Enterprise management the logical integration of the supply chain

Mac Exon-Taylor

Introduction
This paper makes the case that integrated logic (as distinct from integrated data) is the important battleground for the manufacturing company in the next decade. In particular we refer to using integrated logic across the key business processes of the supply chain. The availability of data and the logic of decision making are two sides of the same coin. While it is true that good decisions cannot be made without good data, it is also true that good data, in itself, does not ensure good decision making. Both are needed. The computer has played an important role over the last 20 years in making data more available in the company. Data is now increasingly recognized as a company resource. This has not come about by a sudden recognition that many data items are of common use this has always been understood. It has happened because the enabling technology has allowed it to happen. Nowadays, data items are more sharply dened, and can be made available, in any format, at amazing speed, over any distance to any business process. However, over the last 20 years, the computer has also played a role as a logic machine. Its role here has been less spectacular. Initially it was applied to the payroll, because the rule-set that has to be programmed is a clear one (e.g. rules for deducting tax). Other areas quickly followed: accounts, invoicing, sales order entry. These activities, however, are not ones where, in any real sense, decision making is involved. The computer is merely following a very clear rule set, doing essentially what was previously being done by hand. More recently, computers have been applied to business processes to perform a more genuinely decision-making role. Stock control systems are a case in point. When ordering stock in a warehouse, replenishment rules can be dened which, when consistently applied by a computer, can achieve any chosen balance between the two key business objectives: stock level and customer service level. These are conicting objectives: the better you achieve the second the worse you achieve the rst. It is the user, however, who still has to use judgement in deciding what the best point on the curve is (because it involves placing a value on customer service level). This is handled by the user choosing the appropriate value of a parameter in the 16

The author Mac Exon-Taylor is Planning & Scheduling Manager, Insight Logistics Limited, Woodstock, UK. Abstract Provides a short introduction to the concept of enterprise management. Enterprise management is concerned with ensuring that certain key business processes (manufacturing planning, scheduling and demand allocation) work in a much more co-ordinated manner, so as to be more responsive to the customer base. Outlines the purpose and methodology of enterprise management and, in particular, an approach to software design for achieving it.

Logistics Information Management Volume 9 Number 2 1996 pp. 1621 MCB University Press ISSN 0957-6053

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software to create the balance he or she judges to be best (more of this later). Similarly, over recent years, the computer has found a role within a number of business processes controlling the supply chain decision-making areas where much more complex logic is involved, and around which the success of the business most hinges. Historically the decision-making procedures within these key business processes have often been developed independently of one another, to pursue departmental goals, and have usually been developed at different points in the company history. When the computer was brought to bear, it was often to support the old manual methodology: this tended to reinforce a piece-meal attack on the problem, with little symbiosis/synergy. However, recent years have seen major developments in computer techniques for nding good answers automatically to those sorts of questions. These are sometimes called optimizing techniques, but we believe automatic searching techniques is a more honest phrase. As with the stock control systems discussed above, to apply these searching techniques does require precision in dening the business objectives that the system is trying to pursue. Also, the key business processes we will be discussing below are largely sequential i.e. one is very much setting objectives for the one that follows; and therefore it must recognize the constraints which the following one has to meet. So when designing systems which use these searching techniques it is important that they: are designed so that the separate business objectives which the individual systems are pursuing add up to achieving the company goal; correctly recognize constraints which someone else will have to meet; are all equally responsive to changes in the environment. That is what is meant by integrated logic in the rst paragraph of this paper. The pursuit of this goal we call enterprise management.

The supply chain and its business processes

This section discusses the individual business processes within the supply chain, or rather those which have a major decision-making role. It provides a descriptive account of what each one does, how complex the process is, which one drives which, and what essentially 17

