Above Market Planning - Is it Always the Right Answer?
Above Market Planning has become the solution for many global pharma organisations looking to optimise 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 resource has driven varying degrees of centralisation. And the resultant organisational disruption and high one off costs have been viewed as a price worth paying. However, the level of standardisation required to make this work does seem at odds with the growing complexity of what’s 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 centralisation 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 organisations to meet a variety of different requirements such as:
- Optimisation 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
Amongst these there is an overly dominant influence from tax lawyers helping to achieve tax efficiencies whilst creating degrees of over-centralisation which may actually have inhibited cost effectiveness.
Another dominant influence has been the scarcity of good planning people, resulting in the consolidation and centralisation of skills. Unfortunately for many organisations 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:
- Processes that provide end to end visibility of inventory, supply plans and risks allowing optimisation of inventory and capacity aligned to the appropriate customer and channel value propositions
- People with high levels of capability aligned to value streams or geographies
- Tools that bridge disparate planning systems and multiple ERP instances to allow accurate planning parameters to be calculated and end to end optimisation 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 centres
- How much decentralised 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 centralise. Unfortunately there is no right answer as demonstrated by a recent study of 60 companies who 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
But some insight can be gleaned by understanding what benefits will be achieved process by process, and these benefits will range from better optimisation of finished goods right through to more effective demand shaping and prioritisation. 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 centralises 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 adaptation, not rejection and the challenge going forward is to blend capability development, process standardisation and the scale benefits of centralisation with the adaptability of local operations.
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