A Poit of View The Agile Supply Chai: Drivig ad Supportig Agility through Sales ad Operatios Plaig Agility ad the Supply Chai The supply chai is the core of the busiess for early all product-producig eterprises. It is the key cotributor to the factors that drive shareholder value: free cash flow from operatios, cost miimizatio, tax miimizatio, asset utilizatio ad workig capital optimizatio. Equally importat, it is the face of the compay to the customer, a major factor i both customer retetio ad customer acquisitio. The key objective of the supply chai is to give the customer ad dealer or retailer what they wat, whe they wat it, delivered where they wat it, the way they wat it, ad with the eeded iformatio or support services at the best combiatio of profitability, liquidity, ad customer service. Sales & Operatios Plaig (S&OP), the matchig of demad ad supply, is the critical elemet i achievig these objectives. It is the egie of the compay. The S&OP pla is, i effect, the operatig pla of the compay. It determies the fiacial, operatioal, ad customer results for the short ad loger terms, eablig the compay to operate with agility while maagig sigificat chages ad risk. Risk ad agility are key cocepts i successful S&OP, ad ca be defied as such: Risk: All supply chais are vulerable to risk ad uexpected evets that impact the supply chai ad make plaig ad executio icreasigly complex. For agile Sales & Operatios Plaig, these risks fall ito five broad categories: Customer ad market risks ragig from customer eeds ad desired service levels that drive uexpected demad chages both shortfalls ad spikes Competitive ad competitor actio risks from ew product itroductio ad price cuttig to ew trade ad competitive marketig iitiatives that impact demad Geopolitical risks such as ew regulatios, trade restrictios, taxes ad tariffs, currecy volatility, atural disasters, security, ad shiftig trade routes Ifrastructure risks such as trasportatio capacity shortages ad cost icreases Supply ad commodity risks such as commodity shortages or price icreases, supplier disruptios, capacity shortfalls ad sudde price icreases, supplier ecoomics (for example, bakruptcy), chages i distributor or wholesaler etworks, quality issues, maufacturig cost icreases, ad a host of other factors Agility: To aticipate ad assess these risks ad chages - ad build the resiliece to deal with them - requires a agile supply chai. Agility is the ability to respod rapidly to uplaed ad uexpected chages ad evets i the eviromet, while maitaiig the same customer service levels, service level agreemets, liquidity, ad cost structures. Ad oe of the critical elemets i achievig a agile supply chai is the S&OP process. Sales & Operatios Plaig Sales & Operatios Plaig ad executio is the egie of the compay. However, traditioal S&OP reflects the eviromet of te years ago ad ca be dagerously outdated. To borrow a phrase from a old ad sloga, the S&OP process of today ad tomorrow is ot your father s S&OP process. It must ecompass several key teets that reflect the competitive realities of today. S&OP must ow iclude supply, demad, fiacial results, ivetory, ad customer service. Perhaps, a more accurate term should be SOFI&CSP Sales, Operatios, Fiacials, Ivetory, ad Customer Service Plaig. While more accurate, we ll cotiue to use the traditioal S&OP acroym to ecompass this more iclusive set of activities. 1
Key Teets of the agile S&OP eviromet for today ad tomorrow Proactive demad maagemet, which ivolves the use of sophisticated aalytics to predict demad ad shape it ('make what we sell, ad sell what we make'), versus simply reactig to sales ad cotiuig to smooth forecasts Near zero latecy betwee plaig ad executio, where a more cotiuous process is used rather tha stoppig at the 'traditioal' mothly cycle. This requires owership of the issue ad a sese of urgecy. Automatig as much of the decisio makig process as possible by embracig the 'low touch', itelliget supply chai, where maagemet attetio ca be focused o critical issues ad exceptios A sigle operatig pla for the ed to ed supply chai Explicit plaig ad deploymet of ivetory across the system Achievig high ad committed levels of customer service for those customers ad