Business efficiency depends on many factors such as leadership, employee wellbeing, supply chain management, and customer demand. More often than not, the major challenge to achieving consistent is the age-old disconnect between supply and demand.
If a company overstocks its warehouses, it invariably has to sell off excess stock at a loss. Or, if it lacks the stock to meet demand, it has to contend with lost sales, not to mention disappointed customers. Neither scenario is good for business which is why striking that balance between supply and demand is a constant priority.
Even in today’s data-driven age of real-time inventory updates and transparency, many companies battle to find – and maintain – that operational sweet-spot. A common problem is when the marketing department is not in sync with the sales team whose pipeline is not quite mirroring the financial forecast, all of which undermines the operations plan. These silos may be working efficiently within themselves but unless they operate as an integrated force, the company as a whole will not be able to create ongoing value for itself or its customers.
Operational Excellence Requires Balance And Integration
The COVID-19 pandemic has been a brutal reminder of how susceptible market forces are to sudden events, but it has also reinforced the business need for agility, departmental collaboration, continuous improvement (CI), and the right (not just any) technology. These underlying principles of operational excellence can help companies empower their employees to work together in the most efficient, value-driven, and cost-effective way.
By integrating people, processes, and performance, businesses can balance their supply and demand scales better which, in turn, enables them to navigate uncertainty from a stronger position.
Five Signs That Indicate An Imbalance And Lack Of Operational Excellence
- Departments blame each other for not hitting their targets and affecting their performance metrics. For example, the manufacturing team blames the sales team for overstating demand forecasts, which results in a backlog of stock that is not sold. Or, the sales team blames its colleagues in manufacturing for not delivering on their production schedule, which impacts their sales pipeline and customer commitments.
- There is no coordination between departments with regards to promotional events, which invariably results in over-promising supply, creating demand, and under-delivering.
- Regional requirements are unable to take advantage of the company’s global supplies to meet local demand.
- The procurement of raw materials is not based on actual production needs or forecasted demand.
- Potential risks and opportunities are often identified too late. This results in a reactive scramble that further enhances the inter-departmental blame game.
How To Streamline The Supply Chain For Balance
Without a plan to address the imbalance and departmental silos, companies will fail to achieve operational excellence. Integrated business planning (IBP) is a single process that helps businesses balance their demand and supply by engaging all departments and functions in a shared set of organizational goals. When all sales and operational activities are singing from the same hymn sheet, it is far simpler to establish a supply chain that shapes both supply and demand synchronously.
Three Important Elements For An Effective Integrated Business Plan
- Culture: To replace silos with integrated departments requires an organizational shift in culture that focuses on collaboration, transparency, and a shared commitment to achieving company-wide goals.
- Processes: To affect organizational change requires clearly communicated processes that are guided, tracked, and assessed for results at each planning stage.
- Tools: The right information technology tools are crucial. These assist integration by providing access to shared information across the company.
The Five Planning Stages Of Operational Excellence
There is no overnight fix to an organization’s imbalance of supply and demand. Nor does it pay for companies to focus their efforts on driving change solely within the functional and executive levels of the business. Excluding the lower levels of the workforce undermines the very notion of integration, dividing rather than uniting efforts towards achieving balance.
Companies that succeed at transforming their operations to achieve excellence do so by developing and following a five-stage integrated business plan that involves all employees.
Stage 1: Focus The Business On Value Creation
Leadership plays a crucial role in developing and executing the IBP. Senior leaders are responsible for establishing cross-functional structures that share value-creation goals and performance metrics.
Stage 2: Create Knowledge-sharing Networks
Different teams are encouraged to work together when previously siloed information is made accessible to all. Sharing knowledge enhances collaboration and partnership within an organization, which results in better, faster results.
Stage 3: Analysis Resource Allocations
With all employees sharing their knowledge to work towards the same goal, it is possible to manage capacity and allocate resources more strategically. Identifying customer priorities is critical to achieving a supply and demand balance.
Stage 4: Instill A Culture Of Accountability
Individual accountability is key to building a successfully integrated organization that performs with excellence. The emphasis is on employee accountability for the company’s overall performance rather than on separate departments.
Stage 5: Check The Customer
All of the work in stages 1 to 4 is just a prerequisite for the final goal: To make sure that the company’s most important customers’ needs can be satisfied profitably. This typically requires streamlining processes and then developing flexibility and fluid scheduling to meet variable demand.
IBP is an organization-wide orientation that spans functional domains and company politics to provide a basis on which to effectively and efficiently run an entire business enterprise. Building that capability takes time and effort. Leaders need to create the right organizational climate for supply and demand integration and establish goals and metrics that align functions to organizational goals that enable the entire organization to create relevant value for customers of choice.
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