How to design a process that governs - and what separates it from one that merely coordinates
Most organizations have built a working S&OP process. It runs every month, functions show up, the forecast is reconciled, and the meeting closes on time. What it does not consistently produce is decisions that steer the business toward its financial and strategic targets. The process coordinates well but governs poorly, and that is where most organizations stall.
This white paper defines what it takes to move past that point. It traces how S&OP capability develops from coordination to governance, examines why so many organizations stall at the same stage, and describes what a mature, decision driven process actually looks and feels like. It is written for leaders across supply chain, commercial, and finance who want to understand what good looks like and what it takes to build it.
Topics covered:
The maturity journey from coordination to governance
Why most S&OP processes stall at the same stage
Connecting the operational and financial plan
Building analytical capability to compare alternatives
Establishing governance that executes
What a mature S&OP process looks and feels like
Why most S&OP processes fall short
of their potential — and what it takes
to change that
S&OP has been on the agenda in most organizations for years. Yet in the majority of them, the process has settled into a coordination rhythm: functions align, plans are reconciled, and the meeting runs smoothly. What is often missing is the harder thing: decisions that actually steer the business toward its financial and strategic targets.
This white paper examines why that happens and what it takes to design a process that does more. It is written for leaders across supply chain, commercial, and finance who want to understand what a decision-driven S&OP looks like and what it takes to build one.
Topics covered:
Why S&OP falls short as a coordination ritual
The three decisions S&OP must enable
Collaborative planning as the foundation
Gap management versus gap reporting
Bringing options, not problems, to the review
Connecting operational decisions to financial outcomes
Why Collaborative Supply Chain Planning is crucial for your business
Are your teams making decisions from different data? It’s costing you more than you think. Welcome to this webinar hosted by Optilon Supply Chain Conference. In this session, Caroline Svensson and Emma Rosén will discuss the importance of collaborative planning and how your organization benefits from having a unified dataset and insights across multiple roles in your supply chain planning.
What you will learn
In this session, you will learn more about:
How having one common point of “data-view” benefits your organization
Why decisions aligned in real planning data becomes actionable
How supply chain data matters and should be shared across the organization
Turning complexity into competitive advantage through shared data, aligned stakeholders, and decision driven processes
Supply chains have never been more complex — or more consequential. Over the past decade, rising market volatility, global disruptions, and exponential increases in SKU complexity have exposed the limits of siloed, planner-centric approaches to planning.
This whitepaper examines how leading organizations are adopting collaborative supply chain planning — a model that breaks down functional silos, enables real-time data sharing, and empowers every stakeholder to contribute to a unified, decision-ready plan. It draws on market evidence, practitioner case studies, and the capabilities of a new generation of planning platforms.
Topics covered:
Executive Summary & Key Takeaways
The business case: why fragmentation is costly
Four principles of collaborative planning
Technology architecture: cloud, AI, and digital twins
S&OP as the engine of organizational alignment
Maturity model with self-assessment checklist
Strategic questions every leader should be asking
ABC inventory classification has been around for so long that most planners just assume it is the only way to segment inventory. Spoiler alert: it is not. And it is far from the best way. This method hails from the 1960s, a time when computers were room-sized giants. Today’s tech can do so much more. Let us dive into how inventory management has evolved into multi-echelon inventory optimization (MEIO), helping companies minimize inventory investment while hitting service-level targets and improving profitability.
How does ABC classification work? (And what is wrong with it?)
To understand why ABC inventory classification falls short, let us unpack how it works. Traditional inventory management applications calculate safety stock for each individual Item-Location (warehouse) combination in isolation. For such an application to work, the planner needs to assign a service level target (%) for every combination.
With companies often managing tens or hundreds of thousands, or even millions, of Item-Locationcombinations, it is impractical to set service levels individually. A simplification is necessary, and ABC classification is one way of doing it.
A common approach is to use a 3×3 matrix with volume value on the Y-axis and order lines on the X-axis, creating a “double” ABC classification. Typically, 80% of the volume value is assigned to A items, 15% to B items, and 5% to C items. The same 80/15/5 breakdown applies to the number of order lines. A few high-volume value items usually hit the 80% threshold of the AA category quickly, leaving most items in the CC category.
Example of ABC classification.
