Thank you for joining today’s IndeavorTalk. I’d like to outline the differences between supply chain demand planning and labor demand planning, discuss their importance, and provide examples of their impact.
What is supply chain demand planning? Future workload requirements, material needs, and goods and services that are driven by customer sales. Are supply chain demands static? Of course not. Economic factors, consumer preferences, seasonality, and pricing strategies will cause these requirements to fluctuate. Supply chain demands as they relate to business operations are typically delivered as an output to your ERP system and kick off the production planning process.
Let’s talk about labor demand planning. Those future workload requirements are turned into a production plan. The production plan then generates a human resource need that must meet labor requirement standards based on your outline production process. Predetermined labor standards are developed to be efficient, safe, and profitable, and should be seen as the baseline staffing levels that meet your specified demand. Labor demand will fluctuate with supply chain demands, and unless managed, can result in millions of dollars of uncontrolled variable cost.
Are both types of demands important? Is it necessary for an organization to understand their correlation? The answer to both is yes. Supply chain and labor demand planning are complementary processes that create an operating environment where the focus is cost efficiency, efficient allocation of labor resources, improved operating efficiencies, adaptability to market changes, and aligned strategic focus.
So let’s talk cost efficiency, accurate sales demand forecast, go into material flows, which then create a product demand, which then creates labor resources required. Established and proven production models will reduce downtime, minimize unexpected expenses, and avoid premium labor costs like overtime, additional temp labor, and chargebacks from late deliveries of customers. Efficient allocation of labor resources matches optimal staffing levels to sales demand spikes. Forced layoffs, unfunded labor costs, and employee retention issues are all direct impacts of poor allocation of these labor resources.
By leveraging labor standards, part of our labor demand planning, your demand signal will consistently drive up labor needs, thus providing insight into future gaps that can be mitigated through this visibility, improved operating efficiencies, cost, cost drive, competitiveness, and the market. Better supply chain demand planning and labor demand planning alignment improve operating effectiveness, thus driving reduced lead times, variable costs, controls, and increased throughput.
Adaptability to market changes. Markets will always change the ability for you to adjust depends on your inside of these changes and having a robust planning process failure to adjust and will drive disruption. Increase stockout pressures, impact labor costs, or strained labor resources. Strained labor resources equal high turnover, high overtime, and absenteeism.
Align strategic focus. Alignment to business objectives is key to any performance management system. If labor metrics are not measured, the impact on variable costs can be devastating. Uncontrolled labor, impact, and absenteeism. Uncontrolled labor will impact retention, health and safety, and overtime. So why is it critical that you focus on both?
The natural shift in the labor market has left the industry struggling to find labor resources. A lack of insight can lead to an imbalance between supply chain demand planning and labor demand planning, resulting in labor shortages. Labor shortages will drive up labor costs, as previously mentioned, in overtime, absenteeism from frustrated workers, or safety incidents from exhausted workers, and impact employee retention. If your labor resources are strained, especially if it’s tied to your inability to react to supply chain demand planning, imagine how much value you could realize. If you had the insight to forecast this ahead of time.
By having supply chain demand and labor demand and synergy organizations can redesign their whole business strategy with better insight. It equals better forecasting, which leads to better execution plans, improved performance, and profitability that drives your competitiveness in the market. Eliminating or minimizing the unknown or unpredictable promotes the flexibility an organization needs to succeed in today’s competitive market.
