It’s early December and John is relaxing at the end of a hard day’s work. A key account executive at a manufacturer of cabling components, John is extremely pleased with some large contracts that he recently won. John’s happiness is shattered when he gets an angry phone call from George, the project manager at building company Constructibuild, his biggest customer. Why on earth did John’s company just deliver 100,000 components that he doesn’t need? Didn’t John take the necessary action when George called four months ago to say projects had been delayed and could John please hold off delivering the components until April? George will send the delivery back and refuses to pay the invoice. Does this fictitious story sound familiar?
Unfortunately, stories like these are far too common in manufacturing, causing extra cost, harming customer/supplier relationships and making a company miss sales opportunities. And we all know from experience it can actually get far worse than that: in some cases, these 100,000 components will go back into the company’s stock, waiting to be delivered in April. Other customers’ orders for exactly the same product may be in backlog and this could even cause the company to buy new raw materials at an exorbitant cost because those customers need the components urgently. All the while, Constructibuild’s 100,000 pieces are gathering dust in the warehouse.
John is shocked when he gets the angry customer on the line. And he wonders what caused this fiasco. And how could he have prevented this from happening? And what tools could his company use to prevent this from happening again?
Lack of forecasting and insight
Since George signed the contract for 100,000 cable components, the order had made its way into the different systems that the manufacturer’s divisions use: an ERP system, a couple of spreadsheets here and there. For each of the parties involved, the focus was on this one order. What they were overlooking was that about 40% of the total amount of cable components that the company ships quarterly is smaller orders – run-rate business. The one-off deals deserve a lot of attention, but it should not be at the expense of the run-rate business, typically representing a significant part of the business.
In all too many companies, managing the run-rate business is a crucial, yet under-prioritised activity because of a lack of proper tools. Managing the run-rate business proactively means that you identify the under- or over-performance, thus affecting forecasting and supply chain requirements at an earlier stage. This will give Sales the opportunity to drive the business and the results much better.
Just imagine John’s company used a tool that looks at all orders for this particular component, both the run-rate business and the one-off opportunities? This would have triggered Sales to offer the 100,000 returned pieces to other prospective buyers, rather than having them sit idly in the warehouse. And who knows: John might have been the one selling them again, doubling his bonus!
Lack of internal communication
Many companies are siloed, and there is little connection between Sales, Operations, Supply Chain Management and Finance. When each department is working on its own island, focusing on their own activities, accidents are just waiting to happen. This situation gets worse when everyone is looking at different sources of information, as data is scattered over multiple data sources such as spreadsheets, an ERP system or other standalone systems.
Every silo inside the company has their own priorities. Even if John had passed on the information regarding the delay, perhaps someone in Planning decided to ship the order anyway to optimise other processes or performance metrics, unaware of the consequences on the customer side. Besides which, Finance may have wanted to recognise the revenue this year, rather than next year.
Just imagine if everyone in the company was working on the same data, getting reports based on this data, working to fulfil the same sales agreement… In the deal with Constructibuild, perhaps all departments have their reason to be happy because they reached t heir KPI. Perhaps even John, who gets his bonus based on fulfilment of the order. It is clear this will lead to this or similar situations happening again – and that will impact the company over time…
Lack of external communication
George called John to let him know about the change of plans. John promised to inform his colleagues, but perhaps he forgot. Or, except for email, he did not have a tool at his disposal to alert Operations Planning to the postponed order.
Just imagine he did have such a tool, a portal perhaps that can be used by the customer, so that George could adapt the forecast, sending the information to the manufacturers’ Sales & Operation Planning Department (S&OP). This would automatically update everyone involved in sales forecasting, production planning, purchasing and finance. When John received the angry call from George, he sure wished he had had a tool like that.
Solving these S&OP challenges
Summing up: to solve these problem statements, John’s company needs a solution that improves communication both internally and with the customer, actually letting customers change forecasts themselves. The solution needs to act as a single source of truth for everyone involved in the process, ensure that the entire business process is streamlined and that it delivers insights into both the run-rate business and one-off opportunities.
Impossible to build such a tool? Not at all, as that has been done already when Salesforce released its Manufacturing Cloud. Launched in the autumn of 2019, Manufacturing Cloud is a solution that helps manufacturers unify account planning and forecasting and allows greater transparency and collaboration across their entire supply chain ecosystem. This unified overview provides insights based on new sales agreements and an account-based forecasting solution that enable a manufacturer to accurately forecast and plan. This leads to more predictability and better business outcomes.