SALES & OPERATIONS PLANNING
Next Generation: Beyond
Demand/Supply Balancing
It’s been another year of
exciting times within supply
chain management, especially
with regard to S&OP—as we
continue to improve upon a
35-year-old process of balancing demand and supply.
Approximately 85 percent of
supply chain management
professionals around the
globe say they are exercising
the S&OP process (informal
polling of approximate-
ly1,000 execs over the past
year). About 65 percent of
those professionals are positioned in Stage I or II of
AMR’s (now Gartner) S&OP
Maturity Model. While this is
positive news, it’s clear that
globalization of our supply
chains requires more than
just S&OP basics.
hat does it mean to move beyond S&OP basics? A company
moves successfully through Stages I & II of the Maturity
Model by covering key goals: developing an operational
plan and Demand/Supply Matching. This work tends to be
internally focused, within the four walls of the organization. Stage III, Collaboration, requires entirely new skill sets and tools. Companies begin to collaborate
with customers and suppliers outside the four walls. In this stage the goal of S&OP
turns to “Profitability”. Moving into Stage IV, Orchestration, sees companies managing a global supply chain, requiring collaboration with other contract manufacturers and orchestration within multiple countries. At this point uncertainty,
complexity and risk become much more prevalent within the S&OP process.
• Uncertainty. Demand and supply uncertainty have been with us all along.
From a demand point of view we’ve deployed tools and processes to reduce
the uncertainty, especially within our own four walls. However, our average
MAPE (Mean Absolute Percent Error) is still 35 percent at the SKU level. On the
supply side of the equation we continually wrestle with new sources of material
in exotic locations, continually expanding our supply chains leading to longer
lead times and additional opportunities for disruptions.
• Complexity. It goes without saying that as supply chains expand around the
globe, complexity increases: additional nodes within networks, longer lead times,
higher probabilities of disruptions and errors, and so on. As a company’s market
share grows it tends to do so linearly, meaning they take a product portfolio and
extend it to serve new markets. This serves to increase supply chain complexity.
• As companies grow around the globe it’s obvious that their risks increase. Yet
there are only a handful of companies who are currently injecting these risks
overtly into their S&OP process.
W
The Outlook
—Gregory L. Schlegel, adjunct profes-
sor, supply chain risk management,
Lehigh University Graduate Program
In 2012 and beyond, we will be forced to effectively manage uncertainly, complexity and risk within our S&OP process. Look for increased focus on product
rationalization and customer segmentation. We also expect exemplar S&OP
teams to develop Total-Cost-to-Serve models, a technique that will highlight the
“new product/customer portfolio” and ensure cost-effective supply chain
strategies to serve the global footprint. Finally, look for S&OP teams to embrace
Scenario Planning utilizing Predictive Analytic Engines to statistically evaluate
global “what-if” scenarios across their supply chains. The outcomes will profile
probabilities of occurrences for each scenario and a risk factor associated with
each scenario—resulting in first-time Risk Response Plans to combat uncertainty, complexity and risk.
