Three ways to improve supply chain planning including S&OP

Improve supply chain planning with S&OP

Here are three ways to improve supply chain planning to support the additional priorities, as well as meet the financial goals of the organisation, while meeting consumer demand.

1. Optimise the S&OP process with advanced analytics

Planning activities have traditionally been a supply-chain topic. However, digital, and advanced analytics are now unlocking the ability to make complex trade-offs among functions such as sales including promotions, production, and the supply chain.

S&OP (sales and operations management) enables effective supply chain management and focuses the resources of an organisation on delivering what their customers need while staying profitable. At a time of constantly fluctuating consumer demand, ongoing business disruptions and increasingly volatile raw material prices, connected planning is rapidly becoming a must-have capability.

As an integrated business management tool, S&OP empowers leaders to focus on key supply chain drivers, including sales, marketing, demand management, production, inventory management, and new product introductions or phase outs and supersessions.

• By using planning tools, leaders across the business can identify trends and patterns in the data supporting greater collaboration & data-driven decision-making.
• But to be truly successful, leaders and decision-makers need to recognise and address the interdependencies between projects, promotions, product launches and phase-outs, and all the other factors impacting a business.
• This includes pulling together data from multiple sources and applying the expertise of their knowledgeable teams (e.g. business intelligence) to plan the best outcomes across variable scenarios.
• Mature S&OP organisations are utilising advanced analytics tools to calculate scenarios and their impact on the business in real time.
• Using machine-learning forecasting algorithms, using internal and external data sources, as well as their ability to “learn” from historic demand patterns to continually improve forecast accuracy and minimize manual planning.

2. Embrace external data for improved demand forecasting

Without a clear understanding of demand, businesses will fall short of fulfilling orders and maintaining a steady supply. But accurate demand management is easier said than done, it often requires the analysis of enormous amounts of data to create accurate forecasts, based on historical sales, upcoming product launches, marketing promotions as well as any other sales data to anticipate future demand.

Using the previous year’s events as the sole basis to plan for what will happen in the current year can be a recipe for disaster as demand patterns can vary wildly from week to week and month to month, year over year.

• To match the pace of change, planning and forecasting processes that used to be done annually or quarterly now must be conducted more frequently to stay competitive.
• Demand sensing, for instance, allows demand planners to receive forecasts frequently (e.g. once a day). It enables retailers to improve accuracy and also identify short term supply imbalances and react to dynamic changes more quickly. This accurate demand forecast is the foundation by which a company can understand not only which products are going to be sold, but at which location and on which day.
• Real-time, connected, and single view of demand allows leaders to respond nimbly to disruptions when they occur and accurately predict revenue.
• Leaders and decision makers should incorporate external data sets such as point of sale data, weather projections and even mobile phone location data to predict true demand by customer and channel.
• By using a combination of consumer insights, external data and their own customer data, leaders can better predict and mobilise against changes to consumption, channel mix or even product demand by postcode for long term planning and S&OP.

This combination of advanced data analytics underpinned by machine learning and accelerated delivery mechanisms will enable leaders to anticipate and satisfy consumers’ desires before they are aware of them. By contrast, companies that lag are ignoring forecast accuracy metrics and missing insights generated from external data, which will be a missed opportunity to advance their future planning skills.

a. Don’t ignore unconstrained planning when doing demand forecasting

Typically, the demand plan is based on the principle of unconstrained demand plans, that is, a view of anticipated sales volume unlimited or unaffected by supply constraints. So, what a company “thinks” it could sell if there were no capacity constraints. A constrained forecast, on the other hand, is what the company thinks it can sell, given its supply constraints.

Whilst an unconstrained demand forecast may seem overly optimistic, for a business to take full advantage of market growth opportunities, it is essential to set aspirational goals. This blue sky thinking plays a vital role in the formation of the organisational strategy, helping leaders to create scenario plans for future growth.

However, it is important for businesses to understand their realistic production capacity to inform and improve operational strategies. If production is under capacity, then production should work towards increasing capacity to maximise sales and equally, if over capacity, should flex operations to remain efficient. Either way, it is crucial that companies not lose sight of the unconstrained plan, because, if demand is constrained for long enough, consumers will search for alternative solution.

According to Dave Manning , best practice is to use a hybrid approach and enter the unconstrained demand plan into the planning tool, the supply or “constrained” elements of the plan are marked as “inactive”. The business is then managed against the constrained plan. By keeping track of both forecasts, leaders can use what-if and scenario plans to seek innovative solutions to “unlock” the inactive forecasts.

3. Underpin supply planning with key metrics

To say that supply chain management is a fine balancing act, is a massive understatement. Made all the more complex by the relationship across multiple business units as well as internal stakeholders and external vendors.

• For many organisations, given the ongoing disruptions, supply planning has become the prime area of focus. Supply planners need to carefully interpret demand forecasts and create a roadmap for meeting that demand, by collaborating with logistics, finance, operations, and manufacturing.
• In some cases, companies manage supply constraints by accumulating excess inventory, however, it is a sub-optimal strategy for driving increased profitability.
• By streamlining supply planning and better aligning with demand, companies can make the most of their working capital and execute inventory decisions that maximises value.
• Ongoing supply challenges require leaders to holistically evaluate both risks and opportunities — including revenues, profit margins, service levels, performance penalties, and customer impacts — and having the capabilities to measure them.
• Key metrics or KPIs allow leaders to identify and analyse strengths and inefficiencies to enable data-driven decision-making. Metrics such as order rates, warehousing costs, inventory-to-sales ratios, inventory velocity and cycle time should be included. Supply chain leaders should establish specific parameters by which they can quantify performance.
• True customer focus places emphasis on customer satisfaction and retention figures. This requires specific attention focused on tracking the perfect order rate i.e. those orders that arrived on time with the correct items, as it as the biggest impact on the bottom line.
• But ultimately, leaders should be interrogating data at all levels – everything from top-level, rough-cut capacity planning to individual production and logistics schedules at the micro level.

For further information, including additional best practice tips including ESG planning and reporting, download our supply chain planning best practice whitepaper here