One planning solution does not fit all

As a result of the fact that product groups have different characteristics and thus different planning requirements, differentiated planning can provide you with a simpler, more agile and stable planning process.

Forecast error, particularly bias at the material level, is often significant for many materials, and material planning based on forecasts with significant error and bias gives an unsynchronised demand and supply plan. One planning solution is not optimal for materials with different forecast errors and volumes, and too much planning and replanning creates a lot of unnecessary noise for material planning without creating value. The higher the production capacity utilisation is, the more variance is created in the supply chain, since more orders are rescheduled, and too much replanning on bottlenecks creates lead time variance throughout the entire supply chain. This creates a situation where planners use all their time on ”firefighting” and thus are unable to focus on the root causes of problems and improving the planning.

Your material portfolio has different demand patterns. The demand of a product can be characterised as stable, some are sporadic or seasonal, and others are unpredictable. These different demand patterns require different time horizons and levels of effort in relation to planning, but are often all planned in the same way. Thus, there is no clear prioritisation of which materials that are seen as most important. If any prioritisation exists, it is most likely only in the heads of the most experienced planners and not reflected in the supporting IT tool or planning process. Missing priorities make it difficult for planners to focus and to plan their product portfolio efficiently; ergo, by using product segmentation, you can greatly improve focus and prioritisation for planning tasks.

Use segmentation to improve your planning process

In order to get the best possible planning, it is key to group materials into manageable groups. Segmentation is a well-known methodology used to define groups of entities with the same characteristics. When defining a planning concept, it is important to group items into groups that can be planned according to their characteristics.

When doing segmentation for planning purposes, the most important characteristic is the predictability/stability of the demand for the material, since it is easier to plan a material according to how predictable/stable the demand of the material is.

The second characteristic to use for the segmentation should be volume/impact. The impact characteristics can differ depending on the industry, but the number of sales order lines, capacity consumption on bottleneck or lead time are typical examples. After having grouped products together, a planning concept can be defined for each group, and the output from the segmentation model should be a set of planning segments and a planning principle to use for each segment.

The products that are characterised by a high predictability can preferably be planned with plan-based planning principles such as cycle planning with focus on stabilising the plan, reducing lot sizes and monitoring stock limits. Products in the segment characterised by medium predictability could preferably use a consumption-based planning principle, for example, reorder point planning. Tenders and new products are typically included in the segment characterised by low predictability and significant volume, and such products should use a make-to-order or manual planning with focus on getting sales input to improve the forecast. Lumpy products can be included in the segment for low predictability and volume and can preferably be planned by a make-to-order or consumption-based planning principle.

By using a segmentation model, planning is made simpler, more agile and stable, since the distinctive characteristics of product groups are considered when determining the planning principles.