SDCExec.com |

By Gustavo Gaeta and Stavros Stefanis

With consumer confidence shaken and spending curtailed, companies are facing some of the most challenging operating environments in history. Companies are realizing that the usual tools to counteract a downturn are not enough. To deliver the results needed, executives now need to focus on the more difficult task of managing complexity throughout the supply chain, and better linking finance and operations.

Managing Complexity

Although these issues are important at all times, current conditions have made the alignment of financial and operational planning, along with rigorous scenario-based supply chain evaluation, more important than ever.

Many of the more easily addressed operational inefficiencies have already been tackled with some level of success. These opportunities were predominantly focused on single functions, independent departments, shutting down facilities and headcount reductions. These efforts were typically enough in the past, but not now.

Financial pressures are prompting companies to closely manage their operations to optimize cash and liquidity. With cash-to-cash improvements and total cost management a major focus, companies are striving to improve their metrics and financial accountability and better manage complex operations.

Managers seeking a greater level of cost reduction and cash conservation have begun to address processes that span across multiple functions, departments, entities or facilities. These processes are more complex, but can result in substantially higher levels of cost reduction.

As a starting point, executives can focus on improving efficiencies in three critical supply chain areas: integrated planning, supply risk management and demand risk management. (See Figure 1.)

These three areas not only require a great degree of internal coordination and closely aligned metrics but can consume a high level of cash and involve unplanned investments closely tied to fluctuating supply and demand from external suppliers and customers.

Key activities such as sales and operations planning, supplier risk management and customer/portfolio management should be revisited to adapt to the pressing needs of cash availability. (See Chart 1.)

Following is an in-depth look at these three areas and how managers can change their processes to address turbulent conditions.

Integrated Planning

To better align financial and operational plans, leading companies have relied on a top-down sales and operations planning (S&OP) process. This process is driven by sales and marketing working closely with the operations and finance team to disaggregate the financial plan. The cross-functional information is then used to drive consensus and create the unconstrained and constrained supply plan.