I asked a group of supply chain purchasing and planning professionals a simple question. I asked them how they decide just when to place an order and just how much.
On the surface, it’s like me asking any of you about your refrigerator, or your gas tank. When do you order and how much do you get?
The answer isn’t surprising. It depends. There are a lot of factors that go into determining when to go to the store to get eggs and when to go to the store to get bread. We try to reduce the number of trips, we consider our food plans for the week, we consider shelf-life, and perhaps many other factors.
It’s not surprising that for supply chain professionals, it also depends. There are perhaps hundreds of customers creating demand variability and thousands of parts that are under scrutiny. And, they may not have easy visual access to the inventory.
In the end, they said, it boils down to this. “I look into the future and see when the system shows that I will run out of parts. Then, I try to anticipate variability of demand and supply. Then, I consider product cost, shipping cost, package size and other factors. And then, I pick a number out of the sky that seems like the best guess based on what I know at the time.”
How far into the future? “At least the length of time that my supplier needs to produce and get me the parts. Yes, that does vary quite a bit. Sure, it might be days, or it can be months or even years. Why yes, I do this same exercise for many parts, and even when a part resurfaces on my report, I go through the entire exercise again.”
“Certainly, I’m using forecast information, which we know is wrong. And we put that information into a precision-based system that expects everything to be exactly right. As we’ve made our supply chains longer and more complex, the precision gets harder to keep intact. We count on supplier lead time to be correct and that the customer gives us plenty of notice for orders and once an order is entered, nothing will change.”
“When I say this all out loud, it sounds crazy. It doesn’t sound like the world in which I live.”
It should be obvious to most of you that this system, this tool we’re using, isn’t sustainable or even workable without adapting. If you’re in supply chain, you already know that it is basically chaos begetting chaos. There is a better way. The solution exists. If you want to fix the problem, then ask me about the solution.
John Melbye, DDPP, DDLP, CSCP
Demand Driven Master Instructor