Even before the crisis emerged in 2020 and forced them to take action, organisations had started to recognise and experience the many benefits of optimizing their S&OP process. In the main, this was as a tool for balancing supply and demand. Now, as we shift to a phase of recovery, the current environment demands even greater resilience and adaptability in order to succeed. As a result, it’s more essential than ever to fine tune planning processes to accommodate uncertainty.
The pressure on working capital has never been greater. Inventory ties up your cash, but reducing stock requires a fine balancing act. Minimising your stock holding to only the inventory you actually need and still achieving great sales isn’t easy. Running tight and holding just enough units to service current demand creates the risk of stock-outs, which leads to low service levels and negatively impacts on sales. The resulting service issues also lead to firefighting which in itself creates operational costs.
Effective S&OP and inventory optimization both have a significant impact on resilience and adaptability. The benefits of which are felt in increased stock turn and improved cash flow. But what does S&OP actually involve?
Five elements of S&OP transformation
Management consulting firm Oliver Wyman have identified what they see as the five key elements of any S&OP transformation:
Strategic supply chain segmentation. Grouping customers and products based on profitability and supply-chain needs enables companies to meet customer requirements and manage their service costs. Service policies like lead-time and minimum order quantities should also be aligned end-to-end along the supply chain.
Improved demand planning. Optimized methodology establishes clear S&OP fundamentals taking into account the horizon, granularity and frequency of each step along the supply chain. Shared and connected data streams with end-to-end forecasting input across the organisation will maximise potential from insights around market trends, new product launches, promotions and competitive considerations.
Disciplined production scheduling. Developing capabilities will allow for optimized production throughput and cost whilst achieving desired service levels. Production plans should be refreshed at the appropriate frequency and production schedules followed.
Agile Supply Management. Securing supply sources, optimizing lead times and managing multi-sourcing strategies will mitigate risks. Comes back again to strengthening the supply chain through building strong, agile relationships with suppliers.
Streamlined Output. Aligning manufacturing strategy with product segmentation to simplify and create more focused product lines allows for efficiency to be prioritised whilst retaining agility where necessary.
Dealing with uncertainty
Using a data-driven approach will help you to identify the drivers most valuable for business improvement. The ability to act on these will create a leaner, more resilient wholesale/distribution business.
There’s no ‘I’ in S&OP, but there should be. Inventory optimization has a direct impact on EBITDA – ensuring product availability whilst reducing inventory levels; leading to increased sales through improved service levels and releasing crucial working capital.
S(I)&OP, when done well, can give your organisation a tactical advantage over your competition, which is currently more valuable than ever.
The benefits of visibility
Synchronising supply and demand planning initiatives provides visibility, insight and control across your organisation. This ensures everyone is working from a single version of the truth and pinpointing priority areas for attention becomes much easier.
The AGR software provides effective processes for your S&OP transformation and makes it simple to optimize inventory around the current priorities of your business. Get in touch today to see just how much of a difference it could be making to your resilience and adaptability.