Sales & Operations Planning in 2019 – all about Artificial Intelligence?
Planning has existed for decades and is used in all industries. Like other topics, it has undergone various changes over time. A lot of money has been spent (e.g. trying to improve forecast accuracy using advanced statistical methods). Talking to companies, the success of these initiatives was, and still is, very limited.
What makes it so challenging?
Mark Twain once said: “The art of prophecy is very difficult, especially with respect to the future”. Prophecy for Demand Planning means using historical data to predict the future. This is valid for a simple moving average calculation as well as for Artificial Intelligence (AI) because the future never reflects the past exactly.
“Good old” company targets as the basis for Supply Chain Planning
To keep the right focus, it is important to highlight that Supply Chain Planning is driven by overall company targets, such as:
- Increased Service Levels
- Reduction/optimization of inventory
- Avoidance of product shortages
- Optimization of resource utilization
- Avoidance of wrong investments in capacities
- Supply chain optimization (costs, stability, responsiveness, flexibility)
- Efficient R&D (faster project execution, success rate, market readiness of new products)
Although these targets are not new, their importance for life sciences companies has increased significantly in recent years because of increasing price pressure, keeping the pace with fast-evolving technologies or reducing time to market for new product introduction. Driving innovation and growth has become the key success factor and companies try to achieve that in two ways: Mergers & Acquisitions / Divestments and collaboration/partnership.
This is valid for all sectors within life science: Pharmaceuticals & Bio Tech, Medical Technology, Animal Health, Generics & Biosimilars, Clinical Research, Consumer Healthcare.
What are the challenges for Supply Chain?
- Complex business processes with all material, financial and data flows
- Flexible integration and divestment of legal and supply chain entities
- Flexible business partner integration especially contract manufacturing operations, 3PLs and Quality Labs
- Special business integration (campaign & tender manufacturing, promotions)
- Consideration of long lead-times
- Shelf life consideration
- Variance management of active ingredient content in manufacturing
- Planning for clinical trials business
- Planning for medical device business
For all these challenges listed above, Tenthpin consultants have successfully delivered planning solutions at different global clients operating in different sectors.
Lessons learned from the past
Most challenges life sciences companies had in the past were related to organization, processes, and data:
- Alignment on common supply chain targets and how to achieve them
- Common business rules with clear roles & responsibilities
- Organizational readiness based on common job and skill profiles
- Standardized & harmonized processes
- Supply-chain-oriented product segmentation strategy
- Common standards for supply chain performance measurement (KPIs)
- Consistent & integrated planning calendar
- Consistent master data management with global and local responsibilities
- Overengineering of single solutions in IT-systems with limited value-add
- Connectivity and data exchange between systems
Sales & Operations Planning (S&OP)
Future view - does the dream come true now?
Software vendors like SAP are working heavily on their planning solution (e.g. IBP for Sales & Operations Planning) to enable seamless integration of logistics with financial planning on a strategic, tactical and operational level to achieve the following targets:
- Automatic translation of revenue-based business plan into quantity-based ones e.g. for strategic & tactical rough-cut capacity planning
- Transparency of impacts of scenario planning and simulation on all levels as an integrated basis for decisions
- Integration of major business partners to support collaboration and real-time updates via unified planning environment
- Capability for Advanced Analytics through unified planning & data environment
Considering past experience this sounds too good to be true. Especially with the integration of logistics (quantity-based) and financial planning, many companies experienced a challenge and most did not really succeed.
However, with a unified planning environment and one common data platform, this situation changes now.
Sales & Operations Planning (S&OP) – what was in the past?
In the past S&OP focused on the following planning steps: Demand Planning, Inventory Planning, Supply & Response Planning including the integration to Production Planning. Whereas Production Planning is always related to one manufacturing site which supports a clear focus it is not the same with the other steps. There is tight integration between Demand, Inventory and Supply & Response Planning which makes it much more complicated. That is exactly the challenge companies have to master first; understanding this integration in all its aspects from a global perspective, for example:
- What are the integrated impacts of key master data fields (planning strategy, lead-time, different frozen periods across supply chain, safety stock method, different lot-sizes for net requirements calculation, procurement and manufacturing, forecast consumption strategy)?
- What detailed impacts have bigger forecast adjustments (input for subsequent planning steps)?
That question might sound easy but the impact on supply chain stability is enormous.
- What impacts have missing common rules when it comes to exception management?
- What overall impacts have attempts of individual supply chain entities to optimize their supply chain?
A holistic understanding of the end-to-end Supply Chain is a must
Without a detailed understanding of the business - all material, funds, and data flow, organizational entities and major external business partners involved - it is impossible to define the right S&OP-approach (integrated framework for Supply Chain Planning). That means in detail:
- What scenarios exist?
(direct-to-customer, intercompany, tax-optimized supply chain with Hub-model including VAT-registrations in countries, different subcontracting scenarios)
- Which entities are involved?
(shared service centers, global and local supply chain, country/region organizations, collaboration with major external business partners)
- What are the material, funds, and data flows for each scenario?
This requires a lot of detailed analysis and intense thought processes. Companies should not expect that to be an easy exercise and underestimate the effort.
