could process occurs at a quarterly or monthly level (because not count on any one contract manufacturer to provide their current tool does so). a complete picture of supply capability. The company Successful deployments allocate sufcient time up also experienced frequent capacity and material con- front in order to consider the pros and cons of alternastraints and had to manage material allocation between tive models. The project teams carefully weigh the costs its contract manufacturers. This required the manage- and benets of adding complexity to their APS models. ment team to gain visibility and control that extended To that end, they often form a modeling team under the deep into the supply chain. Consequently, the company APS project umbrella to own the companys approach decided to include all of its suppliers across multiple to solution deployment. In our experience, such a modstages of manufacturing into its planning model. The eling team is most effective when it exists within the resulting model was more complex, more data-intensive, supply chain organization rather than IT. Moreover, the and more sensitive to data quality than the model in our team should report to an executive who is senior enough rst example. For these reasons, it took longer to imple- for the team to be able to support multiple functional ment and required more effort to maintain. However, it groups without conicts of interest. The members of gave the companys supply chain managers the requisite this teamincluding titles such as supply chain archiamount of control over their supply chain operations. tect and master data managerwill typically report to a Both APS implementations were appropriate to their supply chain director or vice president. Often they are circumstances. Yet when designing the model for an APS former planners. They understand the business requiresolution, project teams tend to focus on meeting a long list ments as well as the process of modeling these requireof stakeholder functional requirements. They often lack ments in specic APS solutions, and they take an active the time to work through the nuances of alternate model role in driving the model design decisions. designs and their implications. It is challenging enough to 2. Data Quality. APS solutions typically require dene a model that best supports the companys opera- some data elements that have not been used before or tional strategy. It is even more challenging to congure that are in a form different from the data being used by this model into the APS solution in a way that minimizes transactional systems. For example, the work in process data requirements while maximizing output quality. (WIP) tracking system for a semiconductor manufacturNot surprisingly, inexperienced teams tend to repli- er may track individual wafers in each lot at each step cate legacy business practices in the new APS solution of the wafer fabrication and sort process, but a planning as well as add unnecessary complexity. They might, for model may require a time-phased schedule of the total
www.scmr.com Supply Chain Management Review

EXHIBIT 2

J u l y / A u g u s t 2 0 0 8 33

Planning

up being overwhelmed by the magnitude of the problem. Successful implementations recognize the importance of data quality as well as the need for a thorough understanding of the data usage within the model. To that end, these projects create a data quality team that works closely with the modeling team to identify and resolve data issues from the start. Successful teams also leverage the APS solution itself as a diagnostic tool to quickly identify data issues; some problems can only be detected by running the data through the model. Iterative cycles of model and data testing during development help to minimize the magnitude and duration of the rst valley. 3. Lack of Familiarity with APS Algorithms and Rules. Many significantly, as gauged by traditional measures APS solutions use a variety of mathematical algorithms and solution techniques such as inventory and customer delivery to solve complex supply chain problems. performance. An early understanding of the underlying APS solution technique is critical. Without it, a company may make key all WIP data, had been heavily customized over many design decisions about the model only to run into a host years and contained many non-standard representations of problems later, such as inability to congure the design of product routing. For example, the same manufacturing into the solution, serious system performance issues, and step denition was used for representing an operation at difculty in interpreting results. As a result, many deployboth an internal and external facility. But that made it ments waste precious time and resources redesigning the tough to determine which facility was under discussion model or customizing the solution to t the model. without the use of additional information such as the Consider supply planning solutions. In very general part-naming convention. terms, supply planning engines fall into two major The IT team did not know all the customizations categories: optimization-based and heuristics-based. in the MES, so the initial data extracts grossly under- Optimizers typically formulate the planning problem as estimated WIP and positioned the in-process inventory a single holistic mathematical model, such as a linear incorrectly in the planning model. This caused the plan- programming model, to arrive at the optimal solution. ning tool to suggest signicantly increased starts across Modeled correctly and at the right level of detail, these all stages of manufacturing. engines can produce high-quality solutions. However, For users already struggling to understand the plan- the underlying models and solution techniques can be ning model, this only served to increase their distrust extremely sensitive to model complexity and data. They of the solution. It took many weeks of troubleshooting, can encounter signicant performance issues and may plus development of extremely detailed mapping logic in arrive at seemingly counter-intuitive solutions if not the interface between the two systems, to minimize the modeled with care. errors. This led to delays in the overall implementation Heuristics-based engines, on the other hand, typically schedule. It took several more weeks after that to regain solve the overall planning problem as a series of smaller user condence, and the effects of the experience still problems using various business rules and simpler algolingered well past go-live, adversely affecting user adop- rithms. The specic set of heuristics used in a given APS tion. The APS system was being run in the production solution is usually proprietary to the vendor. The soluenvironment, but users remained wary and demanded tions arrived at by these engines, while not guaranteed proof that the outputs were correct for months after the to be optimal, tend to be feasible and more easily undergo-live event. Inexperienced teams tend to grossly under- stood than an optimized solution. However, they often estimate the effort required to identify and resolve data require a large number of parameters or business rules to issues. They also delay tackling the problem until they are be congured, and the quality of the solution may suffer already deep in the rst valley of despair, where they end if not congured with care. Business users must careful-

