Bridge the Gap Between S&OP and Real-World Operations
Bridge the Gap Between S&OP and Real-World Operations
Mahesh Veerina, CEO, ParkourSC
We live in the world of ‘never normal’ business operations due to frequent, high-impact disruptions like geopolitical tensions and port lockdowns and congestion that inevitably increase supply chain costs, impede product flow, and lead to stock-outs.
In the face of continued volatility and risk, supply chain executives are beginning to recognize that their current approach to planning and operations is not delivering the agility and resilience they need to run operations effectively while resolving excursions and absorbing major disruptions. Instead, many organizations are realizing the benefits of more focus on Integrated Tactical Planning to handle unplanned events in the real world and minimize the impact of disruptions.
“If We Just Had Better Plans”
Most supply chain executives continue to dedicate a majority of their budgets to improving processes and applications used for Integrated Business Planning (IBP) and Sales & Operations Planning (S&OP). The prevailing wisdom is, “If we just had a better set of plans, we could manage supply chain operations more effectively despite disruptions.” However, while IBP and S&OP have been standard practice for many years, Gartner reported in May 2022 that 68% of supply chain leaders stated that they are constantly responding to high-impact risk events for which they weren’t prepared.
The reality is that traditional IBP and S&OP processes and applications – though useful – were not designed for the volatile business environment that we live in today.
Traditional Planning Needs A Real-World Counterpart
Traditional IBP and S&OP planning processes, along with associated applications, have not evolved fast enough to anticipate disruptive events and help companies understand and navigate the real-world impact on product flow, revenue, and costs. Processes for S&OP depend on historical data, snap shots of static data at a given point in time and rigid time-bucketed planning fences.
As new technologies such as in-memory computing emerged, planning platforms started to drive hybrid solutions that considered historical time series with periodic repeated planning periods like holiday events and seasonal events. Machine learning algorithms were used to superimpose the effects of these events with time series forecasts as a baseline. The results are usually still sub-optimal and the accuracy of plans, forecasts, and schedule attainment are not meeting business expectations.
As we have all seen, we live in unprecedented times, which means that historical data can’t provide sufficient guidance to supply chain executives about how to recover from unplanned events. In short, today’s planning applications don’t fill the gap between theoretical models and real-world requirements when disruptions render the standing plan no longer valid.
Gartner and Maverick Research Recommend New Technologies and Processes
Gartner recently issued a new report, “Maverick Research: The Digital Era — The End Of S&OP?” that suggests, “Supply chain planning leaders need to rethink how they do supply chain planning and leverage technology advancements as enablers.” Supply chain planning applications and technologies have dramatically improved over the years but have reached their limit of accuracy and optimization.
Real-time signals from product inventory and movement along with shipment movement, days of coverage, bulk safety stock, finished goods inventory, changing product allocation priorities, supplier risk signals etc. need to be part of the dynamic planning process and not just handled by operations. This is where Integrated Tactical Planning (ITP) comes in. ITP does not replace your strategic planning functions but focuses on the shorter term outcomes from daily and weekly disruptions and demand changes to create the best business and financial performance.
The ITP practice and processes bridges the gap or variance between strategic planning and the myriad of disruptions encountered in daily operations to improve supply chain resilience and agility. ITP helps by defining appropriate business rules and a "quorum" of people to quickly adjust operations when things don't go according to the theoretical plans used to run supply chain operations.
Gartner defines three changes to your planning process that can help your supply chain planning work better in the real world. Their recommendations are:
- Move from cyclic planning to continuous planning. Monthly, quarterly or annually planning does not take into account the short term changes that may drastically affect your long term plans. This does not mean replanning for every crisis but segmenting each disruption or change into either a tactical issue or strategic business issue, then replan as needed for strategic issues. This change leads to their second and third recommendations.
- Focus on decision impact vs planning horizon. Instead of segregating decisions based on short term or long term horizon; i.e. operations can make supply chain decisions on daily or weekly issues, planning can make decisions on monthly and quarterly issues, and management makes decisions on annual issues. Decisions should be segregated by how much business and financial impact the decision will have. If there is a shortage of products, the decision for allocation should be made by the business and customer success management on who is a priority customer or has a more urgent need. Although this may be a short term issue, operations may not have the information to make the best decision for the business.
- Focus on Creating Business Rules and Priorities instead of Volumes and Targets. Along with planning horizons, the current focus of planning is on volumes and targets, and then adjusting them to resolve any real-world problems. Instead, the focus on supply chain decisions should be on priorities and automating business rules. Not every crisis should involve cross functional meetings, manual rush orders or changes in schedules, This leads to lower productivity and much higher costs. Setup automated rules based on business priorities so certain crises or disruptions can easily be taken care of while cross-functional teams focus on high impact decisions.
To implement these recommendations, companies should move to ITP combined with a cross functional and multi-company command center.
ITP Command Centers Drive Agility and Resilience
Gartner defines a command center as a multi-company, cross functional platform used across the entire supply chain. It encompasses the products within four walls of the company, including in production facilities and warehouses, as well as the product flow in-transit between supply chain entities.
It provides monitoring, AI decision intelligence and most importantly, automated actions from alerts for actual execution. Command centers allow organizations to move beyond the relatively limited capabilities of control towers, where users can see issues happening but can’t address the problems that arise through the system.
ParkourSC provides customers with a digital supply chain operations platform that delivers the full range of capabilities of an ITP command center. The platform not only monitors the end-to-end supply chain – in real time and in the real world – but also embeds advanced intelligence that continuously assesses the performance of operations and predicts potential issues before they arise. Organizations can easily implement ITP practices by using AI models and business rules that trigger automated standard operating procedures and re-planning processes when theoretical plans no longer align with on-the-ground operations.
Essentially, with ParkourSC, the organization can set up “real-world execution plans” to improve supply chain agility and resilience.
- When a significant unplanned event occurs, like a major supply disruption, a strategic quorum uses these real-world execution plans to assess their options and quickly change how an activity is executed in supply chain operations. This boosts supply chain resilience.
- The ParkourSC platform can help orchestrate demand and supply imbalances and help right-size or optimize bulk safety stock, finished good inventory across internal and external nodes of the supply chain. It can account for manufacturing variabilities, variabilities in lead times, along with safety stock and other parameters to help optimize production in a given time window. These parameters and business rules can be modeled to drive the best outcomes, like higher shelf life for finished goods and minimizing waste while ensuring higher revenues and profit margins.
- In some cases, the organization may choose to automate a workflow and allow the ParkourSC platform to make a change automatically. For example, logistics managers can reasonably expect that shipment delays will happen on occasion, so they can use a recipe that automatically adjusts the cooling function of a delayed package to ensure the product stays within compliant temperature ranges until delivery is completed. This enables supply chain agility.
Integrated Tactical Planning coupled with an end-to-end command center can move beyond the S&OP and IBP to better meet the needs of the real world in real time.
Contact us to evaluate how a command center can bring your planning into the real world.
For a more technical viewpoint of this revolutionary change, you can go here.