High demand is nothing new for the consumer packaged goods (CPG) industry. You’d think these companies would have the use of field intelligence and downstream consumption data down to a science by now. Unfortunately, many still grapple with it. Important collaborative processes such as sales and operations planning (S&OP) have mostly been confined to number crunching and balancing at the corporate level. This has led to many CPG supply networks neglecting much-needed agility.
The challenges faced today by CPG companies are very real. The traditional sales-versus-operations culture clash, inflexible business and technology architectures, and excessive focus on cost and asset utilization are not going to help organizations meet the unyielding demands of power retailers and polarized consumers. But the good news is that there are winning strategies, such as tactical S&OP, that have the potential to optimize the front end of the value stream and force tighter integration with upstream processes.
What CPG companies need to know
CPG manufacturers continue to chase the equally critical objectives of higher perfect order rates at lower supply chain costs. This requires timely planning, collaboration and a rigorous adoption of S&OP. Even those companies with S&OP best practices in place are unable to identify the links between achieving tangible results and upstream process flexibility.
S&OP is a key mechanism for driving tighter cross-functional integration and the continuous shaping, influencing and enabling of execution flexibility in order to cost-effectively meet demand. However, to truly maximize S&OP’s benefits, it’s essential to adopt a real-time, tactical approach. This requires a shift from static, vertical, hands-down planning to a hands-on, impact-assessment-based strategy.
What CPG companies need to do
The number-one priority for CPG companies is to start building tactical, short-horizon, business impact consensus across sales, marketing, supply chain and finance. It’s essential to quickly agree on how to manage variations by taking relevant inputs from a broader section of the organization.
Here are four steps everyone involved in the process must take:
- Increase planning frequency at the regional level.
- Enhance S&OP ownership to drive faster change decisions.
- Enact mandatory supply capability review with all relevant partners to achieve agreement on capacity. Proactive reviews to address medium-to-long-term constraints and achieve alignment with demand also are necessary.
- Assess impacts and how to respond optimally.
Even with a step-by-step approach, it is critical to understand the importance of a sustainable S&OP process. Best practices should establish S&OP ownership, with a clearly defined charter, individual accountabilities and metrics. Next, set a global and a local S&OP theme that encourages participation and collaboration across supply networks with pointed focus to execute against volatile demand. Local themes can tie into regional priorities such as being lean, reducing inventories, minimizing changeovers or improving perfect order rates while being aligned to demand.
Broaden scope to analyze diverse information, including consumer and brand insights, shipment histories, marketing events, company and third-party supply constraints, finance targets, and any external factors that can influence demand. Effective S&OP also requires the proactive identification of gaps in plans, risks and opportunities in order to start shaping demand. Finally, leverage technology for real-time data and process standardization across geographies.