Why is inventory planning and clear to build broken?
As a follow-up from our first conversation with our CEO and Co-Founder, Doug Shultz, we sat down again and learned why, from his perspective, inventory planning and clear to build are broken and the impacts of these outdated systems.
Q: In your opinion, why is inventory planning and clear to build broken?
A: When you are doing inventory planning and building your clear-to-build report, you essentially have two options. Option one is using a spreadsheet and doing everything manually, which most companies with less than 300 people use. Option two is using ERP-based materials requirements planning (MRP) or advanced demand/supply planning systems, which larger enterprise companies use. Unfortunately, there are issues with both.
Q: Can you tell us a little more about the problem with inventory planning in spreadsheets?
A: Using spreadsheets for inventory planning is really time-consuming for complex manufacturing industries like industrial equipment, robotics, aerospace, medical devices, and other industries where there are thousands of components that go into the product. For example, if a couple of thousand items are in the bill of materials and then those are multiplied by the quantity you’re trying to build, very quickly you’re managing millions of individual items. Tracking all of those items and gleaning insights out of historical data so you can make your plan better becomes super hard when it’s all living in a spreadsheet.
It’s also really hard to compile all of the data together in one place and constantly update it for millions of items. It’s hard to look back and learn from mistakes, successes, and improve over time. Because spreadsheets are so time-consuming and manual, teams are mostly focused on the day-to-day or fighting fires. The bigger-picture goals and projects they want to work on, such as finding building commodity strategies, sourcing new vendors, or sustainability initiatives, get put on the back burner.
Spreadsheets are also easily prone to human errors when people enter incorrect values. Therefore, reacting and responding to problems takes a long time as well. The downstream effect is massive—if you mess something up and thought you’d have certain materials but then it turns out you don’t have them, you will not be clear to build. It could take weeks or months to get the necessary materials and if you don’t ship products, you don’t make revenue, which could cause the whole operation to be shut down.
Q: On the flip side, can you tell us a little more about the problem with using ERP-based materials planning systems for inventory planning?
A: For these ERP-based planning systems to really work well, every last data point in the ERP has to be accurate and updated. Vendor lead times, logistics transit times, yields, resource availability, etc., all need to be correct—there’s very little flexibility. The way this data is updated today is by humans manually entering, updating, and editing the information.
For example, I was talking to someone recently who is only clear to build 64% of what their MRP told them they needed to build in the next two weeks. Some of that was due to unforeseen disruptions, but most was that the plan was based on incorrect assumptions in the first place. For example, PO dates were based on lead times that hadn’t been updated in more than a year.
While that might sound egregious, the reality is it takes a huge amount of time to go in and update this data, which leads me to the next big problem with ERP-based planning systems: they are built for the most complex use cases, making them difficult to learn and cumbersome to navigate. This makes it really hard to make quick updates to the inventory plan in real-time, quickly evaluate alternative scenarios, and dial in a reliable plan.
Another example: if something is not clear to build, these systems will give you an error code but it's not clear why it’s not clear to build. Then you’re left trying to figure out okay, what is the issue? Finding the issue takes a lot of digging and you need to know how the system works to get to the root cause. Most of these systems were built 30+ years ago, so the infrastructure is old and clunky. This is what Factor is really focused on helping to solve.
If you’re a new person on the buying or planning team and don’t have experience with that exact system, it will take a long time to learn, which is risky because it opens the door to inaccurate and unreliable data.
Inaccuracies in data is one of the biggest challenges for procurement and supply-chain professionals. When the data is incorrect or outdated, it has a cascading impact on the forecasts and build plans, costing companies time, resources, and money. A solution like Factor can help manufacturing teams by feeding real-time data into the build plan, such as real supplier lead times, ultimately streamlining the production process and mitigating supply-chain risk.
Are you ready to maximize your production capacity? Click here to learn more or request a demo today to see how Factor can transform your operations and help you get better data from your suppliers to save money and time. Our supply chain experts are ready to provide a tailored walkthrough focused on your specific challenges and goals.