Benefits of Advanced Planning Systems - Improving Supply Chains

In today’s highly competitive market, the ability to anticipate, respond, and adapt to demand fluctuations is crucial for organisational success. Advanced Planning Systems (APS) are revolutionising how businesses approach forecasting, inventory optimisation, and supply planning, offering unprecedented precision and efficiency. This article delves into the benefits of APS in these areas and explores how these systems enhance Sales and Operations Planning (S&OP) and overall organisational decision-making.

1. Forecasting: Precision in Predicting Demand

Forecasting is the cornerstone of effective supply chain management. It involves predicting future demand to ensure that products are available when and where they are needed. Advanced Planning Systems leverage various forecasting methods, algorithms, and technologies to provide more accurate and reliable predictions.

Forecasting Methods

1. Qualitative Methods: These methods rely on expert opinions and market research. Techniques such as the Delphi method and market surveys are common. While subjective, they are valuable for new products with no historical data.
2. Quantitative Methods: These methods use historical data and statistical models to predict future demand. They include:
   • Time Series Analysis: This method analyses historical data to identify trends, seasonality, and cycles. Techniques such as moving averages, exponential smoothing, and ARIMA models are widely used.
   • Causal Models: These models consider external factors influencing demand. Regression analysis is a common technique, where independent variables (e.g., marketing spend, economic indicators) predict the dependent variable (demand).

Advanced Algorithms and Machine Learning

1. Machine Learning Models: Machine learning algorithms can handle vast amounts of data and identify complex patterns. Models such as neural networks, decision trees, and support vector machines can adapt to changes in demand patterns over time.
2. Statistical Methods:
   • Bayesian Forecasting: This approach incorporates prior knowledge and updates predictions as new data becomes available, offering a probabilistic framework that quantifies uncertainty.
   • Tournament-Based Forecasting: This method involves running multiple forecasting models in parallel and selecting the best-performing model based on predefined criteria.

Managing Forecast Error

Forecast accuracy is critical, as errors can lead to stockouts or excess inventory. Advanced Planning Systems include tools for measuring and minimising forecast error, such as Mean Absolute Percentage Error (MAPE), Mean Squared Error (MSE), and tracking signals. By continuously monitoring forecast accuracy, organisations can adjust their models to improve precision.

2. Inventory Optimisation: Balancing Service Levels and Costs

Inventory optimisation ensures that the right amount of stock is maintained to meet demand while minimising holding costs. Advanced Planning Systems use sophisticated algorithms to achieve this balance by setting service targets, constraints, and performing scenario modelling.

Service Target and Constraint Setting

1. Service Targets: APS allows organisations to set service level targets, which define the percentage of demand that must be met without stockouts. Higher service levels require more inventory, increasing holding costs, while lower service levels risk customer dissatisfaction.
2. Constraint Setting: Organisations face various constraints, such as budget limitations, storage capacity, and lead times. APS considers these constraints to develop feasible inventory plans that meet service targets.

Scenario Modelling

Scenario modelling enables organisations to evaluate different inventory strategies under various conditions. For example, APS can simulate the impact of changes in demand, lead times, or supply disruptions on inventory levels. This helps organisations identify optimal strategies and prepare for uncertainties.

3. Supply Planning: Ensuring Continuity and Efficiency

Supply planning involves coordinating the supply of materials to meet production and demand requirements. Advanced Planning Systems enhance supply planning through precise calculations of safety stock, projected inventory positions, time-phased replenishment planning, and economic order quantities.

Safety Stock Calculations

Safety stock acts as a buffer against demand variability and supply disruptions. APS uses statistical methods to calculate the optimal safety stock levels, considering factors such as demand variability, lead time variability, and desired service levels. This ensures that organisations can maintain service levels even in the face of uncertainties.

Projected Inventory Position

APS provides real-time visibility into current and future inventory positions. By considering on-hand inventory, on-order inventory, and future demand, organisations can accurately project inventory levels and make informed decisions about replenishment and production.

Time-Phased Replenishment Planning

Time-phased replenishment planning ensures that materials are ordered and received in alignment with production schedules and demand forecasts. APS uses techniques such as Materials Requirements Planning (MRP) and Distribution Requirements Planning (DRP) to develop time-phased replenishment plans.

