11 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
11
Inside-Out Process Modeling
In 1982, Keith Oliver, a British Logistician, defined the term supply chain as planning, implementing, and controlling the supply chain operations to satisfy customer requirements as efficiently as possible 3 .
assumed that tight integration of supply chain planning (APS) to ERP improved decision-making. ERP is a ledger of historic transactions which has less importance in the building of outside-in processes.
______________________________ TYPES OF LATENCY
The goal was interoperability across source, make, and deliver. Planning evolved from this definition. Achieving this goal is not possible with today’s supply chain planning processes. The reason? The current definition of planning improves functional optimization but does not drive bi-directional orchestration across source, make and deliver. As a result, the system never considers trade-offs. As a result, cost reductions do not translate to margin. And, while trade-offs are considered in network design technologies, in practice, this modeling is deployed in one-off ad-hoc analyses, not as a systemic planning process. Network design
In traditional deployments, organizations are aligned within a function but fail to make better decisions cross-functionally. This focus on functional optimization is a barrier to improving resilience 4 . The transactional systems in ERP are more far- reaching, providing end-to-end capabilities for order-to-cash and procure-to-pay capabilities, but the optimization within planning systems does not similarly span cross-functional flows. Instead, the planning technologies, with different data models, are linearly threaded through an ERP backbone, increasing waste,
Demand Latency: The time from purchase in the channel to visibility at the order- level. Market Latency: The time for a shift in a market driver to appear in the order signal. Data Latency: The time to collect, clean, synchronize data. Process Latency: The time it takes for an organization to make a decision. Latency, or inaction, is a major barrier to driving agility, and driving improvement in business results. ______________________________
the bullwhip effect, and decision latency. (Our research finds that over 95% of global manufacturers with over $1B in annual revenue implemented ERP during the past two decades 5 .) Tight integration to enterprise data drives insular thinking and adds latency—a risk during disruption. Moving from an inside- out to an outside-in approach improves the time to decide while improving outcomes. The synchronization of supply chain planning to market drivers improves customer service, removes bias, and reduces the time to make a decision. In the testing, we found that inside-out processes increase latency. As a result, the decisions are out of step with market shifts. The greater the variability, the more significant the gap. Market, demand, and process latency make bad decisions on
solutions are usually operated by a separate team operating as a service to help the supply chain and not as a part of holistic planning processes. While organizations bandy about terms like End-to-End Supply Chain Management, the current data models for planning are not end-to-end. To illustrate that companies, have different data models, consider that Distribution Planning (DRP) has nothing in common with Transportation Planning (TMS), and direct procurement does not interoperate with manufacturing applications. As a result, the concept of end-to-end planning is a misnomer. This traditional approach is inside-out. Demand is consumed not managed, and the serial movement of data through supply amplifies the bullwhip effect. The system’s design also
Keith Oliver - Wikipedia, November 23, 2022
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4 Supply Chain Organizations Struggle For Alignment, Lora Cecere, Supply Chain Shaman Blog, Organizational Alignment: Overlooked, but So Important. – Supply Chain Shaman, January 2, 2023 5 Supply Chain Insights Report, Embracing the Art of the Possible, Embracing the Art of the Possible – Supply Chain Insights, January 2022
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