Over a year ago, I chaired a Supply Chain conference, and one of the presenters asked the question whether S&OP was really needed. He got deep silence in the room. Everybody was asking themselves what he had been smoking till he explicit what he meant. He explained he was running the supply chain of a network equipment provider and he had optimized his supply chain in such a way it ran on replenishment. In other words, every time he sold one switch, it triggered the supply chain in getting a new one made.
Several months later I was in India, meeting with the head of supply chain from a cookie manufacturer. During the discussion he told me his willingness to move to a replenishment model. He has a complex distribution network throughout India and every time a case is sold, he wants a new one to arrive.
A couple weeks ago, when I was working on a number of entries on my Supply Chain Blog around the concept of closing the loop, I thought back at these conversations. They had something. Transforming a supply chain in a replenishment operation where every step is triggered by what happens in the next one. This could really facilitate operations. But what would be needed to implement such approach? Well, three things I believe:
An information backbone providing immediate notice of a sales and the need to replenish the product
Enough capacity to be able to address variations in demand. The availability of safety stocks could be a way around this though
The acceptance from suppliers to work in the same way, at least as far as their delivery to the supply chain is concerned
This leaves one thing open however, and that is the needs for planning. Indeed, even if we get rid of the S&OP process, we still need some sort of planning to ensure we source the raw materials and components, and we have enough manufacturing capacity available to address customer needs over the next period. If you really think about it, it makes you look at your supply chain as a JIT or Kanban operation. It brings that simplification to the supply chain.
I am not sure most supply chain managers would be willing to experience with such approach today, but it’s worht thinking about it and even if we decide not to get rid of the S&OP process all together, what can be done to make the supply chain more responsive and improve the replenishment process. What do you think about it?