It’s no wonder that supply chain planning environments are often challenging and chaotic, with demands coming at us from all directions. While customers and suppliers are often the cause of our anxiety, some of the most threatening fire often comes from our own executive management. Dealing with internal leaders requires courage – indeed, the success of your organization depends on it.

Regardless of whether it’s a deliberate tactic or a reflexive response, when the c-suite instills and maintains a corporate culture that stifles open and honest communication, that leadership can sometimes be our greatest enemy. Over the years, I’ve witnessed situations in which truth and transparency are desperately lacking.  However, fearing the wrath of executive management can make an organization’s stakeholders very reluctant to  reveal bad news. To avoid a dressing-down in front of the troops, bad news is often sugar-coated, or even worse, not communicated at all. One hopes that bad news isn’t a day-to-day event, but when bad news is looming, it should be addressed head-on and in a timely manner.

The Reality Of Demand Forecasting

When it comes to forecasting demand, many factors can contribute to a rosy outlook. We develop and launch new products with the hope that they’ll do well – all the years of researching and developing products inclines us to be optimistic whether it’s warranted or not. Or Marketing is bullish about a new promotion because their budget depends on these projected revenues. But these are anticipated volumes and forecasts do have a remarkable propensity for being less than right, and you are the one who has to separate reality from fiction.

Have the courage to declare that the plan did not materialize – your business will benefit from the truth in the end

What should your organization do when projected volumes aren’t coming to fruition? The sooner you can notify the rest of the organization, the better your chances are of achieving a positive outcome or even mitigating risk.  Yes, there will be a net lower revenue, but additional resources won’t be wasted on building products to a finished goods level, only to sit in inventory. Have the courage to declare that the plan did not materialize – your business will benefit from the truth in the end – and then create and enable alternate strategies to overcome these areas of constrained demand.

New Product Introduction Gate Process

New product introductions can be several years in the making, and the life cycle of that product can be as short as one year. Depending on how much time and money has been invested in the new product, if the product launch fails, it could have an enormous impact on revenue and market share. Product engineering teams generally have a strict set of gates that a product must pass through as it moves its way closer to release.

Rather than ducking for cover, honesty now saves valuable time and money

These pre-defined checks and balances are in place to ensure that the product is ready to advance to the next step. When there are great expectations on launching a new product, no one wants to declare failure on the passage of a gate, particularly if there are many more gates ahead that will course-correct. So, what does a fearful organization do? Rather than face management, it gives the product a pass and lets it move forward. This only moves the problem up the line to the point that it can jeopardize the launch itself. Rather than ducking for cover, honesty now saves valuable time and money.

Truth In Available Line Capacity

Manufacturing lines have finite levels of capacity. We have yet to see a plant state capacity at its full theoretical level, and that makes perfect sense. But when you state capacity at a lower level – sometimes referred to as “sandbagging” – the reduced level of capacity is used by the plant for many reasons, such as variability on the line, or distrust of demand, or another creative explanation. The result is a self-inflicted, artificially constrained plan. We get it. Things happen outside of our control. However, it’s imperative to be honest with your capability up front, because it can only help the overall success of the plan, and it will actually reduce the time for error resolution.

The Supply Is On The Way…..Or Is It?

Suppliers can come in all forms and from all corners of the globe. They provide us with everything from piece parts to semi-finished to fully finished goods. Our ability to deliver a finished product to our customers is highly dependent upon the timely and reliable delivery from our suppliers. We place purchase orders on our suppliers, receive a delivery date, and expect an on-time delivery.

Honest and early communication helps to mitigate the negative impact of late supplier deliveries

But when all deliveries are not timely, what do we say when executives are breathing fire down our necks? When there’s a short window between how much advance notice you have before you need to report to management, what do you communicate before the “shoot the messenger” game starts? The answer is, don’t play the game at all. Honest and early communication helps to mitigate the negative impact of late supplier deliveries.

How Big Is Your Inventory Buffer?

Everybody says inventory is a necessary evil; necessary because we need inventory for order fulfillment, and evil because too much of it ties up cash. Typical marching orders from management include a mandate to reduce inventory levels. But as time passes and inventories rise, or inventory levels dip below minimums, what do you communicate to management? Management won’t like either scenario, but too much is probably the least favorable answer. Why? Because once product is in inventory, you can’t change it immediately. This is a case of bad news vs. worse news—while neither scenario is ideal, communicating accurate levels to the rest of the organization allows for the proper actions to be taken, albeit after the fact.  Inventory might be bad, but it is still that necessary evil which should be measured at actual levels and communicated to management.

Honesty Is Always The Best Policy

The old expression, “Don’t bring me bad news; bring me solutions,” is generally good advice. But what happens when there are no immediate solutions to address bad news? Bad news is bad for a reason – ducking for cover to avoid drawing fire only makes it worse. Honesty and transparency are always the best policy, and open and honest communication are the only ways to address, mitigate, or completely remove the negative impact of bad news. Changing an oppressive business culture into a proactive entity that fosters honest, transparent behavior, starting at the top, will serve any organization well.

