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How to Become a Demand-Driven Supply Chain?

Are you Make to Order, Make to Stock, or Assemble to Order?
By
Reveal

Recently, we were assessing a company’s supply chain. They had forecasted in the system, and at the management level, they spoke highly of their demand-driven supply chain. The business commented on how they can capture the demand changes rapidly and make the necessary adjustment to demand fluctuation in the system. Then we walked the shop floor and realized that those folks were merely making what they knew they needed. They would fill the demand and then keep making the same product because it was more “efficient” to keep running the machines, whether more product was needed or not.

Also, the demand they were filling was what production planning came up with when scheduling a week or two in advance, irrespective of the actual demand (forecast) in the system, because they did not trust the sales forecast. Sound familiar? Moving from a push to a pull supply chain strategy enables you to meet customer needs and drive efficiencies, increases flexibility, and optimizes business planning. In a pull supply chain, you can learn from deviations, improve your forecast capability, and manage your business with one set of numbers and assumptions. Here is an overview of what a push vs. pull supply chain looks like.

Pull Supply Chain: Make what’s needed, when we need it

  • Production precision
  • Actual, real-time production
  • Smaller lots/cycles
  • Minimal waste
  • Management by insight
  • Proactive communication

Push Supply Chain: Make what we can

  • Production approximation
  • Large lots/cycles
  • High inventories
  • Waste
  • Management by firefighting
  • Reactive communication

Here’s a brief overview of some planning strategies

It starts with aligning your business to your customer reality. Are you Make to Order, Make to Stock, Assemble to Order? Often, companies are misaligned with what they believe they are, how they actually operate, and how they set up their ERP. Here’s a brief overview of some planning strategies:

  • Make to Order (MTO): Waits for sales orders before purchasing raw materials, planning production or production begins; MTO planning strategies in SAP will not accept or react to forecast data
  • Make to Stock (MTS): Uses the forecast to drive the planning, procurement, and production of all the supply elements to create finished goods inventory at the point of supply
  • Assemble to Order (ATO): (also known as Finish to Order) Planning and production for sub-assembly or intermediate products is based on the forecast, but final assembly, planning and releasing the supply elements is completed only when the product is ordered
  • Engineer to Order: A manufacturing process which a product is designed, engineered, and finished after an order has been received

SAP requires us to be definitive. If you are Make to Stock, the system will use MTS rules to determine supply elements including quantity, timing, lot sizes, etc. The system will highlight when there are imbalances between supply and demand based on the MTS rules that are set up in the system. If your rules in the system are set up to support MTS but in reality, you operate as MTO or ATO, then the information out of SAP will not be very useful and could contribute to supply chain breakdowns.To get further insights into how to best answer, “How to Become a Demand-Driven Supply Chain?”, and take the right steps to optimize the SAP digital supply chain read our white paper, “When You Walk the Shop Floor and Ask, “Is Your Supply Chain Organization Mature Enough to Be Demand-Driven?”.

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