S&OP: Has Its Time Passed?

Stephen DeAngelis

May 16, 2016

For nearly three decades, sales & operations planning (S&OP) has been a much discussed topic. Dave Food (@davefood), a supply chain consultant with Prophetic Technology, reminds us of some of the reasons that S&OP was developed. “S&OP,” he writes, “creates a common framework and view of the business, so different departments with different drivers and measures are able to efficiently communicate. And it also creates a common baseline.”[1] Surely those objectives remain important. So why is there so much talk about the failings of S&OP processes? Niels van Hove (@sctrends), another supply chain consultant, insists one of the reasons people get exasperated with S&OP processes is because they remain difficult to master. “A lot has been written about why S&OP implementations succeed or fail,” he writes, “and why many organization are stuck in their maturity.”[2] He continues:

“Recently Supply Chain Insights published a report with the 5 top challenges on why S&OP is a tough nut to crack.

1. 72% of respondents have difficulty getting to the right data in a timely fashion.
2. 53% of respondents reported their organizations are off balance, not aligned.
3. 50% of respondents reported a lack of understanding from the executive team.
4. 50% of respondents reported a lack skilled resources (to do what-if scenarios).
5. A number of respondents also cited multiple S&OP processes (on average 4) as a challenge.

The observations from Supply Chain Insights are similar to my own S&OP research from 2010, 2011 and 2012 and 2014. The top roadblocks in my surveys were:

1. Senior leadership support (lack of executive understanding).
2. The organizational silo’s (lack of alignment).
3. Process discipline.
4. People skills / resources.

After almost 20 years of practicing S&OP and researching and writing about it for the last 5 years, these observations make sense and seem valid. We can learn from them and try to influence them to get better at S&OP.”

Good planning starts with good data. Too often contributing departments use siloed data that can skew results or cause interdepartmental squabbles. Having a single version of the truth (i.e., an integrated database) is a sine qua non for corporate alignment. Cognitive computing systems can help create this single version of the truth because they can collect, integrate, and analyze both structured and unstructured data. Jay Jayaraman, Dinesh Natarajan, Mike Romeri and Tom Zych, from OPS Rules, write, “Sales and Operations Planning (S&OP) is a process that has been deployed primarily to align different functions around the best plan they could identify, working together as collaboratively as possible. Many standard and emerging analytic techniques can be employed to supercharge performance and optimize S&OP decision making.”[3] They go on to note organizations have experienced various degrees of S&OP success. “Unfortunately,” they explain, “the goal of continuous alignment is more of an aspiration than a realizable objective for most organizations. There can be many reasons for a lack of alignment, and these reasons fall into a number of categories related to data, IT, business process, and organizational challenges. Some companies truly embrace S&OP at a deep level, fully enable the process analytically and provide practitioners with all necessary data sources. These advanced capabilities, considered as a whole, are sometimes referred to as Integrated Business Planning (IBP).” They continue:

There are different analytic techniques that can significantly improve S&OP capabilities and help optimize enterprise performance; they are, as follows:

  • Supply Chain Planning: optimizes revenue or profits by balancing demand and supply within current constraints and capacities
  • Network Optimization: optimizes revenue or profit by determining network flow and sometimes positioning of facilities thus reducing cost-to-serve
  • Multi-echelon Inventory Optimization (MEIO): reduces working capital by taking and end-to-end view of inventory requirements, thus positioning inventory in the most efficient way in the supply chain, while balancing service levels and cost
  • Advanced Demand Forecasting: improves forecast accuracy taking into account exceptional conditions
  • Demand Shaping: leverages pricing to shape demand to optimize revenue and profits

Cognitive computing systems can contribute to all of those areas. Brewster Smith, a project manager with Tompkins International, reminds us, however, that technology is only one-third of the formula that contributes to success. Process and People are the other two-thirds. Smith writes, “In his book Good to Great Jim Collins writes about the key characteristics of 11 companies that significantly outperformed the S&P 500 during a 15 year time frame. One characteristic of these companies is that they follow a principle described as ‘First Who Then What.’ In other words, getting the right people involved and putting those people in the right positions is more important than what you are going to do strategically or operationally. Therefore, if you have been charged with developing a S&OP capability, a critical first step is to identify director level personnel from Sales, Marketing, Manufacturing, Purchasing, Finance and Supply Chain to participate in this process.”[4] Go back and look at van Hove’s “roadblocks” to successful S&OP implementation; you will find they involve people, process, and technology. Lori Smith, Director of marketing communications and analyst relations at Kinaxis, believes she has identified the top four most vital capabilities any organization needs to have a successful S&OP process.[5] They too involve people, processes, and technology. They are:

#1: A single application with deep data — We know that successful S&OP must be fed by solid and complete information from across the extended supply chain and supported by robust advanced planning analytics. Only when you have that all in one place can you achieve broad and deep visibility, fast and accurate analysis, and effective and continuous alignment. …

#2: Quick, comprehensive “what-if” scenarios — In today’s fast-changing economy, business success can depend on finding effective answers to typical questions like these:

  • What if sales of the new product are slower than we expect?
  • What if we run a promotion to clear out inventory of the older model?
  • What if a supplier goes bankrupt?

Any enterprise with mature S&OP is continuously searching for better results. … A ‘what-if’ capability is perhaps the single most vital key to effective S&OP. …

#3: Collaboration and consensus-building — People working together is the bedrock that supports everything else in S&OP. This is an area where S&OP excellence can be won or lost. …

#4: Continuous monitoring of KPIs — The S&OP data provided to executives today often suffers from many defects, including:

1. Little connection to current reality
2. No way to explore multiple scenarios
3. No way to evaluate how decisions affect KPIs
4. Difficult to spot trends

However, a mature S&OP system is capable of generating a graphical dashboard showing the KPIs of most interest: sales, profits, ROI, inventory turns, customer satisfaction, and so on. This kind of dashboard makes it far faster and easier to understand the current state of affairs, spot trends, and notice developing issues.

By now it should be clear that the right people, processes, and technologies are needed to implement a successful S&OP process. The objectives of a good S&OP process have remained fairly stable over the past three decades, but the technologies available to help meet those objectives fully are just beginning to mature. In the future, I believe S&OP will be one of the inputs into cross-enterprise control towers (powered by cognitive computing) that will bring greater alignment, efficiency, and profitably to organizations.

Footnotes
[1] Dave Food, “Increasing S&OP clarity by adjusting ‘depth of field’,” The Innovator’s Solution, 19 April 2016.
[2] Niels van Hove, “The Dirty Little Secrets of S&OP,” Supply Chain Minded, February 2016.
[3] Jay Jayaraman, Dinesh Natarajan, Mike Romeri and Tom Zych, “What’s next for S&OP?OPS Rules Blog, 11 April 2016.
[4] Brewster Smith, “Sales and Operations (S&OP) Planning – Initial Steps to Success,” Creating Supply Chain Excellence, 14 April 2016.
[5] Lori Smith, “Top Four Most Vital S&OP Technology Capabilities,” 21st Century Supply Chain Blog, 14 September 2015.