•   Exclusive

Special planning teams for unusual times

Short-term supply and demand challenges should be managed by a specialized team

Subscriber: Log Out

Sorry, but your login has failed. Please recheck your login information and resubmit. If your subscription has expired, renew here.

This is an excerpt of the original article. It was written for the May-Jun 2024 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-Jun 2024

In each issue I try to leave you with some of my limited knowledge in this space. Or at least give you something to think about. I think it is our job at Supply Chain Management Review to -- hopefully -- leave you with at least one bit of knowledge from each article inside our issues. This time, though, I'm going to leave you with the secret to learn more than one thing: Sign up to attend the NextGen Supply Chain Conference in October.
Browse this issue archive.
Already a subscriber? Access full edition now.

Need Help?
Contact customer service
847-559-7581   More options
Not a subscriber? Start your magazine subscription.

Adoption of sales and operations planning (S&OP) grew in the mid-1980s as management consulting firm Oliver Wight was advising manufacturing managers to talk to their sales organizations about future sales. This would provide important information for their medium-term planning efforts. One of my first Insights columns was titled “S&OP Psych 101” (April 2007) and dealt with the emergence of this nascent business management model and the different mindsets of its team members.
Generally, the process is not complex. It involves a multi-disciplinary S&OP team routinely meeting (e.g., monthly or weekly) to develop detailed demand and supply plans, generally with a planning horizon of from 12 months to 18 months. But despite its successful adoption, it has always been hard to sustain because marketing, sales, supply chain, and finance managers don’t speak the same language. Nor do they like attending tedious, structured—and often contentious—meetings.
After the Great Recession of 2008-09 and the highly volatile customer demand that ensued, I was worried that executives would lose faith in their planning organizations and resort to making spur-of-the-moment, knee-jerk decisions during the volatility of the recession. So I wrote a column in Supply Chain Management Review (March 2009), titled “The S&OP rudder” to advocate not giving up on the process.
In it, I used the analogy that the S&OP process enables an important rudder for a company’s business.

SC
MR

Sorry, but your login has failed. Please recheck your login information and resubmit. If your subscription has expired, renew here.

From the May-Jun 2024 edition of Supply Chain Management Review.

May-Jun 2024

In each issue I try to leave you with some of my limited knowledge in this space. Or at least give you something to think about. I think it is our job at Supply Chain Management Review to -- hopefully -- leave you…
Browse this issue archive.
Access your online digital edition.
Download a PDF file of the May-Jun 2024 issue.

Adoption of sales and operations planning (S&OP) grew in the mid-1980s as management consulting firm Oliver Wight was advising manufacturing managers to talk to their sales organizations about future sales. This would provide important information for their medium-term planning efforts. One of my first Insights columns was titled “S&OP Psych 101” (April 2007) and dealt with the emergence of this nascent business management model and the different mindsets of its team members.

S&OP: A challenging process to sustain

Generally, the process is not complex. It involves a multi-disciplinary S&OP team routinely meeting (e.g., monthly or weekly) to develop detailed demand and supply plans, generally with a planning horizon of from 12 months to 18 months. But despite its successful adoption, it has always been hard to sustain because marketing, sales, supply chain, and finance managers don’t speak the same language. Nor do they like attending tedious, structured—and often contentious—meetings.

After the Great Recession of 2008-09 and the highly volatile customer demand that ensued, I was worried that executives would lose faith in their planning organizations and resort to making spur-of-the-moment, knee-jerk decisions during the volatility of the recession. So I wrote a column in Supply Chain Management Review (March 2009), titled “The S&OP rudder” to advocate not giving up on the process.

In it, I used the analogy that the S&OP process enables an important rudder for a company’s business. When a business is navigating global waters, it’s the job of management to keep the ship on its chosen path, correcting for turbulent conditions that might veer it from its intended destination. Those who have seen the movie The Perfect Storm—which tells the story of a New England fishing vessel lost at sea in a once-in-a-lifetime storm—will recall scenes of the captain attempting to navigate the ship among gigantic waves. The last thing anyone wants is for the company ship to go down under that last big wave, just before the waters calm and the economy improves. In this regard, the S&OP team plays an important role as the navigation team that constantly updates the plan based on conditions on the sea.