the purpose of each process is. It will then briey describe some of the problems which often arise in what can easily be a disjointed division of labour. The supply chain of a manufacturing company is often likened to a pipeline. Raw materials come in at one end, are converted by production into nished goods, which are then distributed to the customer at the end of the pipeline. To perform this total task effectively, a great deal of data and logic is required; and, since life never stands still, this data and logic needs to be continually recaptured and reworked. For this reason the total task is a big one: and so it is normally split into separate sub-tasks, or business processes. The main business processes which control the supply chain in a manufacturing company are: demand forecasting; demand allocation; raw material purchase; production planning; production scheduling; production tracking; stock control of nished goods; distribution. Business processes are best thought of as converters of data. Certainly, somewhere down the pipeline, physical effort is put in (e.g. tank t is being lled with product p; or nished goods g are being transported to depot d), but this all stems from instructions which are just one type of output from the business processes. For the most part, the business processes receive data from other business processes and convert it into other data which is being sent to other business processes. It would be tempting to try to rank the business processes referred to above in terms of quantity of data required, complexity of logic involved, and degree to which judgements have to be applied in carrying out the data conversion. This is difcult to do with any precision since it varies from one industry to another, and even from company to company within the same industry. Also, it would be interesting to draw arrows between these business processes to understand which is driving which. The fact is, however, that if a detailed data-ow diagram was drawn, one would discover so many feedback arrows that it would be difcult, again, to make simple statements on this issue with any precision. Despite these difculties, we attempt to make

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some simple, generally true, observations on these issues. This is done below, against the individual business processes: Production scheduling. One starts with this business process because its main output is work instructions to the shopoor which determine what is actually made. It is probably the most logically complex business process. A schedule has to recognize many production constraints (e.g. which products can be made on which lines at what rate, change-over times, labour and material availability, switch-on times of resources). This business process also has to pursue a number of conicting objectives e.g. maximize production efciency (by optimizing batch size and changeover sequence), achieve target stock levels (both WIP and factory nished stock), minimize late orders. The right balance between these conicting business objectives is difcult to dene. Finally, this business process has to be very responsive to change: demands are constantly changing and production constantly deviates (e.g. due to breakdowns) from the schedule; so, re-scheduling is a never-ending task and fast reaction time is critical. Production planning. Scheduling, at a detailed level, normally only looks a short time ahead (a few days to a few weeks). It is a time-consuming activity, even when done on the computer; so it is usually not practical to schedule far ahead. But, even if it were possible, there would be little point, since the schedule gets out-of-date so quickly. However, some form of longer term plan is needed. One reason will sufce. Many companies have to deal with a highly seasonal demand pattern. This usually involves stock building (i.e. producing early to meet a later demand) without which peak demands could not be met from a factory of nite xed capacity. So production planning, which typically looks 12 months ahead, is an important process. Once demand forecasts are provided, the maths must try to deduce the quantities of each product to be made in each time period, in such a way that all demands are met, but ensuring that nished stocks are kept within bounds and that the nite capacity of the plant is respected. We call these quantities the MPS gures. It is these gures (for the rst weeks of the plan) which are the key data inputs to scheduling: their attainment can be regarded as the 18

main business objective of production scheduling. Again, this business process is logically complex. Also, there is much commonality between the data it requires and that needed for scheduling. This business process, like scheduling, requires the best balance to be made between a number of conicting objectives. An important objective is to ensure that nished stocks are kept at some reasonable buffer level, to meet an uncertain demand; and if this level is chosen correctly, the subsequent distribution problems can be signicantly decoupled from the production problems. Demand allocation. This business process is relevant when there is some commonality of products across more than one factory; and when such factories are delivering to a number of different markets or regional depots. It determines, typically over a 12month horizon, how demand should be allocated between factories, and also to which markets/regional depots the resultant production should be distributed, to meet the demand at least cost. The outputs of this business process (i.e. demand allocations) are, of course, the main inputs to the individual factorys product planning process: their attainment can be regarded as the main business objective of production planning. This business process is logically complex. Again, there is much commonality between the data it requires and that required by scheduling and production planning. Like production scheduling and planning, this process requires a balance to be struck between a number of conicting objectives. Demand forecasting. Most business processes considered here are largely driven by some other business process. Eventually we get to a business process that drives but is not driven; this is demand forecasting. It is a business process which is difcult to generalize, in terms of how it is done, or should be done, in different companies. Everything from intuitive judgement to sophisticated mathematics is used. There are enormous differences in the accuracy of forecasting from one industry to another, almost irrespective of the techniques used. The fact that a companys sales forecasts are inherently error-prone in no way diminishes the need for proper planning. It is also true (this will be discussed later) that a companys overall performance is not in fact very sensitive to improvements in

