Defining a comprehensive Supply Chain strategy encompasses all aspects of an organization, its tactics and operations as well as structures and processes. A sound supply chain strategy is supposed to ensure an economical way to deliver products or services that meet the customer’s expectations and are in accordance with an organization’s overarching goals.
A successful strategy requires clear management structures to ensure a clear responsibilities. The output of a supply chain is the sum of many building blocks on various levels, such as strategy development, tactical planning or operations. However strategies are usually created at the top and need to be implemented into e.g. production, logistics, procurement or distribution. At the same time these activities need to be aligned with supporting activities such as accounting, sales and marketing or IT.
The Strategical, Tactical and Operational Scope of a Supply Chain
The scope of a Supply Chain can be seen in 3 dimensions, the first one being the strategic one. Usually company strategies are developed long term and therefore need to be considered carefully as they shape the organizations in its goals and structures and processes down to business unit level. Common strategic decisions could comprise e.g. location decisions, entering markets, sourcing strategies etc. The second dimension which is called tactical, takes place on a lower level, is more granular and the planning horizon is a lot shorter. This part is responsible to fill the gap between the strategy development and the shop floor activities. On the one hand the strategical direction must be followed on the other hand all systems and processes in the operational business must run efficiently. A very common task is the planning of resources to match demand and supply and therefore this step must be deeply interrelated with all organizational units to react to uncertainties and market developments. The third dimension or operational level is merely responsible for the execution of orders and plans. On this level operations have to be optimized in all fields of the day to day business, it is the place where strategical and tactical planning is put into practice.
Ensuring Success of Supply Chains
To ensure successful systems it is necessary to orchestrate the strategic, the tactical and the operational part seamlessly. Trade-offs have to be made in terms of flexibility, responsiveness and costs, thus it is a process to balance out supply and demand while generating optimized levels profits and satisfying customer expectations. In this process organizations need to work on their weaknesses and weed out their past inefficiencies.
In the past Supply Chain strategy was very difficult to develop and to control as too many factors had to be considered. Modern IT systems allowed full integration over the entire chain and permitted collaborative working from all stakeholders. Managing the supply chain became a competitive advantage over time and now the competition takes place between Supply Chains rather than between companies. Only if this functional organization and operations are perfectly aligned with the Supply Chain strategy companies can leverage their competitive advantage. This needs to be followed through from top to down to ensure rigorous alignment.
Aligning Supply Chain Strategy with the Organization
In the first place the Supply Chain strategy is derived from the business strategy, which sets a long term direction and focus how and where a company is entering competition. To describe a customer focused strategy it is important to understand the market needs, to understand the customer structure and know how value is created for market and customer. So the business strategy lays the foundation for the Supply Chain strategy based on the organization, the competitive advantage in the market and the company’s goals.
The Supply Chain strategy needs to support organizational strategy to have a positive effect on the organization, so the Supply Chain should be analyzed permanently and comprehensively. To be successful the management needs to understand the entire strategy and get a holistic view of the end to end supply chain. Limited visibility is another common problem that hinders organizations to unleash their full potential. Further the Supply Chain strategy needs to be aligned with parallel strategies such as sales/marketing, product development, IT or accounting for full leverage.
The Basic Situation of the Supply Chain in most Companies
Huge supply chain consulting projects offer a lot of space for optimization. If a company owns a huge part of a supply chain there will be plenty of opportunities for improvement. Although no customer is exactly like the rest some basic parts are likely to be similar. A basic supply chain comprises usually:
1) Suppliers e.g. for raw materials, parts, modules, services etc.
2) A transformation process (often manufacturing) that turns material, manpower and information into a marketable product
3) A distribution network in all kind of formats
4) End customers that purchase finished goods or services
5) A department for services
All of these processes are interrelated with overarching functions such as the sales and marketing departments, the order management, the product management, the production planning or the accounting department. All of these business units are interrelated closely with each other.
The Way to Improvement
Whether it is cost reduction, perfect order fulfillment, inventory reduction or lead times; a successful approach consulting companies have developed is a set of best practices which can be examined and matched instantly at most customers for all mentioned fields of improvement. With this kind of standardized approach consultants lay the foundation for a methodical analysis. The basic fields under examination can be cascaded and can expand into any detail level. Fields that they have identified as essential and best practices can be checked easily and quickly for a gap analysis.
