“At least three months, but I cannot guarantee or confirm any date.” This was the response of the sales rep in the bicycle store I visited this morning when I asked him for the delivery time of the road race bike I wanted to buy. And I had already gotten the same response in two shops I visited earlier.
Since the coronavirus outbreak in the Netherlands – the country I live in – started, people have actively picked up road cycling as an alternative to team sports, which are not allowed. As a result, almost all bikes in my size and price range are out of stock and have very long and unreliable lead times. “I don’t know how to get through the next months as high demand will probably continue and I will get no new bikes delivered,” the guy told me when I left the shop.
This is just an example of the many supply chain related issues I have experienced during the last weeks. Demand has fallen dramatically in some industries while other industries have seen sharp demand peaks in the last months. At the same time, in many organizations supply is disrupted. And the future is more uncertain than ever. We don’t know when recovery will take place, how fast it will be and what shape it will have. The magnitude of the COVID-19 crisis has unveiled the limited responsiveness of many supply chains.
The question is: how to deal with the uncertainty and business impact of the crisis? Sales and operations planning (S&OP) should help planners make the best decisions to leverage business opportunities and to mitigate risks and constraints while balancing revenue, costs and working capital. However, many organizations operate S&OP at a fairly basic level and because of that, don’t realize the true potential of S&OP. They experience a severe impact on business performance and customer satisfaction as a result.
What distinguishes a mature S&OP process from a basic one? There are many elements that define good S&OP but there are four main elements to focus on first.
1. Extend S&OP from a short-term to a mid-term horizon.
A longer horizon increases the amount of options and alternatives you have and helps improve responsiveness. Many organizations create a separate mid-term focused S&OP cycle in addition to a short-term focused cycle called sales and operations execution (S&OE). This creates room to solve urgent issues with more depth while at the same time putting more attention on the required tactical decisions. Often, S&OE has a weekly cadence and S&OP a monthly cadence. Technology allows planners to speed up these cycles with the availability of real-time data. This is particularly relevant in the current COVID crisis with its high degree of uncertainty and quickly changing circumstances.
2. Intensify collaboration and alignment of decision-making with key partners.
While a solid internal S&OP process is a good start, supply chain performance is very often impacted by customers and suppliers. Think about the supplier that cannot deliver and impacts production or the customer that has a promotion planned that wasn’t prepared for. Joint S&OP meetings with key customers and suppliers help create insight into opportunities, risks and constraints that you might not been aware of. It provides input for better decisions from an end-to-end perspective. A key requirement here is to create end-to-end visibility by connecting data between the different stakeholders.
3. Move to scenario-based and financially supported decision-making.
A plan to some extent is almost always wrong, especially with the high degree of uncertainty we are in right now. Therefore, it is important to define multiple demand scenarios, for example, by adding conservative and optimistic outcomes. These scenarios need to be simulated to define opportunities and constraints. Also, proposed actions and decisions need to be prepared. Scenarios and required decisions need to be translated into financial value to make the best business trade-offs. Though you might choose for one scenario, this ensures there is always a backup plan when reality turns out differently.
4. Deploy appropriate technology to facilitate the process.
Basic planning systems and usage of Excel are not sufficient to deal with the complexity of multiple time horizons, multi-tier harmonization, scenario building and simulation. Deploying the right (digital) technology to support the process is a prerequisite to improve planning quality. As you don’t get to that stage overnight, it is important to build a roadmap that also delivers short-term results alongside the improvements that might take longer. As well, the roadmap should include a plan to redefine the organizational impact in terms of required capabilities and roles.
All the elements in this blog are not new in themselves. However, very few organizations have been successful in deploying them. The main roadblocks have often been limited top-management involvement and cross-functional commitment. With the increased uncertainty of the COVID crisis and its impact on business performance, a mature S&OP process has almost become a no-brainer to improve responsiveness. Don’t wait for the momentum to pass. Start your upgrade today!