Of all existing planning models, the most widespread in supply chains is the deterministic approach. However, the model has its limitations and can be potentially misleading. Gartner analyst Tim Payn believes it’s time to move to resilient planning.
What is the deterministic model?
The Deterministic Model predicts events without taking random variation into account. This means that you use all the data in your possession to predict the outcome with certainty. These data are often not up to date and do not mirror the realities of the actual supply chain.
Here is a simple representation of the deterministic approach.
What is wrong with this approach?
Supply Chain Planning has been driven by the deterministic model since the birth of Material Requirements Planning (MRP).
MRP is a widely used deterministic model to decide where to place inventory and when to replenish it. Not only is it demand-focused but also obsessed with accuracy. When establishing safety stocks, the software perpetually strives to set stocks to perfectly meet demand. The volatility of supply and demand is not mitigated but propagated along the chain, because of the fixed nature of these safety stocks. In other words: this model is outdated.
What is next?
MRP was invented more than half a century ago! Back then, the world was not as VUCA, and this accuracy-based planning model’s arch-enemy is uncertain. On the other hand, a resilient model aims to handle uncertainty in the inputs applied.
Here is a simple representation of a resilient approach.
Planning leaders need to become more agile and combine this with emerging technologies to ensure availability and meet real-time market expectations.
If they do not, these innovations will simply be applied to an outdated way of planning, and any benefits would be noticeably reduced compared to a company committed to resilient planning.
In this unpredictable world, supply chain planners need to manage uncertainty through the way their supply chain plans are created and updated. This will be an interesting topic for the next article in this series.
In the meantime, moving from a deterministic to a resilient approach will require challenging the current way of planning. According to Gartner’s paper ‘’Mastering uncertainty: The rise of Resilient Supply Chain planning‘’, the use of technologies will be key in order to achieve this.
Flowlity has developed a program that can help you produce more stable plans. Companies who have trusted us can testify to an average inventory reduction of 30% and a 20% reduction in shortages.
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