This post is the first part of a three part series on how S&OP leaders can benefit from Simulation Digital Twins. In this installment, we take a closer look at how visibility is essential to have a world-class S&OP process. If you missed our Series Introduction post, make sure to check it out.
In a traditional S&OP, the aim is to bring together the various business plans present in an organization (customers, sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of tactical plans. The challenge is to ensure that the best decision is taken from the point of view of key global business objectives.
Even with the arrival of planning software designed to overcome the shortcomings of conventional methods, such as Excel sheets, or many other planning tools, in most cases the S&OP process does not take into account departmental interdependencies such as sales, production, marketing, and logistics objectives, for example. As a result, S&OP decisions do not consider these interdependencies, their cascading effects nor their impact on key indicators.
Critical operational key performance indicators (KPIs) such as demand satisfaction or workload capacity ratio need to be balanced with financial and environmental KPIs to provide a holistic view of the organization. Today it is essential to add cash flow and CO2 emission indicators to the set of traditional S&OP KPIs in order, for example, to understand how stock policies impact cash flow and vice versa.
A case in point is when, for example, the S&OP team is to push a product promotion in two months to move overstock. This decision automatically triggers a redistribution of the stock throughout the distribution network. The profitability calculation considers the additional costs and the reduction of the margin as validated by S&OP. However, three months later, the CSR (corporate responsibility team) team deplores the significant impact of this operation on CO2 emissions (a lot of ad hoc transport was organized), whereas one of the company’s stated strategic objectives is to reduce its CO2 emissions.
The above example highlights that this information should have been made available when the S&OP decision was made in order to find the optimal trade-off between the competing objectives. The usual operational indicators such as workload-to-capacity ratios and demand satisfaction needed to have been balanced with financial and environmental indicators so as to present a global view of their supply chain.
To overcome this challenge, digital twins are the optimal solution.
In S&OP, a digital twin is the digital modeling of supply chain and demand within the constraints, uncertainties and interdependencies that make up the entire system.
In a manufacturer’s case, the digital twin includes production resources in each factory, production capacity, opening times, cycle times, OEE (Overall Equipment Effectiveness), inventory and WIP (Work In Progress) levels, delivery calendars, transportation time, cost structure, CO2 emissions, and more.
By modeling the organization in granular detail, the digital twin helps S&OP teams simulate various decision options and understand the effects of each and the potential impact on other parts of the business.
The simulation helps cross-functional teams understand the cause and effect of varying decisions or changes. This global visibility is essential today as companies must find the right balance between multiple objectives and uncertainties.
In part 2, we look at how simulation digital twins provide end-to-end process management and controlled complexity. And in part 3, we will explore how the technology ensures faster risk assessment for better decision-making.
To learn more about how your S&OP organization can leverage Simulation Digital Twins, watch a replay of our webinar with Agilea Overcoming uncertainties with prescriptive S&OP. Philippe Bornert, CEO at Agilea, and Romain Ropitault, Senior Product Manager at Cosmo Tech, discuss how organizations can deploy a mature S&OP process to improve responsiveness and mitigate risks.