If you check your production capabilities, one of the sub-items is likely to be the warehouse. Within the warehouse one might want to examine the Warehouse Management System (WMS), the inventory levels or simply the warehouse processes. The level can get very detailed, but with the best practice list companies are unlikely to forget any aspects.
Implementing a Solution
Usually solutions and implementation best practices for huge gaps are also at hand for improvements with a high effect. Of course not every solution can be applied to all customers but at least they offer a proven guideline and a framework. The current state can be compared to external benchmarks or internal company goals. Closing these gaps are separate projects whose goal is already clear by the set benchmark. Focus areas need to be defined and improvements need to be measured by suitable key performance indicators (KPIs). In most cases these projects can even be combined or at least require identical project steps.
Interrelation of Structural and Process Improvements
In many cases single improvements in certain fields boost not only the performance in one area but also in others. KPIs that are necessary to monitor for example inventory levels can be used by various departments, such as the warehouse, stock controlling, but also by finance or sales to promise delivery dates. Transparency will be helpful in all cases as it will lead to an organization that is informed better and therefore able to make better decisions.
Improving cooperation with suppliers will not only improve the relationship but should also improve the mutual understanding of the supplier and the company. This might e.g. improve the quality of the products, make them more economically or reduce inventory levels through improved replenishment strategies. In a next step the production will also benefit from a more reliable and speedy supply on the way to a leaner system.
A project is an endeavor that leads to a defined goal. These endeavors have limitations and need to be executed within a budget, a timeframe and a defined scope.
Project management provides supply chain and operations management professionals with a systematic approach that simplifies the process towards strategic goals. Corresponding to certain directions and defined goals, projects can be planned in a structured way to ensure accomplishment. Project management provides the methodology or framework that allocates the resources and to monitors the project progress.
Project management is an essential function and bears vital responsibility that can get problematic if it lacks visibility and a rigorous process. As professionals face significant challenges related to project management, they require experience in supply chain project management to conduct projects successfully and achieve desired goals. Through project management skills and knowledge are used systematically to coordinate, plan, schedule, direct, control, monitor and evaluate activities to ensure that defined goals and objectives of a project are reached.
Current Issues and Trends
The individual tasks in main project management such as scoping, tracking, scheduling or following up are considered not to be too difficult. The most challenging part is the organization and orchestration of them to achieve positive holistic results.The goal for practitioners is to complete on time, on budget, and within a defined scope. Causes of a limited project status visibility might be an unclear definition of the milestones or the final goal. Other issues can be an unclear project purpose within an organization, a lack of organizational project management skills and support, or the absence of organizational structures to adequately communicate the project status and progress.
Until today many practitioners work on complex projects with too little expertise in terms of training or staff that specializes in project management. This is a potential deficit in the management strategy which can eventually prevent companies from achieving supply chain excellence. In many cases not only the scope is unclear but also the formal recognition of successfully completion is missing. Project participants might not even be aware of the status or outcome of projects, which creates uncertainty and will waste resources.
Project Management and Supply Chain
Managing projects is a vital skill and requires expertise and experience. Supply chain project management will even become more important in the future and requires developing best practices to ensure complex organizations are managed properly and led towards desired goals. Active and aligned management is required to make sure that a defined supply chain project will finish timely, on budget and in scope. Supply chain project management can have an internal and external scope if parties outside the organization are involved. Management of the process is necessary to create a structure and to organize and monitor the interdisciplinary tasks.
It can be said that supply chain project management transforms ideas into a formal hands-on process steps. It organizes the process and makes it visible to all stakeholders. Resources and strategy, but also necessary changes must be communicated and documented clearly over the entire project duration. Supply chain project management will improve the skills of an organization to achieve a strategic competitive advantage. The organized project plan considers organizational behavior, defines priorities, anticipates risks, assigns resources and provides visibility. It clearly defines responsibilities, ensures cross-functional communication and cooperation to ensure the best results possible.
Common Pain Points, Actual Trends and Best Practices
Nowadays supply chain project managers are still underrepresented in many departments or business units. A lot of companies underestimate the project manager role and treat it as something that can be learned on the job. Hiring or engaging experienced professionals can save a lot of time and resources.