Service levels are then assigned to each ABC class through a “trial-and-error” process. The AA class typically gets the highest service level targets, and the CC class gets the lowest.
If the aggregated service level doesn’t meet the company’s overall target, say, 95.0%, adjustments are made to the service level targets per class. Once the settings are in line with, or slightly above, the company´s overall target, 95.5% in this example, the process stops.
Now every item in each ABC class shares the same service level target. For example, if there are 10,000 stocked items in a location, all 5,400 items (54% from the ABC classification example above) in the CC class will have the same target. Safety stock levels can then be calculated.
The drawbacks of ABC classification
Now, let us pause and think for a moment.
The stock investment depends on the service levels set for each ABC class. Could other service level combinations achieve the same 95.5% result? Absolutely. There are countless combinations that could give the same 95.5% overall service level, all with different stock investments.
So, how do we know if our chosen assignment of service level per ABC class is optimal? We don’t. That’s why we call it inventory management – not inventory optimization.
The example above describes one level, but supply chains are often more complex, with multiple levels/tiers (central, regional, and local warehouses). Some traditional inventory management software uses an 8×8 ABC matrix for each location. With many locations, setting up and maintaining this system can become a very labor-intensive task. And we still can’t be sure if we have the optimal set-up.
Why inventory optimization beats traditional inventory management
So, is there a better way to segment items, assign service level targets, and optimize safety stock levels today? Yes, there is.
While traditional ABC classification focuses on operational logistics, often ignoring sales, marketing, and customer needs, inventory optimization looks at the product range and the business.
This modern approach uses “Service Classes,“ for example, “Accessories”, “High-margin products”, “own-brands”, and “Critical spare parts”. This categorization is more relevant to sales and marketing, who might not even understand ABC classification.
Stock-to-service for better inventory management
In inventory optimization, you set service level targets per service class, not ABC class. The software optimizes each Item-Location’s service level and safety stock level using a “stock-to-service” curve. This ensures that you meet the aggregated service class target but with minimal stock investment. Let´s think about this. Using the ABC approach, all items in a class are assigned the same service level as an input. In inventory optimization, the software optimizes the individual Item-Location service level, this is an output,
This automated differentiation of service levels (known as mix optimization) within each service class, considering lower bounds, is an outstanding way to reduce stock investment and increase service level at the same time. For example, “Accessories” might have an overall target of 93%, with a lower bound of 90%. The software then assigns service levels between 90% and 99.99% in such a way that the service class still reaches 93% as a group but with minimum stock investment, i.e. optimization. Similarly, “Critical spare parts” may target 99.5%, with a lower bound of 99.0%, still giving the system some level of freedom in the mix optimization step.
The result? Each item in each location is optimized individually but in relation to all other items in the same service class and in relation to upstream and downstream locations (known as Multi-Echelon Inventory Optimization, MEIO). Actually, they compete about the stock investment among each other you could say. In inventory management, items are treated as isolated entities. Inventory optimization software models tens of variables such as demand variability, standard cost, order quantity, lead time, lead time variability and more – unmanageable with the traditional approach.
Modern inventory optimization automates the planning of complex supply chains with hundreds of thousands of Item-Location combinations, guaranteeing service levels with minimum stock investment. This is all done with a very limited number of planners.
Ready to upgrade your inventory management?
Are you still relying on old inventory management methods? Transform your inventory strategy today with cutting-edge inventory optimization tools. Say goodbye to outdated ABC classification and hello to smart, efficient, and cost-effective inventory optimization.
In today’s fast-paced business landscape, optimization is key, especially in supply chain. With the right system in place, companies can boost efficiency and ultimately drive greater success. Yet, rolling out a new supply chain planning system is a complex task – and pushing that button can feel quite daunting. To pave the way for success, here are 7 tips to help you go live with your new supply chain planning system.
The need for an advanced supply chain planning system
There are many reasons for implementing a new advanced supply chain planning system. While some companies want to reduce tied-up capital and improve agility, others want to optimize inventory levels and refine forecasting processes.
In an increasingly turbulent world, businesses are also looking to invest in more robust systems to mitigate risks and increase operational resilience. They want a flexible solution that can navigate the rapid changes of the global landscape and offer security.
There is also a growing demand for automation among businesses that rely on manual data entry and individual expertise. These businesses want to move away from a high-risk, people-dependent set-up to a more process-driven approach that enables growth and scalability without personnel dependency.
