Above Market Planning - Is it Always the Right Answer?

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Dave Alberts
Dave Alberts
01/27/2013

Pharma Logistics IQ

Above Market Planning has become the solution for many global pharma organizations looking to optimize the performance of the supply chain and to support growth in emerging markets.

The drive for tax benefits, supply chain efficiency, and the need to deploy skilled resources has driven varying degrees of centralization. And the resultant organizational disruption and high one-off costs have been viewed as a price worth paying. However, the level of standardization required to make this work does seem at odds with the growing complexity of what is happening in the end markets.

As consumer markets become more demanding is this approach still appropriate? Or should we be challenging ourselves to think about how to adopt a more subtle approach to centralization without sacrificing customer intimacy in the pursuit of supply chain efficiencies?

Above Market Planning is simple in concept and involves a single point of decision making either centrally, regionally or a combination of both. It has been adopted by many global organizations to meet a variety of different requirements such as:

  • Optimization of multi-national planning decisions.
  • Concentration of scarce skills.
  • Tax efficiencies.
  • Leveraging benefits from low-cost locations.
  • Using supply chain management to extend channels and the services to customers.

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Amongst these there is an overly dominant influence from tax lawyers helping to achieve tax efficiencies whilst creating degrees of over-centralization ,which may actually have inhibited cost effectiveness.

Another dominant influence has been the scarcity of good planning people, resulting in the consolidation and centralization of skills. Unfortunately for many organizations this has only provided short term benefits as all the existing talent eventually clusters into a small number of very expensive locations.

The overall advantages of Above Market Planning are considerable, especially when the approach is viewed as a way of effectively deploying the supply chain strategy with:

  1. Processes that provide end to end visibility of inventory, supply plans and risks allowing optimization of inventory and capacity aligned to the appropriate customer and channel value propositions.
  2. People with high levels of capability aligned to value streams or geographies.
  3. Tools that bridge disparate planning systems and multiple ERP instances to allow accurate planning parameters to be calculated and end to end optimization to be achieved.

An obvious first question is where do you locate your Above Market Planning hubs, and how many are needed? The answers are based on pragmatic considerations like:

  • Common market maturities.
  • Sharing of common products, factories and warehouses.
  • The level at which products are cross sourced.
  • Closeness to market versus travel costs, versus key business centers.
  • How much decentralized decision making is needed versus formal direction.
  • What are the trade-offs? Cost and disruption versus return and market requirement.

The second important question concerns what processes you should centralize. Unfortunately, there is no right answer as demonstrated by a recent study of 60 companies that have adopted varying degrees of Above Market Planning:

  • 75% for demand planning.
  • 67% for finished goods supply planning.
  • 60% for supply chain analytics.
  • 50% for statistical forecast generations.
  • 40% for materials planning.

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But some insight can be gleaned by understanding what benefits will be achieved process by process, and these benefits will range from better optimization of finished goods right through to more effective demand shaping and prioritization. All of this of course needs to be balanced by what can practically be centralised.

Unfortunately ,for many companies Above Market Planning has involved a retreat from the realities of business, and the manner in the way some have adopted the process has resulted in an abandonment of local interests. A hybrid model that centralizes the right processes and integrates these with local processes are needed. If we get this balance right then changing market conditions should not signal the demise of Above Market Planning. What is needed is an adaptation, not rejection and the challenge going forward is to blend capability development, process standardization and the scale benefits of centralization with the adaptability of local operations.

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