From the paddock out west to the head office in Brisbane, to the dining room table in Beijing. The journey of farmed products isn’t always as seamless as they seem with the supply of harvest and livestock products. Producers face challenges in managing crops and livestock, battling tough environmental factors, and competing in volatile markets. Identifying the best markets with the greatest margins remains one of the greatest challenges that producers in agribusiness face, until now. This blog will explore the shortfalls of ‘textbook’ S&OP and the limitations it can have for agribusiness, and will also give you an insight into how you can mitigate these challenges with the correct solution and tool.
For agribusinesses, the endeavour to maximise returns within a dynamic marketplace can largely fall on the shoulders of one or a few, generally executing a standard S&OP process through legacy systems or a single spreadsheet on Excel. Their experience is vital as they understand not only the business’ production and processing capability, but also they understand their customers’ demands and the parameters they need to be delivered.
Sales and Operations Planning (S&OP) is a business management process that aligns supply chain functions to enable executives to make the best financial and business decision
As markets continue to diversify internationally and demand for quality farmed products increases, agribusinesses need to make decisions based on natural resource variability and market volatility to receive the greatest return on their product. But in the current climate, can those producers rely on textbook S&OP to make the most informed decisions? How in this modern global market can agribusinesses remain sustainably profitable?
Let’s take a closer look.
With significant (and growing) complexity in agribusiness supply chains, a standard S&OP process is often propped up by the experience and expertise of a ‘seasoned agri veteran’. For years, this individual may have filled gaps in a standardised process with deep knowledge of business idiosyncrasies and strong intuition in addressing supply or demand changes. The decision-making process and the framework these decisions are made upon go beyond the capability of a standardised sales and operations plan.
Relying on one or two individuals limits sustainable success and reduces time spent on valuable activities like contingency planning. Future-proofing your businesses success is reliant on contingency planning by implementing systems and processes that automate decision-making, removing the burden and pressure placed on key individuals.
The unpredictable nature of ‘harvest’ and ‘livestock’ farming is a prime example of why agribusiness requires a more flexible approach to S&OP. Take for example a meat producer; supply dictates the number of different SKUs available, which is an administrative nightmare to reconfigure and coordinate when market demands shift.
The unpredictable nature of supply has ramifications on the sales front with overselling and not being able to fulfil agreements. The flow-on effect can be critical to a businesses reputation and jeopardise relationships.
So, how can businesses change their approach and move away from the conventional way of ‘commodity selling’ and have more control over their supply and sales and increase the value-add of their products at the same time?
Simple – move towards ‘Forward selling’. Forward selling creates synergy across sales, supply and production by knowing the exact number of products there is available to sell at a point in time and negotiating contracts accordingly. I.e. move from reactive to proactive.
Are we on the same page?
While it is important to consider the correct approach to S&OP, it is just as crucial to have a system and tool to support it. Too often businesses are stuck with a static excel spreadsheet or a dated enterprise business application that requires a huge amount of effort to maintain and use effectively.
We’ve experienced a real appetite for producers to better leverage their data to make more informed forward looking decisions. There is a shift in the industry from reactive selling to proactively ensuring Australia’s high value agricultural products get the premium they desire, not languishing in the supermarket budget sectionJonathon Allport – Agribusiness Analyst
A spreadsheet or enterprise application can sometimes be effective in keeping a business running, but the slow and static process brings other challenges and issues. One of the shortfalls of these systems is the inability to conduct what-if scenario modelling or to adjust to new and later opportunities. Comparing options and finding the best outcome becomes difficult, and business decisions have to be made from limited information and modelling.
Having the correct data but not being able to compare options can have large financial ramifications and can result in a loss of opportunities due to poor decision making.
Let’s look at a concrete example of how this can be done with a modern tool.
A new way with WOLF
Wolf is Biarri’s modern web based tool that bridges agribusiness sales and production planning, making decisions quicker and easier with a quantitative model. This approach and tool was applied with one of the world’s largest producers of lamb and mutton and can also be applied to all types of agribusiness.
Alliance Case Study
In such a fast moving and volatile market place, making the right decision consistently, is difficult with the instability in demand, production and logistics. Alliance faced this common agribusiness challenge, and they required a system and approach that improved their day to day sales and production process to cope with their high production volumes.
Alliance Group is the world’s largest processor and exporter of mutton and lamb, representing over 15% of the world’s cross-border trade. Its facilities process over 87 Million lamb and sheep per annum, exporting to 65 countries, and they produce over 1,200 products.
“Being able to plan and maximize returns within our dynamic market place has always been challenging, so when we talked with Biarri about developing a new optimization model with more scenario modelling capability we could see the potential of planning with confidence that every variable had been optimized to minimize cost and maximize revenue within our market plan.
The team at Biarri were quick to understand the variables within our planning process and have developed a platform that enables us to react to the moving market conditions with confidence.”Craig Spence, Marketing Accounting & Administration Manager, Alliance Group
Before coming to Biarri, Alliance solved its S&OP problems with some advanced mathematical modelling in Excel. After using this tool for a number of years, it was realised that it simply wasn’t enterprise grade lacking proper governance, user control, historical data audits, data lineage and much more. It was at this point that they came to Biarri and Biarri introduced them to Wolf.
With the integration of Wolf and a new optimization model, Alliance were able to achieve:
- A reduction in planning effort, with trivial decisions being automated giving time and effort back to high priority tasks;
- Greater control through visibility. Alliance had an unprecedented levels of visibility, arming key stakeholders with greater control over their meat sales and production planning activities. The increased level of transparency allowed for faster and smarter sales and production decisions through scenario modelling;
- Increased revenue through identifying optimal product mix. Production and sales team could now plan and select the right option with confidence, knowing that Wolf had optimised every possible variable to minimise cost and maximise revenue.
Want to know more?
Speak to an expert today and discover how you can better manage natural variation and market volatility below.