Included within our Supply Chain Matters 2016 Predictions for Industry and Global Supply Chains (Available for complimentary download in our Research Center) there is our prediction that sales and operations planning (S&OP) processes will morph into broader forms of integrated business planning and product management. In this market education focused blog posting, we provide more depth as to what is facilitating this change and why business and supply chain executives should be thinking about such capabilities.
While the term integrated business planning is sometimes depicted as a specific technology or application, it is really about the need for enterprise functions of a firm to be aligned towards a single set of financial, line-of-business, product and operational outcomes. The S&OP process is often the most likely mechanism for consideration of enterprise-wide integrated business planning. We state that because it essentially supports a decision-making and alignment process that aides senior management and the enterprise as a whole to align customer product and demand management and component supply and operational needs with desired financial outcomes and strategic objectives (i.e. growth, sustainability).
Alignment, Timeliness and Closing Gaps
The S&OP process is often described as aligning and closing the gaps among product demand and component supply within existing strategic, tactical and operational plans. In reality, the process is further about insuring that expected business and financial outcomes are achieved, and this is where many industry S&OP processes can stumble. They lack enterprise level information integration such as financial and product planning data.
A further complicating factor is that in many industry settings today, the pace of business change has dramatically increased. Industry changes are constant, customers are more demanding and risk or disruption anywhere in the supply chain is a constant threat. Thus, S&OP processes must now be anchored in continuous planning and execution processes, augmented by advanced analytics.
Decisions Are Not One Dimensional
More-timely decision-making is more than ever predicated on the most up-to-date tactical and operational information, placed in proper context as to impacts on expected outcomes. While one particular supply chain process may be affected by an expected order from a key customer or an unforeseen disruption in key component supply, every other dependent business process is also affected and often requires realignment. Each process, whether production planning, optimizing inventory and capacity, customer requirements planning or overall financial planning has its own unique information and decision-making needs, yet they all relate to overall enterprise outcomes.
The existence of separate independent operational, financial and product planning processes is therefore a common obstacle toward achieving more integrated business planning. While each process attempts to optimize its particular plans and outcomes, the implications to the overall enterprise are often overlooked until it is too late to do something about them. Important information remains siloed.
Descriptive and Prescriptive
Timely decision-making is more than ever predicated on the most up-to-date information, and most importantly, informed insights as to what is occurring and what will likely occur across all elements of the supply chain. The latter implies that enterprise planning and decision-making more than ever, needs to be supported by prescriptive analytics.
It is important to note that whereas descriptive analytics analyzes past performance and historical data to determine logical trends, prescriptive analytics is a further dimension of analytical capability in that it answers the question of what will likely happen.
Data is analyzed to determine both the actions necessary to achieve predicted outcomes, and the interrelated effects of each decision on likely business outcomes. For example, a decision to reallocate scarce inventory to fulfill an unexpected order from a key customer may have further implications in fulfilling overall revenue, profitability and customer satisfaction goals. With this information, the S&OP process participants can make more informed decisions on courses of action, or subsequent other necessary actions to insure various business metrics are achieved. Many industry S&OP processes today are often anchored in some forms of descriptive analytics and are therefore limited in capabilities to determine likely courses of action and the consequences of such actions in a timely manner.
Prescriptive analytics provides a more informed context to overall decision-making. It can insure that management is aligned to consistent goals, outcomes and likely scenarios, and that decisions are made with many aspects of necessary information. The capability further provides the ability for S&OP teams to conduct multiple what-if scenarios on a more-timely basis to determine which scenario has the most beneficial impact on financial metrics and outcomes.
Overcoming Information Silos
S&OP processes have essentially evolved from the foundations of manufacturing planning and end-to-end supply chain planning. To no surprise, many ERP or best-of-breed providers anchored in manufacturing and supply chain planning and linked to order fulfillment execution have extended their software capabilities into supporting S&OP process needs.
However, many of these legacy systems are anchored in heuristics and data models focused solely on product demand, supply, capacity and inventory data from a historic perspective as contrasted to a what to anticipate perspective. S&OP participants desiring broader business intelligence and insights as to what to expect have often had to rely on data warehouses that support business intelligence queries. Often, these methods lack context to broader enterprise financial, product and customer requirements planning and operational information and are highly dependent on the constant assistance of IT support teams which takes additional time. They further lack more sophisticated data modeling, visualization and analysis capabilities.
The requirement for enterprise level information integration augmented with deeper forms of prescriptive analytics is a different dimension of support capability, one requiring unique technology approaches.
The good news is that with today’s newer IT advances surrounding in-memory, streaming data analysis and cloud-based platforms, capabilities in optimizing enterprise-wide information are now available. More sophisticated mathematical optimization techniques, which were previously only available through custom coded software or by the hiring of experienced data scientists, is now available in packaged software.
This new breed of more enterprise wide optimization capabilities therefore opens the door for S&OP teams and C-level executives to consider extending S&OP process and decision making capabilities into broader dimensions of integrated business planning.
River Logic is one of a select few packaged software vendors that supports augmenting S&OP processes with integrated business planning capabilities. Consultants and industry customers across the globe have utilized its Enterprise Optimization software to enable various forms of integrated planning.
In a subsequent market education series posting, we will address the shortcomings of business intelligence systems approaches toward enabling integrated business planning.
Disclosure: River Logic is one of other sponsors of the Supply Chain matters blog.