September 26, 2015 Turning Exception Management into a Growth Driver

Volume 18 | Issue 5

Globalization and the quest for cost reduction have extended supply chains into far-reaching and often fragile geographies. Coupled with an

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At the same time, a digital revolution is empowering customers to change product preferences in the blink of an eye. The result: Significant volatility in short-term demand and dramatically shorter product lifecycles that is making exception management the norm, not the exception. But, as we’ll discuss, disruptive digital technologies, such as analytics, real-time data exchange, mobility and data captured and transferred from or to any device or asset can help organizations move from reactive, ad hoc exception management to proactive planning and agile configuration of the value chain.

With demand so unpredictable and supply increasingly subject to the risks of distant sources, most supply chain planners today are struggling to cope. Exception management has become a supply chain growth industry that has spawned armies of supply chain fire fighters dedicated to exception management in many companies. Most of them work in organizational siloes, saddled with IT systems threatened with obsolescence as newer digital technologies enable sophisticated sense-and-react capabilities that can lead to proactive planning in the current environment.

With 52 percent of operations and supply chain executives reporting that new digital technologies and the obsolescence of their existing IT are having a high impact on their supply chain organization, the need is clear. The situation has created a headache for many managers – a situation that can be addressed. By accepting that sequential planning is dead, organizations can take steps to turn exception management into a proactive planning capability.

Orchestration is the key to success. With advanced digital technologies, sense-and-react capabilities agile enough to drive growth can be built.

The End of an Era
Recognizing that sequential planning – a matter of matching supply with demand in a linear, forecast-based, sequential process is no longer the straightforward business that it once was – exceptions threaten to overwhelm the planning process. Even sales and operations planning (S&OP) capabilities developed in the 1980s to enable re-planning across an agreed, rolling horizon can’t deal effectively with exponential growth in the volume of exceptions.

S&OP organizations now look more like a “war room” where teams regularly operate in a crisis mode. They can no longer afford to patch up an outdated planning approach – especially as Accenture research found that 72 percent of supply chain executives now consider market uncertainty to be a threat to their business performance.

Visibility: Just the Beginning for Planners
Most organizations are anxious to gain visibility into their supply chain – and small wonder. Having an end-to-end view of their supply chain could dramatically aid decision-making. Thus the growing popularity of supply chain control towers with monitoring hubs that deliver visibility across the supply chain.

But visibility in and of itself will not create a panacea for planners. In fact, it may complicate the task. Not all data is useful information. Important risks might not be highlighted, and that could lead to incorrect decisions.

That is why companies are beginning to look beyond gaining visibility. Only two percent of operational and supply chain executives see the “lack of visibility across the business” as the biggest obstacle to optimizing their supply chain. Inability to respond rapidly to market volatility, inadequate risk mitigation and inability to quickly expand into new markets are considered far more important, as each is a top issue for 64 percent or more of the executives who participated in Accenture’s supply chain control tower survey.

Clearly, companies increasingly see the need to be able to act on what the data gathered as a result of having end-to-end visibility tells them. By combining visibility with alerts driven by business rules and analytics, planners’ attention could be focused on what really matters.

Ushering in a New Era: Proactive Planning
Disruptive digital technologies, such as analytics, real-time data exchange, mobility and data captured and transferred from or to any device or asset can help organizations move from reactive, ad hoc exception management to proactive planning and agile configuration of their value chain.

With analytics-enabled segmentation leveraging a catalog of automated protocols, governed by business rules, planners can tackle exceptions individually, based on the value of the particular customer to the company. A low impact issue might be resolved automatically. However, planners might need to intervene in a medium impact situation, such as an ocean freighter delayed due to local customs inspection issues.

Planners could use scenario modelling, using real-time information, to compute large volumes of data into feasible solution scenarios. Connectivity to vehicles, logistics partners, plants and even clients would facilitate real-time communication and execution of a chosen scenario. Using such advanced digital capabilities also could allow planners to detect short-term changes and react to them through orchestration, a robust process and new decision-making mechanism. As a result, meaningful visibility would provide the basis for decisions, and service, cost-to-serve and inventories could be optimized.

Still, situations might arise that require escalation for review, and the planning team could do so, attaching modelled response scenarios for leadership to consider. In all events, however, the existence of a centralized, cross-functional planning team, equipped with the ability to analyze exceptions, identify root causes and launch initiatives to address them in a constantly updated, iterative process designed to improve performance, is essential to effective execution.

Today, only 12 percent of companies orchestrate their supply chain process in a central organization that makes and implements decisions, manages exceptions and measures performance, according to Accenture research. As more companies recognize that exception management can be transformed into proactive planning, these numbers are likely to swell.

Building an Orchestrated Approach
For those now thinking about creating an orchestrated approach, it is important to understand how many resources are currently dealing with exceptions. Is the situation sustainable? Chances are the answer is “no.” Moreover, if too much of management’s time is being consumed in dealing with requests to resolve complex exception challenges it’s time to move beyond supply chain visibility.

Volatile, complex conditions in today’s business world require the ability to detect changes that could threaten tomorrow’s business performance and to re-plan rapidly as circumstances change. Only an orchestrated approach can build the truly proactive supply chain planning capable of fulfilling those needs.

An orchestrated approach would help make every element of the business more connected, responsive and agile as it turns threats into growth opportunities – even in the face of difficult circumstances. Supply chain planners could manage workflows digitally and dynamically change product flows to suit shifting customer needs. They also would be enabled to transcend individual supply chain and business functions.

To support profitable growth and enable timely decision making in an environment when change continues to be the norm, the time is ripe for companies to create their ability to orchestrate their supply chain operations.

Jose Bleda and Pablo Caballero are managing directors in Accenture Strategy. Based in Barcelona, Spain, they work with organizations around the world to help them transform their operations and use new digital technologies to create a competitive advantage.

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