Upgrading Manufacturing Planning to Reduce Costs and Inventory

By Lisa Anderson

As companies navigate tariffs, geopolitical risks and high interest rates, there is an emphasis on reducing costs and inventory levels to free up cash and maintain profit levels while successfully serving customers’ ever-changing needs. The most successful companies are upgrading their planning processes and rolling out automation and advanced technologies not just to improve margins and cash flow, but also to scale successfully to meet customer growth plans. It is no longer enough to be resilient and reactive; successful companies must upgrade processes and technologies.

Upgrading Planning Processes

Forward-thinking executives are looking ahead and upgrading manufacturing planning processes to better support maximizing margins, cash flow and customer service. As volatility and input costs have increased, companies are looking for supply chain planning solutions to better predict what’s coming down the pike, reallocate and/or prepare in advance for changing conditions and optimize production schedules for maximum operational performance. Thus, they are rolling out SIOP (Sales Inventory Operations Planning) processes to gain insight and visibility into the future and upgrade demand and supply planning processes to ensure seamless execution with the least number of resources.

At a minimum, companies are utilizing a simple statistical formula to create a baseline sales forecast and roll out collaborative processes with customers to gain insight and input into the forecast. Most custom product companies utilize quotes, which can add significant value to the demand planning process, whereas most high-volume product companies benefit from a focus on customer and product trends and promotions. Planners transform these forecasts into capacity and operational plans. At a minimum, they should upgrade their production planning and scheduling processes to better sequence and optimize their production and material plans. SIOP aligns these demand and supply plans so that companies can minimize their resources and reduce waste and inventory levels while proactively addressing customer needs.

Rolling Out Automation and Advanced Technologies

Beyond process upgrades, proactive companies are upgrading their use of their ERP system and rolling out advanced technologies. For example, in the SIOP process, they are upgrading their CRM (customer relationship management) and quoting systems to gain better insights into customer needs and trends while rolling out sales forecasting systems in situations that require artificial intelligence capabilities to track volatility and changing customer demand patterns. From the capacity and supply standpoint, advanced planning systems will provide predictive recommendations to proactively address changing business conditions.

For example, an aerospace and defense manufacturer suffered with low service levels and higher costs as their end customer (Boeing) prepared to scale up production. Thus, they rolled out commonsense demand planning processes by reviewing history, gaining insights from customer service and sales, following up with customers to ask about exceptions and upcoming order timing and incorporating this feedback into forecasted orders. They gained several months of visibility with high accuracy levels. They upgraded their use of MRP and production planning processes and improved service by 30 points while increasing margins by 5 percent and reducing inventories over time as process improvements gained traction.

In addition, manufacturers are connecting real-time information from IoT devices to their ERP and planning systems. For example, cameras can detect quality issues, and manufacturing execution systems (MES) will capture real-time progress in the manufacturing process. As these types of advanced technologies are used, errors are caught sooner in the process and incorporated into production plans to optimize schedules, increase output and reduce scrap. Additive manufacturing (3D printing) and digital twins are also utilized to produce rapid prototypes, analyze and optimize layouts and improve workflows.

The Bottom Line

Manufacturers are carefully navigating volatile and uncertain market conditions by upgrading manufacturing planning processes and better leveraging advanced systems and technologies. These improvements are required not just to survive but to take a leap forward and scale up to take advantage of customer opportunities. Successful companies will prioritize supply chain planning and advanced technology improvements to stay ahead of changing conditions and fund growth by freeing up cash and reducing costs.

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth. She recently released “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth,” an e-book on how to better navigate supply chain chaos and ensure profitable, scalable business growth. A complimentary download can be found atwww.lma-consultinggroup.com/siop-book/