Management consultants have made fortunes claiming to provide the secret sauce for breaking down “organizational silos” and “getting everyone on the same page”. Yet some organizational boundaries remain persistently in place. Perhaps none are as persistent as the silo between distribution and manufacturing planning and scheduling.
The tools are separate. “I use MRP and finite capacity scheduling,” say the plant guys. “I use DRP and inventory planning,” say the distribution people.
The goals are different. “I’m responsible for helping the plant run well and getting products ready to ship on time”, say the plant schedulers. “I’m responsible for inventory planning and delivery”, say the distribution folks.
But as problems arise, they are thrown over the fence. Plant schedulers notify distribution that production is running late. Inventory planners and transportation planners place requirements on the plant and inform plant personnel of transportation bottlenecks. But nobody really has visibility across the entire internal supply chain.
History of the Tools
For years, planners and schedulers have used two key tools, Distribution Requirements Planning (DRP) and Materials Requirements Planning (MRP) to operate the supply chain.
Traditional Distribution Requirements Planning (DRP) is a nightly process, often run in the context of an ERP system, to cascade customer demands against a warehouse through a fixed supply network to result in demands on manufacturing plants. Traditional DRP considers the demand forecast by warehouse and plant, customer sales orders, safety stock targets, and transportation lead times, to transform the customer demand signal into plant production requirements.
Enhanced distribution planning and scheduling tools add additional features like transportation cost optimization, finite transportation and handling capacity management, and dynamic safety stock target setting. Some provide capabilities for stakeholders to collaborate and identify problems in the plan, and allow schedulers to adjust and reschedule shipments throughout the day.
But the goal remains the same: to place net product demands on the plants to produce. Supply chain visibility and planning, for the distribution team, stops at the plant gates.
MRP and Plant Scheduling
Once the demand signal is placed on the plant by DRP, Materials Requirements Planning (MRP)and Plant Scheduling processes take over to determine how to meet that demand. The focus of MRP is to cascade demand through the bill-of-materials to determine components and raw materials that must be assembled or purchased. For industries that have significant production constraints, finite capacity scheduling may be utilized to determine appropriate facilities or workstations to assign production to, to sequence production, and consider the plant capacity as a schedule is formed to produce demanded products on-time.
Plant schedulers typically receive net requirements from the distribution team in the form of replenishment orders (for products shipped to warehouses to increase inventories up to planned levels) or sales orders (to meet customer demands directly from the plant). Again, plant schedulers generally have little to no visibility into activity outside the plant gates.
Gaps and Opportunities
For manufacturing companies that single-source production of from a particular plant, managing distribution and production planning as separate processes tends to work well due to a lack of optionality. If you have little choice as to where to make a product, and scheduling boils down to determining the timing of production and distribution, the division of responsibility between distribution schedulers and plant schedulers is both convenient and effective. With the exception of opportunity #3 and opportunity #4 listed below, the status quo may be just fine.
But for manufacturers who have choices where to manufacture products, the opportunity for unifying distribution and manufacturing planning and scheduling promises significant cost savings and profit optimization.
Some of the most significant opportunities are listed below.
Opportunity #1 – Sourcing Flexibility
The typical distribution network assumes fixed sourcing. Product A is supplied by Plant #1 (because that is the cheapest place to make it) or Distribution Center B is supplied by Plant #2 (because they are geographically close, and transportation costs are minimized). More sophisticated manufacturers might employ Sales and Operations Planning business processes to make these sourcing decisions from month-to-month, but even those enterprises often have difficulty in executing the plan. For example, say the plan suggests that 60% of a product should be sourced from Plant #1 and 40% from Plant #2. But how then is this translated into replenishment orders on the plants? In practice, optimal plan nuances in sourcing are “lost in translation” as the distribution schedule is created. The plan becomes a soft “target”, which may or may not be adhered to.
Opportunity #2 – Dynamic Sourcing Based on Plant Schedules
Imagine a warehouse or distribution center that is equidistant from two plants, both of which can produce a required product A. The plant production process incurs significant changeover and setup costs – perhaps a product wheel that is followed to minimize production waste, changeover times and off-grade production. It then follows that the best plant to produce a particular product depends on what each plant happens to be producing at that time. In other words, if the required product fits seamlessly into one plant’s schedule from a changeover perspective, but not the other’s, it should clearly be sourced from the first plant.
Opportunity #3 – Responding to Disruptions
Disruptions come in both positive and negative forms. Schedulers respond to last minute customer orders as well as manufacturing upsets. Meeting sudden orders and responding to upsets typically requires input from both distribution and manufacturing. Possible supply chain considerations include all of the following and more:
Where can the product be made?
Which plants have capacity?
What are the production costs at various plant or facility options?
How are plant changeovers/setups affected?
Can the product get there in time from a particular plant?
Do we have transportation capacity?
Could we postpone production of a different product, particularly one we have scheduled to meet safety stock, in order to meet the demand?
The considerations above partly fall in the realm of plant schedulers, and partly in the realm of distribution schedulers.
Opportunity #4 – Capable to Promise
For manufacturers whose business model tends toward make-to-order instead of make-to-stock, determining possible sales order fulfillment dates can be a significant challenge. All of the considerations listed above come into play, and once again, both distribution and manufacturing play significant roles in fulfilling the promises made to the consumer.
Eliminating the silos between distribution and plant planning and scheduling implies a single, integrated system that handles both. ERP systems provide that visibility, in part, but fail in terms of optimization and decision support capability. Atlantic Decision Sciences built the Atlantic Supply Chain solution to bridge that gap. The Atlantic Supply Chain software has the following key capabilities that allow it to meet the needs of both distribution and plant scheduling users:
Multi-user system with security to allow read/write access by scheduled asset
Plant facility, product, and inventory location modeling
LP, MIP and heuristic optimization
Gantt Chart and scheduling grid user interfaces
Problem detection and guided resolution
By employing Atlantic Planning and Scheduling, distribution and plant schedulers coexist in the same decision support framework, with full, real-time visibility into each other’s work. Both groups can run optimizations, re-schedule, and respond to production upsets and last-minute orders. Both groups can see the impact of their scheduling decisions on other parts of the organization, and collaborate to find the best solutions. In short, Atlantic provides a next-generation solution that finally eliminates one of supply chain’s most persistent silos.