Bill Mrzlak is CEO of ChainSequence.com.

When it comes to supply chain professionals, most of us like to think we know the best way of doing things. Starting off with the best of intentions, we work under an unproven premise that our little supply chain foibles are typical in organizations like ours. Ignoring some consistent fault lines, however, will eventually expose costly cracks in the supply chain process, leading to lost sales, a decline in morale and the loss of talented personnel.

By normalizing day-to-day chaos, we may be avoiding a hard truth—some of our entrenched behaviors are, in fact, sabotaging our everyday and long-term goals. Consider these bad behaviors so that they can be squashed before they integrate themselves into your business processes.

1. Allowing Customer Service to Pass Judgment on Available-To-Promise (ATP) Data

Our ability to commit to customer orders begins with our statement of product availability through our ATP. This ATP is based on the culmination of many demand planning processes. The longer-term demand forecast drives the planned procurement of materials and production of finished goods. These plans reflect the prioritization of that demand, which is based on the corporate objectives and financial goals of that organization.

These plans also reflect the supply chain’s capability and constraints – lead times, cycle times, manufacturing planning parameters, and level-loaded capacity consumption over time, just to name a few. At any given point in time, this plan—which serves as the foundation for the ATP—is truly the best product availability signal. When customer service arbitrarily second-guesses or doubts ATP—overriding a commit date to the customer—the only logical result is a potential false commit to that customer. Do this enough times, and you will lose customers.

2. Allowing Executive Management To Circumvent The Process

Controlling the actions of our executive management is not our responsibility. It’s their prerogative to take action, and as an organization, we’re generally compelled to comply. But, for example, how many times have we seen an executive return from a customer review meeting which resulted in a one-off, special action on that customer’s orders? This kind of decision—which overrides all the careful planning preceding it—has a very good possibility of creating a disruptive ripple effect on the balance of the business. We can’t control that executive’s action, but we can provide them with the necessary data to make an informed decision. Understanding the full impact of their request may not change their decision but may get them to think before requesting the next one.

3. Hiding Available Inventory Or Capacity

Transparency in a supply chain is critical. Why? Because transparency is what enables very quick response times to the demands of a dynamic market. A sudden upside request from a customer can only be supported by inventory on-hand or projected inventory from future production. In a constrained environment where product is limited, an exception process may be invoked as an attempt to close on the upside opportunity. When inventory is hidden, sometimes asking a second time, or asking louder, can cause a sudden appearance of product availability. All this achieves is unnecessary internal chaos, which elongates the time to respond and creates additional frustration with the customer. While lack of inventory visibility may be a symptom of system capability, if it’s due to forecast mistrust, manufacturing capability doubts, or just plain sandbagging, this kind of sabotage can and should be avoided.

Not sharing how much inventory is actually available is just one example of normalizing bad supply chain practices, and inviting chaos in the process.

4. Allocating A High Percentage Of Supply Capability

In a perfect world, the supply chain is driven by a statement of demand that, through the S&OP process, has consensus from all organizations. If we thought that forecasted demand was 100% accurate, reserving or allocating your supply capability—including inventory—to support that demand would not be a problem. We may turn away a customer order because those resources are being held for another customer. However, it’s accurate to say that forecasts are less than perfect. If these reserved resources are not used for their intended purpose (i.e. the forecast was off), we could find ourselves with no orders. Reserving our supply capability to perfectly align with the forecasted demand can result in self-inflicted, lost opportunities. There are certainly business reasons to support reserving supply capability, such as contractual agreements with our customers or internal strategies, for example. But these reasons must be balanced with the total demand to provide flexibility that can react to a volatile, less-than-correct, forecasted demand.

5. Allowing Conflicting Metrics Across Organizations

One thing I know all too well from running Chain Sequence is that internal organizations within a large enterprise often act as semi-autonomous fiefdoms. We all want our own fiefdom within the larger enterprise to succeed. Toward this end, we design our metrics to ensure that, on paper, our organization is performing successfully. By neglecting to consider how our internal group integrates with the bigger picture, our success may be at the expense of other business units, or even at the expense of the entire enterprise.  For example, if our Sales organization is measured on orders received, regardless of product availability, that’s great for Sales. But if there is no product available to fulfill those orders, as an enterprise, we have failed.  Metrics should be designed to work in concert across all organizations to ensure success for the greater good of the entire organization.

Break Out, And Stay Out, Of Bad Supply Chain Habits

Whether your organization has just completed a significant process improvement effort, or you’re about to embark on one, keep in mind that business processes across various organizations within a company are ultimately executed by people. Technology can support a process and enable speed and accuracy, but that technology needs direction from each of these organizations.  It’s human nature to doubt the ability of these systems to make the right decisions, so results are often second-guessed.  Don’t let these kinds of bad habits creep back in to cripple your planning processes—by being mindful of the harm these behaviors can do, all internal organizations can more collaboratively create opportunities for positive business gains.