Project management principles are essential in order to successfully manage business change. Initiatives, either improvement or strategic, are commonplace. This is especially true within the supply chain function. For example consider the activities that are carried out as part of improvement programs in many organizations these may include:
• Outsourcing key activities like assembly or manufacture
• Moving from a local to global supply chain
• Supplier rationalization
• Deploying corporate deals
• Cost reduction programmes
• Lead time reduction programmes
• Inventory rationalization
• Technology deployment
These sorts of activities require complex co-ordination of resources to deliver a defined objective within a set timescale – in other words they are a project. Those leading the initiatives need the appropriate skills and techniques as well as the detailed supply chain experience if the initiative is to be a success.
An all too common issue is where businesses appoint personnel who have no formal project skills or experience to deliver. This lack of experience and use of appropriate tools and methods can dramatically impact cost and schedule and more impact heighten the risk of project failure.
So what disciplines does project management provide and why is this an advantage? Consider the following
Scheduling and Planning:
One of the key facets of project management is developing and maintaining accurate delivery schedules that take into account project dependencies and resources.
Risk Management:
Understanding risk and more importantly having an appropriate risk management plan can prevent both cost and schedule over run and in the case of many supply chain projects ensure continuity of supply.
Business case and financial awareness
Both developing the rationale for undertaking the project and ensuring that the costs for executing it are covered are a key task. Subjective assumptions regarding business initiatives can result in projects failing to deliver to expectations. A robust business case will provide the rationale for proceeding with the initiative together with a sound understanding of likely benefits.
Quality Systems:
Integral to project management is ensuring that quality systems are built in to any project and this is of relevance to the supply chain process. There is no point in securing goods in a strategic manner with low costs, if they are not fit for purpose and meet business need.
Roles and Responsibilities:
Any good project manager will ensure that responsibilities are clearly set out, with key personnel identified as being responsible for specific items within the schedule. This ensures the smooth running of the initiative.
Communication
A key element of business change that is often overlooked by inexperienced personnel is stakeholder management and communication.
Project Management is fundamental to successful supply chain initiatives.
In a sense then, project management offers the procurement executive the foundations upon which he or she can build a good, strategic procurement plan. Without the foundations of project management there may be a strategy but no basis upon which to deliver in with the results ad hoc, sporadic and poorly delivered.
Being able to estimate material needs is a crucial activity for those companies looking to have available stock to cover customer requirements rather than making product to order. By forecasting the top level / finished goods demand, production and planning teams can then explode the bill of material then utilize lead times to quantify and schedule the procurement and supply of component parts.
To avoid stock outs or purchasing/manufacturing within shortened lead times accurate forecasting is critical. Faced with the task of forecasting how much of something you will need can have serious business consequences especially for businesses operating with products that have long lead times. Getting the forecast wrong can result in either surplus materials, where the forecast is higher than the actual demand or at the other end of the scale stocks outs or a failure to meet customer demand.
There are various ways in which organizations can calculate forecasts
Statistical Forecasts
For many companies the primary process for calculating forecasts is to utilize software tools. Whilst these tools are often embedded within the organizations ERP system dedicated forecasting software packages are available.
Data is taken from the ERP system including previous demand and current transactions, a standard set of variables is then configured (typically including desired service level and length of forecast) and the likely demand is then generated.
Statistical forecasts are very much based on actual data created from system transactions. The information used has to be comprehensive enough to ensure that a reliable output is produced. One of the challenges of this approach is that there may be market intelligence that the can influence the forecast that is not transactional – for example the award of a new customer contract, or a new product launch – which maybe difficult (if not impossible) to predict on historical transactions alone. This form of forecasting is also reliant on ERP system data integrity.
Non Statistical Forecasts
Another method of forecasting is without the use of statistical data. These are forecasts that have been devised from subjective estimates of what demand might be. The forecast may take a number of inputs from previous demand through to market intelligence but is often based on current or near term demand. The non-statistical forecasts can take into account sudden changes in production, sudden fluctuations that are not based on statistics, so there are times when both types of forecasts are required.
Summary
Forecasting is obviously difficult, simply because it is not an exact science and it as the supply chain is subject to sudden changes, difficulties and external factors – forecasts must be maintained. Forecasting provides the organization with a guide to future demand. Remember though, despite both experience and knowledge of the current and future environment no forecast will be fully accurate.