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Importance of Accurate Customer Order Promising in Outsourced Manufacturing

Driven by strategic importance and strength of internal capability, industry leading Original Equipment Manufacturers (OEM) often outsource sourcing, manufacturing and logistics functions to partners but retain supply chain planning and scheduling/ATP largely in-house. While outsourcing confers sharper focus and reduced costs in general, outsourced Supply Chain Planning has many high-impact risks for OEMs like

•    Loss of competitive advantage
•    Reduced quality of planning output
•    Coordination and synchronization miss
•    Limited supply chain flexibility
•    Slower responsiveness to customers

With in-house planning, the Available to Promise (ATP) response cannot be made instant but at best with a lag due to the fact that there would always be a difference in supply statement in the system when compared to partner sites. Companies especially in High-Tech industries who have Build to Stock, Build to Order and Configure to Order products often promise their customer within the target lead time goal across different product families. With lighter configuration, shorter lead time, high volume and perishable demand, planners and backlog management functions are under tremendous pressure to promise customers within the goal to meet revenue targets. With companies scheduling orders too conservatively or incorrectly and later having to re-schedule to be able to ship within the goal would impact following performance metrics

1.    Scheduling against target lead time: Ability to provide a promise date to the customer with in the lead time goal from the order entry date
2.    Scheduling touches: Backlog management activities to pull-in or push-out dates from initial scheduling
3.    Customer satisfaction: Customer dissatisfaction due to inability to provide accurate initial promise date



Impact to performance metrics has a direct bearing on the business not limited to:

1.    Customer dissatisfaction : Multiple touches and repeated date changes develop nervousness and loss of trust in customer
2.    Unpredictable sales revenue: As promising dates extend beyond the goal, revenue targets get impacted and increases backlog management activities.  
3.    Excess inventory in channels: As supply planning is based on the revenue targets, excess inventory lies in the channels as the scheduling attainment rate is lower than anticipated
4.    Increased number of touches: As companies try to improve revenue targets by pulling in the orders, it increases the touches
5.    Increased support cost: OEMs have to pay additional charges to Manufacturing Partners, B2B partners for change in assembly and shipping completion date

There are many reasons why companies in outsourced manufacturing find it challenging to attain high promising accuracy and it can broadly be classified into three

1.    Supply Constraint: Inaccurate supply picture, B2B delays, incorrect allocations, supply lost between engineering transitions etc.
2.    Lead time Constraint: Conservative transit lead time across geographies, incorrect application of holidays, and extended lead time on components etc.
3.    Configurations: Incorrect lead time, calendar, sourcing rule and other item related attribute set-up's


 

In my next blog, I'll explain how these causes impact scheduling performance and what approach one should take to address it. Please join the session "Reliable and Accurate Customer Promising" session at 4:30 PM on 1/26 in Oracle Modern Supply Chain Experience conference at San Jose to learn how a leading High-Tech complex OEM improved its scheduling performance from 55 to 80%


http://www.oraclemsce.com/solution/supply-chain-planning  (Executive Ballroom 210 CG)

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