Best Of

Author: Daniel Dunleavy, Certified Master Anaplanner and Manager at Lionpoint Group.

Manufacturing is the lifeblood of the US economy. In 2022, it generated $2.1 trillion of revenue, and would have ranked it as the world’s ninth largest economy(1). The sector also plays a major role in promoting growth around the world. With the average car requiring at least 30,000 components (2), and planes such as the Boeing 747 requiring six million parts — manufactured by more than 550 suppliers in almost 30 countries (3) — US manufacturing has true global reach.

This complexity comes at a price, however. At a time of rising input and labor costs, companies need to ensure that their source materials are high quality, their supply chain is efficient, accounted for accurately, and they can allocate capital resources in an effective and timely manner. Perhaps there is no clearer illustration of the importance of this than in the promotion of supply chain professionals to the very top of major global brands, including Tim Cook at Apple, Brian Cornell at Target, Mary Barra at General Motors, and Doug McMillan at Walmart.

The economics of manufacturing

The manufacturing industry is also having to grapple with a very particular set of supply chain disruptions brought about by just-in-time inventory management — known as the “bullwhip effect.” This occurs when an initial change in demand creates an even larger effect on other companies in the supply chain — who tend to overcompensate — creating increased volatility.

When the COVID-19 pandemic first struck, manufacturing clearly drew to a standstill. However, when manufacturers attempted to ramp up production again, they could not keep up with demand, as seen with the dramatic shortages of toilet paper supplies. This led to a situation where the estimated value of out-of-stock items reached $1.14 trillion (4).

By the end of 2022, this bullwhip effect had started to take shape as consumer goods manufacturers found themselves with too much stock. Walmart, for example, ended its third quarter in October 2022 with at least $1 billion in excess inventory (5).

The impact of the pandemic is still being felt today. Demand has declined, not least because consumers stopped receiving government stimulus money, and household debts have reached an all-time high. Inflationary pressures are still very real, and employment growth has been dropping. As a result, the manufacturing industry is now in a period of rebalancing — of inventories against sales projections — as they try to navigate economic uncertainty and attempt to smooth out their supply chain volatility.

Managing risks at every level

Risk management, therefore, plays a significant role in supply chain planning, including political, environmental and regulatory, supplier, labor, and transportation risks. However, one of the costliest risks in recent years has been product recalls, which hit a four-year high in the first quarter of 2023. Consumer products were recalled at their highest rate since 2015, and pharmaceuticals recorded the most recalls in the last 18 years (6).

Recalls are so damaging because, when they occur, companies incur the costs of reverse logistics, sourcing new parts, the labor impact of changing out the recalled product, together with costs associated with waste and removal, customer logistics, and brand value. When you also consider the global — and complex — nature of the supply chain, costs can skyrocket.

The planning imperative

Managing an organization’s bottom line against these risks is therefore crucial. However, 62% of companies report having limited visibility of their supply chain, and managers continue to use legacy systems with more than 67% of supply chain departments running on Excel spreadsheets as management tools. In today’s world of interconnected just-in-time supply chains, these tools are no longer viable (4).

It’s critical that companies minimize their data management headaches and focus on being more disciplined, data-driven, prepared, and agile than ever before.

Putting the pieces together — a blueprint for success

Anaplan is relevant to almost every business process within an organization. Three use cases particularly stand out within the manufacturing industry:

Strategic sourcing and supplier management

• Anaplan helps overcome supply fulfillment volatility. Many manufacturers use a limited number of suppliers in their supply chain process, and when existing suppliers can’t meet the manufacturing demand, there is often a scramble to add more suppliers. However, potential new suppliers often can’t fulfill inventory shortfall on time, and vendor approval processes can take months, leading to delays in meeting specific requirements.
  Anaplan helps the strategic supplier planning process with specific tools to help organizations focus on cost control, flexibility, and quality when considering raw materials, purchased products, and transportation. It enables planners to see in one place their fulfillment risks and where to compensate with additional quality suppliers and provides greater control of supplier costs.
  

