Proactive Supply Risk Management

Planning teams typically utilise ERP/Planning Systems such as SAP, Kinaxis, Blue Yonder (and others) for planning raw material orders, production runs and order fulfilment. As planning tools, they are excellent. That is exactly what they are designed for. But when it comes to tracking and managing potential production loss or order fulfilment risks, they can only show you what they know – if demand will exceed the available supply.

  Most Supply Risks come from something changing between when the order was placed, and when the order arrives. Planners don’t intentionally place an order too late. But it also isn’t practical to plan in such a way that there will always be enough inventory, even in the face of order delays and demand increases. There isn’t enough space, it consumes too much cash, and it leads to expiry risks.

Rather than waiting until the Planning System flags a definite Supply Risk, Planners can proactively mitigate likely risks before they show up. But only if they can see them. By combining the current supply plan, from the Planning System, with the past changes seen for order delays and production changes, Planners can get a likelihood score for a potential Supply Risk. For example, Material A has a 30% likelihood of running out based on the current plan, because we often see production plans increasing in the last week of the month.

Not all SKUs or Raw Materials are equal, and a 30% likelihood of running out of a core Raw Material is very different to a material going into one or two SKUs per month. To prioritise which Supply Risks should be Proactively acted upon, there is a trade-off between likelihood and impact.

Impact is specific to an organisation, and can range from Raw Material Segments, to the % of products it goes into or the value of production that relies upon it. Anything that is High Likelihood and High Impact is a top priority. It is unacceptable for a small order delay to stop all production at the factory because a critical material is unavailable.

Once presented with a 30% likelihood risk on a Raw Material, an Inbounds Planner can proactively make small adjustments early on. This could be moving a planned order forward a couple of days, swapping planned orders between different factories or checking if the production schedule is likely to change in the next few weeks. A supplier is much more likely to be able to accommodate an order change when given 2 months’ notice rather than 1-2 weeks. A 30% likelihood risk will happen around 3 times out of 10, and taking these small actions early on prevents the normal fire-fighting at the last minute, when many of the easy actions are already off the table.

Proactive Supply Risk Management applies to both Raw Material Inbounds and Order Fulfilment. By looking at the likelihood of supply being delayed (supplier order or production run) and demand increasing (more production or customer orders), Planners can get early visibility of potential Supply Risks and take action to mitigate them before they would normally appear. This process is also highly responsive, and will show an increased Supply Risk likelihood if a supplier’s order performance has been poor recently.

In a recent project with a Global CPG, we also included external data on supplier risks, such as Industrial Action, Wildfire/Hurricane and Political Stability. This increased the likelihood of supplier orders being late if there were specific changes in that supplier’s risks. This enabled planners to proactively start re-planning and switching order destinations to improve resilience, even before the impact of a situation started delaying their orders.

Purpose AI is an AI and Analytics Consultancy delivering data-driven solutions for complex Supply Chain and Commercial decision making. We work across the Consumer Products and Retail Industries and have worked with many Top 20 CPGs and Retailers in Europe and North America. Our USP is that we have developed industrialised solutions to common industry problems, reducing the time and costs to deliver value. But unlike SaaS providers, there is no licensing costs, we customise our solutions to your requirements and embed a strong business process to ensure they deliver value.