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forecasting accuracy, provided that the accuracy is reasonably good in the rst place. Production tracking. This business process provides a crucial feedback to the re-scheduling process. It keeps a running account of what was made, and when. Again, methods of tracking vary from company to company. Everything from simple manual data collection to automatic machine/process monitoring is used. Raw material purchase. This process is usually driven by the production plan/schedule. A plan is exploded into the implied raw material requirements by means of a bill of material. The amount to order is then mathematically determined by knowing current stocks, the lead time of the supplier, the forecast requirement of production over this lead time (as deduced from the exploded plan) and a safety stock parameter. Stock control and distribution. When production implements the schedule, the resultant nished stock needs to be deployed in such a way as to maximize the chance of meeting the often volatile demand in different geographical areas. Some companies have a single distribution point (e.g. just one stocking point at the factory) but others have a complex multi-tier chain of warehouses, depots, etc. In this latter case, stock control systems determine how stock is moved through the distribution chain. Two major different approaches are used: a pull approach, where the lower echelons of the distribution chain place orders on the echelons above; and a push approach, where all stock movements are dictated centrally, and pushed through the chain. This process can, to a large extent, be decoupled from the earlier processes by the judicious choice of nished stock buffering. The above is a very brief account of the traditional, departmental, break-down of accountabilities in the supply chain. Organizationally it has evolved that way to share out the complexity of data handling and logic involved. The problems this brings in its wake are numerous. We will mention just two now. First, some of the procedures for converting data inputs into solutions take so long that they might only be carried out monthly; however, during the month, events happen which should be responded to immediately. Second, one business process is often setting targets for another business process. In doing 19

so, it should be aware of the constraints which that business process has to meet. This is usually not handled properly. The net result of both these problems is that out-of-date or unrealistic targets are set which allow a business process to follow its own local objectives. The outcome is disharmony, with various business processes straining in different directions, often in conict with one another, leading to a great deal of confusion and reghting. Obviously, this is not conducive to the smooth, integrated and co-ordinated operation of the enterprise.

Enterprise management
Enterprise management seeks to improve the activities carried out within each of the key business processes which control the supply chain; and, equally important, to ensure that these activities are logically integrated in a purposeful manner. These key business processes are: demand allocation; production planning; production scheduling; production tracking. They are regarded as the key business processes within the supply chain because: They, conjointly, have the most potential for maximizing the operational success of the company. They each have a complex task, in terms of the sheer quantity of data involved, but more so in terms of the complex logical operations which should be performed on that data. They interact in a way which should be mutually sympathetic. The purpose of enterprise management is to maximize the potential dened above. The means for doing so is achieved by the correct interpretation of the latter two reasons. How should these complex, logical operations be done and how should they be designed to interact sympathetically? We will take just one of these business processes to illustrate what we mean, namely production planning. This is a complex process, but we will deal with it simplistically, just to get the key points across: The business obiective it is pursuing is to capture as much of the demand as possible, while minimizing stock-holding and other costs. It must determine, for example, when to stock build for later peak seasonal demands.

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Its output is a long-term plan which shows which quantities of each product we should make in each time period against each resource. This output is the main input to the subsequent process as regards production scheduling. The activity must recognize various constraints which subsequent processes have to meet. It must recognize the capacity of the plant; it might take into account precise rates of making each product on each machine; but it might allow for changeover time by a crude percentage allowance. Constraints can be modelled at different levels of accuracy. It requires a number of data inputs. These fall into different categories. Some are xed data elements (e.g. rates of manufacture for each product/resource combination). Some are data elements imposed from another business process (e.g. in a multiplant company, demand allocation will decide which demand data this particular factory must assume in its planning process). Some data elements represent constraints (e.g. minimum batch sizes) which have to be recognized by production planning if its output is to be regarded as acceptable by the following process, as regards production scheduling. The logical engine which receives the data inputs and converts them to an output which optimizes the business objectives while recognizing constraints, we will refer to as the model of the process. Every company has, over its history, developed and is using some model of this business process. More often than not, however, the model suffers from one or more of ve deciencies: (1) It is not optimizing. The problem is so complex that just nding a feasible solution is regarded as an achievement, even when the model used by this process is fairly crude. (2) It is not pursuing the right business objectives. In all the business processes we are discussing here, it is the case that a number of conicting objectives are being pursued. The best balance can only be struck in prot terms. Most models actually used in industry today do not allow for fast enough experimentation to discover this best balance. (3) It models the constraints in an unrealistic manner. If, as a result, the solution coming out of the model is not implementable by the following business process, the latter 20

