The other day, I was discussing with some colleagues what elements were needed for a successful S&OP implementation. There have been arguments made that successful S&OP is all about process and that tools don’t matter. Looking back at those S&OP implementations that were successful and those implementations that failed, I have discovered that a successful S&OP implementation is supported by three pillars; Process, executive commitment and effective S&OP tools.
If any of these pillars are removed, the S&OP process will at best be ineffective and at worse collapse into a smoking heap of failure. Let’s take a look at each of these;
Process: Trying to run sales and operations planning without a clearly defined process is like driving in a city where no one obeys the rules of the road….you probably won’t get where you are going. If there were no process driving S&OP, then there is a very good chance that key information would not be presented, key people would not be in attendance and that critical decisions would not be made. It is important that the structure, timing and agenda of S&OP is documented, published and adhered to. If the process needs to change due to changing business requirements, those changes need to be documented and published.
Executive Commitment: It is very difficult (bordering on impossible) to implement an effective S&OP process without executive commitment. Why? First let’s ask what is the purpose of S&OP? The purpose of S&OP is to align supply and demand and the various departments contributing to that alignment. Departmental alignment can only occur if the top level department executives are involved in the key decisions…because those top executives have the decision making authority. Sales and Ops is a failure if the representative at the meeting needs to go back to their executive to get a decision.
Effective S&OP Tools: This includes the tools to analyze the data, present information and make decisions. Effective S&OP tools also include the ability to integrate the data that drives S&OP. Without effective S&OP tools, the implementation process can be very slow and frustrating because so much time and effort is spent getting to the data and building the tool. This frustration leads to failure. This is where I want to focus the rest of my post.
S&OP tools are often ignored in S&OP discussions. Most companies start down the path of using Excel for S&OP. Excel is often chosen because it’s flexible and companies aren’t quite sure what their S&OP process will be. However, with that flexibility comes a cost. In a previous life, I used Excel to build and present our S&OP plans. This is what I’ve learned;
- Excel is a blank slate…you have no guidance as to how to design an S&OP process. One company I visited didn’t do a rolling S&OP plan because they couldn’t figure out how to write the macro to roll the months (which is actually more complex than you might think!). They had 12 months of visibility at the beginning of the year and 1 month of visibility at the end of the year!
- Large sales and ops spreadsheets are very fragile. If someone doesn’t update it when they should, or if someone puts information where they shouldn’t, the process breaks and people are working from bad data.
- Excel is notorious for having multiple versions. It’s very easy for people to make copies of the excel spreadsheet to model their own version. The problem is that these different versions get out and get used as the official version.
- Complex spreadsheets (or any fully customized solution) is typically created and owned by a single person in the organization. If that person leaves the company or changes jobs, it is very difficult for a new person coming into that role to learn how the spreadsheet works. Very often, the S&OP process stumbles while that transition occurs.
- It is very difficult to accelerate processes based around Excel. In today’s fast paced world, monthly S&OP is simply not enough (more on this in a later blog post!)…Mid-cycle adjustments will become more and more necessary and those companies that cannot leverage the full S&OP framework mid-cycle will be making decisions based on incomplete data.
- The last nail in the Excel coffin is scalability. As a company grows, it can be very difficult for the S&OP process to keep up. Adding new divisions often involves significant effort to re-engineer the excel workbook.
So I’ve made a case for why Excel isn’t a great tool for S&OP. What characteristics then, would be present in an effective S&OP tool?
- Visibility: An effective S&OP tool integrates with, and pulls ERP data from, all areas covered by the S&OP plan. If you do an S&OP plan for the division, then the S&OP plan will provide information for all areas of that division. If you do an enterprise wide S&OP plan, then the tool needs to pull data for all areas of the enterprise. An S&OP plan that doesn’t represent all products and product families is not a complete plan and your executive team is making decisions based on incomplete data. Data should be easy to navigate. While S&OP traditionally is done at the family level, having the ability to view your S&OP plan at any level from the all-up divisional or enterprise level, down to individual end-items allows you to identify potential issues earlier in the cycle and create a far more achievable plan. The S&OP tool should present data graphically so that your team can see at a glance where trends are going and what periods are out of balance.