chaels that matter. This icludes those elemets, such as out-of-stock situatios ad out-of-date repleishmet policies that cotribute to poor customer service. Achievig fiacial results ad targets, which are the primary objectives of the compay Plaig for all types of product ad ivetory, icludig spares, cosiged, ad what the compay is liable for A isistece o as-ear real time data accuracy from across the system because decisios without accurate data are guesswork What-if' aalysis ad scearios that eable quick ad accurate decisios A caveat here: i may idustries, where demad is relatively stable, the supply chai is relatively straightforward, ad disruptios are few, the traditioal S&OP process is likely to be fie ad relevat. While S&OP practices i may compaies have ot evolved too much over the last several years (for example, it s oly recetly that some compaies have bee explicitly cosiderig ivetory as part of the equatio), may leadig compaies are fidig deep competitive advatage i improvig ad expadig the S&OP fuctio. This competitive imperative is drivig several compaies eve with simpler supply chais - to recosider their approaches to S&OP. The obstacles to gettig there are also commo: coflictig metrics, lack of skills, a fragmeted data eviromet ad iadequate aalytical tools, lack of iformatio from across the exteded supply chai, ad a midset that focuses o the process itself to the exclusio of urgecy ad speed of decisio makig. The biggest ad most commo problem, though, might be the lack of a visio of the future state. Too ofte, the idividual fuctios focus o meetig idividual objectives ad metrics, istead of comig together to address the demad-supply, ivetory ad customer service issues with a commo strategic framework ad solutio. The first step, the, is to step back ad formulate what a agile S&OP process looks like from the eterprise view, ad the act o it. Compoets of a Successful Agile S&OP: Framig ad Executig the Visio Differet compaies' products, customers, suppliers, ad product flows typically have both sigificat variaces ad sigificat commoalities amog them. While processes ad metrics should be specific to the orgaizatio, it ca be a waste of time to re-ivet the wheel at every stage. There are leadig edge stadard good busiess practices that form the basis of a successful agile S&OP desig. This should ot be a complicated process, but a measured ad well implemeted oe, that addresses five key areas. 2
A. Orgaizatio ad accoutabilities: A operatig model, with clear accoutabilities ad authority, that deals with costat volatility with a sese of urgecy For may compaies, the sigle largest obstacle to achievig a agile S&OP eviromet is the fudametal desig of the operatig model ad orgaizatio. The first step is the obvious oe: clear idetificatio of the executive sposor(s), maagemet, ad operatioal accoutabilities ad resposibilities. This requires a cross-fuctioal agreemet at the executive maagemet level. It requires a uderstadig that the S&OP orgaizatio must be plaed with a strategic perspective ad a view of iformatio, isight, visibility, ad coordiatio across the supply chai, icludig upstream ad dowstream views as well as cross-product ad/or busiess uit (BU) views. Equally importat, it must be see as a real time fusio of plaig ad executio, ot a mothly plaig exercise. Most of the key teets i the desig of a agile S&OP operatig model seem pretty obvious: multi-fuctioal executive sposorship, specific accoutabilities, ad omiatig a head of the process. But oe of the key actios ofte igored is the clear executive (preferably the executive team) commuicatio to the orgaizatio outliig the key accoutabilities, objectives, scope of resposibilities, team to desig the process, importace to the compay, ad what s expected of the other fuctios. This is a first step to esurig success. B. Process ad metrics: Drivig towards low latecy ad coordiatio Amog the major challeges i executig a resposive agile S&OP fuctio are icludig other fuctios for isight, decisios, ad executio, gettig the right iformatio, assessig ad evaluatig this iformatio ad the supply chai impacts, ad havig decisios made i a rapid ad timely fashio. Ideally, orgaizatios should adopt a itegrated, comprehesive S&OP ad