As I was presenting at the European Supply Chain and Logistics Summit last week, the overriding memory I’ll take away was the number of people that were nodding and pointing at the screen when I talked about how unplanned supply chain events that occur need to be addressed immediately and that they cannot wait to be included as part of a new S&OP cycle. Traditionally, an S&OP cycle is a process geared towards taking a medium/long-term forecast, balancing with aggregate level resources and generating questions/answers to establish preventative action. Usually it’s seen as a monthly process that follows this cycle:
- Collate actual data and perform performance analysis
- Start demand planning cycle
- Establish supply status
- Perform balancing and establish variances
- Agree on corrective action and present solutions
- Executive decision and commit to the business
However, this process makes several broad assumptions:
- Is your forecast accurate? The industry average is approximately 65%. What’s yours?
- Are your ‘optimization’ based balancing engines up to the job? Many companies establish a large number of unchecked, rarely revised and estimated parameters that accompany many ‘black box’ solutions. That means very often an ‘optimized’ solution is far from that and often unfathomable in terms of interpreting the results. How believable is your result and can you explain it?
- The monthly S&OP also assumes that supply chains are stable! Really? In today’s environment?
What about the following possible events:
- Chaos management and large scale firefighting?
- Volume of orders changing?
- Supply variability?
- Rogue marketing teams?
- Things break!
- Things get lost!
- Resources fail!
- Product mix changes?
- Reacting and responding to competitor strategy?
- Acts of god!
Sure, some of these events could be categorized as ‘daily operational planning issues.’ If these issues are relatively small and within permitted boundaries of acceptability that’s fine. For example, it’s unlikely that if a supplier delivers one short on a delivery of a million units that it will have much impact. But what about the events listed above that would normally be considered during an S&OP cycle? What happens if they occur midway through a monthly S&OP cycle? Before the event, I took a look at the top 25 Gartner Supply Chain Planning companies and saw some commonality and overriding statements from these organizations: "…improving speed to response…" - Unilever "…designed and brought to market in a week…" - Inditex "…end to end visibility…" - Samsung "…using what-if simulations and real time analytics…" - Colgate "…driving waste out of supply chain operations…" - Nike "…improving forecast collaboration…" - Coca Cola "...collaborative..." - Seagate technology "…accelerating time to market…" - 3M These guys are ‘Planning in the NOW’ – they’re not waiting for the next S&OP cycle to make operational and tactical decisions that influence event results. They’re responding to supply chain events collaboratively and as quickly as possible. In fact, DRK Research recently published a paper that directly linked the impact of a supply chain unplanned event to the amount of time taken to discover it, respond to it and correct it. Those companies that react quickest, see much less disruptive impact. So, if your competition is doing this – could you be doing it too? Is the traditional S&OP cycle now defunct? Well, at Kinaxis, we think that having a single end-to-end planning engine allows you to run your operational business, establish tactical and strategic aggregate S&OP for demand forecasting and inventory optimization and also have a system to be able to respond and react to S&OP level events as they occur. Kinaxis is unique in that it can handle all of this planning, using a single data model with all planning applications dynamically linked and generating ‘what-if’ scenarios to consider unplanned events, establish a corrective action and then commit the response back to the operational business model.