We live in a digital age in which data has become an important company resource. In fact, Yossi Sheffi (@YossiSheffi), the Elisha Gray II Professor of Engineering Systems at MIT, asserts data is a company’s most important asset. He writes, “The well-worn adage that a company’s most valuable asset is its people needs an update. Today, it’s not people but data that tops the asset value list for companies.”[1] That’s why most business consultants insist that organizations built on a foundation of Industrial Age processes need to transform into digital enterprises. Consultants from West Monroe explain, “As businesses worldwide seek to improve the agility and resiliency of supply chains, the time has come to ditch manual processes wherever possible.”[2] One of those processes, they insist, is Sales & Operations Planning (S&OP).
According to the West Monroe consultants, a survey conducted by studioID and West Monroe found, “Nearly 75% of manufacturing and distribution executives reported … that Microsoft Excel contributed to their sales and operations planning processes.” Not only are manual S&OP processes out of step with the times, West Monroe consultants assert they could threaten company survival. They explain, “Surviving the next significant supply chain disruption will require a level of flexibility that organizations can’t achieve with complex spreadsheet formulas alone. The inherently reactive nature of manual processes makes it too challenging to keep pace with shifting market trends and disruptive events.”
The Imperative to Improve S&OP Processes
Lora Cecere (@lcecere), founder of Supply Chain Insights, observes, “The goal of an effective S&OP is to actualize opportunity and mitigate risk.”[3] She insists, however, that S&OP processes aren’t just out-of-date, they are totally screwed up. She reports that surveys conducted by her company have found a growing dissatisfaction among business leaders with their company’s S&OP processes. Internecine bickering and manual processes contribute to this dissatisfaction. As a result, Cecere notes, “Turbulence around the S&OP process increased, insulating the organization from sensing and responding to market signals. (Market signals include consumption data, channel insights, and events.).” According to Cecere, “Supply chain leaders, like firefighters, get an adrenaline rush from reactive behavior.” In other words, they love demonstrating their skills during a crisis. Unfortunately, crises are not generally good for a company’s bottom line. Cecere adds, “The caution is that reactive behavior does not help the organization be more proactive. S&OP is the most valuable process to drive value. Reactive behavior undermines the effectiveness of S&OP. As we look to build better post-pandemic, S&OP is a great place to start.”
Madhav Durbha (@MadhavDurbha) Vice President of Supply Chain Strategy at Coupa Software, notes that S&OP processes were introduced in the 1980s, just as the Digital Age was being born. He writes, “While the terminology evolved, the underlying thesis of S&OP has stayed the same, i.e., bridge the divide between sales forecasts and operational plans while respecting the budget.”[4] Like West Monroe consultants, Durbha believes the time has come to ditch manual S&OP processes. He explains, “Recently the technology has evolved to a point where such processes can be conducted at a faster cadence than a typical monthly cadence that was the norm. Rapid scenario planning is increasingly being touted as a way to counter the disruptions that seem to increase in frequency and intensity.” West Monroe consultants add, “Building technologically-enabled S&OP capabilities has become essential as supply chain organizations pursue digital transformation to ensure better agility and resiliency in the face of constant change. To access more predictive capabilities in a volatile global supply chain environment, business leaders need to streamline S&OP through more advanced automation.”
Steps to Improve the S&OP Process
The first step on the path to a better S&OP process is to recognize there is a problem. Nader Mikhail (@NaderKMikhail), founder and CEO at Elementum, observes, “There are everyday inefficiencies lying underneath the surface of the supply chain — late POs, shortages, late shipments, system failures. The day-to-day fires that Supply Chain heroes are constantly fighting. S&OP accounts for these issues, but doesn’t uproot them. These ‘small’ inefficiencies multiply by thousands of occurrences per month and create suboptimal, rigid supply chains and a big gap between Planning and Execution. S&OP cannot bridge that gap.”[5] Like the other experts cited above, Mikhail insists, “The gap cannot be filled with spreadsheets and email.”
Sarah Hippold (@Sarah_Hippold), Senior Public Relations Manager in Gartner’s Supply Chain Practice, asserts another required step is to improve corporate planning alignment. She writes, “Supply chain sales operations and planning is often a struggle, because it consists of so many component pieces and people — all of which must be aligned to work toward a common goal.”[6] Even during so-called “normal” times, supply chain planning can be difficult. The stark truth is that planning and optimizations are done in many departments within a business, such as supply, manufacturing, distribution, warehouse, transportation, budget, labor, and so on. Often, departmental planning functions are disconnected from one another and may have conflicting goals. For example, manufacturing may be tasked to fill all orders which requires having inventory on-hand in distribution centers. However, distribution centers may be given the conflicting task of minimizing excess inventory space and cost. Without an objective function that spans multiple planning departments, each department’s objective function may conflict with others in often subtle ways. Cognitive solutions — like the Enterra Concurrent Planning Intelligence Solution™ — can help minimize conflicts and create a balanced concurrent plan. Concurrent planning is essential in both periodic and continuous planning efforts.
Hippold agrees S&OP must be focused on delivering company objectives. She writes, “To create an effective S&OP process, … focus on [supporting] the organization’s highest priorities. This works best when a top-down approach is combined with a bottom-up approach. The top-down approach identifies the small number of outcomes that S&OP will deliver really well based on the priorities of the C-suite. The bottom-up approach is the best method for solving the operational issues — process steps, agenda items, roles and responsibilities.” She also insists S&OP must be scenario-based. She explains, “Most organizations wait for something to happen and then respond, but leading companies plan for multiple eventualities to enable an agile response.” And, like other experts cited in this article, Hippold believes manual processes are anachronistic in today’s fast-paced business environment. She writes, “While basic scenarios can live in an Excel sheet, mature S&OP organizations deploy advanced analytics tools to calculate scenarios and their impact on the business in real time. If the database allows, analytics can even provide decision support and make recommendations.”
Concluding Thoughts
Hippold concludes, “A significant refresh of S&OP may require an enormous level of effort and investment in technology.” West Monroe consultants insist the time, effort, and investment is worth it. They explain, “A structured S&OP process with sufficient automation capabilities helps improve resiliency by identifying where risk will come from and providing more time to react and make decisions. This extra time provides significant benefits beyond the capabilities of a managed process.” Improving the S&OP process is important; however, it’s not a one-and-done effort. Hippold explains, “When the new process is launched, it may be seen as a great success. However, without a program of continuous improvements over time, the new process will become stale, business requirements will change and S&OP effectiveness will decline in the same way as the previous S&OP process. Continuous change that adapts to whatever the business currently needs is less flashy, but more ultimately, more sustainable.” Cognitive technologies can help ensure S&OP processes meet the demands both today and in the future.
Footnotes
[1] Yossi Sheffi, “What is a Company’s Most Valuable Asset? Not People,” Supply Chain @ MIT, 20 December 2018.
[2] West Monroe, “A resilient supply chain has little room for manual S&OP processes,” Supply Chain Dive, 25 October 2021.
[3] Lora Cecere, “My Take: How We Screwed Up Sales And Operations Planning,” Supply Chain Shaman, 22 February 2021.
[4] Madhav Durbha, “5 Recommendations towards a Resilient S&OP,” Logistics Viewpoints, 21 July 2021.
[5] Nader Mikhail, “Dear S&OP, you have not solved the problem,” Elementum Blog, 18 June 2021.
[6] Sarah Hippold, “5 Ways to Mature Sales and Operations Planning (S&OP) in Supply Chain,” Smarter with Gartner, 12 April 2021.