Are you one of those companies, eager to adopt a future-ready solution, yet cautious about ensuring a flawless launch on the scheduled date?
How to successfully go live with your new supply chain system
To pave the way for success, here are 7 tips to help you go live with your new supply chain planning system.
1. Define clear and measurable goals
When implementing a new supply chain planning system, it is crucial to establish goals that clearly articulate what you aim to achieve with it. These goals should be specific, quantifiable, and measurable so that you can track progress over time. They should address specific pain points or areas of improvement within the supply chain that are aligned with your organization’s strategic priorities. Setting clear goals also makes it easier to communicate the purpose and expected outcomes to your organization. Also establish a timeline to create a sense of urgency and accountability. This will help you focus efforts and ensure timely progress towards implementation milestones.
2. Get involved and take ownership already in the design phase
The design phase of a new supply chain planning system lays the foundation for its success in many ways. It is during this stage that key decisions are made regarding system architecture, functionality, and user experience. While it may seem tempting to leave the design solely in the hands of experts, getting involved early on is important for understanding how the new system works, ensuring it meets your organization’s needs, and taking part in the decision-making process. Even though you may have experts handling the technical aspects of the system design, it is essential for you to take ownership of the process. By doing so, you not only increase the likelihood of successful implementation but also foster a sense of buy-in among the users in your organization.
3. Make sure to get everyone on board – especially the sceptics
In the journey of implementing a new supply chain planning system, effective change management is essential for success. The impact of this transformation usually extends beyond the project team, often including finance, sales, sourcing, and procurement, either directly or indirectly. Identifying key people and engaging them is critical for project success, especially in addressing sceptics and dissenters. Winning over these hesitant voices can serve as a catalyst for internal project advocacy. Once convinced, you will often find that these people evolve into project ambassadors, championing its cause.
4. Devote enough time to thorough testing and validation
Ensure you allocate enough time for testing and validating your new supply chain planning system. This process will help identify and address potential issues before going live, facilitating a smoother transition. Address all potential challenges and uncertainties right from the start. Run both systems – your existing and the new one – simultaneously to carefully examine any differences. Compare and analyze the results to uncover underlying reasons for discrepancies and use feedback from pilot testing to make necessary adjustments and improvements. This proactive approach will establish a robust foundation and mitigate risks as you proceed with the implementation.
5. Don’t aim for perfection – stick to the 80/20 rule
While striving for excellence is important, it is essential to acknowledge that achieving absolute perfection is unrealistic. Understand that there will always be corner cases, exceptions, and unforeseen challenges. Embrace this reality and adopt the 80/20 rule: focus on addressing the most critical aspects that will have the greatest impact. Be prepared to address issues as they arise, using a proactive approach to correct any discrepancies. It is crucial to prioritize the optimization of systems for the majority rather than clinging to outdated ones. The effectiveness of any system should be measured by its ability to improve overall functionality for the majority. Striving for adequacy ensures steady progress while maintaining flexibility to address emerging challenges.
6. Time to push that button and go live with your new system
It is easy to fall into the safety net trap. However, after thorough testing and validation, it is crucial to recognize the pivotal moment: the decision to transition to the new supply chain planning system. Summon the courage to push that button and go live! While it may seem daunting, remember that after investing considerable time, money, and resources, proceeding otherwise would be a financial misstep. By initially keeping the old system in parallel, you will have a contingency plan, in case of any unforeseen issues.
7. Start with the most receptive market and let them lead by example
When rolling out a new supply chain planning system across multiple countries, begin with the market most receptive to change. By allowing them to lead by example and create an early success story, you instill motivation and interest in other markets to transition to the new system. Start the deployment there and then gradually expand to the other markets. This is an effective strategy for promoting the new system internally across your global organization. This approach also acknowledges and empowers the individuals involved in adopting the new system, highlighting their achievements.
Here to support you throughout your supply chain journey
Are you ready to adopt a future-ready supply chain planning system and eager to ensure a flawless launch on your planned schedule? With a track record of over 1,000 successfully completed projects and a 30-year integration heritage, Optilon is a trusted partner in supply chain optimization. From technology selection to seamless implementation, integration, and ongoing support and insights, we are committed to accompanying you every step of the way on your supply chain journey.
