Over the past 18 months, unprecedented global disruptions from the pandemic have exposed vulnerabilities in business planning at many companies. Consumers have experienced shortages in products previously considered commodities, while some companies have had to slow production due to raw material or labor shortages.
While disruptions like these have been acute this year, similar unforeseen events could happen anytime in the future. Now more than ever, current supply chain disruptions underline the need to bring products and services to customers in a cost-effective manner. To improve resilience, Companies should look inward at their Sales and Operation Planning (S&OP) process – reassessing and revitalizing to drive actions that will navigate supply disruptions and optimize profits.
Responding to Disruption
Companies design, build and optimize supply chains to support the business model they need to be competitive. However, it’s not uncommon or unexpected for gaps to emerge in the supply chain design and planning process when abrupt and disruptive changes occur. There are several common issues that organizations must recognize and address quickly:
- The primary objective of S&OP is to optimize profit. However, because of disruption in global supply chains, companies now find themselves navigating new operating models, or worse yet, not even recognizing when supply chain dynamics have changed, with poor insight to the impact on profitability.
- The need to react to a critical acute shortage in the supply chain can throw even the best planning operations into firefighting mode, leading them to abandon robust S&OP.
- More significant structural changes in the global supply chain configuration can often surprise organizations. Without a clear understanding of the Source-Make-Deliver interdependencies, they can’t build and leverage the supply chain flexibility they need to optimize profit.
Closing the Planning Gaps and Refocusing on Profit
Many organizations are now struggling with planning gaps or are experiencing profit leakage as a result of the disruptions. There are several things to consider when striving to strengthen and revitalize the planning process:
- Ensure that planning horizons align with the timing of key decisions. This means making sure planning thresholds are extended far enough into the future to enable strategic decision-making in times of crisis or even before they occur.
- Consider creating “planning books” in advance to prepare responses for possible structural changes to the supply chain. One way to start this process is to conduct “what if” scenario planning on the most vulnerable and problematic structural supply chain changes that could occur.
- Strive to develop planning models that understand the relationship of key supply chain capabilities to profit drivers. Measure the past performance of operating elements and highlight the impact of those elements to the company’s bottom line.
- Finally, re-evaluate what near-term and long-term decisions are being made at each level of the organization. For example, we’ve seen several clients where customer allocation decisions made by middle managers fail to align with what senior management would have decided.
Global supply chain disruption has forced companies to think differently about planning and how to leverage existing S&OP processes. It’s time to revitalize what has worked and build new capabilities to match the challenges that lie ahead.
For more information contact:
, Managing Director