Supply chains are at risk: how to get the most out of your S&OP tool

Apr 01, 2020

operations
IT
finance
SAP

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At this very moment, health care professionals are giving it their all to safeguard what matters most: our health. They deserve our utmost respect! In the meantime, as a manager, you are trying to protect another important aspect of society: our businesses. The next couple of months will be challenging. The coronavirus is already impacting supply chains, leading to disrupted sales, shipping delays, manufacturing hick-ups, pressure on resources…. Some companies will prove to be resilient, others will find it more difficult to recover. Being prepared is crucial. But where should you start?

Many companies run their daily operations in an ERP tool. Several companies even deployed dedicated tools to support their sales and operations process (S&OP). Now is the time to use these tools to their full potential. With an advanced S&OP tool such as SAP IBP, you have a flexible and powerful instrument at hand to easily simulate different business scenarios. You can apply the expected COVID-19 impact – both an optimistic and pessimistic scenario – in a set of planning versions and start comparing them. The insights that come from these scenarios will allow you to make better decisions – which is an important first step in starting to mitigate the COVID-19 risks hitting your supply chain.

How does it work?

SAP IBP enables to simultaneously run different business scenarios. For instance: a first scenario with a major COVID-19 impact, a second holding a more moderate COVID-19 impact and a third scenario based on the pre-Coronavirus situation. You can then assess the actual plan, based on the latest demand forecast, against this background. Hence you can track and trace the resilience of your supply chain as such and take a deeper dive in the different echelons of the supply chain where needed.

Now let’s start on the demand planning side

In the simulative versions, central demand planners can model the expected impact: a drop or rise in specific regions, shifts towards other product groups, delays, cancellations of promotions, etc… Modifications can be done on a high level, without distorting the underlying details in the demand. This is the power of controlled disaggregation. In the active version, the sales forecast is kept up to date by the sales teams. Any new demand signal from the market can be included.

The supply chain manager then considers options to deal with the crisis: What other sourcing options do we have? Do we have the required storage space to host pre-build? How should we adapt our inventory parameters? Should we review the shift patterns? All these assumptions can be translated into settings and parameters in the simulative scenarios.

Simulating supply plans

With literally one push on the button, you can now plan the entire supply chain in these alternative scenarios and assess the impact on resources, raw materials, production lines, free capacity, workforce, …

Visualizing the corridors

IBP allows to compare and visualize the results of the different scenarios on multiple dimensions and aggregations levels. A powerful practice is to visualize the corridor, marked by the optimistic and the pessimistic scenario. The evolution of the actual plan can be tracked within the corridor. And each echelon in the supply chain gets its own corridor simulated, from forecast to raw material requirements, as shown below.

Now we are speaking “S&OP”!

Based on these insights, you can make better and faster decisions, communicate proactively to customers and suppliers and assess your resilience by comparing both the actual plan and the corridor against the pre-coronavirus reference plan.

Making supply chain planning easier

Scenario planning is in the DNA of SAP IBP. Now is the time to start using the tool to its full potential. It requires a minimum of time and effort. Extending your S&OP process with this kind of simulation takes only a couple of hours, and the benefits will be immediate since you can:

Build further on the bottom-up data from your reference scenario
Make top-down (disaggregated) adjustments
Gain new insights within an existing tool and interfaces, including a familiar look-and-feel
Easily turn scenario comparison off/on
Make simple adjustments according to additional modelling needs.

So start exploring the opportunities and prepare for multiple scenarios. Even if you are not using SAP IBP or a comparable S&OP system, there are almost certainly opportunities within your ERP systems that haven’t been exploited so far. Take a closer look… you may discover hidden gems! Be creative and join forces across sites and departments.

If you have any thoughts, comments or suggestions after reading this post, don't hesitate to reach out to us!