My worries were unfounded, as S&OP adoption continued to grow post-recession. However, I worried again during the COVID-19 pandemic. Demand volatility had increased and had gotten uncertain enough to render historical demand useless for forecasting purposes. In addition, supplies from historically reliable suppliers became uncertain and unforecastable as well, especially when lockdowns created labor shortages.

The columns I wrote dealt with the differences between decision-making under uncertainty versus under risk. While both deal with randomness in demand, the latter can use historical data to estimate probability distributions (i.e., risk profiles) and probabilities for what might transpire. In contrast, decision-making under uncertainty has no historical information on which to base decisions. Forecasts are rendered useless for planning. Instead, decisions have to be made using scenario-planning methodology. The pandemic might have put the S&OP process in jeopardy once again.

The Quick-Response process

In my Insights column, “Under uncertainties: Quick Response, not only S&OP” (March/April 2022), I argued that the S&OP process should not be used for planning under uncertainty. An S&OP team is largely responsible for doing tactical planning under risk. Thus, it is not trained to handle uncertainties, nor charged with doing so. The team is also not adept at dealing with significant supply-side uncertainties. I recommended that a Quick Response planning team be assembled with responsibility for operational planning during extreme uncertainties in demand and supply. I termed it Quick Response because managers must make decisions with little to no historical information to support them. Decisions made are usually practical and involve common sense. For example, during the early days of the COVID-19 pandemic, policymakers could only advise the public to stay away from each other, wear masks, wash hands and, at times, don’t go to work. Later they had sufficient information to advise getting COVID-19 vaccinations as well. 

A Quick Response process would be put temporarily in place whenever uncertainties arise in a portion of a demand-supply chain. An executive-led team of specialists would be assembled to do the short-term planning. It would exist until enough information and data have been assembled to return the short-term planning back to the S&OP team.

In the aforementioned column, I introduced a version of Figure 1 (also shown in this column). It was titled “Hierarchical Planning Framework with Quick Response (as a short-term planning process under uncertainty to match future supply and demand).” It positioned Quick Response as a special operational planning process. The demand control or SOE (sales and operations execution) process was also shown
in the figure.

To demonstrate how scenario planning might be used in planning decisions under uncertainty for the pandemic, I wrote an Insights column titled: “Decision making under uncertainty: A primer (May/June 2022). In it, I discussed a hypothetical $1 billion profit-sized company, looking at three types of strategies to deploy throughout the pandemic.

A supply-in-mind demand  optimization process

In my last Insights column, “Supply constraints? Demand-shaping revisited” (March/April 2024), I discussed another special team that might be required from time to time. It was needed during the COVID-19 pandemic to do short-term operational planning for products with supply shortages. S&OP teams are typically not experienced with supply-constrained demand matching. Rather they are comfortable matching future supply with demand forecasts, and then buffering inventory, capacity, and lead times to ensure demand is met—all according to probabilities based on historical demand.

Generally, demand shaping with supply in mind involves identifying supply issues and developing opportunities to enhance demand. By aligning supply with selling efforts. For example, it might be aimed at optimizing demand-side objectives such as revenues, operating margins, and market share. Additionally, when there is an excess of materials and components, underutilized plants, or a surplus of finished goods inventory, supply managers ought to work with sales and marketing managers to develop programs aimed at taking advantage of these excess supply opportunities. However, if there is a shortage of any type of supply, then marketing and sales ought to change their demand plans to less aggressively sell the products affected because if demand exceeds supply for these shortages, supply chain managers will have to take emergency actions to meet the excess demand, and this will be more costly and less profitable. These decisions include paying higher prices for procured materials, expediting procurement orders, adding emergency/overtime shifts at a production plant, and expediting customer shipments. This type of short-term planning process is shown in Figure 1 and labeled “supply-in-mind” demand optimization under risk.

