Time to Update S&OP for the Digital Age

Stephen DeAngelis

August 5, 2015

“In most organizations,” asserts Rich Sherman (@guruofscm), founder at Gold & Domas Research, “daily working capital decisions are made by planners and schedulers using custom spreadsheets and tribal knowledge. It’s time to transform the process, and let’s call it S&OP 3.0.”[1] Sales and Operations Planning (S&OP) is a topic of discussion that generates a lot of heat but not as much light as many experts would like. Sherman notes that S&OP isn’t the only name by which corporate planning processes are known; others include: Integrated Business Planning (IBP), Sales, Inventory & Operations Planning (SIOP), and Demand Driven Planning. Whatever you prefer calling it, a number of experts believe corporate business processes need to be updated as businesses transform into digital enterprises. Gene Tyndall, Executive Vice President at Tompkins International, insists that “today’s dynamic markets require much more than routine planning. Each mega-process in the end-to-end supply chain (Plan, Buy, Make, Move, Distribute and Sell) is undergoing change at an unprecedented rate.”[2] He explains:

“All industry segments are impacted by major trends, such as increasing customer demands, e-commerce and omnichannel operations, intensive competition, disruptive technologies, competition for investment capital, and challenges in attaining strategic goals. Recent surveys by Tompkins Supply Chain Consortium show that the challenges faced by today’s supply chain leaders are more complex than ever and require new methods and approaches to resolve.”

Bob Ferrari (@bob_ferrari) reminds us, “The purpose of S&OP is to serve as the mechanism for more-timely decision-making regarding overall business and value-chain planning.”[3] Lora Cecere (@lcecere) adds, “Sales and Operations Planning (S&OP) is over 30 years old. I have been studying it as a researcher for 15 years. With the rise of the global multinational, S&OP increased in importance as a way to align and drive organizational balance.”[4] The majority of business leaders understand the importance of planning; yet Cecere informs us, “Most [S&OP] processes are over 15 years old; yet, only 46% of companies feel their processes are effective.”[5] The fact of the matter is that no business is going to transform successfully into a digital enterprise using outdated and ineffective planning processes. Ferrari believes that too many companies invest so much time and effort into developing a single plan that they forget the plan is a tool and not an end in itself. He writes, “Too many S&OP teams become entrenched and vested in the single number, single plan perspective. A lot of time and energy is spent on chasing or reconciling that ‘one’, cross-business number of expected supply chain customer fulfillment as opposed to improved methods for more dynamically sensing product demand, more quickly responding to market opportunities, or charting different possible paths to successful business metric performance.” As military people are fond of saying, “No plan survives contact with the enemy.” In the business world, that aphorism could be changed to: No plan survives contact with the real world. Sherman describes what happens next: “As the gap between plan and actual widens, fires break out and planners make million-dollar working capital decisions with custom spreadsheets based on tribal knowledge.” That’s why most experts believe that in today’s world, planning must be agile and based on the best intelligence available. Tyndall insists supply chain planning must incorporate the following essential components:

Operations Strategy/Operating Models: Planning requires a strategy to plan against. If we do not know what capabilities we need and why, then how can we plan for the right ones? This is the first step for all companies — to align their operations with their business strategies, and decide what capabilities their supply chains need.

• Organizational Development/Change Management: Organization follows strategy. The supply chain organization should be planned so that it is clear on roles and responsibilities, how decisions are made and carried out, and how needed capabilities will be organized and executed.

• Network Design: Supply chains depend on networks of facilities for inbound flows, storage and distribution, and outbound flows. Nearly all company networks were planned years ago and are not efficient or effective for today’s markets. New approaches such as FCs, DC bypass, intermodal logistics centers, cross-docks, and consolidation/mixing centers need to be evaluated.

• Benchmarking: Leading companies benchmark regularly and adapt best practices to their supply chains, making them efficient and effective. The use of supply chain analytics is critical when deciding on actions.

• Integrated Business Planning (IBP)/S&OP: This is the most critical of the supply chain planning processes. Balancing demand and supply is challenging, but it is a critical success factor for any company that buys, makes, stores, or ships products. Inventory is an asset that can make or break any business.

• The Supply Chain Assessment: This advanced planning process can add measurable value to how a company’s supply chain performs, what it needs to close gaps, and the road map to get to the ‘TO-BE’ vision. It is best conducted in concert with outside experts to ensure that objective and independent evaluations are undertaken.

Cecere provides her recommendations for improving the S&OP process in the following infographic.

 

Planning in today’s complex, always on world requires companies to maintain the best possible transparency into what is happening throughout their value chain. A cognitive computing system, like the Enterra® Enterprise Cognitive System™ (ECS) — a system that can Sense, Think, Act, and Learn® — will likely be one tool in every company’s kit in the years ahead. Cognitive computing systems can deal with many more variables than traditional systems and, because they involve natural language processing, can deal with data in the variety of forms in which it is found. Procter & Gamble is a good example of a company that is moving proactively into the digital future. Sherman explains:

“At a recent conference, a P&G supply chain executive presented how P&G was benefiting from supply chain analytics fueled by data being collected across their supply network in near real time. The analytics enabled operations of some high-volume, fast-moving products to make production and inventory adjustments to respond to demand changes twice daily! It’s not theory; it’s best practice!”

Cognitive computing systems can also help analyze three scenarios that Ferrari says will help companies better their business goal performance. Those scenarios are:

  • Actual: what happened within a specific time interval
  • Planned: what should have happened, based on the S&OP plan
  • Potential: optimized recommendations based on the specific circumstances at the time, without the benefit of hindsight.

Ferrari concludes, “S&OP is indeed a process that supports integrated business planning and more informed decision-making. The good news is that technology advancements, simulation and predictive analytics based capabilities are becoming available to allow more dynamic planning and decision-making without the need to be anchored in a ‘single-number’ approach.” Done right, Cecere notes, “S&OP improves organizational alignment and drives agility. … The use of technologies to model a feasible plan is not as common as most people would like to believe. Many organizations still rely on spreadsheets with no understanding that a complex supply chain cannot be adequately modeled using a spreadsheet. So, in a nutshell, S&OP takes time and a focused effort to perfect. It happens over many years. Start by actively tackling the issues. While it cannot be a technology project, companies cannot achieve S&OP maturity without technology modeling.”

Footnotes
[1] “Turbocharge Your Supply Network with S&OP 3.0!SupplyChainBrain, 11 March 2015.
[2] “Advanced Supply Chain Planning for Tomorrow’s Markets,” SupplyChainBrain, 11 March 2015.
[3] Bob Ferrari, “Sales and Operations Planning as a Decision-Making Process,” Supply Chain Matters, 11 June 2015.
[4] Lora Cecere, “S&OP: A Tough Nut to Crack,” Supply Chain Shaman, 11 July 2015.
[5] Lora Cecere, “Seven Mistakes to Avoid in Sales and Operations Planning,” Supply Chain Shaman, 12 July 2015.