Wallace Says:

In response to a surprise, leaders quickly execute a Demand Planning step, a Supply Planning step, and hold an abbreviated Pre-Meeting and Exec Meeting if necessary. What do you say? Send us your comments here

Risk is an important topic in business today, and supply chain management is right in the middle of discussions about risk. Potential disruptions – of moderate to major consequence – are more likely today than 20 or even ten years ago, for reasons that include:

• Supply chains lengthening and becoming less robust
• Natural disasters occurring at an increasing frequency
• Terrorism rising
• And who knows what’s coming next

These factors can lead to significant disruptions of the demand/supply balance, and they often come with little or no warning. They’re “surprises.” And, actually, surprises can be not only bad surprises, but also good ones – provided they’re managed effectively.

Can companies get help with this from Executive S&OP (the top management component of Sales & Operations Planning)? Well, it can’t make the surprises go away, but it can perhaps help you anticipate them a bit and also to recover when they occur. For the time being, let’s focus on recovery and see how an effective Executive S&OP process helps to deal with surprises of both the good and bad variety. First, the good:

Demand Spikes

One of your biggest customers – one of the “800 pound gorilla” variety – sends in a very large order, out of the blue, calling for three times more widgets than they’ve been taking in recent months. This may cause some problems, certainly, but on balance, it’s good news: they want to buy more of your product. How does a company deal with that? In other words, how does it recover?

Let’s say that your monthly Executive S&OP cycle ended just a week before this very large order arrived. Well, you certainly can’t afford to wait several weeks for the next planning cycle to address this problem. What do companies do in this situation?

Answer: they immediately conduct a “mini Executive S&OP cycle.” This is an accelerated version of the standard 5-step Executive S&OP process shown in the diagram, dealing only with those parts of the business affected by the demand spike: the related materials, capacity, other resources, and perhaps other customers.

The “Mini” Executive S&OP Cycle

They conduct, quickly, a Demand Planning step, a Supply Planning step, and hold an abbreviated Pre-Meeting and Exec Meeting if necessary. Decisions are made and the issue is resolved at the lowest level possible. If the folks in the Demand Planning step can solve the problem by shifting customer commitments around somewhat, fine. Case closed. Or perhaps the Supply Planning team can pull a rabbit out of the hat: excellent. Problem met and resolved.

But if not, the issue gets elevated to a mini Pre-Meeting for resolution and then to a mini Exec Meeting if the situation warrants. These meetings are typically much shorter than those in the monthly cycle; they focus on the issue at hand and related factors, with probably more than a few of the participants attending via telephone.

Throughout the abbreviated process, they try to keep the steps, the report formats, and the decision-making process the same — because the people are familiar with those processes and know they’re solid. And of course the information is in dollars as well as units; the Finance folks are involved in this process, remember? The dollar view, obviously, is necessary to make decisions that are in the best financial interests of the company.

Thus there is a coordinated and rapid response to the demand spike. At worst, and hardly ever likely, the company may conclude that it can do nothing. Or perhaps it can supply some, but not all of the order when the customer wants it, with the balance later. Or just maybe it can meet all of this customer’s demand and still keep its commitments to the other customers, who may be only “600 pound gorillas.”

A few years ago, I co-authored a book – ERP: Making It Happen – with Mike Kremzar, formerly Vice President of Product Supply at Procter & Gamble. Mike was the “force” behind the implementation of Executive S&OP at the company. Mike identified one of S&OP’s big benefits was the creation of a common, agreed-upon game plan throughout each business.

This makes mid-period corrections, of the type we’re talking about here, much easier than before. Mike indicated that they no longer had to spend the first X days debating whose numbers were right; there was only one set of numbers. They could get to work quickly, and develop the recovery plans.

In a future column, I’ll address how to deal with “bad surprises” – supply crashes.

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