• Materials Requirements Planning (MRP): MRP calculates the materials needed for production based on the master production schedule, bill of materials, and inventory levels. It determines the quantities and timing of orders to ensure materials are available when needed.
• Distribution Requirements Planning (DRP): DRP extends MRP principles to the distribution network, ensuring that finished goods are available at the right locations to meet customer demand.

Economic Order Quantities (EOQ)

EOQ is a classic inventory management technique that determines the optimal order quantity to minimise total inventory costs, including ordering and holding costs. APS can calculate EOQ for different products, helping organisations achieve cost-effective inventory management.

Enhancing S&OP Effectiveness and Organisational Decision-Making

Advanced Planning Systems significantly enhance S&OP effectiveness by providing accurate data, real-time insights, and sophisticated modelling capabilities. This results in better alignment between supply chain functions and organisational goals, leading to improved decision-making and overall performance.

Integration and Collaboration

APS integrates data from various sources, breaking down silos and fostering collaboration across departments. This ensures that all stakeholders have access to consistent, up-to-date information, facilitating coordinated planning and execution.

Scenario Analysis and Decision Support

APS enables organisations to conduct scenario analysis, evaluating the impact of different strategies and decisions on supply chain performance. This helps organisations make informed decisions, optimise their supply chain, and respond effectively to changes in the market.

Performance Monitoring and Continuous Improvement

APS includes tools for monitoring key performance indicators (KPIs) and tracking progress against targets. By continuously analysing performance data, organisations can identify areas for improvement and implement corrective actions to enhance supply chain efficiency and effectiveness.

Example Advanced Planning Systems (APS) Solutions

Several advanced planning systems have established themselves as industry leaders, offering comprehensive features and capabilities to optimise supply chain operations. Examples include:

1. SAP Integrated Business Planning (IBP): This solution provides powerful tools for demand planning, inventory optimisation, and supply planning. It integrates with SAP's broader ecosystem, enabling seamless data flow and collaboration across the organisation.
2. Oracle Advanced Supply Chain Planning (ASCP): Oracle ASCP offers robust functionalities for forecasting, supply chain modelling, and constraint-based planning. It leverages Oracle's cloud infrastructure to deliver real-time insights and enhance decision-making.
3. Kinaxis RapidResponse: Known for its agility and real-time capabilities, Kinaxis RapidResponse enables organisations to quickly respond to supply chain disruptions. Its concurrent planning model supports end-to-end supply chain visibility and integrated scenario analysis.
4. JDA (now Blue Yonder) Supply Chain Management: Blue Yonder's APS suite includes solutions for demand planning, replenishment, and inventory optimisation. It utilises machine learning algorithms to enhance forecast accuracy and optimise inventory levels.
5. GAINS Systems: GAINS Systems offers advanced inventory optimisation and demand planning solutions. Their platform uses advanced analytics and machine learning to provide precise forecasts and optimise inventory across complex supply chains.
6. Relex Solutions: Relex Solutions specialises in retail and consumer goods supply chain planning. Their APS focuses on demand forecasting, inventory optimisation, and replenishment, leveraging AI and machine learning to enhance efficiency and accuracy.

These APS solutions provide the technological backbone that organisations need to streamline their supply chain processes, reduce costs, and improve overall efficiency. By leveraging these advanced tools, businesses can better anticipate demand, optimise inventory, and ensure that supply plans align with organisational goals.

Advanced Planning Systems are transforming how organisations approach forecasting, inventory optimisation, and supply planning. By leveraging sophisticated algorithms, machine learning, and statistical methods, APS provides more accurate and reliable predictions, optimises inventory levels, and ensures efficient supply planning. This enhances S&OP effectiveness and overall organisational decision-making, enabling businesses to stay competitive in a dynamic market.

As organisations continue to face increasing complexity and uncertainty in their supply chains, the adoption of Advanced Planning Systems will be crucial for achieving operational excellence and maintaining a competitive edge. Whether through improved forecasting accuracy, optimal inventory management, or efficient supply planning, APS empowers organisations to make data-driven decisions that drive success.

Incorporating APS into your supply chain strategy can yield significant benefits, from reducing costs and improving service levels to enhancing collaboration and agility. By investing in these advanced systems, organisations can position themselves for long-term success in an ever-evolving business landscape.

If you would like to explore how Advanced Planning Systems can transform your supply chain operations, contact Trace Consultants, an Australian boutique supply chain advisory firm. Our experts are ready to help you navigate the complexities of modern supply chains and achieve your business objectives.