Back in 2011, John Westerveld penned a two-part blog that discussed “a new way to think about S&OP.” [“Thoughts from Kinexions – A new way to think about S&OP, Part 1 and Part 2,” The 21st Century Supply Chain, 21 and 24 October 2011] The old way of thinking about S&OP, he explained, involved a team that used some kind of demand planning system to create forecasts which were then bounced off a traditional ERP system to see if the forecasts were doable. One of the problems with this method, he noted, was the assumption “that you will only need to evaluate a single demand plan.” Anyone familiar with forecasts knows that they are seldom accurate enough to survive in the real world. Westerveld explained in Part 2 of his post that an S&OP process that could match the vagaries of the real world required six different functionalities. They are:
1. You need a system that allows you to create ‘what-if’ scenarios instantly, and provides the ability to collaborate with these scenarios.
2. You need to have both collaborative demand planning and complete supply planning in the same tool. The supply planning tool needs to accurately emulate the planning done by your ERP system.
3. You need to be able to drive the supply planning system from the demand plan.
4. Further, you need to be able to configure which forecast stream (or combination of streams) forms the demand plan (and therefore drives the supply planning process). This combined with #1 will allow you to evaluate and compare different demand planning scenarios.
5. You need excellent reporting tools that allow you to understand supply issues, their cause, and potential resolutions.
6. You need excellent reporting tools that allow you to present the recommended S&OP plan, the issues, and alternative resolutions to the executive team.
There are a few words in those six functions I would like to highlight; namely: collaborate, collaborative, and the repeated use of the word “supply.” Although the word “supply” isn’t found in “Sales & Operations Planning,” the supply chain clearly plays an essential role in ensuring that any plan (or plans) can be implemented. That’s why I was surprised when I read a headline declaring “The ‘S’ in S&OP Can Stand for Supply Chain, Too.” [Becky Partida, IndustryWeek, 18 April 2013] It seemed odd to me that business executives needed to be reminded that their supply chains undergird their businesses. Partida, who is a supply chain management research specialist with APQC, notes, “Sales and operations planning (S&OP) has the potential to promote visibility within the enterprise and foster collaboration among business functions. However, the functions involved in the S&OP effort can vary from organization to organization. ” Notice that the word “collaboration” is once again used when discussing S&OP. She reports that analysts at her company asked a number of organizations to tell them what functions they included in their S&OP processes. The results are shown in the following graph.
One thing struck me immediately upon viewing the chart: Some companies appear to be conducting “sales and operations” planning without involving “sales and marketing,” manufacturing,” and/or “logistics.” I’m not sure how that’s done. You would have thought that all those categories would have been 100%! Part of the answer may be that some companies simply don’t have an S&OP process, which means nobody is involved. Malory Davies, editor of Supply Chain Standard, reports, “The concept of Sales and Operations Planning is hardly new, but a surprisingly large number of companies, 72 per cent, have only started to make use of it in the past five years, according to a survey by consultants Bearing Point.” [“All going to plan?,” 30 April 2013] Davies goes on to report, “The survey, which focused on process industries in western Europe, also found some significant weaknesses in how S&OP is implemented, notably the supporting IT systems and a lack of S&OP integration to risk management to the finance function as well as to supply chain partners.” One of the recommendations made by Bearing Point was improving “collaboration across the company.”
By now you should get the idea that S&OP processes need to be much more collaborative than they have been in the past. Peter Balbus, Managing Director of Pragmaxis, LLC, defines S&OP “as a set of integrated corporate-wide planning processes that enable senior management to strategically direct operations with the intent to achieve superior levels of performance on a sustained, long-term basis.” [“How S&OP is Changing the Face of Advanced Supply Chain Management,” Dustin Mattison’s Blog, 5 May 2013] He went on to explain:
“It means integrating customer-focused sales plans, historic trend data and predictive analytics with supply chain management to enhance customer fulfillment capabilities, drive efficiency, improve resiliency and maintain agility to respond rapidly to changes in customer, market and supply dynamics. Successful S&OP processes align operations with the corporate business strategy. As companies have become more global and face rising complexity, volatility and uncertainty, the importance of S&OP is increasing. Especially in those industries that are well-served and where we see growth is flattening, S&OP becomes critical to competitive survival.”
I appreciate the fact that Balbus mentioned corporate alignment. You simply can’t align an organization if some parts of the organization are excluded from S&OP process. That’s why I insist that S&OP must be inclusive. Rich Sherman, a Supply Chain Discipline Expert at Trissential, insists, “Collaboration is the key … to unlocking the hidden wealth in supply chain operations. For that, S&OP is among the most important best practices and processes a company can implement.” [“Sales & Operations Is Only the Tip of the Iceberg,” SupplyChainBrain, 13 March 2013]
Balbus also reinforces a point that Davies made earlier. He told Mattison, “The overwhelming majority of companies today have ongoing S&OP initiatives, significantly fewer have fully implemented these planning processes and even fewer are reporting successful outcomes among those that have.” I suppose another way of stating that would be, “Companies know S&OP is important but they don’t have a clue about how to implement it.” Balbus notes that one market survey indicated that “90% of companies responding believe that a strong S&OP process improves supply chain agility and efficiency. All well and good. But only 13% of these same companies report having effectively tied S&OP planning to execution activities!” Balbus concluded his interview with Mattison by sharing a few thoughts about how companies can better implement S&OP processes.
“The key to any successful S&OP initiative is the ability of the organization to align demand, supply, inventory and financial plans easily and seamlessly against the overall business strategy. This requires a technology layer to enable demand translation — that is, the modeling of changing product mix, and the visualization of equivalent units. This technology layer then becomes the system of record tying together the multiple S&OP plans. However, this alone is not sufficient to sense and define a response to buy- and sell-side market changes. All too often, plans are built on enterprise data – and not external market data. In addition, the process definition is inside-out (where enterprise data is used to predict future market shifts) rather than outside-in (where market data used to sense and shape responses based on market shifts). The most effective S&OP processes use both buy- and sell-side market data to bi-directionally align the organization from market-to-market. As the company shifts from inside-out to outside-in, data models must to be redefined and the technologies re-architected to reflect this profound change in orientation. These are fundamentally different data models. Another common barrier to achieving S&OP excellence is that companies are not sufficiently deliberate in their statement of goals, definition of governance practices, or the definition and alignment of key performance metrics. While companies universally state that they want to improve their S&OP processes and want to be agile, they often struggle to define what this means specifically for their company to make it ‘actionable’.”
Supply chain analyst Lora Cecere has been touting, for some time, the notion that organizational strategies need to be more outside-in rather than inside-out. If you haven’t done so, you should join her Supply Chain Insights Community. Outside-in demand visibility often involves big data. Nari Viswanathan, Vice President of Product Management at Steelwedge, reports that companies are collecting more product, supply, demand, and finance data; but, “are not actually leveraging this data in their S&OP processes, thereby leaving ‘blind spots’ in their decision making processes around critical supply/demand trade-offs.” [“Big Data Is Becoming a Big Deal for Agile S&OP,” SupplyChainBrain, 13 March 2013] The biggest blind spots of all, however, can come from within an organization if planning isn’t an inclusive activity. Partida concludes:
“Because S&OP affects the entire supply chain, organizations should give serious thought to involving representatives from the supply chain functions in this process. Organizations should consider whether any additional costs incurred in the planning process would be offset by increased efficiency or costs savings generated within the procurement, manufacturing, or logistics functions. It may be that involving the supply chain in S&OP is worth the investment.”
I might have put it another way, “Is excluding parts of your organization from the S&OP process worth the cost?” The simple answer is, “No.”