iterlock process with daily updates, likig plaig with executio. The process should be ear cotiuous, ad drive towards zero latecy betwee iformatio ad executio. Show below is a example of a plaig process that is itegrated, close looped, ad focused o executio ad measuremet. This is ot a ew process, but a ehaced versio of the traditioal S&OP process, emphasizig urgecy, decisio makig, ad focus. It explicitly icludes ivetory, fiacials, BU cosesus, ad the customer, ad relies o timely iformatio, what-if aalysis, ad joit ad rapid decisio makig. Some of the major desig criteria are show here. Equally importat, the process must focus o the thigs that are strategic, importat ad require full attetio leavig the rest to automated rules ad auto-executio. The metrics (show here) must address overall busiess metrics (for example, cash-to-cash) as well as specific operatios metrics (such as days sales ivetory a forward lookig ivetory measure) dealig with the customer, liquidity, risk, ad costs. Critical desig criteria Orgaizatio(s): Should there be differet plaig fuctios by BU ad supply chai segmets (for example, Egieer to Order vs Build to Stock)? Ad, if so, how should they be aliged ad itegrated? After all, a strategic goal should be simplicity i operatios! Commo suppliers, commodities, ad customers usually mea commo processes. Structural factors such as customer segmetatio, busiess model, geography ad product characteristics Iteractio with itegrated supply etwork plaig, global trade maagemet, logistics ad fulfillmet strategies Plaig chages with differet supply chai segmetatio strategies Philosophy of make what we sell AND sell what we make i.e., providig the iformatio to sales ad marketig for demad shapig to deal with ivetory excesses ad shortages Metrics must be aliged ad appropriate for success. Example metrics to prioritize: Availability O-Time Delivery (OTD) to customer request or eed Time ad costs to recovery Fulfillmet costs stadard ad/or expedited by customer segmet Costs-to-serve by customer segmet Ivetory (Day Sales of Ivetory or DSI, turs, ageig, costs) Customer satisfactio Order to fulfillmet lead times by product 3
The Ehaced S&OP Process; Flow ad Operatio Mothly Process + Weekly Iterlocks + Daily Updates Aliged Operatioal Pla Budgets Fiacial Plas Corporate S&OP Summary Proposed Operatioal Pla Uresolved Issues Supply Actios Demad Shapig Actios Plaig BOMS Compoets Commodities S&OP Costs Re-Pla Chages to Demad Pla for What-If Aalysis Forecast based o: Demad Triggers Orders, POS, Sell- Through ad Cotracts Customer Sigals NPI ad Marketig Projectios: Phase-I ad Phase-Out Bottoms Up Sales Plaig Historical Data Usig Statistical Aalysis, Predictive Aalytics Tools Supply Risks ad Mitigatio Pipelie Ivetory Ageig, Trasfers ATP, Committed Supply Positio Chael ivetory Customer Sites Spares ad After Market Service Ceters Fiacial Review BU Cosesus Supply Plas Backlog Plas Ivetory Plas Fiacial Targets Aalytics ad What-If Tools Supply Plaig Demad Plaig Ucostraied Demad Plas Sales Operatios Global Plaig Product Lie Maagemet Fiace Procuremet IT Key Participats Chaels ad Customer Suppliers Supply Efficiecy ad Respose Resiliecy Busiess Results Fiacial, Workig Capital Real-time, What-If Sceario Aalysis ad Decisio Demad Sesig ad Itelligece Customer Satisfactio Ease of Doig Busiess C. Aalytics: New aalytics ad tools to predict, aalyze, ad make superior decisios With ew capabilities i collectig ad maagig a wide variety of data (icludig sesor ad equipmet data, parter data, ad ustructured data), ad the use of more sophisticated aalytics tools ad techiques, maagers ca achieve ew levels of uderstadig of what is happeig i the supply chai i real time, as well as aalyze the optios ad their impacts, eablig them to act more quickly ad with greater flexibility. This is a high level of decisio support capability where differet attributes of supply, demad, availability, fiacial targets, predictive modelig ad what if tools are used to rapidly evaluate optios ad trade-offs. I the agile S&OP eviromet, iformatio ad aalytics must uderpi everythig. The core of these tools geerally falls ito two major categories: Predictive aalytics for itelliget forecastig ad demad sesig usig all aspects of demad, icludig cosumptio, poit of sale, usage, chael eeds, market factors, ad customer behavior by segmet ad geography to determie likely future demad. What-if ad sceario modelig ad aalysis for demad ad supply scearios. This eables decisio makers to evaluate differet optios to arrive at the best operatioal set of decisios that trade-off ad achieve the key objectives of total cost, ivetory, ad customer satisfactio at miimum risk. 4
