All too often supply chain development, and investment into supply chain assets, is focused on a single plan at a fixed point in time, be that a budget or a longer term strategic intention. However, plans change in line with market conditions. This article discusses how S&OP can be used to ensure that supply chain development and investment can be made responsive to those changes.
UK Businesses Are Growing
Currently we are seeing a large number of SMEs talking to us about major growth plans. This is great news: concerns over Brexit and isolationist economic policies appear, at least from our experience, to be counter-balanced by continued consumer spending which is driving business optimism in the UK.
As these SMEs prepare for growth they are recognising that their supply chains will need to evolve rapidly, providing the procedural foundation and asset footprint to facilitate the planned growth.
The Need to Develop the Supply Chain
Many of the companies talking to us have legacy supply chains with processes, systems and facilities that have grown organically as the business has developed. Their supply chains have never been specifically designed, but have rather evolved to meet immediate needs as they have arisen; over reliance on spreadsheets, single source supplies, constrained and inefficient facilities, and poorly optimised logistics networks are the common supply chain concerns of these growing companies.
Identifying these types of issues and designing optimised supply chain operations to meet future need is exactly what we do as supply chain consultants. There are many things we can do to ensure sales are fulfilled with an optimised balance of cost and service, for example, redesign warehouse configurations, optimise transport, reduce inventory, source 3rd party logistics provision, specify appropriate systems and design processes. However, these supply chain developments should not be considered one-off solutions.
Supply Chain Optimisation is a Continuous Process
Optimising your supply chain operation is not a ‘one-hit’ affair. Sales growth forecasts, however well compiled, will never come to fruition exactly as planned. There’s always the potential to exceed the forecast, miss the target or even reach the target but with unexpected order profiles and demand patterns. There will be periods when you oversell capacity and periods where you undersell capacity: there will be periods of high demand and periods of low demand. The path to your target sales will not be a straight line and supply chain development needs to reflect this – it needs to be responsive.
An Unresponsive Supply Chain Will Drive Your Operating Costs Up
Of course, at an aggregate annual view the achievement of actual sales versus forecast may be very close. However, your supply chain does not operate against aggregate annual volumes. Your supply chain needs to change gear daily, to be robust and dynamic, and reflect the needs of fluctuating customer demand patterns. An unresponsive supply chain is guaranteed to drive your operating costs up and your profits down.
Supply Chain Investment Needs to be Aligned with Market Demand
In addition to flexibility and responsiveness, a supply chain needs to deploy investment in line with predicted market demand, in incremental steps. No business wants to make large scale investments into new facilities, systems, staff and handling equipment, only to find them underutilised pending the maturation of a growth plan. Supply chain assets needs to be deployed just in time – not before, and not after.
So, how do you ensure that your supply chain operations are proactive, flexing capacity, resource, assets, service and costs in line with fluctuating market expectations and demand patterns? Well, there’s one single business-wide process that all manufacturing and retail suppliers, regardless of size and aspiration, should deploy. There is one process that makes sure that supply chain operations, and other business functions, track and respond to what is actually happening in the market; a process that ensures supply is synchronised with demand – that process is Sales & Operations Planning (S&OP).
S&OP Synchronises all Business Functions
S&OP is a relatively simple process to understand conceptually. In essence it is a rolling monthly process that works to synchronise all business functions, finance, operations, sales, marketing and supply chain, against a single, mid-to-long term, business plan. It provides a platform for each business function to both agree the plan, and to ensure their respective resources are aligned and optimised against that plan.
If you would like to discuss how we can support your business with supply chain development and implementing S&OP, please contact our consultants today.
If you would like to read more about our approach to S&OP, please read the S&OP Consultancy section on our website which details our 5 Step S&OP process.