Levels of formal training and best practices are increasing. For a long time the importance of this discipline has been underestimated and neglected. As project management requires a very structured approach it is no longer considered as something that does not require formal education.
There is still a high need for a high level of project integration. Even if the project achieves a defined goal, the organizations might still lack integration over the entire supply chain and departments might still have a silo mentality. A possible solution would be to find metrics that measure levels of integration. Even successive projects should build on previous projects to avoid reinventing the wheel.
In most organizations there is still room to improve communication and other soft skills. Although technology and sophisticated tools support the communication and visibility, a lot of resources are still wasted. Even though data is available and transparent in project management human relationships are vital. Trust between all stakeholders and confidence in planning and forecasting require strong interpersonal skills. Projects often require significant change, that require careful management and interpersonal skills.
Project management requires a lot of resource management. The dilemma is that the most critical resources are often also the scarcest, so they require special attention. To avoid jeopardizing the success of a project, diligent planning, monitoring and prioritization of bottlenecks is necessary to minimize potential conflict. It is often helpful to have alternatives at hand and emergency plans in case expectations were too optimistic or resources fail to deliver as anticipated.
No project can be executed as planned, so unexpected challenges are inevitable during execution. The key is to be prepared and to anticipate and tackle problems timely. A good set of skills, tools, and practices through training will help to ensure a smooth execution as stakeholders can use their expertise to understand and to address issues. Solving issues early will save a considerable amount of resources.
In most cases it makes sense to invest in a proper project planning. Spending more time in the initial planning phase will pay off in the execution phase. Fixing issues during the execution phase mostly means additional work due to an unclear direction. Even in the course of a project time, scope and budgets might be subject to change. Those changes usually occur suddenly and professionals need to handle them carefully and timely otherwise the project plan will get out of control.
The need of improving tactical and operational planning to be able to plan better for supply chain operations and meeting customer demand is still ongoing. The ultimate goal to fulfill or even exceed customer expectations is supported by an S&OP approach, while at the same time operations and inventories are kept lean. Technology is necessary to organize S&OP efforts and there are various supply chain planning applications in the market that also support S&OP. At the same time internal processes need to be changed as well to fully leverage the technological capabilities.
Having a S&OP process without using supporting technology gets intricate especially with growing scales. Technology becomes necessary to organize the huge amount of complex data, but is only useful if it fits to the operational process. Planning demand for end customer, distributors, retailers in terms of stock keeping units (SKUs) in different cities, regions or countries, will become too complex, especially if a company has a high number of products. In a second step the production plans must be integrated into the demand figures, so the use of technology is vital to keep the grip on the planning. Even on an aggregated level and in a constraint-based environment this would be an impossible task to handle with simple spreadsheets.
The Basic Architecture
As a foundation software uses three basic pillars:
1) Planning tools for the demand side
2) Planning tools for the supply side
3) S&OP computing and analysis tools
Integration between the different fields is highly desirable plus integration in the larger transactional application environment, such as Enterprise Resource Planning (ERP), Manufacturing Execution (MES), Material Requirements Planning (MRP) or Manufacturing Resource Planning (MRPII).
Solutions need to focus especially for the metrics between constrained and unconstrained supply to guarantee the supply of fixed orders on one hand but being prepared and flexible for future demand.
The Demand Side Planning
Demand side planning systems support the development of a demand plan and offer forecast models that are still not fixed and confirmed in terms of quantity, timeframes etc. and are therefore called “unconstrained”. Both inputs are used in the S&OP process. Inputs are made based on e.g. statistical forecasts, sales and marketing planning (promotions, marketing campaigns, pricing actions…), product life cycles, changes in the marketplace or other economical developments. All factors feed into a basic forecast that needs to be verified and amended.
A second source of data can be collected from different and more concrete sources such as fixed sales figures, orders from downstream customers who share their own forecasts or even take part in programs such as Vendor Managed Inventory (VMI) or Collaborative Planning, Forecasting and Replenishment (CPFR). Ideally there is a high level of integration and connectivity to facilitate collaboration and data exchange and leverage the use of information.
