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The myth of a ‘single number’ in Supply Chain planning.
Many businesses work on the concept of a ‘single number’ as a target for various functions. This ‘single number’ is agreed through consensus in the IBP process. Let’s dive deeper into its implications.
The ‘single number’ concept leads to a fixed plan for the month, with inventory buffers built at various levels for demand and supply variability. These buffers are expected to work as shock absorbers and ensure that actual consumer demand is met by the system.
How do such systems perform compared to the more dynamic and resilient planning systems? Our observation indicates that the ‘single number’ companies underperform their ‘dynamic planning’ peers by about 5% in terms of customer fill rates. The reason is simple.
Consumer demand patterns change continuously. We have two options. The first option is to ignore these shifts during the month and hope that inventory buffers are sufficient to take care of these variations. The other option is to acknowledge the demand shifts and adjust our plans for a dynamic synchronisation between demand and supplies.
The two options give quite similar results in a stable demand environment, if the buffers are sized properly. However, in case of disruptions, ‘dynamic planning’ teams outperform their ‘single number’ peers through more agile adjustments.
Of course, ‘dynamic planning’ needs stronger supply chain capabilities of demand sensing, flexibility and responsiveness.