What To Do When a Strength Becomes a Liability
The sales and operations planning (S&OP) process does not cope effectively with large-scale disruptions such as the COVID-19 pandemic. However, with a little tinkering under the hood, the MIT Center for Transportation and Logistics thinks S&OP can be tuned up to cope with major unplanned events.
As it has evolved over recent decades, the process does not allow for the sort of resilience almost everyone agrees is needed in supply chains in 2020 and beyond. For instance, S&OP tends to shrink inflated sales forecasts and eliminate inventory caches.
“While such benefits are laudable, they do present a significant downside: The efficiency-building measures promoted by S&OP produce business plans that can be quite rigid, especially when the organization is hit by an unexpected disruption,” according to an MIT article. “Consequently, when a resilience-based approach is not integrated into S&OP, the strengths that distinguish the process can become liabilities.”
The authors suggested organizations perform a “sensitivity analysis” during the S&OP process “to show stakeholders the potential impact of unexpected demand surges or supply shortages. The analysis would show the percentage of the potential ‘upside demand’ that can be covered by current supply. This analysis is based on the organization’s current supply capabilities and the percentage of expected demand if ‘downside supply’ conditions materialize. The analysis also shows by how much forecasted demand can increase or supply can decrease before the organization faces significant customer service issues.”
This method could help companies understand how much buffer they need if a major disruption occurs. “As the speed and intensity of disruptions continue to increase, organizations are faced with a choice: Accept the weaknesses of an efficient but narrowly focused S&OP process or make the process resilient by collectively and thoughtfully designing the business to respond with resilience,” the MIT team said.