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. At the same time, all planning continues to be offline, in spreadsheets. One thing has become apparent, operating a multi-billion global enterprise based on Excel spreadsheets is not sustainable, not good for business, and not suitable for the planet, 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 three key capabilities that enterprises should invest in to give supply chains a critical 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: significant 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 vary 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?
We would recommend 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 most 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 can 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.). 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, and consumer teams, and you will be surprised by 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, 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 stopping production, while others are returning online gradually. This dynamic situation requires visibility and collaboration, which are often missing.
- Inventory and capacity visibility across an organization’s supply chain network is challenging due to multiple ERPs, systems 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 many more innovative ways to solve fundamental data challenges, which have been outlined in our previous blog here. Please 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 highly 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 three months): balancing shifting regional/product mix demand with excess inventory and capacity in the 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, 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 critical 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, providing back a supply commit to these scenarios and, 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 actual. Hence, before spending additional supply chain costs, it is essential to understand the financial trade-off and discuss it 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 process. Again, current legacy systems cannot be quite helpful 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 your organization’s transformation journey.
Gartner® Magic Quadrant™ 2023
o9 Solutions recognized as a Leader in the 2023 Gartner® Magic Quadrant™ for Supply Chain Planning Solutions. Download for free the full Magic Quadrant.
About the author
Stephan de BarseChief Revenue Officer
CRO at o9 Solutions, driving digital transformation with some of the leading Fortune-500 companies. Intrinsically motivated to solve some of the most difficult challenges with technology with the aim to deliver business value.