business process will make decisions as it thinks t. (4) It is slow to operate. It therefore does not react to changes in demand or production with the same imperative as the following processes have to: its results are therefore discarded. (5) It uses different data values for the data items from its neighbouring processes. This, again, causes an unrealistic, non-implementable plan to be generated. What applies to production planning applies equally to the other business processes under discussion. With the current state of technology, it is now possible to correct all the deciencies outlined above: (1) Computer searching techniques have been developed which provide better answers more quickly, so it is now possible to model the problem more comprehensively. (2) Because of the speed of running such models, it is possible to experiment with the model to nd the best balance of the objectives it is pursuing. (3) Models of the key business processes can be designed to work as one, by ensuring that constraints are modelled in a consistent manner between models. (4) Because of their speed, models can be reworked as soon as the demand or production picture changes signicantly. (5) Modern database technology can ensure that all these business processes are beating off the same data values, and allows for a plug-compatible t with those company data systems from which the data originates. The resultant benets of correcting these deciencies are: Better, faster reaction to the customer base: models can be re-run quickly whenever the demand picture changes signicantly. A more certain method of ensuring that overall company objectives are met: the higher level processes set targets for the lower level processes; and these targets are more geared to company objectives, like prot, customer service levels, long term stocking costs, etc., instead of local goals. These targets are more realistic, since the higher-level process takes more account of the constraints which the lower-level process has to meet, and both are using the same base data.

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The models used within the business processes use searching techniques to nd good solutions automatically: but it is possible to provide for easy interactions with the model in order to make sure that the solutions take account of special circumstances. To summarize, enterprise management consists of designing the appropriate models for each of the key business processes in the supply chain in such a way that their combined logic achieves Enterprise-wide goals. These models use automatic computer searching techniques to nd good answers, but ones which correctly recognize the constraints that have to be met; and, because of their speed of operation, they can be appropriately responsive to changes in the environment.

to achieve robustness. It also allows one to test out how well the separate models work together in a turbulent environment and tune them appropriately. Insight Logistics Limited is acutely aware of the problems outlined above and has conducted much research using simulation techniques for the purposes described above. This has proved invaluable in re-engineering its product. The new suite of software is split into modules which sit on a common database, employing mutually sympathetic logic and are built from components which are congurable to cater for the differences across companies. While each individual module is able to function independently, to address a particular business process, in combination they provide the integration of common logic and data to deliver successful enterprise management.

Enterprise management software

The development of computer software for managing the total enterprise, as described in this paper, is far from straightforward, for a number of reasons; but we will dwell on just three. First, the requirements of each of the key business processes are different from one company to the next. Although there is often a core of similarity, problems are never truly the same, due to differences in plant congurations and operating constraints, combined with local scheduling idiosyncrasies. Second, any method for nding solutions using an optimizing or computer searching technique requires very clear statements as to the business objectives that one is trying to pursue in each business process. However, it is not a simple matter to dene such business objectives for each of the separate business processes that have the property of achieving, in combination, the total enterprise-wide goal. Third, any system developed must consistently achieve successful results in a turbulent environment. A model of a business process is successful if it produces good results regularly, after continuous use, and not if it performs brilliantly on a single snapshot of data or when forecasts turn out to be spot on, but poorly otherwise. This desirable quality, of dealing successfully with the turbulence of everyday life, we refer to as robustness. With regard to the latter two paragraphs, dynamic computer simulation is a powerful technique which allows one to nd the best settings of parameters within models in order

Summary
The supply chain consists of a number of key business processes which are highly interdependent. Historically, computer models of these key business processes were usually developed in a piecemeal fashion, such that each is now straining against the other in the pursuit of local goals, with little cognisance of its impact on the other processes. Enterprise management is concerned with the integration of complementary logic and data across these key business processes, to improve the overall performance of the supply chain. This is achieved by models which use automatic computer searching techniques, and which are designed to work in a synergetic manner. The key benets of this approach are: response to changes in the market and the turbulence of everyday life can be performed quickly and in a co-ordinated manner; customer service is maximized, while keeping the costs of running the enterprise to a minimum; the goals of the enterprise are pursued efciently, rather than a plethora of local goals which do not add up to the corporate goal. The INORDA suite of software modules has evolved, after much practical experience in a wide variety of industries, to allow for the successful implementation of enterprise management as described in this paper.

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