The statistics have been staggering. Supply chain disruptions have cost companies an average of $182 million in lost revenue, according to an Interos Supply Chain report. Additionally, there are many unhappy customers in the wake of these disruptions. The bottom line is that the global supply chain has gotten completely out of alignment, and it isn’t a simple or quick fix to rebalance and right-size the supply chain.
During COVID, the wild swings, shutdowns, and impacts of the global supply chain caused links in the end-to-end supply chain to bring the system to a halt. For example, when the U.S. shut down at the beginning of the pandemic, demand quickly dried up for apparel goods and skyrocketed for computers, electronics, and safety gear. However, the items purchased 13 weeks prior were already on the ocean, at the ports, and on the way to distribution centers.
The supply chain could not pivot rapidly with changing circumstances, even though demand dried up for the items in transit. Thus, the wrong products ended up at the wrong place at the wrong time. More importantly, the increased demand for electronics could not be fulfilled because the right products, materials, and components were not in the right place at the right time. The global supply chain has been on a whipsaw ever since.
Although plenty of supply chain leaders continue to chase shortages throughout the supply chain in a frenzy, they are running in circles on a hamster wheel and not making meaningful, directionally correct progress. Unfortunately, the situation continues to deteriorate, with weather events creating further shortages in the adhesive industry, new China lockdowns creating waves of panic, labor shortages exacerbating the issues, and the Russia-Ukraine war further disrupting the global supply chain.
There are simply too many variables and partners to take control of the global supply chain to rebalance and realign. Thus, the most successful companies are focusing on taking control of their end-to-end supply chain with cross-functional, cross-organizational, collaborative programs such as sales and operations planning (S&OP), which is also known as sales, inventory, and operations planning (SIOP).
What Is S&OP?
S&OP aligns customer demand with product supply, including manufacturing, materials, resources, inventory, and distribution capacities. It helps ensure the appropriate strategic decisions are made to align the end-to-end supply chain so that the right products are in the right place at the right time at the right price.
For example, a manufacturer that designs and manufactures electrical control panels for the power industry wanted to get ahead of the volatility in demand and supply, so it quickly pivoted during COVID to focus on S&OP and supporting enterprise resource planning (ERP) and related technologies. The manufacturer used an S&OP process to: evaluate customer demand and growth potential; analyze manufacturing capacity, supply, and technology constraints; and assess alternatives to support growth and EBITDA goals.
The company decided to expand manufacturing capabilities and upgrade its ERP system and related technologies inclusive of customer relationship management (CRM), configure-to-order (CTO) with an upgraded customer experience, and business intelligence (BI) with predictive analytics. By instituting a monthly S&OP process supported with exception messages and alerts to changing conditions, the company is now prepared to increase volume quickly as competitors run into obstacles and opportunities arise, and they can quickly reassess and readjust their end-to-end supply chain to get in front of key strategic decisions and changing circumstances.
S&OP creates cross-department, cross-organizational, and cross-supply chain partner resiliency, thereby increasing your responsiveness to changing customer conditions and your ability to take control of your success during volatile and uncertain times. While the world navigates inflation and deflation simultaneously, it will be critical to be prepared to quickly pivot while remaining nimble to evolving business conditions.
The strong will continue to get stronger, creating more opportunities in the next few years than at any time in history except for during the Great Depression, while the weak get weaker. The time is now to take control and thrive during these turbulent conditions.
Note: Opening image courtesy of thitivong via gettyimages.com.