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S&OP – Planning for the Extended Distributor Supply Chain

S&OP Planning for Extended Distributor Supply Chain

Most Demand planning systems sold today have a focus on predicting sales to Direct customers and Distributors or known as the Distributor Supply Chain.  This gives a company predictions that are limited to having an understanding of expected revenue in $$ and expected shipments in units to drive supply planning. The big problems with this limited focus is the surprises in the Distributor network. First, sales to the Distributor are not sales to the true customer. Increases in inventory at the Distributor that is not visible, can mask future softening sales. The opposite problem happens if a failure to see increasing sales from the distributor to the true end customer delays actions required to meet the increase in demand.

Excess inventory at the Distributor poses a risk since it may be returned. The amount of inventory at the Distributor needs to be in line with accepted accounting expectations, and return reserves. In this day and age companies need to be able to manage beyond what is shipping from their warehouses and achieve what Gartner calls a level 5 supply chain process.

Standard Demand Planning systems do not handle the extended supply chain well, and try to make up for it by combining a detailed distribution planning systems with a Demand Planning system. This will not give a company the required capabilities to manage what is truly an extended enterprise S&OP, not an execution problem.

A better way to attack the problem is to quickly put in place an Extended Enterprise S&OP solution, and leverage current execution level processes and systems for managing the day to day distribution problems with the Disti and VMI customers.

  • The system needs to have sales and inventory visibility for the Distributor locations. It does not necessarily have to be at the execution level, but a company should arrange to get on hand Inventory numbers at least once per month, or more often from the Distributor. Historical shipment information for product being sold out of the distributor of your products is required for true sales to end customers. This will give the foundation for visibility and management of sales and inventory at the Distributor as well as Direct Sales.
  • The sales account managers and distributor managers needs to be able to focus on gaining insight to the true market customer, as well as understanding revenue to the Distributor. This is not straight forward since the planning system needs to be able to predict the sale twice through the supply chain (once to the distributor and once to the market customer), but revenue is only earned once.
  • Managing the extended supply chain is only practical if the system is built to digitize and automate most of the work and highlight to the sales people and planners what needs their attention. The system should be able to use intelligent analytics to highlight key products for each account manager and digitize and automate the rest of the work. Traditional planning systems require the sales person or planner to find what needs manual attention, lock sections of the Demand Planning hierarchy, then unlock them if additional changes are required. The problem is that this is a lot of time consuming work for the person, since the product-customer combinations that require attention are usually scattered all through the hierarchy. All of this can be automated.
  • An intelligent system can do even more to make it easy to manage the S&OP process for an extended supply chain. Intelligent Inventory Targets can be set using Machine Learning and key Product, Customer, and Channel decision attributes such as sales volume, product lifecycle, etc. Sales to Distributors can be predicted based on Point of Sale shipments, the intelligent inventory targets, and inventory levels. Sales and Planners should monitor and manage exceptions and not do it all manually.
  • Once a system with these capabilities is in place, a company will have much better management of the extended supply chain, and even perform important what if capabilities. What will an agreement with the Distributors to raise target Disti inventory to a higher days of supply do to inventory at risk, or expected current quarter revenue? What will a sales increase to Distributors of x units with a price promotion do to the days of supply in the supply chain? Are my accounting reserves sufficient to cover inventory at risk?

The answers to these questions are possible with a Demand and Inventory S&OP solution that manages the extended supply chain. Click HERE to inquire more about how Adexa solutions can enhance your extended supply chain operations.

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