This is my first blog as a partner in Deloitte Consulting. I join Deloitte at a time when so many companies are reconfiguring their operations for a new reality. Digital Supply Chain Transformation, which is my area of expertise, is just one of those transformational journeys that have the potential to propel companies towards better planning capabilities and, following this, a boost in productivity and the ability to keep pace with innovation.
From my previous positions in the industry I know how essential good planning is – and I know first-hand how black swan events such as COVID-19 can turn your assumptions upside down.
After many years in supply chain, even I was amazed to see the dramatic volatility in demand triggered by the pandemic, the rapidly changing consumer patterns and massive shifts in channels. Added to this, industry consolidation, increasing costs, margin pressures, and demands for growth, all of which make planning a critical element for companies seeking to create a competitive advantage after COVID-19.
Going forward, there is no doubt that increased flexibility and resilience in supply chains will be the next normal, but of course the flexibility and resilience must not come at increased cost as it is still a must to reduce waste and thereby also CO2 footprint.
In addition to this, new best-practices are also required to minimize the so-called bullwhip effect, in which faulty demand forecasts yield greater and greater inefficiencies in the supply chain as the distortions are multiplied when moving upstream.
In the following I’ll reflect upon three solutions: Sales & Operations Execution (S&OE) vs. Sales & Operations Planning (S&OP), Demand Planning (Sensing) and Scenario Planning.
1. Linking planning and execution
First, to enable a seamless end-to-end planning and the required agility to respond to volatility in the marketplace, companies need to create a strong link between the Sales & Operations Execution (S&OE) and Sales & Operations Planning (S&OP).
In short S&OE is the tactical execution of the longer term S&OP, securing that capacities, inventories etc. are balanced towards demand in the mid- to short term. This allows for effective rebalancing of supply in support of an evolving demand plan, which can prevent an overreaction to small disruptions.
However, implementing and integrating these two processes is easier said than done. At the very least, you need a good data foundation and organizational silos to be connected. But it is worth the effort, because companies that cope well during a crisis almost always have end-to-end visibility and transparency in the supply chain processes and thus high agility in decision-making and execution.
2. Demand planning and sensing
Besides overall planning and execution capabilities, what the pandemic has taught us is that new demand models have to be much more sensitive to what really drives demand. Shifts in channels is just one element; changed consumer behaviour is another factor that can essentially change overnight.
To embrace these changes companies cannot rely entirely on historical data, but have to include new demand signals to adapt to market volatility. They need to introduce demand models that not only use the individual demand drivers identified, but also information on wider trends to help predict the future demand.
This ongoing sensing on what goes on in the market is necessary for being able to respond diligently. Use of advanced algorithms and AI/machine learning can be helpful tools; so can intelligent forecasting of extraordinary events when they incorporate signals that can help predict tomorrow.
3. Scenario Planning
Thirdly, in uncertain business environments, scenario planning can help improve both day-to-day execution and long-term decision-making processes.
In my view, scenario planning is a different approach than demand planning due to the fact that it is based on qualified assumptions rather than historical data. We need to understand what drives uncertainty; then we will be able to define the relevant scenarios and options to solve the issues in those scenarios. In this way, scenario planning is a great way to support decision-making in the S&OP process with predictive analytics, just as it can also support day-to-day execution.
How do leading technology enablers meet these demands?
Fortunately, we are experiencing an exponential growth in digital solutions that allow companies to build an integrated business planning capability that provides a solid foundation for decision-making all the way from customer facing activities to third-party relationships.
One of these solutions is of course SAP IBP, which offers a powerful suite of functionality that can improve one’s ability to anticipate supply chain bottlenecks, identify potential alternatives, and respond effectively and efficiently. This cloud-based solution combines sales and operations planning (S&OP), forecasting and demand, response and supply, demand-driven replenishment and inventory planning. It also offers powerful supply chain analytics, what-if simulation, alerts and more to stay ahead of change and improve responsiveness.
Whether choosing SAP or not, what’s important here is that Digital Supply Chain Transformation can enable companies to gain better visibility into demand, anticipate obstacles, identify potential responses and deliver new value to the organisation. It also enables companies to keep pace with innovation, scale planning capabilities to match product line growth, boost productivity and simplify processes.
It takes time to get there, no doubt, and it requires vision, strategy and experience, but the journey is as exciting as it is challenging.