Obtaiig these tools ad capabilities would appear to be a dautig ad time cosumig task i terms of people ad time. However, waitig for them is ot a good optio. A good way to star t immediately is to develop spreadsheet based tools liked to real time data as much as possible. For the rest, rely o seakeret. What compaies ofte fid is that such a approach gives their people experiece ad expertise i the process, i what works ad what does t, i the types of iformatio ad aalysis they really eed. Ad, i some cases, compaies have foud this to be a perfectly adequate solutio. The key is gettig started ad ot postpoig chage i order to wait util a perfect toolset is implemeted. Key elemets i 'what-if' modelig ad aalysis Fulfillmet costs, icludig stadard ad expedited costs, small shipmet costs, cosolidatio ad partial shipmets Supply sources, costs, costraits ad chages, pealties Customer chages, cacellatios, orders, potetial orders, ad other demad variables Lead times supply to fulfillmet Fulfillmet models ad customer service levels Excess ad obsolete, ed of life, ed of service life ivetory Ivetory deploymet ad postpoemet, icludig spares ad service D. Iformatio, data ad techology: The glue of the supply chai Iformatio accurate, complete, stadardized, ad real time (or as ear real time as possible) is the glue of the supply chai ad its currecy. The Eterprise Resource Plaig (ERP) system eviromet is a key elemet i brigig the eterprise together ad coordiatig activities. But there are some issues residet at most orgaizatios: Multiple systems: May compaies are saddled with a variety of ERP systems, whether they are differet systems or differet istaces of the same system. Added to this are various parter, chael, ad customer systems. This makes itegratio a key issue. Pre-cofigured process maps that ca be customized quickly, ad itegratio tools ad capabilities ca be useful implemetatio accelerators. The applicatio portfolio must be coordiated, cosolidated, harmoized, ad implemeted fast ad well, ad maitaied to reflect chagig coditios, process ad market factors. Table stakes ad differetiators: While ERP systems are core to the eterprise i.e., table stakes, the key techology differetiators i the market are the aalytics ad modelig ad maagemet iitiatives that drive class A data accuracy ad itegrity. It is vitally importat to uderstad that techology is ot a solutio, it is just a eabler! O the other had, ew developmets ad iovatio i techology ca drive chages i process. The busiess strategy must always lead the solutio; the huma elemets of orgaizatio, adoptio ad goverace are essetial, ad the processes must be aliged to goals. Techology follows ad supports the solutio, ca occasioally drive aspects of the solutio, but it is ot the solutio itself. Key iformatio systems ad techology eablemet desig poits Supplier ad parter coectedess ad data itegratio with suppliers, providers, chaels, ad customers Class A accurate data alog the supply chai Supply chai ad pipelie visibility Systems fuctioality that ca aticipate tomorrow s eeds Ad-hoc ad flexible reportig Dashboards ad as-ear-as-possible real time status ad iformatio Rapid implemetatio ad itegratio of systems, with a Miimum Viable Product (MVP) philosophy, ad quick time to beefit Use ad itegratio of mobile techologies ad trackig ad tracig techologies alog the supply chai Leveragig all the structured ad ustructured data i the eco-system 5
