Scenario Planning and S&OP Decision Making
Sales and operations planning (S&OP) is a critical, cross-functional process with the goal to align sales and operations teams. When carried out effectively it can lead to significant returns. Despite its importance, many organizations are unable to achieve effective decision-making in their S&OP process.
Many organizations create a single demand and supply plan, which limits flexibility in the S&OP process and does not account for change in the business environment. Therefore, supply chain planners should embed scenario planning into the S&OP process. To do this, they must first develop scenarios. Then, they must drive their S&OP decision based on the opportunities and risks associated with the scenarios they have developed. Finally, they should continue to monitor these scenarios retaining what is relevant for their S&OP cycle and re-evaluating decisions as needed.
Supply chain planners should start anticipating what-if scenarios by engaging a diverse set of planners within the organizations. This diversity brings in various perspectives within different areas of the organization. It will also reveal interdependencies and domino effects across the organization.
The developed scenarios should be based on factors that influence the success and failure of the organization both internally and externally. Once all factors are identified, planners should prioritize and narrow down to two or three key factors. These factors are the ones that have the highest probability of occurring and would have the largest impact on the outcomes of the S&OP process. Supply chain planners should then develop two to five scenarios, based on these factors, that are the most likely to occur and would be expected to have the greatest impact.
Many organizations over focus on identifying potential risks in scenario planning and planning responses to mitigate those risks. But organizations should see scenario planning not just as a tool for risk identifications, but also a tool to assess opportunities. After identifying risks and opportunities within S&OP scenarios, supply chain planners should project the impacts on key business metrics.
Organizations should develop indicators to gain visibility into which scenarios are materializing. There are two main types of indicators that can be put into place: quantitative and qualitative. Quantitative indicators have an established direct relation with the identified key driving factors. For example, if one of the key driving factors was suppliers, then an indicator they might want to track is supplier risk rating. Qualitative indicators are observations of critical events. These are events that must happen for the scenario to occur in addition to events that can conflict with the occurrence of a scenario.
Planners should use these indicators to track the occurrence of scenarios and re-evaluate and refresh the list with relevant scenarios for each S&OP cycle. They can also use these to assess the impact of any changes in current operations to determine if S&OP decisions need to be revisited.
To account for uncertainty and become more agile in S&OP decision making, supply chain planners should have scenarios in place. Scenario planning can help uncover hidden assumptions and stimulate new ways of approaching problems. Much of scenario planning’s value comes from collective thinking and collaboration across the organization. As part of this, supply chain planners must develop scenarios based on key driving factors, drive S&OP decisions by identifying risks and opportunities, and monitor the scenarios in real time. Doing all of this reduces overall response times to unexpected changes, improves the organizations resiliency, and increases competitive advantage.
Vanguard Predictive Planning for S&OP allows organizations to work toward a common set of goals measured by predefined metrics that are fed by real-time integrated plans. This real-time aspect of Vanguard allows organizations to balance demand with supply and capacity, evaluate probabilistic-based plans with tradeoffs, and track performance. Vanguard enables businesses to improve margins and increase profitability.