The Supply Side Planning
In contrast to the demand side these systems focus on the supply side. The basic purpose is the creation of supply plans that will be used in the S&OP process. Based on them inventory planning, production plans and procurement can be organized. These supply plans are a compromise between the concrete demand figures and the demand forecast planning figures. Inventory Management and Distributed Requirements Planning (DRP) supports companies to forecast the replenishment demands for warehouses, both customer facing warehouses and centralized warehouses. If demand is “constrained” and supply is mostly clear, Advanced Planning and Scheduling (APS) systems are used to manage the supply of various production sites and create accurate plans for capacities and resources. Further systems might optimize inventory, set levels and targets, and provide information to the S&OP process. Main issue of these programs is the tradeoff between the customer service level against inventory of raw materials, components or finished goods. Other systems worth mentioning would be web-based collaboration tools. They are able to import and process data from all kind of internal and external sources in order to orchestrate the supply side with external partners and suppliers.
The S&OP Tools
There are kinds of functionalities which are vital for the S&OP process. First companies need to have comprehensive information displayed e.g. by dashboards to make information available and as illustrative as possible. In addition to the planned supply there must also be information regarding the unplanned or unconstrained demand.
Common metrics for the supply side are for instance plant utilization rates, production capacity or critical material supply information. From the demand side these dashboards should present information like expected or unfulfilled customer demand or customer order backlogs. With the help of these metrics simulations can be run incrementally to visualize the effects of changing supply or demand scenarios.
Technology can not only be used to display, analyze and simulate supply and demand plans. It can also monitor how successful the S&OP process is working itself. This is especially important for the incremental improvement of the Sales and Operations planning process. By choosing pertinent KPIs, such as forecast accuracies for the demand as well as for the supply side or metrics that illustrate how well the sides have fulfilled their plans from previous S&OP cycles, the performance can be evaluated internally.
As usual a high level of integration into the existing architecture (e.g. ERP, MRP…) is highly desirable. Due to their interrelated nature, systems need to be synchronized in real time to reflect any possible change immediately in all places for maximum effect.
Most standard solutions in today’s market offer comprehensive supply and demand planning components through SCM packages. Niche players specialized in Supply Chain Management usually even offer more innovative and specialized solutions. However these solutions might be more difficult to integrate into existing systems. Which solution qualifies best has to be evaluated and decided individually.
Recently software vendors have invested highly in Business Intelligence (BI) solutions that offer dashboards, KPI analysis and scorecards as mentioned above. The key for success is to integrate these components into the supply- and demand systems to have the most updated and relevant data at hand for analysis.
The Motivation Behind Supply Chain Management Cost Analysis
Understanding supply chain costs is very critical and the outcome of an analysis is highly beneficial for any company. Even though it is takes a lot of effort to extract the right information from the company books, the results will be vital for controlling and further improvement. This holds for all company sizes and for all industries. In almost all enterprises supply chain management costs account for a substantial part of a company’s expenses. For some reason a lot of companies are lagging to understand and control their supply chain costs and underestimate its impact on the bottom line, even if they have good systems in place to monitor and control for example production- or marketing and sales costs.
Since supply chain costs are often unexpectedly high there is not only a good chance to understand the cost, but also to analyze and to improve them in a second step. The result will clearly position areas of a company in terms of efficiency and will naturally provide a lot of projects and that will lead to improvement within the organization.
The Different Types of Supply Chain Costs
There are endless possibilities to analyze costs and ways to allocate and group them. Typical fields to look into would be more obvious costs e.g. transportation and shipping costs, warehouse costs, insurance costs, packing costs, but there are also less tangible costs such as administrative costs, overhead costs, insurance costs or costs caused by human or system errors. There is no general rule to organize the costs and some creativity is necessary, as all companies are different and might want to focus on different kind of expenses.
Process of Analyzing Supply Chain Costs
At first supply chain operations need to be broken down into as many units as necessary and the accounting department will have to provide financial data for all the related expenses. Activity based accounting is easier to handle as costs are already categorized and supply chain related topics can be identified easier. In other accounting systems it might take more effort, but a rigorous identification of relevant costs is absolutely vital. Financial controllers should be able to support providing related costs from a company’s ERP system, ideally for a reasonable time frame such as the latest business year. Further it will help later to create internal entities such as countries, plants, departments etc., if a comparison of results is possible and reasonable.