quantity of good die expected to be received at the end of the sort operation from all the wafers currently in WIP. Problems with data quality will compound any APS model conguration issues. Consider the case of a semiconductor company implementing a supply chain planning solution. The planning model represented the major stages of semiconductor manufacturing at an aggregate level and called for WIP to be represented at the end of each stage, with appropriate due dates. The companys manufacturing execution system (MES), the source of

When properly deployed, APS can improve supply chain operations

34

Supply Chain Management Review

July/August 2008

www.scmr.com

ly consider the solution methodology when selecting an APS solution and when making model design decisions. At the companies that manage to launch successful deployments, supply chain managers recognize the need for deep familiarity with the algorithms and solution approach of a given APS solution. They send members of their modeling team for extensive training on the solution before the design phase. This not only ensures that the right model design decisions get made but also provides the expertise to interpret the solutions output, thus minimizing the impact and duration of the rst valley of despair.

No One Is Using the Solution!

The second valley of despair emerges when the solution moves into production. The new solution has gone live and is technically operational. Yet the business users the supply or demand planners in the supply chain organizationnd it difcult to interpret the output. Much like the implementation team earlier, they are confused by the planning model and the behavior of the APS solution. They are also unprepared to deal with the sheer volume of data presented in the solution. After some struggle, many tend to revert to the comfort of familiar

Delivering APS Value in Six Months

o support its strategic goal of becoming a leader in supply chain management, a large electronics equipment company initiated a massive transformation of its supply chain operations. Detailed assessment of its operations showed that the current operating model would not be capable of meeting the companys needs over the next five to seven years. Revenues were expected to double, and the company faced increased product complexity and the need to improve operational efficiencies in an increasingly competitive market. Based on this assessment, the executive team developed guidelines for the operating model of the future and identified the key capabilities required to support that model. The critical capabilities included: real-time visibility into customer demand and inventory positions; ability to optimally balance supply and demand across the companys extensive network of contract manufacturers and suppliers; and improved ability to plan and respond rapidly to changing market conditions. The company chose an APS technology to enable these capabilities. The vendor provided toolspecific expertise for installation and configuration of the application while the companys own IT group managed the system integration. Given its importance, the project has executive sponsorship from both the planning and IT organizations. The implementation team had co-leads from both business and IT. Team members were drawn from supply planners, IT resources, vendor resources and consultants. The team was challenged to deploy the APS solution and supporting processes within six months in order to drive the transformation of the companys operating model; this is two-thirds of the minimum implementation time typical. The project approach incorporated all the strategies described in this article. First, specific individuals were chosen from the planning organization to form the modeling team. This team
www.scmr.com

worked closely with the solution vendor to design the planning model and to configure it into the system. Second, to maximize user adoption over the long term, all supply chain planners were included in the project implementation activities in various capacities. For example, planners were assigned specific data elements related to the products they were responsible for and led small tiger teams to identify and resolve data-quality issues. In addition to tackling data issues on an ongoing basis, the planners gained a deep understanding of the planning model and the data used. Third, a small core team, derived from the modeling team, was established around the business solution to manage the continued evolution and enhancements to the planning model, processes, and business roadmap. This approach helped the project team meet an aggressive six-month schedule set by the executive team. The solution was implemented and rolled out on time, including support for the usersthe supply planners. The solution adoption process went smoothly compared to the typical APS project. Planners have not returned to old habits of planning on offline spreadsheets and processes. Instead, they are actively involved in defining enhancements to the model and in rolling out these enhancements in a phased manner. Eleven months after the implementation, significant new business capabilities are now in place. For example, planners are able to respond quickly to demand upsides, allocate supply more rationally, and spend more time on what-if analyses to proactively identify and resolve issues. The complete and integrated supply and demand visibility allows planners to project a component shortage at a boardassembly site all the way to the end demand, thus allowing them to manage customer requirements and expectations significantly more effectively than before. The company is now well-placed to support much higher growth rates. J u l y / A u g u s t 2 0 0 8 35

