November 15, 2002

Perfect Execution

The gap between supply chain planning and execution is often a wide one. Fortunately, event management can help you close it

by Michael Brown

In nearly every industry, there's a direct correlation between revenue, margins, and an organization's operational capabilities. Operational capabilities affect service levels, inventory and obsolescence, cycle time, and operational costs as well as the ability to provide value-added services. The ability to manage and align operational capabilities reflects the direct linkage between the planning and execution systems of an organization.

Although much attention has been devoted to the connected economy and e-business in the past several years, there has been a growing disconnect between planning and execution systems. This disconnect can have a significant effect on your organization, such as:

• Lower than expected customer-service levels vs. target levels, with inaccurate perception and measures
• Inability to capture and maintain revenue with new and existing customers
• High supply, component, and finished-goods inventory levels vs. target levels
• Long supply chain cycle time
• Late introductions for new and derivative products
• Excessive costs associated with premium transportation costs, overtime, overflow locations, product obsolescence, and warranty returns
• Ineffective forecasting and demand management
• Undisciplined, manually intensive processes with unnecessary reconciliation.

Today, software vendors are attacking this void through two common approaches: collaboration tools and supply chain event management (SCEM). SCEM capabilities help manage the complexities of integration between planning and execution systems by defining and identifying business events and the related information that must be integrated across execution systems. For example, when a company is in a short-supply or an out-of-stock position, all related systems need to reflect this information, with appropriate actions taken across all systems, including order entry, promotional planning, supply chain planning, and production scheduling, as well as external systems, such as customers' order entry, suppliers' systems, and so on.

SCEM tools enable a business to identify an event and take defined actions that include the exchange of information between disparate transaction systems. Using an appropriate framework in combination with SCEM tools can help you ensure that appropriate actions are taken based on business priorities and operational strategies.

In this article, I'll discuss the various types of planning and execution systems, examine the challenges and opportunities to integrate these sets of systems more effectively, and provide a migration path to evolve the effectiveness and integration between an organization's planning and execution systems.

The Link Between Planning and Execution

Here are some specific examples that demonstrate the multiple integration issues associated with a typical organization's planning and execution systems:

Timely acquisition of the right customers. A lack of integration between customer acquisition or credit-planning systems and legacy and ERP transaction systems requires additional time and effort, increases data entry errors, and creates business risk. Integrating these systems enables valid customers with appropriate authorization to be brought online in hours vs. days. Timely integration also mitigates the risk associated with managing delinquent customers.

Timely pricing decisions. Many organizations set prices by business day because of their inability to update pricing dynamically across multiple disparate systems. The impact can be lost profit on every transaction conducted that day. In contrast, integrating price-planning systems and traditional legacy or ERP order-management systems lets your organization make changes to pricing in real time or near real time. This integration lets you react quickly to changes in business conditions throughout a day, as opposed to static batch processes that take place every four hours or daily.

Optimal order fulfillment. A lack of integration between planning and execution systems typically results in transportation premiums, excess inventory, overtime, idle or underutilized capacity, lost revenue, and less than desired service levels. However, integrating supply chain planning and fulfillment-execution systems allows you to accept, prioritize, bundle, and optimize the fulfillment of orders. Fulfillment becomes optimized based on visibility to current and future demand, as well as supply constraints, such as inventory, key materials, production capacity, and labor.

Optimal demand creation. A lack of integration can mean lost revenue opportunities or poorly targeted sales and marketing programs. But integrating planning and execution systems allows for the appropriate identification between "turn" and "event" demand. Your organization can then better determine the appropriate sales lift associated with sales and marketing programs, and it can optimize spending on the right programs. Integration also provides marketing and sales with visibility to eliminate promotion of short supply or constrained products.

Optimal alignment of supply with customers and operational priorities. Some businesses aren't enforcing business policies with trading partners, which results in different classes of partners being treated differently. Integrating planning and execution systems enforces business policies as they apply to customer priorities and order-fulfillment cycle times based on customer classifications. Integrating this information with trading partners also optimizes trading partners' costs (such as overhead and transportation). Furthermore, planning and execution linkage also ensures that appropriate operational priorities are executed to the right classifications of customers.

Barriers to Integration

Before exploring a framework and guidelines for aligning planning and execution systems, it's important to recognize several significant barriers. Barriers that seem to be consistent across industries include:

• Privacy
• Your California Privacy Rights
• Copyright © 2008 United Business Media LLC