After having collected all pertinent data and divided them reasonably there are countless ways of analysis. Usually it is surprising for most companies to put the supply chain costs into relation with the company’s total operating expenses. Supply chain costs are often underestimated and to see how huge the impact of supply chain costs is, usually justifies the effort made so far. But of course this can be taken further and be analyzed in much more detail: internally, similar costs and categories can be compared between entities, locations, production sites or even down to a department level. Companies might also want to compare only certain aspects and specific fields of their operations.
If there is the possibility of comparison, external companies should be taken into consideration for a benchmark analysis too. Companies can compare themselves with best-of-class or best-of breed companies to analyze where they are standing and give them an idea how they should advance. Data might have to be adjusted to make a comparison even possible. The analysis gives companies a great opportunity to reveal their weaknesses and inefficiencies. Comparing themselves with best practices will quickly identify inefficiencies and lead them the way to improvement.
If you track supply chain cost over the course of years it is also possible to track the internal development of a company. Improvement efforts and their progress can be followed up, trends can be identified and the position in the marketplace can be determined.
Aspects: Transport, Trade and Warehousing
Among the system functions for managing a value chain operations there should be transportation management and tracking, warehouse and inventory management, compliance applications, as well as various analytical tools such as cost analysis for the supply chain and its elements. These fields of the value chain are the physical parts, when it actually comes to moving goods. Ideally these functions are combined in one suite and therefore leverage a high level of integration, as they are all interrelated processes. Companies of all sizes, all markets and in all industries can highly benefit from a suitable software architecture.
A very important field that systems have to cover is transportation management to ensure robust transportation planning and execution to internal, but also external parties. It does not matter if transportation is planned regionally or globally, in single or multiple modes of transportation, in full container load (FCL) or less than container load (LCL): it will always be of great advantage if third party logistics providers or forwarders and shippers can be integrated into a company’s system. Operations and planning can be streamlined and accelerated significantly. Payment processes for freight and other business processes can be simplified or even automated so time and money can be saved.
Warehouse and Inventory Management
Companies are under high pressure to use their storage resources (e.g. labor, space and equipment etc.) efficiently. Warehouse and inventory operations require detailed coordination and permanent optimization efforts to ensure a smooth and economical material flow.Usage of technology increases automation levels for optimization algorithms in the planning processes, in operations and in simulations. Warehouse and inventory management systems can be scaled to all kind of company sizes and can stretch from one technology platform to multiple physical locations.
Providing a technology platform for all involved trading partners supports collaboration. Close integration and high connectivity of all involved parties make the use of a single source of data and real time data processing possible. Each connected system is able to receive, update and analyze pertinent data to increase the speed of transactions. This results in lower costs and even an improved cash flow through improved processing. Further a better orchestration of operations among the partners is possible and the real time data exchange lowers the risk of faulty or outdated data.
There is almost an unlimited potential to analyze data, but getting relevant reports and monitoring the right KPIs can be a huge competitive advantage. Once again automation increases speed and accuracy of analysis efforts. Supply chain or value chain costs for example usually account for a very high portion of a product’s total costs, so monitoring and controlling is vital. All processes inside and outside the company that imply costs need to be considered, starting with product design and ending somewhere at the end customer. IT systems can automate the monitoring and controlling of a product’s cost effectiveness by considering all expenses spent on e.g. transportation, tax, handling fees, insurance etc. automatically.
With the right, accurate and up-to-date data at hand the use of product lifecycle management systems can improve revenues, cut costs, manage quality, or ensure compliance. Software tools can monitor product related data in real time and ensure permanent optimization. Accuracy is increased by automation and outcomes can be used reliably for financial analysis or decision making. However there are many more possibilities for data analysis, which needs to be tailored to each company individually.
Warehouse and shop floor operations offer opportunities for the use of mobile devices and applications. RFID scanners, barcode readers or heads up displays for operators are only a few examples. Another possible field of application outside the company facilities is fleet management, fleet control or tracking of goods during transportation.
They all have in common that they enable real time transaction processing, very high data accuracy and convenience at the point of use. The result is a higher logistics efficiency, a lower total cost of ownership (TCO) and an increased visibility offering opportunities for real time analysis.
