{"id":6464,"date":"2023-10-31T04:00:35","date_gmt":"2023-10-31T04:00:35","guid":{"rendered":"https:\/\/apldevnew.wpenginepowered.com\/?p=6464"},"modified":"2023-10-31T22:54:39","modified_gmt":"2023-10-31T22:54:39","slug":"christmas-trees-dont-sell-well-on-the-26th-of-december","status":"publish","type":"post","link":"https:\/\/www.apllogistics.com\/2023\/10\/christmas-trees-dont-sell-well-on-the-26th-of-december","title":{"rendered":"Christmas Trees Don\u2019t Sell Well on the 26th of December"},"content":{"rendered":"

Are\u00a0your purchase orders planned for success \u2013 or doomed to fail? Despite evolving demand-sensing practices and technologies, many companies struggle to effectively link demand<\/em> and<\/em> supply, and the flow of products. In this article, we will explore the dynamics of purchase order planning and discuss how to achieve more successful planning \u2013\u00a0before you execute<\/strong><\/em>.<\/span><\/p>\n

AS THE HOLIDAY SEASON DRAWS NEAR, SANTA\u2019S CONCERNS GROW AS HE THINKS ABOUT DELIVERING ALL THE RIGHT CHRISTMAS PRESENTS TO CHILDREN \u2013 ON TIME AND IN FULL.<\/strong><\/p>\n

The demand has changed \u2013 yet again.<\/strong>\u00a0Kids\u2019 wish lists used to be more\u00a0predictable\u00a0back in the days when their main source of inspiration was the ads in catalogs featuring toys sold in stores. But social media, multiple sales channels online \/ offline, stores, ecommerce, real-time, you name it, have made kids\u2019\u00a0expectations\u00a0a lot more complex to meet.\u00a0Not to mention the locations where the stuff is\u00a0made, most of which are on the other side of the planet, typically involving\u00a0100s of suppliers across many physical locations.<\/p>\n

So, for Santa to\u00a0meet her KPIs\u00a0and\u00a0successfully satisfy the expectations of kids around the world\u00a0requires a lot of\u00a0complex\u00a0planning<\/strong>, REALLY tight alignment between MANY parties, multiple departments within a company, and a magnitude of external parties, including but not limited to the distribution network.<\/p>\n

As we all know, that is a lot easier said than done. Insufficient alignment,\u00a0broken links in the planning process,\u00a0and the interaction between multiple departments in a company, coupled with human behavior that, more often than not, is not resolved through AI and Machine Learning, etc., are realities that continue to cause implications in many companies\u2019 supply chains \u2013 impacting their revenues, profitability, and their ability to satisfy their customers.<\/p>\n

THIS ARTICLE IS NOT ABOUT CHRISTMAS TREES OR CONCERNS THAT KEEP SANTA UP AT NIGHT BUT OUR PERSPECTIVES ON COMPANIES\u2019 CONTINUOUS CHALLENGES IN GETTING THE RIGHT PRODUCT TO THE RIGHT PLACE\u00a0AT THE BEST COST AND LOWEST POSSIBLE CARBON EMISSIONS.<\/strong><\/p>\n

Very often, we observe difficulties within companies to produce a demand signal in the purchase order that enables companies to connect demand and supply and flow of products from the source to the point of consumption in an efficient way. On top of that, many individual human decisions, based on perception or gut feeling, further complicate the planning and execution \u2013 and increase costs.<\/p>\n

At APL Logistics, we increasingly engage in the\u00a0order planning aspect\u00a0of the process, as we know this is where\u00a0many\u00a0supply chain inefficiencies can be\u00a0resolved. We typically receive purchase orders from customers 3-4 months before the products ship from production origins, i.e.,\u00a0at a point where planning adjustments ARE possible and CAN significantly improve\u00a0the basis on which we execute the physical move of products at a later stage.<\/p>\n

By experience, roughly 10% of the\u00a0purchase orders<\/strong>\u00a0we receive from customers are already\u00a0doomed to fail<\/strong>\u00a0when we receive those purchase orders, which is typically at the point of time where the purchase order is issued by the customer.\u00a0Doomed to fail\u00a0<\/strong>\u2013 means that POs are\u00a0planned\u00a0to arrive<\/strong> at the destination hub either\u00a0too early, too late<\/strong>, or\u00a0planned inefficiently<\/strong>\u00a0from a supply chain cost and carbon emission standpoint.<\/p>\n

Let\u2019s look at the financial implications of such planning:<\/strong><\/p>\n

First, let\u2019s look at\u00a0products<\/strong>\u00a0planned<\/strong>\u00a0so that they will\u00a0arrive<\/strong>\u00a0at the destination\u00a0later<\/strong>\u00a0than needed. Historically, the aggregated sales value of the purchase orders\u00a0planned\u00a0to arrive\u00a0late\u00a0is an estimated $20 billion USD<\/strong>. In the best case scenario, these purchase order planning inaccuracies are resolved during the shipment process, e.g., by speeding up the transit time through air freight or other expedited shipping modes, causing higher cost and higher CO\u00b2 emissions.<\/p>\n

In the worst case<\/strong>, these products are shipped as per the customer\u2019s initial planning, will arrive late, and may miss the sales window and force the company to mark down the sales price, thus significantly impacting the product\u2019s gross margin.<\/p>\n