E. The exteded eterprise: Embrace the exteded supply chai etwork A agile S&OP process must iclude the key players i the exteded supply chai etwork. Some leadig compaies have certai critical suppliers ad chael parters preset i S&OP discussios. This icludes suppliers, cotract maufacturers ad co-packers, third-party logistics ad lead service providers, chael parters ad fulfillmet parters. The key here is the iformatio, capability, ad decisios to sychroize the supply chai ad respose to chagig coditios. While collaboratio ad shared visibility improve decisio-makig performace ad speed, parters ca also be used to gai expertise beyod the iteral compay's raks. After all, they are o the frot lies, probably pursuig their ow supply chai optimizatio efforts, ad ca share iformatio o treds, market isights, their ow best practices ad learigs i the S&OP process. Collaborative plaig, deploymet, repleishmet, ad fulfillmet haress the power of may to provide a agile supply chai. No uecessary excellece May compaies believe they should be good at everythig to succeed i the marketplace. It's importat to remember that the smart orgaizatio prioritizes its S&OP metrics, focus, actios, ad capabilities to achieve the thigs that matter i terms of customer service, ivetory, costs ad supply stability. We believe that it is best to have a philosophy of 'o uecessary excellece', focusig o those metrics ad actios that are importat to the compay, shareholder outcomes, ad the customer. 6
Gettig started ad executig Every compay has a lot, if ot most, of the pieces i place. The key is to build o this, icorporate the basics, ad the exted the process ad operatio to the ext level. Equally importat is implemetig i 'chuks', while learig ad revisig ofte called the Miimum Viable Products approach. Settig the stage: This is the critical first phase gettig the orgaizatio ready. It requires gettig ad publicizig multi-fuctioal executive sposorship, appoitig a corporate S&OP or plaig head, idetifyig a small multi-fuctioal core team, specifyig objectives ad metrics, ad the commuicatig this very clearly to the orgaizatio. Buildig o what we have ad icorporatig the basics: This meas takig the existig S&OP structure ad buildig o it to develop the ehaced process. It also ivolves defiig ad gettig the ecessary data from the ERP systems ad the exteded supply chai by 'seakeret' if ecessary, startig the defiitio ad developmet of the ecessary aalytics ad 'what-if' decisio support (spreadsheets are a great way to start), defiig owers, resposibilities, ad the executig the process. It must be uderstood that there will be iitial problems, disagreemets, false starts, ad the process will be refied ad revised. But it is essetial to start ad move quickly. This stage will also iclude settig the techology requiremets, data requiremets, what systems eed to be ehaced, ad what ew capabilities are eeded. Ad, give the ew operatig philosophy, ew people are likely to come ito the process ad all the participats will eed to be educated ad traied. A critical part of this stage is reportig results ad metrics to seior executives. After all, everyoe looks for 'quick wis' to validate their decisios. Extedig: Oce the process is movig smoothly, orgaizatios will eed to exted the S&OP process to iclude ew techologies, itegratio, ad systems fuctioality. A critical aspect of extedig is egotiatig with ad icludig the major supply chai parters such as logistics providers, key suppliers, ad chael parters. Ad, all the while, refiig the process ad structure. Coclusio Chage, ot stability, is the true reality of supply chai operatios today. Every compay is depedet o the actios, capabilities, ad respose of its supply chai parters. Urgecy, speed of respose with high fiacial performace ad customer satisfactio, is the actio imperative i other words, the resposive, agile, resiliet, ad proactive supply chai. The agile S&OP process is the egie for achievig this future state. About the Author Chris Gopal, Lead Parter Chris works with the Supply Chai Maagemet Trasformatio Practice of the Eterprise Solutios uit at Tata Cosultacy Services (TCS). He is a expert i global supply chai strategies, maufacturig ad outsourcig, demad ad supply plaig ad maagemet, operatios executio, process trasformatio ad improvemet. He is the co-author of three books, icludig 'Superchargig Supply Chais: Creatig Shareholder Value through Operatios Excellece', ad has bee recogized as a global thought leader o topics related to supply chai ad operatios maagemet. 7
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