A critical starting question for supply planners to address is: What product mix can be made from readily available finished goods and supplies on hand, on order, and procurable in the future? A variety of product mixes would be identified to help S&OP teams assess and select which is best.

Revised hierarchy demand-supply  planning framework

S&OP is certainly a rudder, one critical to navigating a company sailing toward a financial destination. The team must be highly disciplined and charged with developing detailed planning numbers that drive the operations of an enterprise over a 12- to 18-month horizon. To expect it to adequately incorporate short-term uncertainties, supply shortages and surpluses, will severely hamper the job of updating plans. The S&OP process also needs to be the lynchpin process that ties strategic objectives with daily operations, as depicted in Figure 1. However, it is a tactical planning process under risk and not under uncertainty, as well as one that assumes supply is available to meet demand. The same is also true for the short-term demand control or SOE operational planning process.

Because strategic planning has a planning horizon of three years or more, forecasts are not useful. Thus, decisions are made using a scenario-planning approach. This process is already commonly viewed as a special or supplementary process. I recommend two other special planning processes be incorporated into a company’s planning hierarchy. Firstly, Quick Response to handle portions of a supply chain that are temporarily experiencing uncertainties due to turbulent economic conditions. Secondly, supply-in-mind demand optimization, when portions of a supply chain are experiencing significant shortages and surpluses.

Professional (NFL) football teams have learned that it is beneficial to have special teams on the field. According to Wikipedia: “Special teams are units that are on the field during kicking plays.” The COVID-19 pandemic highlighted the need for special short-term planning teams to supplement an S&OP team. An S&OP team is always vital to managing the rudder for navigational purposes. However, Quick Response and supply-in-mind planning specialists need to help out during uncertainties due to turbulent economies, and for short-term operational planning when extreme supply issues arise. •

SC
MR

The COVID-19 pandemic highlighted the need for special short-term planning teams to supplement an S&OP team. An S&OP team is always vital to managing the rudder for navigational purposes. However, Quick Response and supply-in-mind planning specialists need to help out during uncertainties due to turbulent economies, and for short-term operational planning when extreme supply issues arise.
(Photo: Pexels/Ketut Subiyanto)
The COVID-19 pandemic highlighted the need for special short-term planning teams to supplement an S&OP team. An S&OP team is always vital to managing the rudder for navigational purposes. However, Quick Response and supply-in-mind planning specialists need to help out during uncertainties due to turbulent economies, and for short-term operational planning when extreme supply issues arise.
What's Related in Sales and Operations Planning
Sales & Operations Planning (S&OP) Mastery
In this Special Digital Edition of Supply Chain Management Review, you will find insights on the importance of sales and operations planning…
Read more

About the Author

Larry Lapide, Research Affiliate
Larry Lapide's Bio Photo

Dr. Lapide is a lecturer at the University of Massachusetts’ Boston Campus and is an MIT Research Affiliate. He received the inaugural Lifetime Achievement in Business Forecasting & Planning Award from the Institute of Business Forecasting & Planning. Dr. Lapide can be reached at: [email protected].

View Lawrence's author profile.

Subscribe

Supply Chain Management Review delivers the best industry content.
Subscribe today and get full access to all of Supply Chain Management Review’s exclusive content, email newsletters, premium resources and in-depth, comprehensive feature articles written by the industry's top experts on the subjects that matter most to supply chain professionals.
×

Search

Search

Sourcing & Procurement

Inventory Management Risk Management Global Trade Ports & Shipping

Business Management

Supply Chain TMS WMS 3PL Government & Regulation Sustainability Finance

Software & Technology

Artificial Intelligence Automation Cloud IoT Robotics Software

The Academy

Executive Education Associations Institutions Universities & Colleges

Resources

Podcasts Webcasts Companies Visionaries White Papers Special Reports Premiums Magazine Archive

Subscribe

SCMR Magazine Newsletters Magazine Archives Customer Service

Press Releases

Press Releases Submit Press Release