At the same time,\u00a0we see many purchase orders planned for arrival<\/strong>\u00a0weeks or months\u00a0before <\/strong>those products are required at the destination. On average, purchase orders with an estimated purchase value of $5 billion<\/strong>\u00a0are planned in a way whereby they will arrive at the destination a minimum of 1 month earlier than needed. Aside from the\u00a0negative<\/strong>\u00a0impact<\/strong> this has on the cost of inventory<\/strong>, this quantity of goods requires a warehouse storage capacity of more than 2 million square feet, which is not cheap \u2013 especially in a market environment where storage capacity in many places is scarce.<\/p>\n

NOW, NONE OF THIS IS A NEW REALITY.<\/strong><\/p>\n

For many years, our customers have been asking questions such as\u00a0\u201cThere is a delay in my production, so if I were to move my entire fall collection of down jackets by air freight from my production points in Northern China to my global destination markets, would they\u00a0arrive on time<\/strong>, and how expensive would that be\u201d?<\/em>\u00a0Depending on the complexity of the scenarios, we would then spend a couple of days crunching data in spreadsheets to produce a rough outcome loaded with assumptions.<\/p>\n

Then,\u00a0some<\/strong>\u00a0customers\u00a0would change their plan<\/strong>\u00a0\u2013 but without changing their\u00a0way of planning<\/strong>. Hence, the next season, we would see the same flaws in the planning. This is also linked to the fact that\u00a0many\u00a0companies\u00a0(across multiple industries) have supply chains that remain largely\u00a0push-driven<\/strong>. Products are manufactured and\u00a0pushed out\u00a0by suppliers, with little consideration of when those products are required at the point of consumption.<\/p>\n

More recently, our customers have been increasingly saying that if they could\u00a0visualize and simulate<\/strong>\u00a0the planning of\u00a0product flows<\/strong>\u00a0at an\u00a0early\u00a0stage<\/strong> of the order lifecycle, they could\u00a0resolve<\/strong>\u00a0many of their supply chain\u00a0inefficiencies, improve the control over product flows<\/strong>, and most importantly\u00a0fulfill<\/strong>\u00a0more successfully the <\/strong>commitments<\/strong> they made to their own <\/strong>customer<\/strong>s<\/strong>.<\/p>\n

We met with one of the largest,\u00a0<\/strong>most iconic\u00a0global brands\u00a0last week in Asia. They had recently made a brand deal with a major celebrity. Given the significance of that deal, all buyers and merchandisers had planned\u00a0all products from all\u00a0production locations to move by air freight to the global destination locations,\u00a0even\u00a0for products that are only scheduled for launch in February next year. The customer said, \u201cI wish I could show the\u00a0financial impact<\/strong>\u00a0this planning has at the\u00a0company level<\/strong>\u00a0and show how a more\u00a0meaningful, efficient<\/strong>\u00a0plan would look like.<\/em>\u201d<\/p>\n

To achieve this, as part of PANOM,\u00a0our\u00a0Order Management Solutions, APL Logistics developed\u00a0OrderPilot<\/strong>. The idea behind OrderPilot is to establish a\u00a0virtual environment, a digital twin,<\/strong>\u00a0in which companies can\u00a0validate purchase order planning<\/strong>\u00a0at an\u00a0early<\/strong>\u00a0point in the process\u00a0before<\/strong>\u00a0they execute the physical flow of goods \u2013 quantify the\u00a0financial impact<\/strong>\u00a0of that planning \u2013 and\u00a0simulate alternative plans<\/strong>\u00a0that could enable them to better predict and control the success rate of purchase orders.<\/p>\n

Through\u00a0OrderPilot<\/strong>, we strive to enable our customers to foster a more fact-based dialogue internally with other departments, i.e., S&OP, buying, merchandising, inventory management, and inbound logistics. A dialogue centered around the\u00a0on-time availability of products<\/strong>, with a focus on\u00a0improving<\/strong>\u00a0gross margin and\u00a0reducing emissions\u00a0<\/strong>to drive\u00a0improvement\u00a0<\/strong>in\u00a0their tactical and strategic\/long-term\u00a0purchase order planning<\/strong>\u00a0to better link demand and supply and make smarter financial decisions on how to move their products \u2013 and\u00a0drive supply chain resilience<\/strong>. Therefore, enabling customers to get the\u00a0right product to the right place at the right time, at the best cost, and with the best sustainability metrics.<\/strong>\u00a0But importantly, recognizing that order\u00a0plans<\/strong>\u00a0change throughout the order lifecycle.<\/p>\n

AS MIKE TYSON PUT IT \u2013 \u201cEVERYONE HAS A PLAN UNTIL THEY GET PUNCHED IN THE MOUTH.\u201d<\/strong><\/p>\n

We all get\u00a0punched in the mouth<\/em>\u00a0more often than we realize.<\/strong>\u00a0The Evergiven incident in the Suez a couple of years ago forced hundreds of ships to a standstill, the volcano eruption in Iceland in 2010 that caused 100,000 flight cancellations over more than one week, geo-political tensions, and natural disasters.\u00a0Many perfect plans are\u00a0brutally<\/em>\u00a0disrupted \u2013 prompting the need to re-plan.\u00a0<\/strong>We need to be able to adapt and adjust through flexibility in other stages of the shipment execution, using data points, people with operational expertise and operating nodes to speed\u00a0up or slow down product flows in accordance with changing needs. Or, as we put it, always\u00a0expect the unexpected<\/em><\/strong>.<\/p>\n

SO THAT EVENTUALLY, SANTA IS ABLE TO FULFILL THE WISHES OF KIDS ALL OVER THE WORLD.<\/strong><\/p>\n

In closing \u2013 if we were to make a recommendation for successful purchase order planning, it would entail the following key priorities:<\/strong><\/p>\n