Where Do You Start When Balancing Supply Chain Challenges?
Shifting from Efficiency to Agility in the Face of Liquidity Issues Can Be Daunting
By Hank Ackerman, Principal SCMO2
Our clients’ supply chains, like many other supply chains, are grappling with the impacts of a dramatic shift in focus from efficiency to agility, all while struggling in the face of liquidity challenges. As you would expect, those with mature supply chain capabilities in place, like demand management and supply visibility, are mitigating the damage fairly well. However, this combination of pressure is exposing many other weaknesses.
As you can see in the graphic below, the areas where a company can drive value have not changed but the urgency, approach, and desired outcomes have. In addition, few organizations are equipped with the competency, focus or knowledge to execute many of these business-saving activities—let alone perform many of them simultaneously.
“Where do I start?” I’ve been asked that question often in the last few months and in my opinion the answer is actually quite simple: demand management. More than just a forecast, demand management is the process by which you drive a consensus forecast, influence demand one or more months out, and constrain that demand to ensure the business remains profitable at a high service level.
Often, I then respond with my own question. “Is your budget doing a good job providing you operating guidance this year?” I usually I know the answer. If all the execution and planning is being driven some version of a budget created almost a year ago, it’s safe to assume that you won’t be able to react well to over the next year. My previous organization is currently running the S&OP cycle every two weeks, simply because the demand is changing so quickly and frequently that these updates have substantial impacts on the various business scenarios that are being evaluated.
If you know you need improve in this area, let me suggest a few places to focus your attention:
- Looking forward is more critical than ever. If you don’t have an 18-month rolling forecast (in units), get one. It not only enables all the downstream operational and inventory analysis, it also aligns financial expectations to operating potential.
- It’s also important to remember that it’s not just THE number that matters, but the upside and downside potential that let you influence demand and build scenarios. You need the insights along with the forecast (that is the demand planning part).
- Resist the temptation to forecast at the SKU level. Instead, invest the time to develop forecast units and planning products that will improve your overall accuracy and speed up scenario analysis.
- Don’t get discouraged by costs. There are a number of simple and cheap tools available that can dramatically improve the speed and results of forecasting (Forecast Pro is one of my favorites).
- Finally, like most good business processes, capacity modelling starts with data that requires further analysis before it can be used as information for decision making. Part of the benefit of a good S&OP process is the addition of a robust decision-making framework to convert those decisions into actions and outcomes. We’ll discuss this in future segments.
In summary, of course there is no single silver bullet to a better planning process. But there is always room for improvement. If you take nothing else away from the lessons that COVID-19 has taught us, commit to iterating your forecast early and often to improve your reaction time. Almost all of your organization will crave better and faster information about what lies ahead, so the investment in improving your demand signal is undoubtedly worth it.
