In these unprecedented times, organizations must deal with Revenue & Capacity losses, extremely high degree of uncertainty on both demand as well as supply side and with heavy Cash burn which can become a potential threat to their existence.
There is limited production capacity available either because the factories are shut or are operating at a limited capacity due to labour and social distancing constraints. Apart from this, suppliers are also facing a similar challenge and some of the key ingredients are not available. Factories are also losing capacity due to longer repair cycles, shortage of key utilities and consumables. This is leading to substantial Capacity and hence Revenue losses.
Demand variability is at its peak because the consumer priorities have shifted, and they are more focused on procuring the essentials. They are also open to switching brands. Additionally, there is limited retail and distribution window available due to lock down restrictions. Demand Planning has become extremely complex as there is no relevant history due to changed buying behaviour.
On the other hand supply variability is also at its peak due to limited and sporadic Supplier Capacity available in the current Covid Situation. Its extremely essential to decouple from the Supply Variability.
Forth key aspect at this stage is that there are high fixed and operational expenses and there is a massive cash burn that is endangering the sustenance of the organizations. Return on assets that are in operation (Factories or Warehouses) is extremely low.
rhythm 2.0 comes as a solid response to the current situation by maximizing Revenue, minimizing operational & fixed costs and by dealing effectively with the uncertainty at both ends. It consists of a four-pronged approach to deal with revenue and cash losses and uncertainties – (a) Optimize the product mix to make the most out of the available capacities and supplies, (b) Maximize Inventory Postponement to deal with Demand Variability, (c) Decouple organizations from Supply Variability and (d) Minimize Expenses to cut losses in the current times and last longer.
1. Maximize Revenue :
Capacity available is limited due to lock downs and social distancing constraints. rhythm 2.0 Supply Planner maximizes from given resources by optimized Supply Planning.
- rhythm 2.0 Supply Planner helps in making the most out of the asset hours available. It identifies products which give maximum revenue per hour of Factory asset utilized and prioritizes them. It eliminates products with low revenue per hour of asset utilized and gives way to the ones with higher revenue per hour.
- End-to-end Planning – rhythm 2.0 Supply Planner does E-2-E planning to include vendor level planning (particularly for the key raw materials) to ensure that the products planned can be produced by the vendors while working under constrained environment.
2. Deal with Demand Uncertainty :
The best way to deal with extreme demand variability is to delay or postpone to the maximum extent possible. rhythm 2.0 Inventory Planner identifies the right postponement strategy for each product-location combination depending upon the current increased demand variability, buying lot (or MOQ) of the customers and suppliers, lead-time of shipment, lead-time of production and sourcing, warehousing capacities etc. rhythm 2.0 Inventory Planner also does multi-echelon and multi-SKU inventory optimization to ensure the following:
- Right level of Safety Stock for each product-market combination is stocked at the right location (central or regional or customer facing warehouse) and not any further to optimize the postponement strategy in these times. Getting the inventory plan (stock norms) right based on new demand and supply variability estimates ensures that the inventory produced in these times generate real revenue and do not idle.
- rhythm 2.0 Inventory Planner also sets the right service level for each Product at each location to meet the overall Service requirement based on current variabilities. It may choose to trim some tail items with very high variability. It apportions the inventory budget in an optimal manner and optimally sets lower service targets for high volatile items.
3. Dealing with Supply Uncertainty :
rhythm 2.0 Inventory Planner decouples organizations from the upstream uncertainties as much as possible. It ensures that there is sufficient or optimum safety stock for critical Raw Materials to deal with the upstream supply variability. These are raw materials which are a part of a number of important finished goods and may have supply shortage due to the Covid situation. rhythm 2.0 Inventory Planner delivers bigger lots of such raw materials. whenever the vendor capacities become available. It ensures optimum safety stock at RM stage to decouple supply chains from upstream variabilities.
4. Minimize Expenses :
rhythm 2.0 does all-round cost minimization while meeting the Demand and Service Levels. There are two aspects of cost here :
- Fixed Expenses : It is important to only run assets which give substantial return on the fixed cost being spent. rhythm 2.0 Network Planner ensures that the best assets in the current scenario are retained and the rest are shut to minimize the fixed expenses. It optimally chooses the assets in such a way that the total cost consisting of fixed cost of running the assets along with all operational costs of material, production and freight is optimized in one step. rhythm 2.0 Network Planner ensures that organizations continue to deploy the right set of assets month-by-month while the lock-downs ease out.
- Operational Expenses : rhythm 2.0 Supply Planner ensures optimal total landed cost of Material, Production and Freight and ensures that the demand is met at the lowest possible costs. In case of shortage of capacity at the optimal sourcing point it will choose the next best and will always ensure that the lowest cost sourcing points are utilized to the fullest.