When embarking on a journey somewhere, do you create a detailed route plan in advance or just set off in the general direction and rely on signs along the way to get you to your destination? Most of us probably combine the two approaches – we tend to take a look at the overall route beforehand and then follow signs to keep us on course once we’re on route.
Either way, as long as we’re not late in arriving (or at least we’re within an acceptable window), it doesn’t really matter how we got there. Or does it?
Customers are happy – what more is there?
We can look at the supply chain and wholesale journey in the same way. If you get the right products where the customer wants them at the right time, it doesn’t really matter how you’ve achieved it. Right?
Well, no, not really. Because there must be a balance between the continuous, demand-driven planning that focuses solely on the customer and the long-term periodic S&OP that delivers process efficiency and ongoing supply capabilities. Without that balance and optimization, you’re missing out on opportunities to impact your bottom line.
The benefit of long-term periodic planning
Your lead time is longer than customer order time – no consumer is willing to wait the time it takes to source an item. So, some, or all, of your replenishment has to take place prior to any customer purchase decisions. The process has to be proactive rather than purely responsive.
Where the aim is the right stock, in the right place, at the right time, forecasting demand determines how to achieve this at minimal cost. When and what should you be purchasing or manufacturing and where does it need to be positioned to meet your projected customer demand? Without access to a baseline forecast from periodic check-ins with long-term S&OP, it is impossible to set and manage company objectives and make appropriate investment decisions.
The benefit of continuous responsive planning
Having said that, forecasts are estimates, not reality, and unexpected and unplanned for events will always occur. Waiting a month, week, or even day, to re-run your periodic plan will not align with meeting your clients’ needs as their behaviour and drivers change. In times of demand volatility, when the question is ‘When can you deliver it?’, the answer needs to be satisfactory in order to maintain service levels and avoid losing business.
And this is where continuous planning becomes essential. It allows you to identify a problem or opportunity, determine either an optimal, or at the very least, a feasible solution and quickly execute a response. Demand-driven planning is where your agility and resilience come to the fore.
Strive for more than ‘good enough’
The reality is, that whilst your business is hitting your service levels, you’re likely to be satisfied with just getting by. Your approach is clearly working (to a degree) and if it ain’t broke, don’t fix it. But does paddling like mad to move in a consistent direction, relying on a mass of spreadsheets, ad hoc conversations and long hours to deliver results feel comfortable? Does drafting period plans and then shelving those S&OP processes when they get overtaken by events and you realise you’ve managed somehow feel optimal?
No. Because ‘good enough’ could always be better and that improvement could deliver a valuable impact to your bottom line. To quantify it, the benefits of optimization and enhanced S&OP processes running alongside the continuous everyday responsive planning look like this:
Release 15–25% of your cash from unnecessary safety stock
Reduce obsolete stock write-offs by 5–20%
Cut stock-outs by 10–25% and improve service levels
Reduce the resource costs of inventory replenishment (10–25%) and inventory management (33–66%)
Rather than settling for good enough and not questioning the approach that is delivering your results, maximise the opportunities available to you by enjoying all of the benefits of optimization. Your results will be improved, and you’ll have a far smoother journey delivering them.
To learn more about how the AGR software can strengthen your S&OP processes, get in touch today.