Innovation: Costs vs. Benefits
Using innovative solutions usually imply high costs so the benefits need to be measured to justify investments. An effective system to measure costs and benefits has to be in place. To get the highest benefits from innovative solutions positive effects have to me measured and exploited, negative effects have to be identified and acted upon.
Data integration will leverage all operations and Sales and Operations Planning (S&OP) efforts. The basic idea is to span all ERP and planning data over the entire supply and value chain by communicating demand, supply and all transactions and making them transparent for all parties. Supply, demand, capacity and finance data needs to be controlled and analyzed in real time for a maximum visibility and a leverage of company data. Analytic tools, simulations and scenario management are capable of improving the quality of output data and make it more useful.
Data Integration on the Demand Side
Today’s software solutions can report instantly on ERP key data, such as customer information, order histories, pricing, costs and margins, price development etc. These data should be leveraged in as many business units as possible. This data can contribute to the S&OP process significantly, if it can be accessed easily and is fully transparent to all parties, such as sales, marketing, operations and finance. Changes in planning, e.g. promotions can be updated in real time and are instantly available for all parties. The same holds for financial data where financial data about incoming and outgoing settlements can be visible in real time. Using a single source of data and actually making full use of it will definitely improve the forecast accuracy. Advanced analytics and statistics will even improve these forecasts.
Data Integration on the Supply Side
On the supply side there is also a huge potential to leverage data that is already available in the ERP system. The supply side can use reports about all kind of master data, such as item information, bill of material, supplier information, resources etc. but also on transactional data, such as work orders, purchase orders, sales orders or inventory. This information should be available and can be used if formatted reasonably. Data integration should also encompass planning operations, so data can be used to plan for material and capacity and planning scenarios can be developed based on real time data. By using exception driven systems the planner productivity can be increased further. Advanced analytics and historical data comparison can also improve the quality of planning data significantly. The resulting plans can be integrated again into other systems again. On the one hand they can be shared again with the demand side on the other hand they can be used as a foundation for the supply chain activities, e.g. optimization of purchasing, production scheduling or resource allocation.
Risk Management and Integration of Production Planning
One of the results of Sales and Operations Planning (S&OP) will be a demand and demand variability plan or simulation. Eventually this will lead to an inventory plan, which shows in what stages how much inventory of raw materials (based on the bill of material) or finished goods must be held for all kind of supply and sales or distribution channels. By using tools that can simulate scenarios and have the capability to compare alternatives, unplanned events can be planned for and therefore risk can be managed actively and impact on the enterprise can be mitigated. Further sourcing strategies and supply chain networks can be optimized and made more resilient.
Integration of the production planning has also great advantages for supply chain management. Tactical planning can create detailed production schedules that can report on bottlenecks and resources that are likely to be short. Analysis of these points can increase the total throughput of the system and ensure that production plans are on track. So gradually production plans will not only become more reliable but also provide feedback for other business units about the production status in real time.
In supply chain and value chain planning there is a huge potential to leverage existing data. Visibility needs to be pushed to a maximum for all stakeholders to have the most updated information at hand to make best decisions. A lot of value can be created simply by using existing data put in the right format and making it available easily. Modern analytical tools can increase the value even further, predictive tools and simulations can even prepare companies for events that might happen in the future.
Analogy of Sales and Operations Planning (S&OP) and Project Management
In the following paragraphs common issues are described, that might endanger the success of the S&OP process but are also known well from project management. Avoiding them will increase the chance of success significantly and save time and costs in both fields. This advise is rather general and most points hold for project management as well as S&OP. However the analogy of project management and the Sales and Operational Planning (S&OP) process should illustrate the similar character traits of them.
Unclear Workload and Undefined Expectations
As a lot of projects fail because the workload is not defined clearly and these ambiguities will put the whole project at risk. In other cases the milestones and project end point might not be defined clearly. As in project management stakeholders in the S&OP process need to know from the very start what requirements what scope their work has and what expectations are to be fulfilled. Every single team members need to be aware what needs to be done and what the target is. So clear communication and alignment with all internal and external stakeholders is vital. It is also necessary to document milestones, when consensus is reached and also how the accomplishments are measured.
