Make to Stock or Make to Order?

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 operate, and how they set up their ERP system.You might think SAP is one-size-fits-all, or that your company is all one production type, but most companies are a mixture. This requires setting up planning strategies for each product line, or even better, each SKU. To run optimally, you must have the right stocking strategy and replenishment model for each product. This dictates what planning strategy to use, and how the forecast and customer order demand signals are used in the system. SAP offers a myriad of options to meet those varying needs. If this isn’t leveraged, forecast data will not be trusted nor used as required, which can lead to broad ramifications to the business.Planning strategies are all about creating the right stock at the right time based on the right signal. Questions that need to be answered in order to define the strategy are:

What is your commitment to the customer (i.e. delivery lead time)?
What is your competitive advantage that retains your customers?
What is your resulting stocking strategy and replenishment model per product or SKU?

If you are having service issues, a large number of exceptions, inventory stock-outs or excess inventory, chances are your planning strategies are not aligned with how you are operating as a business. Putting the right strategy in the system is key; the wrong choice leads to fighting the system and confusing recommendations.Once you have accurate planning strategies, you need accurate master data in order to create optimal results. This starts with companies committing to long-term, cross-functional data management in SAP to create transparency and trust in the data - a single source of truth. Stocking policies and replenishment models need to reflect the most accurate reality. Having data properly stored and managed cross-functionally in the system is the least labor-intensive, and most effective, way of staying on top of your environment, as everyone is contributing to and working off the same set of data. Demand management is about connecting the forecast to the latest assumptions, and it all relies on this real-time data. While forecasting is never 100% accurate, it improves the more you use it.More businesses need to understand what is driving the forecast. Making and recording assumptions over time is the best plan for volatility and is required to test actual vs. planned production over time. Often this happens in a silo but needs to be a cross-functional activity that is mainstreamed throughout the organization. Transparency comes when processes are aligned across teams, with daily reviews of supply chain issues and breakdowns, known as exceptions in SAP.Demand-driven planning requires not only trust in the data and transparency, but also tolerance when the forecast is not perfect. Otherwise, it can cause organizational discord and misaligned metrics. The optimal forecast enables precision and agility in both long-term and tactical business planning. If forecast or orders cannot be met, they must be communicated to the commercial operations team for rapid response, allowing for course correction and proactive communication with customers. When used throughout the planning layers - even when actuals don’t match up with the forecast - it gives early warnings to the business.Having the right forecasting is the backbone of a demand-driven supply-chain and is a running thread in Reveal’s 9 fundamentals for leveraging the digital supply chain.

Have a digital core to build from
Turn from a push to a pull supply chain
Have a single source of truth
Be clear what you are
Lean out the process and reduce waste
Make a promise and keep a promise
Optimize the procurement process to meet demand
Have an Integrated Long-term Business Plan
Organizational trust in our human capital assets

Once you are operating as a demand-driven business, using and improving forecasts within SAP, and setting up the correct planning strategies, you will reap the rewards of agile, efficient production and be well on your way to becoming an intelligent enterprise.How is your company leveraging the Intelligent Enterprise to disrupt your market? Over the coming months, we will be providing a webinar of 9 principles that will help you get there. Listen in to our “Are You Mature Enough To…” webinar series to get further insights into how to best answer that question - and take the right steps to optimize the SAP digital supply chain. Take a look at our White Paper, "How to Leverage the Digital Supply Chain and Intelligent Enterprise?