IBP to steer an extended Supply Chain in uncertain times

Introduction 

The aerospace industry is full of uncertainties. Although order books give a visibility of many months, the demand remains volatile and uncertain. The upstream supply chain is long. Equipment manufacturers depend on many suppliers, lead times can be six months or more, and supplier flexibility is low. To make matters worse, supply chains can be affected by the constraints and risks associated with to Tier 2 or Tier 3 suppliers.

Strategic challenge 

Our client wanted to improve the on-time delivery to its customers, mainly large aerospace manufacturers. Management was convinced that the company needed better planning but previous attempts to implement Sales & Operations Planning (S&OP) had failed. The company questioned whether S&OP was even possible in the context of long and diverse supply chains that relied so heavily on external suppliers.  

Our client therefore asked us to assess if and how it was possible to develop and support the implementation of S&OP within the company. 

Approach 

Understanding of the value chain and the key decision variables 

The company’s supply chains were long and complex. Hundreds of components, coming from different suppliers with different constraints and lead times, are combined into sub-assemblies and assemblies at  different manufacturing sites. Understanding the value chain and its dynamics was critical to effective planning. It was not just a matter of defining the component with the longest lead time. With the client, we developed a comprehensive method to visualize the build-up of the product value in function of the lead time. That became the basis for analysis and decision-making. At the same time, we worked with the planning teams to identify the main sources of flexibility and constraints in the supply chain.

Designing the Sales & Operations Planning Process

Based on the in-depth understanding of the value chain, we developed a draft process for S&OP. We defined that the key decisions in S&OP were the capacities the company needed to prepare on the bottlenecks in each supply chain to be prepared for the chosen demand scenario, the related buffer inventories of components, and the demand scenario that the company would use to drive operational planning.  

The choice of S&OP-decisions led to a specific design of the S&OP-process: 

• The entire demand and reconciliation process was geared towards developing and evaluating different demand scenarios. The decision on the final demand scenario was not taken in the demand review. It was part of the management review, considering the impact on supply and finance of each scenario response. 

• The supply process did not focus on defining a production plan, but on evaluating the capacities, constraints, and sources of flexibility in the end-to-end supply chain. 

• Most steps in the process were executed for each value chain individually. Only the management review covered all value chains. It focused on the value chains where a decision from the top management was needed. 

Pilot implementation  

The initial process design was tested for three months on two value chains. Möbius supported all process steps and coached the teams involved to make the target process their own. At the end of the pilot, the teams shared their learnings as an input for the roll-out. 

Roll-out support 

Möbius coached the teams involved in the first roll-out wave, handing over the knowledge and the vision of the target process to the internal teams. The client’s S&OP team managed the subsequent roll-out waves.

Results 

Demand planning in scenarios 

The company’s operational teams and management team embraced the philosophy of planning demand in scenarios. That allows them to incorporate divergent information and different opinions from various stakeholders into a coherent process of shared risk-taking. At the end of the process, top management decides on the demand scenario that drives the operational planning, leading to an end-to-end coherence in planning assumptions. 

Visibility on the critical moments for decision-making 

Our client implemented the reports to visualize the value build-up in each Supply Chain in their ERP. Those reports allow the S&OP team to understand the critical deadlines for making decisions and the possibility of “buying time” with limited inventory investments. They also help the client’s management to evaluate the financial impact of planning decisions under different demand scenarios. 

Interaction between operational teams and senior leadership 

The operational teams involved in each value chain manage most of the steps in their own S&OP process. During reconciliation, they decide on the need to escalate decisions to the final management meeting. In that way, the management meeting can focus on the most important decisions, even in an organisation with a very broad scope of different activities.