Covid-19: The Lessons for S&OP
5 Ways to Achieve Supply Chain Resilience
React, Recover, Realign
As Covid-19 and lockdowns swept the globe, unprecedented demand disruption followed, and businesses needed to react. Long laid and intricate demand and supply plans were torn up, tossed aside and needed to be reformulated within hours. With little time to run full S&OP cycles, many C-level executives were left re-planning their businesses in Excel despite multi-million-dollar investments in planning systems.
Then, almost as soon as we were through the initial reaction, the challenges of the recovery phase were quickly upon us as it emerged that different cities, states and countries were reopening at different speeds and even prioritizing different sectors. How this would translate into demand was almost impossible to predict, so we find ourselves in need of constant “sensing” of external data at a granular level, such as mobility trends, consumer confidence and even the financial health of our customers and suppliers to help us plan.
At an unknown time, we will enter a final realignment phase as we return to normal. Just as we were forced to abandon historic data on the way into the crisis, we will have to realign history on the way out. However, as the dust settles, the biggest challenge for planning leaders may well be the looming executive post-mortems into why our S&OP processes were not better able to respond.
Should S&OP Have Performed Better?
One thing that’s certain amongst the current melee of uncertainty, is that companies will take a stark look at how S&OP met the challenges of the Covid-19 shock. To use a highly simplified analogy, when cities in the world are forced to shut down with a mere dusting of snow, other cities such as New York or Chicago are able to effortlessly blast aside mountains of it. This is an indication of snowfall resilience and so post-Covid, we can expect to see a refocus on supply chain resilience.
Supply chain resilience comes in the form of network resilience and also S&OP (or process) resilience. Because S&OP is the organization’s brain, it needs to be ready to lead the response in any crisis. Since the dawn of globalization, supply chains have become increasingly susceptible to shocks; as their global reach increases, events anywhere in the world can impact on seemingly local supply chains.
It is snowing more often and we are certainly receiving more than a dusting.
So, in the post-mortem, we must ask not just whether S&OP is fit for purpose but also whether the definition of fit for purpose has just shifted. The “steady state” systems of yesteryear are simply not cutting the mustard. The good news is that the ROI for upgrading S&OP is very compelling. The capabilities required to respond to shocks are the same capabilities that allow speedy and effective planning for the challenges we face on a daily basis (promotions, price changes or capacity changes to name a few). So, by upgrading S&OP, we are not just buying disruption insurance, but we are also making the daily ‘planning brain’ of our business more effective. We need only look to companies like Amazon and Apple to witness the competitive advantage that can be gained from network agility and planning resilience. While their supply networks were disrupted due to the sheer scale of Covid-19, they fared extremely well compared to peers and remain global leaders on a day to day basis.
5 Ways to Prepare for Shocks and Improve the Day to Day
There are five key capabilities that will enhance day to day planning while also making us shock resilient. The importance of these capabilities is often underestimated when designing S&OP for the “steady state” but their critical importance in helping us to react to shocks is almost always discounted due to the perceived infrequency of ever-increasingly frequent shocks.
- Top down planning / Executive overrides
- Top down planning is essential for rapidly modeling new assumptions as the landscape changes.
- Having quickly modeled these new assumptions, executive overrides can be implemented to adjust demand in a cascading basis at the click of a button.
- Day to day, top down planning also lends itself to modeling the launch of new products and entry into new markets where macro assumptions are key.
- Event management / Scenario planning
- After the initial shock and the use of executive overrides in a somewhat blunt manner, we need to begin responding at a more granular level. This requires the ability to simulate multiple events and scenarios which can be approved at the click of a button.
- Day to day, event management and scenarios are also best practice for planning daily requirements such as promotions, pricing, demand shifts, capacity changes, and supply shortfalls.
- As we shift to more granular event management and scenario plans, we need a more granular approach to approving changes to the plan. To support rapid response and decision making, adjustments that do not have an impact requiring executive signoff should be approved via local workflows.
- Day to day, this moves the S&OP process from being a static cadenced process to a “living” plan, supported by real-time response and empowered decision making.
- Insights enable us to effectively transition from executive overrides to more granular scenarios. Insights are gained through the visibility of relevant and timely information.
- This is not only critical in a crisis but, day to day, better supply network visibility is critical as the foundation for more agile and resilient supply chains.
- Demand sensing and Artificial Intelligence
- The challenge with total visibility is in being able to transform mountains of data into information and insights. There is no silver bullet here but strong demand sensing and artificial intelligence where applicable can help to connect S&OP to the pulse of the market in day to day and crisis modes.
Global networks need to be more agile and resilient in the face of more frequent storms. As planning is the backbone of any response, S&OP also needs to be more resilient and agile. This requires augmenting current capabilities.
But it might not just be the day to day and the next storm that we need to prepare for. There are likely to be structural supply chain shifts post-Covid. We will potentially see network de-risking with trends towards near-shoring and multi-sourcing in the quest for resilience. And there are likely to be many aftershocks including geo-political tensions and supplier bankruptcies.
So, we need to invest in planning capabilities to be more efficient day to day, to be ready for the next storm, and also to be able to plan for likely supply disruptions, structural shifts and geo-political tensions.