Implementing a PFEP allows manufacturers to utilize their data to continuously optimize their supply chain.
By Jason Alexander and Bart Huthwaite
Manufacturers across the board have had no shortage of lessons over the last year when it comes to building more resilient supply chains: the importance of planning to adapt to changes in supply and demand, the crucial role sourcing can play in minimizing risk, and the extent to which advanced technologies can allow for greater supply chain visibility and agility are just a few such areas. But leadership teams that want to further reinforce the stability of their manufacturing supply chains should consider creating what’s known as a “plan for every part,” or PFEP, an approach that develops in-depth policies for each of the relevant processes a part goes through in the journey from raw materials to finished goods. Such plans should identify the safety stock levels for inventory segments, manufacturing order quantities, raw materials inventory levels, storage locations and reorder points.
The level of detail involved in creating such a plan may seem daunting, especially for companies that offer a wide range of products. But most manufacturers already have the data available to help them map out these plans; it’s just a matter of parsing that data in a targeted way.
The supply chain disruptions of the past year or so have made clear that decades of globalization and the resulting dispersal of supply chain components around the world have resulted in complex systems that cannot be quickly transformed. Developing a plan for every part, however, is a core way that companies can brace for change, both expected and unexpected. Such plans may also prove especially valuable right now as the U.S. economic recovery is set to accelerate.
How to map out a plan for every part
While the idea of having a plan for every part is not new, there are still plenty of manufacturers who have not incorporated such planning into their operations. Gathering detailed information about every part in a given supply chain is a good place to start; this information about similarities and differences between each part, the value of each part as well as demand variability on a part-by-part level can help companies develop strategies to more efficiently meet market needs even amid unforeseen shifts.
Data and the use of advanced technologies to analyze that data must be at the center of these planning efforts. Enterprise resource planning and supply chain planning systems can account for a range of parameters that vary by part, but companies need to intentionally take advantage of this capability in order to reap the benefits. Too often we see clients who have implemented technology, but haven’t optimized all of the relevant parameters to capture the full potential value.
Developing a plan for every part should begin with as accurate of a demand signal as possible. PFEP is ultimately about aligning supply with demand in the most efficient way possible. Finished goods inventories should be analyzed and segmented based on value and demand variability. Most companies typically focus on segmenting finished goods into three categories: runners (used all the time), repeaters (used regularly) and strangers (used infrequently). High-level segments are a great place to start, but some companies take PFEP to a more detailed level.
With a clear view of the safety stock required to meet customer service levels for each part, practitioners then set out to analyze and optimize the parameters for each step in the value chain that they can control.
Key considerations and benefits
Manufacturers that decide to embark on developing a plan for every part need to view it as a holistic and continuous improvement effort. It’s important that PFEP not be looked at as a onetime effort. Demand changes, and so too should the plan used to meet that demand. Completing inventory segmentation alone can help to significantly reduce carrying costs and improve customer service levels, but implementing a PFEP can help to reduce the cost of goods sold, ultimately improving profitability.
Here are some questions leadership teams might want to ask themselves before they sit down to develop a part-by-part strategy:
- Do we have an accurate demand signal?
- Have we optimized all of the relevant parameters in our ERP and supply chain planning solutions?
- Are there opportunities to rationalize SKUs?
- Do we have the talent necessary to do the analysis required to develop a PFEP?
As manufacturers reposition their supply chain strategies for the future following the disruptions of the pandemic, sustainable sourcing practices will likely become a bigger consideration as well. Stakeholder interest in sustainability was already on the rise before 2020, and it is now even clearer that companies cannot base their sourcing decisions solely on “the lowest cost.” Suppliers will need to keep environmental, social and governance practices top of mind as they are creating their PFEP strategy.
Supply chain agility should no longer be considered a competitive advantage; rather, it is foundational to be relevant in today’s environment. Ultimately, manufacturers should understand and leverage the wealth of data they have and work to optimize the processes and systems required to efficiently align supply with demand.
Bart Huthwaite is a principal with RSM US LLP. Jason Alexander is RSM’s national manufacturing sector leader. To learn more about RSM’s Industrials practice, visit rsmus.com.