Supply and demand are the bookends of a tired cliché, so overused that their meaning has been lost. But in the...
ERP world, they are the yin and yang of sophisticated new inventory management planning software for capturing and analyzing data that can put high-demand products in the right customers' hands faster and at a lower cost than ever.
Integrating inventory more tightly into demand planning is the way, according to many experts in manufacturing IT technology. The idea is to augment statistically driven forecasts and rules of thumb with fresh information about what is actually happening.
The recession and credit crunch have forced companies to manage capital better, and many are laser-focused on inventory. In May, Aberdeen Group published a study in which 61% of 170 companies that had not yet deployed inventory management software indicated that they were actively looking at doing so.
While the latest inventory management software has risen to the occasion, relatively few companies have integrated their separate demand management and inventory organizations, said Nari Viswanathan, vice president and principal analyst of the supply chain management practice for the Aberdeen Group. "All across the board, they're not doing it," he said.
Still, Viswanathan sees the promise of the broader adoption of new software that bridges both worlds, such as i2 Technologies' Demand Manager and Supply Chain Planner, or Demand Management Inc.'s DS Forecasting Management and DS Advanced Planning and Scheduling.
Inventory optimization tools boost supply chain execution
Computerized inventory management planning goes back decades, and ERP and MRP legacy software still forms its foundation in many companies. Just above sits inventory planning, including forecasting and replenishment modules for calculating the safety stocks needed to satisfy orders at a given fill rate. Advanced planning and scheduling (APS) handles inventory of the raw materials and components used in manufacturing.
One new tool is multi-echelon inventory optimization software, which tells supply chain managers the best distribution or retail locations and optimum quantities for meeting forecast demand down to the SKU level. "The benefit is a significant reduction of inventory without having to do a lot of structural change," Viswanathan said. You can also feed the optimized inventory target into an APS to improve its accuracy.
These state-of-the-art inventory optimization tools focus on the operational or execution side of the supply chain and aren't usually up to the tricky task of matching inventory with demand. For that, you need demand planning. Like operations, the demand side is often staffed by planners who use Excel spreadsheets to analyze order and shipment numbers from ERP. Today's demand management/planning software automates this analysis and collects demand-related data in one convenient place, though according to Aberdeen Group, few companies have adopted it.
In reality, the categories aren't so neat. Infor's Replenishment Planner, for example, allows users to see inventory and demand in one view (providing they have the vendor's SCM Demand Planning tool). Many demand-planning products have basic inventory features, but Viswanathan said they are often simplistic, limiting themselves to safety stock numbers for finished goods, in one example.
The market splits the usual way between comprehensive ERP vendors that sell mostly to large customers -- Infor, Oracle and SAP -- and best-of-breed vendors such as i2 Technologies, Logility Inc. and JDA/Manugistics that are more specialized. ERP makers concede nothing to the specialists, though, having absorbed some of these vendors' technologies into their product lines, as Oracle did in 2006 when it bought Demantra, a vendor of demand-driven planning software.
Below the top tiers sit vendors like Demand Management Inc. that target small to medium-sized businesses. Niche vendors focus on still narrower slices, such as basic inventory management. A few offer bleeding-edge supply management software, including inventory optimization (Jonova, which offer integrated business planning software; Optiant Inc., which offers the Powerchain Suite; and SmartOps Corp., which offers a package called Enterprise Inventory Optimization) and demand "sensing" (Terra Technology).
Sales and operations planning balances demand with supply
Much of the current buzz surrounds sales and operations planning (S&OP), a category that Aberdeen defines as identifying demand and balancing it with supply, using input from departments such as manufacturing, finance, marketing and procurement. Experts say it goes back to the 1970s and is more business strategy than application. Neverthless, more vendors are slapping the S&OP tag onto their products and adding S&OP dashboards.
What S&OP brings to the party is collaboration, a mechanism for salespeople, executives and supply chain managers to add their ideas, hunches and relevant news items to hard data coming from their demand and inventory planning systems. Such information is by no means inferior: News of a customer's upcoming product promotion can be more crucial to a forecast than last year's sales.
"You're always a lot smarter and more knowledgeable than the system can be," said Bill Harrison, president of Demand Management Inc., maker of Demand Solutions inventory and demand planning software. "You don't need complex systems, you don't need complex rules. You just need people working together."
Interdepartmental cooperation can bring everyone into better alignment with the plan. In the past, finance could be reluctant to approve the inventory that sales wanted to fill anticipated orders, while manufacturing had another idea of what it could make, and no one had less control than the "lowly planner," Harrison said.
S&OP can change that. "What happens is you have a number they can all agree on" -- a number, he added, that people trust (and will therefore take seriously) and is easier to tweak with timely information.
When planning tools weren't so well integrated, inventory reduction strategies sometimes left too little product for supply managers to fill orders or respond to new opportunities. Now, vendors claim, with both sides connected intimately to the other and overseen by S&OP, companies can reduce inventory and improve customer service.
About the author: Freelancer David Essex has covered information technology for BYTE, Computerworld, PC World and other publications and websites.