Plant management

• Anaplan helps streamline operational planning. Managing a plant requires the ability to plan for constant change, like demand changes, machine replacements or upgrades, retooling, labor and scheduling. Anaplan helps manufacturers achieve greater visibility in the management of their plants by helping them to focus on:
  
  • Demand planning: including production, demand and inventory planning, and purchase order management
    
  • Expense planning: including process planning, scheduling, labor, standardized product costing (including intercompany costing), delivery, and plant and labor utilization rates
    
  • Energy planning: This includes managing sustainability issues, fuel and energy planning, waste, and regulatory management
    
  • Plant project planning: Anaplan can be used to plan all capital expenditure planning processes.
    

Digital transformation

• Anaplan can be at the heart of the digital transformation of planning. Digitalization is crucial in three key areas: data analytics, scenario analysis and decision-making.
  
  • Data analytics: It’s estimated that poor data quality costs the US economy up to $3.1 trillion yearly and that the average company only analyzes about 40% of their available data (7). Anaplan is designed to help companies overcome these challenges and places data at the heart of the Connected Planning process.
    
  • Scenario analysis: Anaplan helps organizations use scenario planning to actively manage risks. It enables scenarios to be tested – in real-time – such as: what happens to the business if a plant shuts down? What happens to the product costs if an extra shift or machine is added? What happens to forecasts if the plan is updated using today’s prices? What happens if labor costs continue to rise? Anaplan enables almost real-time decision-making, allowing executives to dynamically plan and quickly aggregate the most critical information.
    
  • Decision making: When planning in today’s market, manufacturers should be able to exploit data to improve their decision-making. Anaplan’s Connected Planning environment enables collaboration between the many different teams that contribute to the success of a business. For example, sales and marketing teams can collaborate in real-time with operations before the start of new campaigns to ensure production teams can meet requirements and fill the demand. Finance and operations teams can collaborate in real-time to ensure that any initiatives to improve cash flow — such as decreasing days on hand — won’t adversely affect customer fill rates from having lower inventory levels while incurring increased freight costs from less than full truckload shipments.

Embracing Connected Planning

By using Anaplan, companies in the manufacturing industry will achieve increased supply chain optimization, reduce costs, improve customer service levels, and gain a competitive advantage. Organizations will be in a much better position to reinforce their manufacturing and supply chain operations, ensuring they are well-equipped to navigate the complexities of today's business landscape and deliver value to their customers.

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Sources:

• 1: National Association of Manufacturing: https://www.nam.org/facts-about-manufacturing/
  
• 2: NAPA Auto Parts: https://knowhow.napaonline.com/how-many-parts-are-in-a-car/
  
• 3: Boeing Media: https://boeing.mediaroom.com/2013-05-29-Boeing-Celebrates-Delivery-of-50th-747-8
  
• 4: 25 Supply Chain Management Statistics Every Business Owner Should Know: https://getstimulus.medium.com/supply-chain-management-stats-biz-owner-bcc79d784c62
  
• 5: Walmart Investor Reporting
  
• 6: US product recalls hit four-year high in first quarter of 2023: https://www.prnewswire.com/news-releases/us-product-recalls-hit-four-year-high-in-first-quarter-of-2023-301834964.html
  
• 7: 25+ Impressive Big Data Statistics for 2023: https://techjury.net/blog/big-data-statistics/
  
• Chart: Mfg Inventory vs Mfg Customer Inventory Index: US ISM
  
• Chart: CCI vs Regular Retail Fuel: CCI = OECD. Regular Retail Fuel = EIA
  
• Chart: Employment Growth = BLS
  
• Chart: Target Inventory to Sales % = Target Investor Reporting
  
• Chart: Walmart Inventory to Sales % = Walmart Investor Reporting