Published on October 26, 2020 – Anantha Shankar K R, Senior Consultant Business Planning at Westernacher
S&OP planning is a month-long process aimed at addressing demand and supply imbalances. As a future-focused process, it is well positioned to address risks or disruptive events. We introduce the concept of Mini-S&OP to show how we can leverage the existing framework and run the S&OP process in an agile, condensed manner. A Mini-S&OP process is done within three to four days, to arrive at a collaborative, data-driven response strategy to a disruptive event. In the Mini-S&OP we leverage the existing decision-making structures and reporting apparatus to address a disruptive event.
Planning with black and white swans in mind.
Disruptions have become a regular feature in our business. Most of the disruptions are relatively easy to anticipate, such as Brexit, tariff wars between the US and China, regulatory changes that directly impact our business. These disruptive events are colloquially known as white swans1, unlike the more popular black swans which have low probability but an outsize impact. Black swan events, a term first coined by Nicholas Nassim Taleb, are generally difficult to anticipate. Examples include a terrorist attack, a global pandemic or an act of God event (storms, earthquakes, floods). The frequency of these disruptive events, be it black or white swans, have increased in the past few years and this brings us to a vital question on how to address them.
Sales and Operations Planning (S&OP) is a key supply chain planning process that aims to integrate different areas of business to meet customer demand with the appropriate supply over a four to 24-month horizon. Companies with mature S&OP processes are known to demonstrate improved coordination across business units, increased transparency, and to drive profitability. While S&OP is a monthly planning process focused on balancing demand and supply at a volume level, it has become imperative for us to start managing disruption as well within this framework. In an S&OP context, “disruption” is a broad word that can define any event that threatens a smooth flow of operations. So, to increase specificity, we need to define certain parameters by which we can classify disruptions.
There are two ways of looking at “disruptions”—what is the cause and what is the outcome. By analyzing the causes, we are able to roughly calculate the probability of an event occurring. Based on historical accounts and available literature, we can also arrive at our ability to anticipate such an event in the future. Not all disruptive events can be tackled with the same approach. These two parameters can help us decide if we can plan for disruptions in a proactive manner or reactive manner. But disruptions, like misfortunes, never come singly. At any given point, companies face multiple risks of varying magnitudes that they need to tackle. To further prioritize these events, we need to classify them based on impact. The question “What is the monetary and human impact of these disruptions?” helps us prioritize these disruptions in the order in which we need to address them.
Planning tools like SAP Integrated Business Planning provide us with state-of-the-art scenario planning capabilities that can help us model these disruptions. By doing so, we can arrive at the financial impact of these disruptions which will then facilitate the discussions around how we can plan for them. In the next blog, we shall see how we can leverage the S&OP platform to deal with risk management.
1 We notice that the terminology means different things to different people. Here we are using “white swans” to refer to events that will eventually take place with great certainty, as defined by Nicholas Nassim Taleb. “Black swan” events, by contrast, are rare, extreme and have retrospective predictability. Sometimes events that are obvious, visible, coming right at you with large potential impact and highly probable consequences are instead called “grey rhinos”. This term was coined by policy analyst Michele Wucker after the 2012 Greek financial crisis. A variation of this is “grey swans” – events that you know of, have outsize impact but are not considered likely to happen.
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