Supply Chain Management

Understanding the value of synergy between planning objectives

mSE Solutions

Taking the view of a business planner in industry, preparation for future busi-ness means in short: we know best what our customers will want in the future – how much, when and where – because we always have our finger on the pulse of our customers’ Needs.

These are high demands we impose on ourselves.
The premise for this is that we continuously increase our knowledge base with new information received from our customers, and can use this knowledge intelligently. We can thus ideally reduce uncertainty about future needs as they draw nearer.

Consequently, the decisions for optimized preparations should be made at the last possible moment from a technical standpoint. At least in most cases. If the conditions for a deal at present are very good (an “early bird” discount for ex-ample), and will perhaps become less favorable in the future, it may make sense to close the deal immediately even if it is not yet urgently necessary – after thorough risk evaluation, of course.

Long-term relationships with suppliers can be mutually beneficial. In general, I can count on considerable advantages in terms of prices, delivery performance and flexibility. In return, I must be willing to risk committing myself to purchases to reduce the suppliers’ planning uncertainty.

In order to minimize my financial risks when agreeing to purchase commitments, I cannot simply place blanket orders for products A and B.

Instead, my supply chain experts must engage in intensive discussions with their counterparts on the customer side to evaluate and understand:

  • Which processes are in place on both sides that need to support the supply chain (sourcing, planning, production etc.)?
  • What are the respective restrictions on both sides
    (lead times, capacities, ..)?
  • What is the business objective – what are the cost drivers that strain the profit margin (materials, technical complexities of product and production, process complexities….)?
  • Which other priorities does each side have (market positioning, quality, ethics…)?

The more precise the answers are, the greater chance there is to find a syner-getic approach to planning objectives. Both sides must be very specific regar-ding their respective restrictions. Where are their respective boundaries, which commitments much each side make? In most cases, when the restrictions of all parties are taken into account, there are positive intersections.

For example, a preliminary agreement can be made with a supplier based on the materials needed or the supplier’s capacity corridor, and a final agreement for delivery times for certain products can be reached much later at a pre-defined “point of no return”.

The same method of analysis and cooperation is necessary for optimizing flexibility in terms of time. It is a great competitive advantage if my supply chain can react quickly to supply requests or change of order requests from custo-mers. Short-term supply availability could be covered by inventory buildup, or by ensuring agility along my entire supply chain, including of course my suppliers. Even small changes in customers’ orders require optimized flexibility, especially when working strictly with a pull strategy based on quick reaction times rather than high stocks.

Naturally, control mechanisms should be an integral part of the active, ongoing communication with suppliers. Both parties must design and optimize each process individually.

Talk to your suppliers – they will be very open. For support on a concept or coaching – talk to us.