Human Resource Factors and Management
In most cases projects are team-work which requires active management and alignment, but also a positive culture of collaboration. This is always true for the S&OP process. If rivalries among team members or between functional areas occur the success of the process is at stake. The focus will get lost and targets will not be reached as planned. A common response is that responsibilities for problems or bad performance are claimed to lie with other teams or team members. To avoid that a strong management is necessary, the team needs to be involved in decisions and communication needs to be frequent and clear.
Support from management and alignment over all hierarchies is absolutely necessary for success. Without buy-in from the top management the S&OP process will never realize its full potential. But even the process is managed well and the atmosphere is cooperative and helpful, it can still fail because employees don’t have the competence or are overburdened with workload. Managers need to understand the strengths of their employees and ensure that the distribution of the workload is reasonable.
The use of standardized work patterns, tools and routines is very common. On the one hand it gives a general guideline on how to approach projects and how to proceed, on the other hand this can be dangerous as not all projects are cut from the same cloth. Standard approaches might be non transferable, as they only can be applied e.g. to certain project sizes. This is also true for S&OP – not all companies, products or departments are equal, so standard operational processes must be adjusted regularly to changes.
Further, information need to be shared in projects and in S&OP, especially having huge time frames (which S&OP definitely always has). Projects should be divided in to shorter periods and teams have to report and present their milestones regularly. In S&OP there should be at least a monthly meeting. But still all parties should permanently share their results. If team members work individually this holds also for team members.
Project managers and people deeply involved in S&OP tend to forget their day to day duties and focus too much on coordinating the complexity. Meetings must be held, status reports must be written and emails need still to be answered or delays will be the consequence.
Decision Making and Change Management
In the course of a project, changes to the initial road-map are often inevitable. The road map of a project is very different from the S&OP process, yet it is not immune to changes. Change Management always requires a clear documentation to be able to comprehend who changed what and when later, as well as to ensure everyone is aligned towards the same goal.
Despite change requests are common in projects they have huge negative side effects. In most cases deadlines and budgets become extended which becomes frustrating at all ends and lead to proliferation of a clear project agenda. To avoid permanent changes clear targets and their monitoring is absolutely necessary. Further a defined process for changes is necessary.
In their own interest, companies might be well advised to refuse requests at times. Saying NO is not always easy, so companies should also prepare themselves to be able to offer alternative suggestions if need be.
Use of Appropriate Software
Excel spreadsheets force managers to manual corrections and lead to issues with status updates. With the right software, e.g. project management software, updates of project plans, processes and reports can be automated.
Meetings and status reports can be tedious especially if they happen too often and take longer than necessary. Collaboration tools can make information sharing and reporting more efficient. Meetings should be only held to make decisions, to distribute work and to define priorities.
Quality Management and Learning Curves
Quality control is a vital part of all projects and processes. It is cheaper and much faster to avoid mistakes than fixing them later, so it is advisable to ensure high quality standards from the start. This will not only save time and costs, but also ensure a good company reputation and internal motivation.
There are tools to analyze projects after completion. This might take some time but learning from past mistakes will help to avoid them in the future. This also goes for the S&OP process, where a regular review of the process itself will provide a learning curve. Permanent learning will improve project or process quality, lead to faster completion and helps to save budgets.
One can see there are a lot of parallels between the execution of the S&OP process and project management. S&OP professionals can learn a lot from project management professionals and apply their techniques not only in the introduction phase, but also when running the process.
Value Proposition of Planning Tools
Rigorous planning of the value chain and using the right systems will have a positive effect on the total supply chain costs and on the operational processes. Customer service levels will rise and with the right systems, companies can utilize best practices offered by software vendors. This will lead to improved business processes and higher integration levels.
The following points are basic examples on how software systems can support the operational business planning.
1. Operations and Corporate Strategy must be aligned
Supply and demand need to be orchestrated through the Sales and Operations Planning (S&OP) process. It needs to be managed by using a holistic view on the entire ecosystem and foster integrated planning of the entire value chain. Software tools can assist companies to manage and monitor value streams even if they are external, e.g. at suppliers or customers. Further software system can improve the supply chain visibility and facilitate collaboration between involved parties.
2. Customer Demand must add positively to the bottom line
The demand side needs to contribute to the bottom line by actively managing sales and marketing activities. Profits can be maximized by an active product life cycle management with strategic product introductions and suitable marketing activities. Here it is also of great importance that demand and supply are strictly aligned with the supply side by the Sales and Operations Planning (S&OP) process.
