S&OP software application helps planning supply chains

Roger OakdenLogistics Management, Logistics Planning, Procurement, Supply Chains & Supply NetworksLeave a Comment

Logistics planning stress

S&OP is not ‘software driven’

To achieve success, the implementation of Sales & Operations Planning (S&OP) requires a change in an organisation culture towards greater collaboration; managing implementation of the new process and third (and to a lesser extent) implementation of software applications.

The previous blogpost discussed why your organisation should implant S&OP as the ‘heart’ of the business. This blogpost discusses applications software requirements to assist the S&OP process. Initially, S&OP will most likely use data generated from your organisation’s ERP system and run Excel spreadsheets, email and PowerPoint slides. While these tools do not allow supply chains to be modelled, nor multiple scenarios developed, or answer ‘what-if’ questions, or provide collaborative workflow and exception messaging, accept these limitations. Getting the S&OP process working is more important.

Specify requirements

It typically takes about six months for participants to feel comfortable with the change in culture and process, so this time should be used to specify the application requirements.

Within the document, always commence with the desired business outcomes, then identify the expected role of the ERP system and its relationship to S&OP. A future system structure could have ERP as the transaction backbone, containing an audit trail of all transactions, plus records for accounting, operations control and HR. Specialist Supply Network Analysis & Planning (SNAP) applications would interact with ERP to access the transaction data.

The diagram below provides an outline of the S&OP application software requirements, although the actual requirement for your organisation could differ.

S&OP Application requirements

Sales Planning

  • Demand Sensing: buying trends from sales data within each channel. Commissioned market research. External data inputs from social media, weather reports, surveys, etc.
  • Demand Shaping: incentive programs designed to increase customer and consumer demand. Includes product promotions, price reductions, trade and sales force incentives
  • Demand Planning: estimate of market demand and profitability; includes sales forecasts by product line/group aligned to each S&OP product family
  • Pipeline and backlog orders situation aligned to each S&OP product family
  • Marketing plans for product life-cycles: run-out, new and enhanced/upgrade product release timetable and product development pipeline

Supply Planning – Supply Markets Intelligence & Plan includes:

  • Supply Markets capability to supply, including current and expected lead times
  • Supplier capacity for supplied items

Supply Chains Network Map

The Map is based on four elements: Nodes and the Variables that can affect items at a Node, Links between the Nodes and Flows of items, money, data and information between Nodes and Links. The Map provides inputs to scenarios for analysis of supply chains at each forecast change, new product introduction and product end-of-life situation.

Logistics and Operations Planning – Inventory Policy & Plan includes:

  • Inventory value by location; analyse form and function
  • Allocation of Product lines to Product families for S&OP
  • Conversion of product unit of measure to standard unit of measure, for conformity
  • Product lines allocated to Product families in S&OP
  • Constraints: Material and component; Manufacturing capacity; Distribution capacity; Transport capacity and availability
  • Variability of demand and supply by Product family

Document workflow and Facilitate meetings

The administrative level of S&OP, to facilitate the connection of people and information:

  • Access to documents and sharing of data between participants
  • Download aggregate product family data
  • Facilitate meetings in a S&OP cycle
  • Post questions and responses from participants

S&OP Analysis and Workbench

Enables improved decisions at the S&OP Executive meeting through understanding the impact of alternatives:

  • Master Data Management consolidates date from multiple sources – by channel, customer and gross margin and by multiple time buckets (month, quarter, annual). Process to identify alerts and exceptions in the data
  • Modelling: to represent the organisation’s supply chains network system – more below
  • Financial analysis: impacts on gross margin, contribution, working capital and cash flow
  • ‘What-if’ (or sensitivity) analysis to identify the most influential variable in a model or scenario
  • Scenario Analysis: Create different scenarios e.g. pessimistic, optimistic and most likely impact on the future state of the organisation’s supply chains network; based on assumptions about product mix, new product introduction and end-of-life timings
  • Simulations: run multiple scenarios to predict how a system or process will perform under different conditions and the impact of risks and opportunities. This is the basis for predictive analysis
  • Workbench Output Plan for the next 3-9+ months horizon, to achieve a Demand – Supply balance, based on inputs from the above analysis

Modelling: of your organisation’s supply chains network. The types of data inputs for the model are:

  • key features of the supply chains (e.g., demand and demand variability, such as:
    • seasonal variability on inventory, capacity and resources;
    • achievable product mix;
    • capacity and inventory in manufacturing, warehousing and distribution
    • demand push and pull decoupling points
    • locations for postponement inventory
    • DIFOTA (delivery in full, on time, with accuracy) probabilities
  • trade-offs between purchasing volumes, material costs, production throughput, labour, warehouse capacity, transport availability, promotions and inventory etc.
  • constraints through the supply chains:
    • physical e.g. demand fluctuations and inventory buffers, critical suppliers availability; critical capacity and lead times, product mix impact on factory throughput, effective use of production lines, equipment maintenance requirements, labour availability by skill level
    • financial e.g. working capital and cash flow
    • policy e.g. inventory investment, sustainability requirements etc.
  • costs associated with demand and supply chains e.g., discounts and promotion activity, fixed and variable costs, marginal contribution and opportunity costs, input materials cost fluctuation, supplier volume discounts

Much of the data required will be maintained within individual SNAP applications, such as supply market and supplier details maintained in the Supply Markets Intelligence and Plan.

As data used in S&OP is available from multiple applications, Master Data Management is required to ensure that inputs are accurate before uploading to the S&OP Analysis and Workbench. This requires evaluation of customer and item masters, including units of measure, time horizons, bill of materials (BOM) structure etc. Also, the levels of accuracy required (gross margins, inventories, capacities, service levels etc.), as items are rolled-up from product line level to their S&OP ‘family’.

Not an IT project

A rules-based model that makes assumption about how a business should work is not required. Instead, the application need could be a ‘fill-in the blanks’ design. The organisation’s data can then be analysed and used to build operations/finance models, scenarios and answering ‘what-if’ questions.

Of late, the term Digital Twin (DT) has been used with reference to planning. but this is not the correct use. To function, DT requires connection to measurement equipment and sensors for online data collection through SCADA (supervisory control and data acquisition) systems. DT is best applied to simulate the Sales & Operations Execution (S&OE) plan.

S&OP is NOT an IT project, as a positive return on investment (ROI) cannot be calculated; but the investment in applications used to assist people is very important. Also, time is required for modelling and simulation software to be understood, selected and implemented before the benefits can be measured.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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