Supply Chain Management Review

Planning

spreadsheets and abandon the solution altogether. Even deployments involving fewer users and smaller scope tend to suffer from the same user-adoption issues if the root causes are not addressed. There are two reasons for this. First, the implementation teams performance is measured by near-term project deadlines rather than medium-to-long-term user adoption of the solution. And companies often are overly optimistic in their estimates of user adoption rates. Its typical for the implementation team, which has the best understanding of the solution at this point, to be disbanded shortly after the go-live, leaving the users with limited support and no place for questions. Second: User training is often relegated to the software vendors that typically provide only off-the-shelf packaged training. Such training focuses on application navigation but not on the specic manner in which the solution was modeled to represent the companys business. Further, the training is typically provided by individuals not directly involved in the deployment and thus without an understanding of the design choices made or the reasons for them. Consequently, users are left without the requisite knowledge and skills to utilize the APS solution effectively. Successful deployments recognize the need for comprehensive training of users. They extend the training well beyond the system basics and navigational skills to ensure that all users understand the underlying model design and its representation within the system. In our experience, a three-phase approach to training can be very effective for minimizing the second valley of despair: Phase I: Before the beginning of the design phase, members of the deployment team, especially those in the modeling and data quality teams, are given basic and advanced training on the APS solution by the vendor. This enables them to develop the model that meets the business requirements, leverages the solutions unique capabilities, and minimizes complexity to the extent possible. Phase II: Just prior to user testing of the solution, the user community is provided with training in basic tool navigation and usage by the vendor. This enables the users to conduct testing of key system modules and functionality. Phase III: In the weeks leading up to the go-live, the modeling team provides a comprehensive training session for the entire user community on the specic model implemented along with its inputs and usage. This prepares the users to make the best use of the new solution. The key here is that since the business objectives and operating structure vary from company to com36
Supply Chain Management Review

pany, it is the modeling team and not the vendor that is best suited to deliver this training.

The Business Has Changed! The last valley tends to develop as business conditions change, after solutions have been successfully implemented. That was the situation facing integrated device manufacturers in the semiconductor industry whose operational strategies shifted from captive manufacturing to outsourced fabless models. When their facilities were shuttered, existing planning practices became obsolete and the chip makers had to rapidly develop new planning models to communicate demand and supply with their external business partners. The models in their APS solutions had to be quickly updated to reect the new operational reality. All companies experience changes in their product structure, supply chain networks, constraints, business practices, and other operational variables over time. For example, the addition of new manufacturing sites or distribution centers typically requires new information such as sourcing rules, lead times, and parameters for APS solutions. However, business users dont always fully understand how such events affect the APS model and its output, and they fail to update their APS solutions in a timely manner. Consequently, the models begin to drift away from business reality while users attempt to ll the gaps with ad-hoc reports and spreadsheets. Left unattended long enough, APS solutions cease to be relevant to the business and become mostly or completely supplanted by manual, spreadsheet-based processes. Soon, the existing solutions are declared ineffective and decommissioned. Shortly thereafter, spreadsheet-based processes are deemed inefcient and the entire APS deployment cycle begins anewoften with different solutions. Successful deployments recognize the need to protect the heavy initial investments made by making continuous small investments to support the APS solutions over time. They do this by evolving the role of their modeling team to provide ongoing support, continuity, and a single point of ownership. As business circumstances change, the APS team works with the user community to update the APS solutions in order to keep them relevant to current business needs. Granted, it may never be possible to completely eliminate all three valleys of despair when deploying APS solutions. However, by correctly diagnosing their current problems and anticipating the challenges ahead, companies can mitigate the impact of these predictable difculties and steer their projects to success.
www.scmr.com

July/August 2008