Inventory Optimization in Utilities through Collaborative Planning - Part II
Demand Planning - Enhancing Forecasting Capabilities
Right material availability at the right time to ensure greater efficiency and good service can be achieved through the use of proper forecasting techniques. This will have a ripple effect throughout the organization as well as for the vendors and business partners. Material demand forecasting should not be limited to the traditional methods of collecting historical usage data and generating a linear regression model of future usage. This process do not leverage the vast amount of data collected and also fail in scenarios such as seasonal demands, a sporadic trend and slow moving items. Data accuracy and use of sophisticated forecasting techniques goes a long way in enhancing the forecasting capabilities.
Accurate demand forecast helps establish the reorder points, the inventory investment required and better co-ordination with suppliers. Forecasts are near perfect when done at a granular level e.g. at SKU level. This can then be utilized for proration to different levels in the hierarchy like item, vendor, classification etc. To achieve the expected outcome the major focus should be on the accuracy of the input data.
With the latest technology at disposal the need of the hour is to develop a powerful time series forecasting technique to forecast normal items and it should be capable of switching automatically for forecasting sporadic and slow moving items. The basis for any such technique would be historical data. A dynamic forecast model will need to have materials classified according to demand pattern, the level in the hierarchy that is optimal for forecasting, a forecast algorithm and ability to prorate the forecasts to all levels in the hierarchy. Manual intervention should be made possible to focus on the exceptions only in case of unusual or erratic demand pattern and high forecast error by configuring alerts and filter settings. Improved production and purchasing planning from the vendor side leads to lower lead time and reduced material costs is a by-product of the accurate planning and forecasting from the parent organization
Integrating Work Management and Material Management
Utilities look for significant benefits by achieving tasks in an efficient and effective way by coupling work management with material forecasts. Accuracy of the material requirements goes a long way in building advanced forecasting capabilities. Material planners stand benefitted by this collaboration of detailed work management schedule with material requirements as building linkages between job estimation and material planning is greatly enhanced. In utilities where capital projects require extensive design and planning the integration with the materials management provides unprecedented benefits. In an integrated system, whenever a capital work plan moves through the different levels of designs and approvals to a firm demand, the material planners will always be updated on the status of the demand coming in thereby ensuring the availability of materials at the right time. Based on the proximity of the work location as well as availability of materials, urgent work management issues can be addressed from the entire network of distribution warehouses that a utility houses. The flow of information back and forth enables the designers and planners to have a clear view of the material availability issues, the number of items issued for the work and the number of items returned. This has an added benefit in validating the accuracy of the Compatible Units. A tightly coupled system can provide planners the ability to manage the demand dynamically by providing a clear view of the repair work orders incoming or they can provide inputs on work scheduling based on the material availability. Designers and planners will have a clear view of the material availability allowing them to plan a detailed schedule for work ensuring stability and adherence of the schedule.
An approach where the key attributes of an item or material like SKUs, cost, usage, lead time etc. are managed in a consistent way by categories based on a rigorous, structured and analytical replenishment strategy.
Dynamic Re-order point: A methodology suitable for short lead time and demand predictable materials, taking into consideration the different parameters like safety stock, reorder point and economic order quantity. Combining technology with the planning efforts and integration of work management systems, dynamic recalculation of re-order point and safety stock helps in managing the expectations of service levels and investments required for inventory management. The recalculation should be real time considering the fluctuations in inventory, the demand pattern, forecasts or plan for the material and the SKU replenishment parameters.
Distribution Requirements Planning (DRP) Replenishment: This is a strategy based on the future demand as opposed to the current stock levels. Materials with long lead time or having lumpy demand as well as for spare parts DRP might be best suited. In order to meet the future demand and avoid the lead time constraints of materials having long lead times or sudden usage spikes, a time phased replenishment request is generated as soon as the material balance falls below a pre-defined level. Imagine a project involving a new commercial construction, with work needed to be planned months in advance, an effective DRP replenishment will allow planners to line the material resource in close alignment with the project plan. As utilities work management involves major projects a robust technology framework is essential for consolidating the future supply and demand, generating a time phased replenishment strategy and integrating these requests with purchasing and inventory application. Material lead time, usage pattern, accurate demand forecasts, robust integration with work management and periodical re-establishment of replenishment parameters are all essential for the success of this strategy.
The growth of utilities in the future will be based on a defined planning horizon, world class demand planning, tight coupling with work management and material segmentation. All the above factors on a robust technological framework can yield the high performance results the industry had been striving to achieve. While it is interesting to see Utilities across the globe realizing the importance of collaboration inventory planning and marching towards it, it will take a concentrated effort from them both in terms of process and technology, before it gets rooted enough, enough to make it a successful model!