A system dynamics model to explore the impact of S&OP processes within an FMCG organisation.

Abstract

ABSTRACT The process of understanding how an organisation can continue its drive towards becoming more competitive was initiated by recognising that S&OP is one of the methodologies that underpinned the success of an organisation. It covered the operational, tactical and strategic aspects of the organisation and affected various functional teams. The impact S&OP has on the business is deemed significant for these reasons and hence ensuring that it functions as intended is vitally important to ensuring the business is making headway in the correct direction. The organisation spends large amounts of time and resources towards ensuring that the S&OP cycle is performed at the required level. It is therefore necessary to understand how effectively and efficiently the S&OP process is functioning and its impact on the organisation. Given the complex nature of the problem and the volatile and uncertain environment, it was recognized that a suitable methodology is required to ensure these complexities are captured and understood in an adequate manner. The system dynamics methodology was identified as being suitable to this application due to its propensity to model complex problems, causal inter-relationships and feedback loops. This methodology was guided by the use of a case study approach with the empirical work being conducted within a large multinational FMCG (Fast Moving Consumer Goods) that is based within a developing country. The FMCG organisation on which this research study was conducted is known. However, due to there being a necessity to protect the confidentiality and anonymity of the organisation this approach was taken. The challenges that are faced in most developing countries are similar hence; the applicability and benefits of the study are still maintained. The model building process involved the use of data collected primarily from the mental database of individuals via interviews and questionnaires, supported by data acquired from the numerical and written databases. This highlighted the various aspects of the S&OP process, which in turn was used to determine the sectors that would form the basis of the system dynamics model, namely: (1) organisational focus (2) demand (3) supply planning (4) factory (5) procurement (6) customer ordering (7) distribution (8) management information. The management information sector contained the business metrics that were identified as being important and hence any model developed or scenario analysis conducted would be evaluated based on these metrics. vii Once the model was validated and ascertained to be fit-for-purpose, a number of policy interventions were identified and simulated. Analysis of the outputs led to the identification of two further interventions, which simulated the impact of implementing two policy changes versus one. The outputs showed that optimizing the demand and customer ordering profiles would lead to the largest reduction in variability and have a positive impact on the business metrics that were selected. It was further identified that to implement these policy interventions there would need to be a paradigm shift in the thinking of individuals and the organisation. This view was reached due to a few themes that emerged during the study, namely: (1) behavioural issues (2) conflicting Key Performance Indicators (KPI) (3) individuals having own views of which variables are endogenous versus exogenous (4) leadership behaviour leading to conflicting messages (5) misalignment between individuals and functional teams (6) thinking in silos.