Originally published in Supply Chain Dive
Trends in personalization and fast shipping will require planning that goes beyond supply and demand. Maine Pointe's Brad Stitt, EVP Supply Chain Management, notes, “S&OP must not only go East to West but top to bottom,” indicating that businesses need to think outside of the traditional realm of supply chain planning.
It’s 2020, and the pressure is rising to move products through more channels in less time. The challenge requires more careful planning.
Sales and operations planning (S&OP) has been talked about since the 1980s, but now many organizations are taking a closer look and trying to refine their planning to enable greater responsiveness and efficiency in their supply chains. A survey by APQC found three-fourths of companies expect to increase their investments in S&OP.
S&OP goes beyond traditional supply and demand management to integrate marketing, sales, product demand management and inventory management into one view. That requires having clear visibility and communication not just in production and the supply chain but across the entire organization from sales and marketing to finance.
The most successful companies are even moving away from the term S&OP, instead using “integrated business planning,” with active participation from the financial side and demand side of the business.
Many organizations lack the basic S&OP principles and could fail to keep pace in 2020. Regardless of how well an organization balances its demand and supply, it can always find room for improvement by integrating finance and other areas of the business, said Brad Stitt, executive vice president of supply chain management at Maine Pointe. "It doesn’t really reconcile the financial plans to the supply chains. S&OP must not only go East to West but top to bottom," Stitt told Supply Chain Dive.
Half of S&OP professionals surveyed by Oliver Wright said financial controls, including inventory valuation and disclosure, are not adequately considered in their S&OP program. And only 28% said financial controls introduced in their S&OP process "completely align" with their company’s financial objective.
Businesses need to think of these processes outside the bounds of supply chain planning, Mark Moon, head of the Department of Marketing at the Haslam College of Business at the University of Tennessee, told Supply Chain Dive.
"If it’s just perceived as supply chain planning, it gets very tactical and you really lose the opportunity to have a strategic view of both demand and supply," Moon said.
Forecasting down to the SKU
Several trends will influence S&OP throughout 2020 and in the coming years, Michael Burnette, associate director of the Global Supply Chain Institute at the Haslam College of Business at the University of Tennessee, told Supply Chain Dive.
First, consumers are demanding more personalized variations of items, which increases SKU counts. In addition, the "Amazonification" of retail where two-day shipping or less has become the norm has transferred the power from the supply chain directly to consumers. Finally, while the digitization of plants, the supply chain and customer information presents new opportunities, it also increases expectations around performance for all players in the supply chain.
"It all makes [forecasting and planning] that much harder, so the lower levels of forecasting detail, SKU by location, is typically where you see the most error, and those locations are becoming more varied," Moon said.
In most cases, the variation in shipments doesn’t come from the consumers but from inside the company, through a promotion, pricing initiative or something that account managers do with key accounts. It’s often the lack of communication in end to end systems that can cause problems, Burnette said. "The computer doesn’t help that, so that’s a big gap and a big opportunity," Burnette said.
The S&OP fundamentals
Organizations must start their S&OP with "good information from people who have good insights on what the future will look like," Moon said. After there is a basis to capture human-driven insights and an underlying infrastructure to process it, organizations can establish test and learn environments with use cases for specific business problems. They must identify the value of improved supply chain processes, consider existing management systems, put lean capabilities in place and leverage the value of transactional data.
While some organizations look to S&OP for "quick cash grabs," others use it as a guiding framework to deploy new technologies around scenario planning with AI and machine learning, Stitt said. The most advanced systems use real-time dashboards to monitor key process areas and KPIs across the S&OP spectrum.
"Not until you have all three of those fundamentals in place — people, processes and technology — can you fully realize the value of digital and Industry 4.0 capabilities," Stitt said. "Our approach is to ensure there is a strong foundation in place there before we jump into digital and a lot of that relates back to S&OP because it is really an integrated supply chain planning method."