Value chain management and S&OP: pretty much best friends

Thinking and acting within departments is a widespread grievance. Organizational silos and process breakdowns exist in all industries and regardless of company size. Processes certainly grow and become established within the workforce. However, traditional workflows reach their limits at the latest when companies upgrade their systems as part of the digital transformation or are surprised by unforeseen events. In addition to inefficient processes and a heterogeneous database, silo thinking is associated with further disadvantages. The mostly unconscious lack of a cross-departmental understanding of working together is detrimental to holistic corporate planning. In order to leverage synergy potential, make data-based decisions and reduce costs, a comprehensive entrepreneurial approach is required: value chain management. In this article, our interim manager explains what this is all about and why value chain management does not work without professional sales and operations planning (S&OP).

What is value chain management?

The focus of value chain management is on the optimization and integration of all activities and resources required for the creation, production and delivery of products or services. Value chain management considers the entire value chain including suppliers, manufacturers, distributors, retailers and customers. The aim of all measures is to increase efficiency, quality and customer satisfaction in addition to customer value. It is important that all optimization efforts take place within the framework of structured project management.

💡 Expert tip
When it comes to holistic optimization, think in terms of value chains and not conventional functions. This will increase transparency in your company and improve internal and external communication. You can also take into account tomorrow's capacity and storage bottlenecks today.

What role does sales and operations planning (S&OP) play in value chain management?

Cross-divisional planning is a central component of value chain management. Sales and operations planning (S&OP) is about integrating sales and production planning into business areas such as logistics, marketing, sales and finance as well as into the processes of customer demand, procurement, production, capacity and inventory planning at eye level. Companies can set themselves apart from their competitors with this type of sales and production planning alignment. Because only when all planning processes interlock precisely like Swiss clockwork can it be ensured that, for example, the required resources are available in the right place at the right time. A functioning S&OP process is indispensable, especially in the event of unexpected events such as a pandemic.

How to introduce an S&OP process step by step

Step 1: Create understanding
Sales and Operations Planning is an integrated process that encompasses sales, operations, finance and other functions of a company. It is important to ensure that top management and all relevant departments have a basic understanding of the purpose and benefits of integrated sales and operations planning.

2nd step: Assemble a team
Ideally, there is an S&OP steering group made up of representatives from sales, production, procurement, finance and other departments as well as a project manager. This interdisciplinary team is responsible for modelling, implementing and monitoring the S&OP process.

3rd step: define goals and expectations
On the one hand, it is important to define the goals and expectations for the S&OP process, such as improving delivery performance, reducing inventories, making better use of resources and increasing customer satisfaction. On the other hand, it is important to communicate these goals to all those involved in order to achieve a joint effort to achieve them.

Step 4: Prepare data and systems
Companies must ensure that they have the necessary data and systems for an effective S&OP process - from sales data and information regarding production planning and capacities to inventory and financial data. A consistent database is particularly important for large corporations with production facilities and sales locations in several countries.

5th step: Design the process
The steering group is required to model a customized S&OP process that takes current and future company requirements into account. Business models, product lifecycles, product segments and other relevant factors must be included in the design of the workflow. Accompanying workshops allow the steps, responsibilities and timetables for the process introduction to be defined.

6th step: Train employees
It is essential to train the staff involved in the S&OP process, for example with regard to its implementation, the use of tools and the corresponding communication. In addition, companies should ensure that employees have the necessary knowledge and skills to take on the intended responsibility and perform the tasks assigned to them in the best possible way.

7th step: Pilot the project
The modeled S&OP process should initially be launched as a pilot project with a suitable use case in a business unit. This allows any challenges to be identified and the business process to be optimized accordingly before it is implemented company-wide. Companies should anchor the S&OP process as an elementary component of the corporate culture in all relevant areas. This ensures cross-departmental collaboration.

8th step: Continuous improvement
S&OP is a continuously evolving process. Routines are therefore needed for regular reviews and evaluations in order to identify optimization opportunities and make targeted adjustments.

What are the success factors in value chain management?

Manufacturing companies that have not yet professionalized their VCM are well advised to tackle this project with the support of an experienced interim professional - especially as the complexity of value chain management increases in line with the size of the company. Experts specializing in value chain management and sales and operations planning provide targeted support for the introduction of a tailored S&OP process:

• Strategic: Since value chain management affects all areas of the company primarily involved in the production process, the interim manager works with the relevant representatives to develop a common strategy and establishes a consensus regarding its implementation. Accompanying change management is essential. In addition to the management team, the affected employees must also be involved from the outset. Transparent and respectful communication and demonstration of benefits are particularly crucial in order to achieve broad acceptance within the workforce.
  
• Technological: In times of big data and digitalization, value chain management can only succeed with strong systems and reliable data. In principle, value chain management and sales and operations planning require the right data points. For a technological solution to develop its full potential, the data must be consolidated centrally - depending on the system landscape. A single single source of truth gives companies a 360-degree view of their value chain and allows them to take a detailed look at process-related dependencies, production-specific bottlenecks, inefficient workflows, incorrect forecasts and much more. Aggregating and visualizing data makes it easier to identify any potential for optimisation.
  
• Personnel: The interim professional puts together an interdisciplinary or cross-functional team for the implementation of an initial value chain management project. As the external project manager, he or she maintains an overview and coordinates the implementation of the individual measures. The interim manager also works with the team to develop documentation, process descriptions, training materials and flowcharts and supports the organizational units and employees concerned.

What are the benefits of professional value chain management?

Companies benefit in many ways when they professionalize their value chain management. Here is an overview of the biggest advantages:

• By closely coordinating the various activities along the value chain, bottlenecks and inefficiencies can be minimized.
• Effective value chain management enables more precise resource planning.
• Efficiency increases in the value chain often lead to cost savings in the double-digit percentage range.
• By linking suppliers, manufacturers and customers, innovations can be developed more easily together.
• Continuous improvement of processes and services increases customer satisfaction.
• Finally, value chain management opens up a significant competitive advantage.

Why is value chain management an ongoing process?

Optimizing the value chain is not a one-off project, but a task that companies should work on continuously. The introduced and integrated IT systems allow the new processes to be monitored. Valid data forms the basis on which companies can check after a certain period of time whether value chain management is working as desired in the stressful day-to-day business - or whether adjustments are necessary. This allows all inefficient processes within the value chain to be gradually eliminated and thus further extend the lead over the competition. In addition, by drawing on reliable analyses, possible alternative scenarios can be developed if necessary.

The time is ripe for value chain management

The transformation to a value-oriented company goes hand in hand with a new mindset and a changed way of working: instead of operating within the narrow corset of departmental boundaries, the value chain is moving to the center of strategic and operational corporate management. Optimizing processes along the value chain holistically increases internal transparency, improves internal and external communication and enables data- and fact-based decision-making. Finally, companies can identify capacity and storage bottlenecks in good time and take appropriate precautions. At the same time, companies increase their resilience. As value chain management aims to increase customer value, the requirements and needs of customers are the benchmark against which the company's own product and service development is oriented. This master plan remains in place even if sales and production-specific conditions change unexpectedly. Such a resilient value chain increases the resilience of the entire company and at the same time opens up many options for improvement that go beyond the mere exchange of goods. This is why the transformation to a value-oriented company is no longer a "nice-to-have", but a "must-have".

This article first appeared in the industry special "Pharma and Medical Technology". The full publication is available for download. Download the brochure for free and find out more about the circular economy, post-merger integration, omnichannel marketing, data-driven work and automation in medical technology!