Organisations are investing heavily in structures and frameworks, particularly Sales & Operations Planning (S&OP) and Integrated Business Planning (IBP), but are not necessarily seeing the expectant results – and do not realise why.
The answer lies in the very planning systems and processes on which they rely to improve their Return On Capital Employed (ROCE).
The problem is not with S&OP or IBP but more with the manner in which effective Demand Planning is being compromised by the systems and processes being used to perform it.
Demand Planning is the foundation on which S&OP and IBP are based. If the Demand Plan doesn’t provide accurate and useful information to the more strategic elements in the planning firmament they cannot make forward looking recommendations about appropriate actions to be taken at each stocking location, DC etc. One of the maxims in KPI reporting is to not report anything unless it can be used to make a management decision. In the same way, Demand Planning systems and processes must only pass forward demand data which can be used to produce high quality time-phased forecasts of inventory requirements at each stocking location.
Unfortunately, the inability to pass forward (report) timely, accurate time-phased demand forecasts is the missing link in many of the organisations which are under-whelmed by the ‘silver bullet’ strategic planning regimes. Application Program Interface
In too many cases, even though adequate demand data is available by location and time, planning systems and processes destroy the usefulness of the data by consolidating it with data from other locations, rolling it up with even more data sources, averaging it and then averaging the average of the averages across a month or even a quarter. The gems of planning data which can help to forecast what demand will occur at a particular location at a particular time are lost, irretrievably.
For example, let’s look at demand for an item in two different geographic locations. Both locations have stable demand of 1,000 units per day. An unexpected change in customer demographics causes demand in the first location to drop by 10 units per day. An equally unexpected change in foreign exchange rates results in demand at the second location to increase by 10 units per day. At the end of the month, after consolidating and averaging, overall demand is measured as being unchanged. True but useless.
This results in:
– Production and distribution remains unchanged
– Location One has rising inventory and falling profitability
– Location Two suffers stockouts, loses sales and eventually customer trust
The Take Away Lesson. The competitive advantage from a structure or framework such as S&OP is derived from the link between the S&OP and the organisation’s Demand Planning capability. This will:
– Optimise decision support
– Provide forward visibility
– Allow for exception management
– Enable planning for each location at which demand occurs.
Realising the Benefits. We have made the investments in supply chain infrastructure, S&OP processes, materials handling, collaborative planning and technology. Getting the Demand Plan ‘right’ makes the whole supply chain more efficient because it allows forward looking decisions to be made on what will happen at each appropriate location. That is the key to unlocking the benefits from the investments we’ve already made. The beauty of all the above is that the opportunity already exists in your business; all you have to do is unlock it and use it.