An integrated framework for Supply Chain Planning (SCP) as the key
Seamless integration of Demand, Inventory and Supply & Response Planning including the integration to Production Planning can only be achieved by establishing an integrated planning framework as a foundation. It is mainly driven by two elements:
- Holistic product segmentation strategy based on supply chain criteria
- One common Alert- and KPI-framework for supply chain to highlight shortages and to measure the performance of supply chain
Product segmentation strategy
For an integrated SCP-framework, a product segmentation strategy according to supply chain criteria is a must. This is far more than just an ABC-analysis and should contain information regarding demand patterns, forecasting ability (X, Y, Z), lead-times, special business types (e.g. campaign manufacturing, tender), strategic product, new launch or custom pack. It consists of the following elements:
- Product segmentation concept
- Definition of Supply Chain criteria
- Definition of product segments
- Set of rules for each segment
- Planning, replenishment and inventory strategies
- Usage of forecasting and safety stock methods
- Assignment of products to defined segments
→ this has to be done for each plant since the planning parameters are defined on that level, too
Both are as well an important basis for implementing a standardized and harmonized planning solution in an Advanced Planning System (APS) and to help to create transparency and handling planning complexity for global and local supply chain organizations. Considering the future view on S&OP this will become even more important.
Importance of organizational transformation
Whatever new S&OP solution a company defines and realizes (processes, data, solutions in IT-systems, external partner collaboration) - embedded in a planning and product segmentation strategy - it will have a significant impact on the human dimensions. Considering the high complexity of the supply chain with all its aspects, transforming an organization to make it fit for the future is a huge challenge:
- Business rules with clear roles and responsibilities have to be defined
- Detailed job profiles with precise skill requirements have to be defined
- Organizational maturity assessment has to be performed
- Transformation roadmap has to be defined
- Change management and communication strategy have to be defined
- Strong management support has to be ensured
What about technology?
Significant changes in the Industry itself are driven by new technologies (Digital, 3D Printing, Augmented and Virtual Reality, Body Sensors and Deep Learning / Artificial Intelligence) and Big Data. The consequences are lower market entry barriers and therefore new competitors. Innovation and the ability for companies to react quickly will be key success factors for the future. Consequently, in the future, business and planning processes and their realization in an ERP- and APS-system have to be much more standardized. The key message is: Transformation through Harmonization.
Can AI make the difference?
Before thinking about answering that question, a solid and robust planning framework has to be defined, driven by business processes and organization. This is a complex conceptual challenge. In the end, that framework will make the difference, not a fancy planning algorithm and also not AI. However, once the stage is set, it is worth evaluating the capabilities of predictive analytics to increase forecast accuracy. Whether this journey will end up with AI is yet to be seen.
Considering all the complexity behind Supply Chain Planning, including S&OP for Life Science, Tenthpin Management Consultants is convinced that a smart and iterative approach to allow companies to go through a learning process is the way forward. Transformation must take place in all areas of a company (Organization, Processes and IT-solutions) to be successful. This challenge can only be mastered via an evolutionary process.
Of course, this journey won’t be an easy one. However, it will be similar for all. Companies should see all these topics listed in this article before as a huge opportunity to make the difference in the market. Now it is the right time to start working on a Supply Chain Planning strategy including S&OP.
Tenthpin Management Consultants is the expert for entire Supply Chain Planning and S&OP for Life Science. With our broad Industry experience and various projects in that area we develop and realize best-in-class strategies for companies:
- We have a detailed understanding of global life science organizations (shared service centers, global and local supply chain, central and regional customer service, country/region organizations, collaboration with major external business partners) with all dependencies
- We have a detailed understanding of all processes in life science (direct-to-customer and intercompany scenarios, tax-optimized supply chain with Hub-model including VAT-registrations in countries, subcontracting scenarios, material, financial and data flows) and their impacts on Supply Chain Planning with all its aspects including S&OP
- We have strong conceptual skills to help define robust global template planning processes including KPI-framework for performance measurement
- We have state-of-the-art knowledge of IT-solutions (Advanced Planning Systems, ERP-solutions, integration of business partners via portal, business intelligence integration, data in the cloud)
- We have strong conceptual skills for IT-vendor evaluation
- We have deep knowledge and experience of capabilities and limitations of Advanced Planning Systems (e.g. quantity vs. value-based planning)
- We understand future Life Science trends and their impacts on Supply Chain Planning
- We know how to setup Supply Chain Planning projects and how to embed them into overall SAP Transformation Strategies and Programs successfully
- Our Consultants have between 10 and 25 years of Consulting and SAP experience
- Our Consultants are all Life Sciences experts
- We have strong communication skills and drive the change
- We successfully deliver Supply Chain Planning Projects on time and under budget
Contact our industry experts at Tenthpin Management Consultants if you would like to learn more.
Stay up to date with the latest #LifeSciences #Pharma #MedDevices #AnimalHealth news by following us on Twitter @TenthpinMC Instagram #LifeAtTenthpin Facebook Tenthpin Management Consultants and our Tenthpin Management Consultants LinkedIn corporate page.