Building Supply Chain Resilience Through a Boundaryless S&OP and S&OE Process
This blog was co-authored by Salim Shaikh and Chainalytics’ Jeff Baker.
In today’s VUCA (Volatile, Uncertain, Complex and Ambiguous) environment, unexpected market demand and supply disruption can occur at any time. How do you recover from a crisis – and are you prepared for the next one? Functionally siloed supply chains can lead to increased latency, delayed responsiveness, unplanned expediting, and excess inventory. These dramatic inefficiencies are more exacerbated today by rising customer expectations.
Organizations that will emerge the strongest will be the ones that can see the current emergency as an opportunity to overhaul their supply chains to enable resiliency, agility and responsiveness through a boundaryless, integrated sales and operations planning (S&OP) and sales and operations execution (S&OE) process.
The relationship between S&OE and S&OP
To optimize the financial, customer service and sustainability goals, companies need a strategic S&OP process that focusses on mid- to long-term alignment of functional plans. This includes market trends, the profit-and-loss statement, the balance sheet, competition, demand realization, and capacity expansion scenarios, working seamlessly alongside a short-term, tactically-focused S&OE process that carries out the plan and focusses on the near-term issues such as materials shortages, capacity issues, anticipated staff overtime, transportation availability, and the associated financial impact. S&OE is a process connected to, but separate from, S&OP. To deliver the maximum business value, you need both.
A lot of customers don’t get value from their S&OP process because they have a very short-term focus and get into the day-to-day details in their S&OP meetings but don’t have time for cross-functional, strategic business decision making, business goals and objectives. They are doing S&OE but calling it S&OP. One of the hallmarks of a mature S&OP process is that it doesn’t get bogged down in short-term operational issues. Instead, it maintains a strategic focus at a product group level. As Dwight D. Eisenhower once said, “Plans are nothing, but planning is everything.”
But what happens to those plans in the near term? As boxer Mike Tyson famously quipped, “Everyone has a plan until they get punched in the face.” So how do we keep from getting knocked down – or knocked out – by competitors and other forces? Enter S&OE. Functional plans then need to flow seamlessly into a short-term, tactically-focused S&OE process. S&OE carries out the plan and focuses on the near-term issues that can jeopardize it, such as materials shortages, capacity problems, anticipated staff overtime, transportation availability, and the associated financial impact.
The value of S&OE
S&OP and S&OE are two different processes, have different purposes, degrees of freedom, and planning horizons, but should leverage the same shared technology platform so that there is no distortion between the long-term S&OP decisions and short-term tactical planning S&OE. S&OP sets the targets and provides the guardrails, whereas S&OE makes sure you are executing per the plan, including taking corrective measures to get back in short term. S&OE’s primary role in executing S&OP plans is mitigating risks and capturing opportunities. In order to do this, a weekly or bi-weekly S&OE process relies on monitoring activities in progress and modeling upcoming actions.
Monitoring seeks to combine data management capabilities with real-time analytics to enable an organization to rapidly identify actionable deviations from its S&OP plans. Choosing the correct measures to monitor is critical. Standard data points could be consumption numbers (e.g., syndicated or point-of-sale), forecast error, production adherence, and schedule adherence. These key measures, along with established tolerances, form the basis of an early warning system. The warnings provide additional time for the organization to evaluate its responses to risks or opportunities
A challenge in many organizations is that a risk or an opportunity usually appears as a functional issue. And unfortunately, they are also generally handled within the corresponding functional silo — often to the company’s financial detriment. It is at this point where the second critical element, modeling, comes into play.
Modeling leverages predictive and prescriptive analytics techniques to determine the correct response to a specific risk or opportunity. These techniques tend to take a broader cross-functional view, thereby enabling the most relevant response based on financial, customer service and sustainability impact standpoint that aligns with an organization’s goals.
For example, last-minute sales orders are usually accepted and even celebrated as a great event, “we’ve increased revenue!” While this does help on the revenue side, the benefits are often offset by the required behind-the-scenes efforts to re-shuffle manufacturing orders and expedite shipments. If modeled correctly, the proper cross-functional response may very well be to reject that order due to excessive cost.
Moreover, machine learning- (ML) and artificial intelligence- (AI) driven predictive and prescriptive analytics can help by automating decisions. There are predictive technologies available today designed to synthesize vast amounts of current and historical data to facilitate forecasting and event-driven scenario planning. Using AI and automation, supply chain planners can simulate scenarios and prescribe rather than just predict with the requisite speed and accuracy needed to navigate these turbulent times. Once the implications from cash flow, profit and loss, and balance sheet impacts are understood, the organization can assess the costs and benefits associated with proactively adding capabilities to increase supply chain resilience.
Enabling Supply Chain Resiliency
Like S&OP, your S&OE process develops through levels of maturity. Each level contributes to increasing organizational flexibility and the capability to weather near-term capacity or demand shocks and other adverse conditions, endowing your organization with increased resilience. Building visibility, balancing demand and supply, continuously flagging deviations and exemptions, and frequent simulation and optimization enhance resilience across the entire near- to long-term time horizon. Adding S&OE enables S&OP to concentrate on strategic optimization, while S&OE can protect the company from the impacts of short-term variability.
As the speed, frequency, magnitude and intensity of disruptions continues to increase, organizations emerging the strongest will be the ones that can that see the current emergency as an opportunity and adopt a seamless, boundaryless S&OP and S&OE process through an integrated technology platform. Such organizations will enable supply chain resiliency. They will stay ahead of the competition by being prepared earlier, dip less in the event of a disruption, be agile and responsive, and move faster to come out ahead of the curve. Although the future is uncertain and tomorrow’s disruption is already brewing, chance favors the prepared.
- In a recent webinar, Florian Huettl, Sales Forecast and Distribution VP, Groupe Renault, highlighted how Renault partnered with Blue Yonder to move from a sequential, static, siloed process to an integrated, collaborative, financial-driven process, looking at trade-offs, risks and what-if scenarios. Watch the webinar here.