- Real-time data: An effective S&OP tool is one that is continually refreshed with live data. The official plan stays static unless a change is agreed upon by the S&OP team; however, the S&OP tool must have access to current live data as well. This is critical for two reasons. 1) You can monitor performance to the current S&OP plan and be alerted if you are not executing your plan. And 2) The data is live and ready to go when you need to do a mid-month adjustment. Waiting to extract data and import that data into a tool like Excel can cause days, or in extreme cases, weeks of lost time.
- Modeling: An effective S&OP tool models more than just supply and demand at the family level. If you adjust the supply for one family, what is the impact on key component availability? What is the impact on capacity? At a minimum, your tool needs to support Rough Cut capacity planning, or Resource Requirements planning. Ideally though, your sales and operations tool can model the entire supply chain and eliminate the approximations and guesses inherent in both Rough Cut and Resource Requirements Planning.
- Simulation: An effective S&OP tool will encourage simulation to model new conditions and to model various resolutions to supply demand misalignment issues. Notice I said “encourage”. Some tools say that they offer simulation, but it can be a difficult, time consuming task to create a new scenario for simulation. You should be able to create and use a new simulation – that has all of the information from the parent scenario – immediately. It’s no good if you have to wait for hours for a database to be copied – because then no one will simulate.
- Collaboration: In addition to simulation, you need to be able to collaborate. The demand side needs to collaborate with the supply side. The supply planner needs to collaborate with the master scheduler, buyer, planner etc. to ensure that a viable plan has been created.
- Monitoring and Alerting: As already mentioned in the 2nd point, you need to be able to monitor performance to the current S&OP plan and alert team members when actual execution performance will fall below or is expected to fall below the targets set by the current plan.
What tool do you use for S&OP? If you use Excel, have you run into any of the problems I’ve described? Can you identify other essential characteristics of an S&OP tool?
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Your article about “Is Excel the right tool for S&OP?, has a lot of salient points. I used Excel to manage demand and supply for Entry into Service activities for several aircraft programs. I used Excel because a systems solution had not been implemented and was still in the development stages.
Excel worked well as long as I was allowed the time to manage the data; however, this task is very labor intensive especially when your managing multiple aircraft platforms.
When Rapid Response was rolled out and I received the training and hands on use of the tool with our data loaded into the tool, the management of the aircraft platforms became much easier.
My experience with the tool selection was positive. I found that the process and executive commitment were lacking; therefore, S&OP was doomed to failure. When processes, procedures, and management commitment support S&OP, only then will a business be successful in demand and supply alignment and forecasting.
You do NOT have to make a choice between Excel and S&OP. Enterprise Enabled Excel was expressly created to address the need to provide an organization-wide collaborative planning S&OP solution with the familiarity and ease-of-use of Excel as a front-end user interface.
Steelwedge Software provides a planning and forecasting environment using Excel coupled with a world-class, highly scalable, server-based enterprise planning infrastructure. You get all the advantages of Excel without the complexity, long learning curve and inflexibility of a traditional enterprise application!
I believe Excel is the right tool to get started in with your S&OP process, because in the early stages the focus should be on gaining commitment and defining the process that works for you. As you become more sophisticated you need to put more structure in place to avoid all of the problems John describes.
I used Excel, in a very structured process, as the tool for our S&OP process. We painstakingly defined all of the inputs, outputs and process steps in our S&OP process and utilized structured Excel workbooks with named references and password protection. As we out grew this technology, we re-wrote our Excel workbooks so that they were tied together by a central Oracle database, using SOAP calls. This required a modest IT investment, but much less than a full blown planning system would require. Today, there are tools like the one Rick mentioned to make it easier to implement shared Excel sheets.
For our business, this was the best solution. Our business changed rapidly and we needed to quickly adapt to changes. The planners were familiar and trusted Excel, so they trusted and understood our system. I ran a $1 billion business this way and for us, it was the right decision.
The key is to tailor the tools to the needs of the business. If you had to manage thousands of SKUs, the Excel approach would be tough to make work. But our SKU count was limited and the majority of our planning was at the model level so we had less than 20 items we had to focus our planning efforts on.
I believe Excel is the right tool. All the points made are valid. S&OP has a product lifecyle. Excel is the right product in the conceptual / introductory phase. It’s cost effective, customizable to meet early project requirements and meets the most important criteria: KISS.
