To Whom Should Supply Chain Planning Report?
Executive Summary
- Who supply chain planning reports to versus who it should report to?
- The current problem is the time horizon orientation of supply chain planning.
Introduction to Who Supply Chain Should Report
I was recently asked where a potential newly created supply chain-planning department should report. Online you can find answers to the question of where supply chain planning departments usually report. But this does not answer the question of where the Supply Chain Planning department should report.
In the area of supply chain planning, there are genuinely very few companies to look up to. Companies want the benefits of supply chain planning. They want better forecasts, lower inventories, more efficient manufacturing, etc.. But they do not want to set up the necessary preconditions to obtaining these benefits.
Regarding the history of supply chain planning – there is little doubt that planning goes back since as long as there have been supply chains. In its modern incarnation, supply chain planning charts it’s growth along with the growth of computerization.
History of MRP and DRP Systems
MRP was developed in the early 1960’s but not implemented in companies in any significant number until the mid-1970’s. By the mid-1980’s ERP systems – which contained both MRP and DRP – had become famous, but these were by in sizeable black box MRP/DRP systems. That is, they did not give people the ability to aggregate and control the information in a way that was conducive to planning.
Even with the development of much more sophisticated systems, because most MRP and DRP that are run are typically run from an ERP system. This is still a problem for many companies, as this article explains.
I would propose that supply chain planning became what we think of it today in roughly the mid-1990s. This was when planning systems began to be broadly implemented. This means that modern supply chain planning is recent. Perhaps it should not be all that surprising that it has not been mastered by companies. One of the questions is how can the organization of supply chain planning be made more effective.
Who Supply Chain Planning Normally Reports To
Who an entity reports to controls its orientation and its bias. In researching this article, I was shocked to learn that some companies have their supply chain planning report into sales. This is an undeniable place you do not want supply chain planning reporting to.
- First, a salesperson and a planner are two different ends of the spectrum.
- A salesperson wants things in the short term, while a planner is all about the long term.
A second place that supply chain planning most often reports is to operations. There is some logic to this assignment, but it’s not optimal because operations also have a near-term orientation. So while there is some match in the knowledge-based of the two entities as both talk the language of inventory and efficiency, there is a major disconnect regarding timeline orientation. When supply chain planning reports to operations, the VP of Operations will rarely be out of planning. The VP of Operations sets the agenda for those that report to him/her.
The Common Issue of Time Horizon Orientation
Upon analyzing many planning organizations, it is clear that one of the major problems with them is that they are oriented around too short of a horizon. If you look at supply planning systems, it is quite common for supply chain planning not to have total control over the parameters.
At most companies, those in operations can go in and adjust the parameters. In some companies, salespeople also have this ability. The logic that is presented for this is that each group is trying to do something that will “meet customer demand.” Typically this is an oversimplification. One may meet one customer demand, but shorting another customer demand. Or one might meet customer demand in the short term and short a future customer.
The problem is that supply chain planning parameters are not designed to be changed interactively. They should be periodically reviewed, but not altered to meet a short-term objective.
There are ways of placing orders in the ERP system that can meet the need of merely adding more supply to the system. A major problem with making these types of changes to parameters is that after the event passes, they are rarely changed back.
Conclusion
The problem with making supply chain planning report to any of the possible entities (sales, operations, IT, etc..) is that they all have time horizons that are shorter that supply chain planning’s time horizon. Supply chain planning cannot be effective at taking advantage of the software tools that it uses if it continually has its timelines shortened.
Planning is supposed to take the long view, and it isn’t easy to do this if the entity that one is reporting to does not share this as a KPI. For instance, it is quite common for VP’s of Operations to be hostile to planning – and this undermines the resources that the company has put into planning. In my view, supply chain planning should not report to any of these entities, but should instead report directly to the CEO.
Something that this would allow is for the more strategic use of supply chain planning output. Supply chain planning can run long-range simulations that will provide the analytical support that the CEO requires to manage the business better. Unfortunately, few companies leverage their supply chain planning in this way.