A new reality drives value chain transformation. From advanced data analytics to how customer experience is shaping the new value chain we can talk about a revolution happening at the heart of the supply chain. The need for an integrated business planning is of paramount importance to lead the supply chain toward the best business practices.
Today's interconnectivity demands the supply chain to be constantly and instantly connected. There are fewer people in the factories and more automated systems and robotics in place. More OEMs are choosing to outsourcing, bringing both benefit, but also risk. Global competition forces supply chains to be in the loop of continuous increased innovation and faster product cycles with reduced inventory. With global expansion, there is an increased demand, supply variability, and dependency on contract manufacturers.
The road to functional operational planning
- Manual and spreadsheet based with many simplifying assumptions
- Little collaboration between departments, as each organization has its own set of plans and assumptions
- No integration with existing systems, no ability to enforce decisions
- No performance management to measure impact of business decisions.
Caption: Kimmo Karppi, Solution Architect at Oracle, explains traditional vs. integrated business planning in supply chain at the Oracle Cloud Day Helsinki in March.
Image Source: Susan Fourtané
Traditional S&OP vs. integrated business planning
Traditional S&OP vs. integrated business planning
Many traditional supply chains still implement their S&OP (Sales and Operational Planning) in the old-fashioned way. This means a supply chain group often owns their S&OP with limited involvement by others, says Karppi. It is focused on supply and demand, very much focused on explaining the past, and above all, following a standalone process not integrated with operational planning and execution. The traditional model is not integrated with other planning tools either lacking the ability to interact with detailed information when needed.
On the other hand, an integrated business planning can be achieved by integrating the top-level management, S&OP can be a cross-functional and highly interactive process, explained Karppi. This reflects on being focused on meeting overall operating goals such as financial aspects, i.e. revenues, costs, and profits. An integrated business planning is forward looking and based on advanced predictive and prescriptive analytics. It has a continuous operating performance linked with planning processes enabling companies to drive decisions into operations.
How to plan aiming to outperform competition - Benefits of doing S&OP well
A continuous real-time S&OP helps to align and integrate all business processes to meet corporate goals. According to Karppi, studies have demonstrated that companies that do S&OP well outperform the others. This means supply chains significantly improve customer service through balance of supply and demand reducing cost through working capital and improved efficiency. A well-performed S&OP improves profit, revenue, and financial predictability by simulating optimized alternative business scenarios.
In order to get started and evolve business planning supply chains must:
- Provide insight and measure to improve an integrated business planning process
- Move to a single source of truth and institute a consensus process
- Deploy a better planning foundation
- Evolve to the next level
Tactical supply planning involves a true understanding of what can be accomplished by the supply chain. It also takes into account the impact of demand changes. According to Karppi, the best practices for an integrated business plan include keeping the financial plan and the operations plan in sync, which is what constitutes the concept of the integrated business plan, he says; evaluating demand in order to shape decisions, incorporating long term agility decisions, and improving visibility through collaboration.
According to Karppi, an integrated business plan should:
- Replace manual, intermittent, and disconnected process with a continuous, interactive, holistic, integrated business planning process
- Inject operational reality into financial plans and ensure financial viewpoint is embedded in the operational planning process, top-down dollars to bottom-up units synchronization
- What if simulation to examine alternative scenarios, and evaluate financial impact of decisions
Going further there is mention to collaboration with key trading partners. "I have never seen a really good example of this in any company yet in that level, where you really are sharing the predictive forecasts with your collaboration partners," he said. This kind of collaboration needs transparency in the network, which according to Karppi, happens very seldom as it is something that needs trust. "It won't happen just with the systems, you need trust with your network to be able to do this," he says.
Lots of work needs to be done in order to transform a traditional supply chain into a value, integrated chain. Yet, this is possible with the help of good tools and an open mind to be able to embrace and apply change. To go even further in the transformation, supply chains need to develop trust, an important and valuable ingredient for a truly successful collaboration.