Over the past few months we have been evaluating the impact of the COVID-19 pandemic on global supply chains, in close collaboration with our partners, clients, prospects, and industry experts. In a recent knowledge webinar (available on-demand here) with executives from Google Cloud, McKinsey, Henkel, Estée Lauder and o9 Solutions it became evident that this pandemic has taught us some important lessons.
A key observation — a majority of large enterprises using legacy software like SAP APO or BY are using those tools for a system of record at best, while all planning continues to be offline, in spreadsheets. One thing has become very clear, operating a global multi-billion enterprise on the basis of Excel spreadsheets is not sustainable, not good for business, and not good for the planet either, especially in times of intense disruption.
Hence the question “why is replacing your legacy planning software more relevant than ever?” We discuss our learnings, including 3 key capabilities that enterprises should invest in, to give supply chains a key competitive advantage in the future.
Driver Based Demand Management to detect demand risks and opportunities much earlier. This pandemic has demonstrated that many organizations responded too late to the following events:
- Product mix shifts: many organizations have seen a steep increase in essential products, and a decrease in others;
- Channel shifts: large shift to online channels from brick and mortar retail. In addition, these changes are happening at a very local level, and hence require localized data.
- Regional demand variability: lockdown / reopening schedules varying by country, city and in some cases zip-codes.
- Temporary upsurges: demand spikes due to customers hoarding inventory, and the question is when will the dip come?
What we would recommend is investing in capabilities, such as Demand Sensing and AI-enabled forecasting, to detect demand risks and opportunities much earlier. How? Start sensing the demand and use advanced analytics to convert demand sensing data into actionable insights. For example, assume you are selling consumer products to the retail channel and in the majority of the markets you will most likely be very focused on sell-in. While some companies have been able to get sell-out and channel inventory data, only a few are able to get data on drivers of sell-out (e.g. consumer pricing and promotions, lockdown reopening schedules, weather, channel shift indicators, online conversion and click-rates, etc.). Right now you might think, ‘sounds great, but I don’t have such data’. Think again! Your organization is data rich, but insight poor. Start talking to your sales, marketing, consumer teams and you will be surprised how much data you have. But… Your current planning systems do not have the extensibility nor the flexibility to incorporate this data in your planning processes and hence the need for change.
Driver Based Supply Management to detect supply risks and opportunities much earlier. This pandemic has demonstrated that many organizations lack visibility in the following areas:
- Suppliers are slowing down and/or stopping production, while others are coming back online gradually. This very dynamic situation requires visibility and collaboration which is missing in most cases.
- Inventory and capacity visibility across an organization’s supply chain network is challenging due to multiple ERPs, system of records, etc.
- No visibility to constraints developing upstream — at suppliers and Tier 2/3 suppliers.
The time is ripe to invest in technology to build a digital twin of the entire value chain, modeling all the capacities, costs, inventory, material availability and partners. You might think about constraints around data again, but the same message applies: think again! There are much smarter ways to solve fundamental data challenges, which have been outlined in our previous blog, here. Start with the construction of a digital twin, which provides visibility, and that by itself provides tremendous value and starts your journey to greater agility over time.
Integrated Planning and Response to run scenarios in real-time, evaluate trade-offs and make faster decisions. Many of you have experienced how running scenarios in spreadsheets and disconnected systems can be extremely cumbersome, ineffective, and time-consuming. In addition, those scenarios are often based on siloed information and the P&L impact is not understood beforehand.
We recommend investing in advanced technology to support scenario planning and what-if scenarios across time-horizons. So typical scenarios worth exploring:
- Short term horizon (next 3 months): balancing shifting regional/product mix demand with excess inventory and capacity in network;
- Mid-term horizon (2-18 months): developing risk-based P&L scenarios including worst case/most likely/best case for management to review.
However, in order to gain real value out of this, there is more…
- Bridging silos — bridging commercial, and supply chain silos in planning and decision making has become more important than ever. For instance, demand can be 95 (worst case), 105 (most likely) or 120 (best case). The commercial teams are interested in building those scenarios in a platform, recording their assumptions, and understanding the P&L impact before asking their supply chain colleagues for feedback.
After P&L evaluation, the supply chain team would like to run a response in near real-time, not only providing back a supply commit to these scenarios, but more importantly the true cost-to-serve, including the non-standard costs such as expedites, flex capacity, alternate sourcing costs, etc. Why is this more important? Each commercial scenario is subject to risks and opportunities, but supply chain costs are real. Hence before making a decision to spend additional supply chain costs, it is important to understand the financial trade-off and have a discussion with functional leaders from Commercial, Supply Chain and Finance.
- Speeding up planning cycles: Daily to Real Time, Weekly cycles to Daily, Monthly to Weekly. Decision making cannot wait for the traditional monthly S&OP cycle. Again, current legacy systems cannot quite help here. In most cases , they lack the technical architecture to allow rapid reconfigurations and follow a sequential planning process, without the ability to accelerate the cycles, spotting risks and opportunities earlier and using advanced technology to prescribe what to do.
Do you recognize these planning challenges but are you still using SAP APO, BY or any other legacy system?
Get in touch with us today! We have a fast and agile approach to replacing your legacy software. We can provide use-cases from leading companies across industries and a path, with our Digital Process Prototype process, to embark on the journey of your organization’s transformation.