3. Supply Chain and Value Chain operations must be actively monitored and managed
Planning scenarios can simulate possible outcomes of activities and prepare companies for the effects of their activities. However simulations cannot be 100% correct so initiatives must be monitored and managed after execution. Key stakeholders must have access to the metrics and results generated by business analytics or business intelligence programs. With proper analysis and further simulation with updated numbers risk can be actively managed in an iterative process, that feeds also into the Sales and Operations Planning (S&OP) process.
4. Forecasting must be optimized and risk must be managed
The key to mitigate risks and to achieve a high forecast accuracy is an effective Sales and Operations Planning (S&OP) process. With high level of visibility, flexibility and permanent communication between all parties, companies can react to planned or unplanned events. Ideally information is available in real time to balance out fluctuations. IT systems can support the analysis and forecast models, as well as preparing companies for possible scenarios by simulation tools. Data integration of stock levels and functions can leverage e.g. Available to Promise (ATP) functionality in response to new customer orders.
Running a Lean Supply Chain
In response to shrinking margins, products becoming price driven commodities, higher quality requirements and customized services manufacturers have to take actions to maintain profitable. A very promising approach is to run lean manufacturing operations, which means removing inefficiencies and unnecessary steps from the value chain. Efforts need to go beyond the own company walls and need to include also suppliers and eventually the entire supply chain.
Basic Approach for Company Data
A first requirement is an appropriate software system which is highly integrated and scalable, with a single source database for efficient data retrieval. Having accurate data at hand in real time is a critical differentiator. Data should not be stored in separate systems like ERP, CRM, SRM or SCM, which might even use different data structures. Data should be concentrated in one single source, no matter from which side the data is accessed. There can only be one single view which will lead to less data redundancy. Fast and accurate information will allow companies to carry less inventory, achieve shorter lead times and eventually save costs.
Getting the Grip on the Supply and Production Process
Disappointed customers will move to competitors, so in the past huge inventories were produced to increase product availability. Matching supply with demand is an ongoing challenge of sales and operations planning (S&OP). A main target is to keep inventories lean, nonetheless lead times should be as short as possible while certain quality levels have to be guaranteed. In a lean system activities that are not adding value for the customer are constantly being eliminated. This includes streamlining production and supply processes, optimizing inventories of raw materials as well as finished goods, while remaining flexible and responsive to market changes. Leveraging scheduling methods, such as Kanban to enable lean and just in time (JIT) production ensure that materials are replenished based on actual needs instead of arbitrary estimations and schedule. At the same time as inventories are reduced, companies should strive to improve other key performance indicators (KPIs) regarding the material throughput or lead times. If systems are integrated and provide real-time insights, a company-wide information flow can support all business decision and facilitate operations monitoring and business planning.
Integration into the Supply Chain
Satisfying customer demand remains the ultimate goal in every enterprise. As mentioned earlier building up inventory is costly. So is losing customer orders due to missing materials. A possible answer is to implements a more effective and efficient procurement process and to increase the supply chain visibility internally and externally. First information needs to be available to all entities within a company to check the feasibility of customer orders. Second the integration should expand to external entities, like partners or suppliers that might be crucial to fulfill order requirements. If systems are fully integrated with all business units and partners a lot of time and money can be saved in operations e.g. in procurement, financials, portfolio management, logistics or manufacturing.
Integration into the Customer End
In addition to an outstanding product, customers demand high level of services. After-sales service has become a standard in many industries and customer issues need to be solved immediately. Therefore communication channels have to be in place and companies need to be highly responsive to their customer interactions. If systems are related with one single customer record, all departments, e.g. SCM, CRM, sales or financials, have the same information available. Further customer requirements have to be recorded and communicated effectively to all stakeholders for a maximum of customer visibility and service. In order to reduce spare part inventory, state of the art systems provide an overview about maintenance or warranty agreements.
Despite all cost pressure of global markets, there are technology solutions that can support businesses to run more efficiently. On the one hand they increase efficiencies through integration, visibility and data utility, on the other hand they enable companies to improve business intelligence by leveraging existing data in a standardized format for deeper analysis.