Resilience and responsiveness are perennial objectives of supply chain organizations. S&OP is a planning process that integrates sales, marketing, finance, and supply chain functions to enable better decision-making and alignment across the organization. By incorporating S&OP into their operations, manufacturers can address several of the challenges. 

In this article, Replan has collaborated with Mohannad Gomaa, CEO & Founder of MG Operations & Strategy Partners, to examine the most significant challenges to these objectives as expressed by supply chain leaders.

Capacity Constraints

One of the primary hurdles faced by manufacturers is optimizing capacity utilization. Many struggle with inefficient changeover processes and suboptimal batch sizes, often driven by manual planning processes. As a result, production throughput is reduced, impacting overall efficiency. Additionally, the unnecessary use of contract manufacturing or co-packing services reduces margin, while adverse plan adherence hampers resource utilization. These problems come from a combination of process and technology. Gomaa acknowledges that his CPG, Chemicals, and Pharma manufacturing clients derive significant value from the S&OP process. For instance, S&OP played an instrumental role in emphasizing capacity optimization as a primary business focus for a chemical client’s C-Level executives. After attending the Executive S&OP meeting and witnessing the development of scenario planning models based on how supply planning responded to reconcile with the demand plan, the CEO prioritized a profitability agenda for a manufacturing plant business comprising more than 10 plants. They uncovered that one plant had to operate on overtime due to consistently lagging in utilization. Consequently, the CEO implemented financial and business rules to enforce adherence to the frozen period and make better decisions on MTO vs. MTS, thereby limiting any changeovers for clients where pricing and SLAs did not justify last-minute alterations to their production plans.

Inventory Management Woes

Effective inventory management is critical for balancing supply and demand, yet many manufacturers find themselves unable to achieve target inventory levels. This discrepancy not only impacts working capital but also compromises service targets. Compounding the issue is the presence of simultaneous excess and shortage, necessitating costly third-party warehouse solutions. Moreover, high SKU complexity adds another layer of complexity, increasing the risk of obsolescence costs. Gomaa suggests that “effective S&OP facilitates better visibility and accountability for inventory planning, At another specialty chemical client, planners didn’t manage raw materials inventory levels effectively which caused a large volume to expire or age due to misuse. S&OP provided better analytics of inventory turnarounds regularly on all inventory types to optimize and balance supply and demand effectively. By rationalizing SKUs and integrating planning efforts, S&OP minimizes obsolescence costs and improves service levels.” 

Service Dilemmas

Maintaining a high level of service is essential for customer satisfaction, but it remains elusive for many manufacturers. Limited visibility into potential service issues due to constraints inhibits proactive problem-solving, while the inability to quickly scenario plan hinders the ability to capitalize on market opportunities. Short-term prioritized orders often have unclear implications for mid-term key performance indicators (KPIs), further complicating matters. Additionally, the lack of stress testing to assess out-of-stock risk leaves manufacturers vulnerable to disruptions. Gomaa highlights that “a cement client used the S&OP process to provide greater visibility into demand patterns and line overhaul scheduled service to plan around according to gaps in their production capacity and inventory levels through assessing scenarios of co-Manufacturing vs. delaying delivery to customers. For a solar energy client, it was a rising supply constraint scenario that had to be modeled to allocate and manage demand based on tight analysis of profitability and client relationships. 

Raw Material Challenges

Efficient raw material (RM) planning is crucial for ensuring smooth production processes, yet many manufacturers struggle with siloed planning efforts that duplicate work and create misalignment. RM constraints are often only fully considered during scheduling, leading to fluctuations in service levels and customer satisfaction. Moreover, anticipating RM availability risks proves to be a challenging task, further complicating production planning efforts. Gomaa explains that “S&OP promotes collaboration across functions, ensuring alignment in raw material planning and production scheduling. A CPG client who launched new products every year, had to closely integrate their S&OP portfolio review process with procurement and manufacturing at early phases in the stage gate process, to ensure raw materials were secured on time leveraging new and existing suppliers.  By integrating these processes, manufacturers can mitigate fluctuations in service levels and anticipate availability risks more effectively.”

Balancing Competing Priorities

Perhaps the most significant challenge facing manufacturers is the delicate balance of competing priorities. Navigating the trade-offs between cost, efficiency, and service quality requires careful consideration and strategic decision-making. However, achieving this balance is easier said than done, as each decision has ripple effects across the entire supply chain. Gomaa stresses that S&OP facilitated strategic decision-making for a private equity client that needed to swiftly improve profitability and identify synergies during integration by providing a structured framework for evaluating trade-offs. By considering the long-term implications of decisions, a specialty material manufacturer was able to optimize CAPEX decisions, and OPEX by advancing S&OP analytics to account for operational, financial and business priorities while ensuring that customer service levels are achieved. The client made it clear “we want to do no harm to our customers along the way.”

In conclusion, while manufacturers strive to achieve agility, streamline operations, and build resilience, they must contend with a host of challenges that threaten to impede their progress. From capacity constraints to inventory management woes and service dilemmas, navigating these obstacles requires a holistic approach that addresses both short-term exigencies and long-term strategic goals. By embracing innovation, adopting technology-driven solutions, and fostering collaboration across functions, manufacturers can overcome these challenges and emerge stronger and more resilient in an ever-evolving marketplace. Gomaa can attest to the significance of incorporating S&OP into the manufacturing process can thus help manufacturers address the challenges of agility, streamlining, and resilience by providing a holistic approach to planning and decision-making.

 

Mohannad Gomaa is the Managing Partner & Founder of MG Operations & Strategy Partners, LLC, a boutique consulting firm focused on IBP transformation. Mohannad brings 23+ years of supply chain consulting experience in leading roles at Top Tier consulting firms in the United States. Mohannad is an ASCM Consulting and Training Partner.

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