Article – Part 2: Dealing with disruptions with an agile, condensed Sales & Operations Planning (S&OP).
Leveraging S&OP platform to handle disruption.
Published on November 06, 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.
Leveraging S&OP platform to handle disruption.
In the previous blog, we saw that disruptive events can be handled either with a proactive approach or a reactive approach. The classification introduced earlier will help us here. Higher probability events enable us to have a proactive approach to handling these disruptions while the lower probability ones need to be handled with a reactive approach. There are two major problems that companies face when deciding the appropriate response to a disruptive event:
Lack of processes or tools to review and analyze risks
Lack of relevant data to run simulations to see the impact of our decisions
Sales and Operations Planning (S&OP) provides a platform to discuss these risks and tools like SAP IBP help us model these decisions and see their impact. A collaborative, data-driven decision helps us arrive at defining the playbook for the different disruptive events for which we take a proactive approach.
But what about the disruptive events that need a reactive approach? S&OP by definition looks out into the future, to a four-to-24-month horizon. How do we arrive at a collaborative, data-driven decision to act fast? For this, Westernacher Consulting suggests adopting a Mini-S&OP process. The steps within the S&OP process which are normally executed over a month are executed within three to four days. This concept was first introduced by Thomas F. Wallace and Robert A. Stahl in their Sales and Operations Planning handbook.
Let’s quickly recap the steps in S&OP. S&OP begins with the demand review where you use statistical forecasting and insight from sales and marketing teams to create the demand plan. Based on this, you create the supply plan to identify bottlenecks and constraints that are in the way of achieving your demand plan. These imbalances between demand and supply are resolved in the balancing step. The decisions taken, recommended courses of action and open issues are then presented to the executive team for approval in the final step.
In a Mini-S&OP cycle, you start with the demand review on the first day, where you model the impact of the disruption in terms of loss/spike in demand. This plan is provided to the supply team on day 2 to analyze the implications of the demand plan on the supply chain. A pre-meeting or balancing meeting is held on day 3 to resolve any demand-supply imbalances and to prepare for the executive review. This decision is then presented to the executive team on day 4 and decisions are taken regarding the course of action to pursue.
Depending on the type of issue or the magnitude of the impact, this Mini-S&OP process can be further truncated if we can arrive at the solution to the problem and a course of action is supported by simulations. Let us consider a demand spike which is modeled by the demand planning team in their demand plan and the supply team can provide stock from an alternate location. The problem is solved and the same is presented to the executive team for sign-off. In case of a supply shock, the demand review step can be skipped and the last agreed upon demand plan can be taken into consideration. If the executive team needs further input on certain scenarios/ideas that they want to try out, then they can decide to reconvene the next day with the updated financial impact of the plans to make decisions. The key to doing a Mini-S&OP is to focus on agility and problem resolution.
S&OP, by design, is a month-long process with each step logically following the next. It deals with the plan for next couple of years across all your product families. A Mini-S&OP, though, is an agile version of the S&OP plan. It is laser focused on the problem at hand while leveraging the decision-making structures and reporting apparatus established by the larger S&OP process. We take advantage of the common business language, the collaborative nature of the S&OP process, and the tools that provide simulation capabilities to measure the impact of the disruption and arrive at a response strategy supported by hard data. Not all members of the larger S&OP process need to be involved. Only selected fire-fighters who are empowered with taking decisions need to be present.
The S&OP process is the bridge between the strategic goals of the company and the tactical operations that keep the supply chain engine running. It looks out into the future, and that future is fraught with risks and disruptive events. As the process that keeps its finger on the pulse of the company, S&OP is best placed for anticipating risks and being prepared for them. Whether you take a proactive approach or reactive approach to these events that lie ahead, you can adapt your S&OP process as the framework to address these risks and steer your company forward.