How to adapt S&OP to 2021 supply chain challenges?

Updated: Mar 5, 2021

In last article, we summarized 5 supply chain challenges to watch in 2021. Here is an ultimate guide to how these 5 challenges might affect Sales and Operations Planning (S&OP) process.

Sales and Operations Planning, often abbreviated to S&OP, is a common process nowadays conducted by executive-level management professionals to balance supply and demand as well as provide the link between strategic and business plans.

Back to 1980s, most companies suffered from pressure to on-time delivery and accurate, detailed financial reports to investors. Within one company, separate departments were operating in silos: Productions would be working on production plan, Sales would be working on demand forecast, Finance would be working on budgets and reports. Typically three sources of information were discordant with each other, which caused lost benefits and objectives for the company.

In 1984 Dick Ling created S&OP with the aim of bridging the gap between sales forecast and production plan to ensure forecasted production and distribution could be met, company goals were able to be realized.

We now live in a world where timely delivering products and services under pandemic changes is vital. S&OP, as the umbrella process for a variety of decisions to balance supply and demand, should adapt to 2021 supply chain challenges correspondingly to ensure it is as effective as attainable.

How to adapt S&OP to Disruptions and Changes?

2020 was the year that businesses and supply chains have been disrupted by the pandemic unanticipatedly. The future is always uncertain, perhaps now more than ever.

  • Build up resilience and flexibility in Demand Review and Supply Review steps to mitigate destructive impacts.

  • Apply and strengthen Scenario Planning in Pre-S&OP step. It is a best practice to use scenario planning to support decision making under uncertainty.

  • Take risks and opportunities from external environment such as macroeconomics, geopolitics and government regulations into consideration.

How to adapt S&OP to Omnichannel Establishment?

Normally business strategy formulated and executed has a gap in terms of time horizons, business intentions, department functions and lack of information visibility. Establishing omnichannel is a common strategy under pandemic situation to secure sales target.

  • Ensure S&OP alignment with corporate business strategy. S&OP cycle should be adjusted with business strategy as well as supply chain strategy correspondingly.

  • Extend partnership across the value chain, including all upstream and downstream stakeholders. Once new channels are set up, market demand and demand forecast of aggregated and separate levels deserve refreshed review which requires smooth communications among departments.

How to adapt S&OP to Employee Competencies Development?

As working from home and virtual meeting have become the new normal in 2020 for all walks of life, without doubt that 2021 is keep going in this way.

  • Pay attention to the human side within S&OP cycle. Companies are recommended to organize online training sessions relating to S&OP software tools and various forecasting methods so as to bring trust and upskilling to secure talents.

  • Sponsor stable and advanced virtual meeting systems to support the regular pre-S&OP and S&OP meetings.

How to adapt S&OP to Adding the Value of Data?

With a growingly volume of technologies and applications are acquired in supply chain value stream, substantial amount of data is generating every second. However the tangible value of generated data is greater than it has ever been perceived.

  • Fully leverage the value of data to enable successful fundamental Forecast Generation step. During this step, historic data cleansing is a key point which requires accurate historic actual sales data and lost sales data. In general, these two aspects are tough to achieve thoroughly because of time consumption and lack of track. Supportive data input will allow S&OP forecast data become more solid and transparent.

  • Enable up-to-date data to reflect financial impacts. During Scenario Planning process, companies are eager to link best-worst what-ifs with dollars to directly indicate consequences. 2 Typical methodologies are Unit Cost approach and Cost-to-Serve approach. With constant data update, finance plans and budgets could be integrated with S&OP cycle.

How to adapt S&OP to Technology Evolution?

In Industry 4.0, Autonomous Mobile Robots (AMR) and Artificial Intelligence (AI) are contributors for improving efficiency. Drones and driverless vehicles start to be used in delivery service, RFID and IoT are attached to transportations for position and status tracking, algorithms are written to predict human behaviour.

  • Automate time-consuming and complex tasks to free up forecasting teams time and allocate human resources on more value-added tasks such as scenario design and decision making.

  • Generate insightful options by introducing AI S&OP tools to increase responsiveness of the supply chain system.

Most companies are keen to improve their supply chain so that they can assure delivery performance and short lead times. Yet companies become aware that current systems are not resistance or flexible enough, this often happens because their S&OP processes are not adapted to the new challenges.