In today’s globalised market, organisations’ needs are changing every day.
Even the most finely crafted strategy is unlikely to be executed perfectly in such turbulent times. CEOs have to stay one step ahead by keeping their ears to the ground and their eyes on the horizon. They must be agile to identify risks and opportunities immediately, and be ready to make decisions that ensure their business is on the right path.
Just as traditional retailing has been undergoing unprecedented change in the face of the online revolution, the traditional role of supply chain managers in manufacturing is also being transformed from the back office to the boardroom. Manufacturers looking to compete in a tough economic environment must identify every element of the supply chain for its potential to be a competitive asset. This now needs to be discussed at a boardroom level and the supply chain leader of the future is the one who not only excels in supply chain disciplines, but also has a complementary set of ‘soft skills’ to influence peers into recognising their part in the corporate supply chain.
A manufacturing organisation’s ability to understand and influence decisions involving corporate revenue, margins, and profitability is impacted by a number of factors. At most companies, supply chain decision making remains a unit- and volume-focused exercise. Most organisations are not fully leveraging their Sales & Operations Planning (S&OP) process to support both profitability goals and the supply chain agility demanded today. Instead, they are engaged in a reactive, 'firefighting' approach to S&OP.
Multi-million dollar ERP systems are often the backbone of operations; however, they only offer rear view mirror visibility. Usually, each department makes their own projections, risk assessments, assumptions and gut-feel instincts about the future, often using only spreadsheets to document their inputs, which can be time-consuming. When each department comes with their own spreadsheet, key performance indicators and individual priorities, the result is a series of ad hoc decisions. Consequently, the information available is disconnected and delayed, which in turn, can result in lost sales, excess inventory, expediting charges, capital expenses and unpleasant customer service issues.
Matching supply with demand accurately over time, in this new world where everything is constantly changing, requires a more sophisticated approach: integrated business planning. When an organisation uses an integrated business planning approach, all the stakeholders are focused not on short-term functional priorities, but on meeting the needs of the customers over a longer period of time. This approach not only reconciles the needs of different stakeholders – including sales, engineering, marketing, manufacturing, purchasing, key suppliers and finance – but also vertically integrates every level of planning, including strategic, tactical and operational planning processes. This results in a strategic S&OP process that considers both overall organisational goals and day-to-day production flexibility.
There are a number of ways that manufacturers can make the transformation from ad hoc decision-making to integrated business planning. Any organisational transformation needs a clearly articulated purpose and a sustained effort to create ownership and buy-in from employees. In a pro-agile S&OP, performance is measured in terms of both financial results and organisational responsiveness. These reviews are the basis for adjustments to future plans. With a clear eye toward cross-functional KPIs, instead of narrow organisational goals, this process facilitates internal and external collaboration.
A fine example can be seen in the case of a global semiconductor company, Infineon Technologies AG. Headquarted in Neubiberg, Germany, Infineon set out to re-engineer its end-to-end planning processes and tools. It wanted to create a single integrated, multidimensional sales and operations planning process that can promote global collaboration and enable the company to quickly respond to market changes. After testing solutions from different vendors, Infineon selected JDA S&OP Since completing the rollout, Infineon has achieved a broad range of results across every dimension of its business - the company has reduced its planning effort by more than 30 percent, and is able to cut the lead time for its volume rolling forecast from four weeks to two weeks. Planning errors have decreased up to 90 percent and forecast accuracy has also improved. The most important result of the S&OP implementation is Infineon's new collaborative planning approach, which enables the business to be much more agile and responsive. “Our new solution is a kind of revolution for Infineon because, we link a lot of single processes into one tool,” said Wolfgang Keichel, vice president, IT supply chain management, Infineon. “Now we can combine our demand planning activities with capacity calculations and the capacity confirmation — and at the end we have a constrained plan.”
The journey to integrated business planning begins in the boardroom. Senior management need to have a clear understanding of how this process is executed and how it helps the organisation attain strategic and tactical objectives. It's also important to assess demand planning and S&OP processes against best-practice leaders and to use industry experts and benchmarking materials to identify gaps and opportunities related to the current approach. These processes should then be mapped to best-practice models to highlight opportunities and potential ROI to senior management to acquire the resources for the project plan.
Companies should also evaluate their current technology infrastructure. They should build a requirements document that begins with the formalised business process developed through the assessment stage of the migration path. It will be important to document the scope of the initiative which includes the trading partners who will be involved, the number of product families incorporated and the planning horizon that will be utilised.
Integrated business planning can have a significant impact on many facets of the manufacturing supply chain performance, including strategic cost control, higher utilisation of existing assets and increased speed to market. By improving end-to-end supply chain visibility, integrated business planning positions manufacturers for a new level of risk visualisation, process alignment and organisational responsiveness when the unexpected occurs. All of these benefits add up to the one goal that matters: consistently satisfying consumers, while operating under very inconsistent business conditions.