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Demand planning and S&OP

The head of S&OP at the industrial company added: In many instances when there is government-type financing, the customer asks for something a little different and doesn’t get the government funding. Those things can happen, and depending on the robustness of our customer contracts, we may end up with finished goods that were engineered to order that the customer will never take and will we will never invoice. 

“It depends on our practice of contract management. If you combine bad contract management with customer changes, then you may end up with obsolescence.” 

In a make-to-stock supply chain, obsolete inventory is usually the result of a decision to discontinue a product or a refusal to use alternate channels. In a project supply chain, there is likely no alternative if an order falls through after production has begun. This is yet another reason why communication along the chain to commercial actors is so critical. 

Many companies find the internal wrangling over inventory accountability to be draining and distracting. The high stakes of inventory obsolescence for project supply chains only amplifies this tension. 

The most important inventory KPI is not the actual inventory value; it is level of obsolete inventory. The telecommunications S&OP manager said: “Inventory is of course a target, but is also maybe not the main concern. Our main concern is actually the excess and obsolescence.” 

A different set of needs

In conclusion, the needs of make-to-stock and project supply chains are indeed distinct. Statistical forecasting, demand sensing and demand-driven material requirements planning are exciting innovations for the make-to-stock world, but are not suitable for project supply chains.