February 19th, 2014 3:51 pm Category: Supply Chain Optimization, by: Karen Bird
The economy has been slow to recover after the Great Recession of 2008, however, many economists believe that 2014 and 2015 will be strong years for the US and Global economies. How accurate will your forecasting model be in projecting the supply needed from your business? Since forecasting models typically use two to three years of history (actual sales) to predict the future and we are coming out of a down economy and heading towards positive growth, the standard forecasting models will not predict the future very well. This is where human intelligence and companies with a formal Sales and Operations Planning (S&OP) process have an advantage.
A formal S&OP process gives companies a monthly opportunity for their Sales and Operations teams to come together and review the data, latest intelligence from the field and make the best decisions possible for the company. In addition, a formal S&OP process gives the business a forum each month to challenge the current execution plan and either reconfirm or adjust the plan to meet the strategic goals of the company. A monthly review of key forecasting metrics can provide the Sales team with valuable feedback regarding the forecast.
Read the Profit Point S&OP Research Report
A study by the Aberdeen Group shows that greater than 60% of Best-In-Class companies view a formal S&OP process as a strategic priority for their organization and that Best-In-Class companies hold an 18 point advantage in forecast accuracy. According to an AMR Research study from 2008, companies that are best at demand forecasting average:
- 15% less inventory
- 17% higher perfect order fulfillment
- 35% shorter cash-to-cash cycle times
- 1/10 the stock-outs of their peers
How does a formal S&OP process help to deliver these benefits? It is a combination of getting the right people together to make the right decisions at the right time. A few years ago, Thomas Wallace, author of Sales and Operations Planning: How-To Handbook initiated a project to study the experiences of companies using Executive S&OP very well. The companies in the Best Practices Project cited similar hard benefits listed above but they also said “the soft benefits are equal in importance, or perhaps greater, than the hard benefits”. The soft benefits most often cited were:
- Enhanced Teamwork
- Embedded Communications
- Better Decisions
- Better Financial Plans
- More Focused Accountability
- Greater Control
- A Window Into The Future
A well run S&OP process will put a spotlight on problem areas or gaps in your business 18 – 24 months in the future. This allows the team to collectively see a potential problem or upside opportunity and produce scenarios to help the company to react to them in a timely and efficient manner.
The primary goal of Big Data Analytics is to help companies make better business decisions by enabling analysts or other users to analyze huge volumes of transaction data as well as other data sources that may be left untapped by conventional business intelligence programs.
Ask yourself, does your company:
- Use advanced analytical techniques (e.g., simulation, optimization, regression) to improve decision making
- Routinely use data visualization techniques such as dashboards to assist users or decision-makers in understanding complex information?
- Combine and integrate information from many data sources for use in decision-making?
- Use systems that automatically make operational changes, based on performance criteria, business rules in response to signals from sensors?
- Use systems to give you the ability to decompose information to help root cause analysis and continuous improvement?
If your answers are yes then your company is on the road to implementing Big Data Analytics. If your answer is no, then read on to learn more.
We see companies develop and employ enterprise applications that use advanced analytical techniques to explore Big Data and generate optimal supply chain plans to improve decision making. These applications allow management to visualize their supply chain before and after optimization, helping to identify areas of risk and recommending and allowing management changes to these plans in an almost real-time environment.
The most advanced applications use sophisticated mathematical algorithms, typically mixed integer programming optimization models, to analyze their Big Data and generate optimal schedules and supply chain network designs. In addition, these tools allow the user to modify those plans in real time to align with their tactical or strategic goals.
For example, in S&OP optimization some of these advanced technologies implement color-coded information, which allows users to identify shortages or constraints with their production operations by SKU. The user then has the ability to point and click to drill down for further data analysis and quickly make the needed changes to modify the plan. The key to this type of a system is to provide actionable insights into their global supply chain, and allow worldwide operations the ability to make changes or corrections to their production process at any time 24/7. This process of examining Big Data using advanced technologies provides global supply chain plan visibility and an improved decision-making process. Contact us to explore a professional approach to take advantage of Big Data Analytics.