While my recommendation is that you look at a software solution to guide your implementation to S&OP, I agree that many companies have successfully implemented S&OP using Excel. However, as your company grows, as the complexity of your supply chain and the velocity of change increases, your Excel based S&OP processes simply won’t scale. In addition, there is also of the issue of S&OP process maturity. Without a doubt Excel is probably a good starting point while the organization adopts S&OP. However, as the process matures, collaboration amongst many players, both of the demand and supply side, and not forgetting the product/engineering side, becomes of paramount importance. At this stage of process maturation issues such as audit trails and alerting become critical, not to mention scenario hierarchies that can be shared with a group and then committed or promoted to the rest of the team. These capabilities are not native to Excel, nor are they part of applications that provide a central data repository for Excel data.
Let’s focus further on just a few areas that I identified as being critical for an S&OP tool;
• Simulation and Modelling: A big part of any S&OP process must be playing the what-if game. What-if I see a 20% upside to my demand? What-if I see a 20% downside? What impact will that have on my key components? What impact will that have on my constrained resources? Will I see a shortage? Will I have excess inventory? The majority of today’s S&OP tools rely on rough estimates to determine the rough load imposed on by the supply plan (The “rough” in rough cut capacity planning). What if this load could be calculated based on full MRP explosion and rolled up to the family level? What if this could be done in seconds? This is simply NOT possible with Excel, regardless what add-ons you include.
• Collaboration: As you work through the normal issues of any Sales and Ops cycle, you will need to collaborate with other team members to achieve resolution. While you can place an Excel document in an accessible area, the actual collaboration abilities of Excel is pretty slim. What if you could share various simulations of your S&OP plan and have users contribute resolutions to identified problems. What if these contributions could be managed and integrated back into the overall picture?
• Monitoring and Alerting: When you set your Sales and Operations plan, this becomes the marching orders for the company. How do you know when your actual performance is falling short of the plan? What if you could easily set up an alert that sends a message whenever your projected performance for the month, quarter or year is falling short of the Sales and Operations plan? Unless you have a process to bring ERP data into Excel on a daily basis, you simply can’t do this in Excel. And this brings me to another point; what if you do find that some event has happened that requires a recast of the S&OP plan. How quickly can you react with your current processes? Minutes? Hours? Days? Weeks?
I still believe that there is an advantage to implementing your S&OP process around a defined template that reflects industry best practice, but can be configured to reflect your specific business needs, and can grow as your company and S&OP maturity grows. That being said, I know there are many companies that find the idea of using Excel attractive. There is an argument to be made that Excel is a good tool to help you design your S&OP processes. However, if you want to take your S&OP process to the next level, a software solution that is not based on Excel is the way to go.
John,
I agree with a lot of the points you make, but in my experience it is a challenge to use daily feeds from the ERP systems of multiple value chain partners to do aggregate planning. When you have open POs, open production orders that should have been closed, scrap that isn’t recorded, etc. the ERP data can add noise into the planning process. I know that these things should not happen but they do, When you integrate data from multiple companies in the supply chain into the planning process it is tough to have perfect data, especially when the supply chain partners are selected primarily on cost.
Even if you solved all of these problems, you still have the problem of synchronizing shipments between systems. How do you make sure a shipment from a supplier to you facility is not lost or double counted when you pull data from both systems.
Finally there is the problem of pulling data from all the systems at the same time. Typically data is pulled overnight when the load on the system is lowest. But overnight in Asia is different than overnight in the US or in Europe. Syncing all the data form these snapshots taken at different systems is a challenge.
What are your thoughts about these issues?
Hi Ed/John,
I am starting on the process to implement S&OP in our organization. Can you please advice on how to go about it? Is it possible to share any Excel file templates on which you have already been working.
Thanks,
Hi Ed,
I agree that pulling data from multiple sources is a difficult task especially if you are using that information to feed Excel. In my opinion, this is where the power of a tool designed to execute S&OP processes has the advantage. We have many customers with multi-national operations and we regularly manage data feeds from around the world, both from internal systems and from partner systems.
Hi Gulzar…
I’m on record as saying that Excel is not the right tool for implementing S&OP. In terms of alternatives I would recommend my company’s software, RapidResponse. You can see more information about how RapidResponse addresses S&OP here
In terms of process, I’ll refer back to my three pillars of S&OP; Tools, Process and Executive Commitment. I’ve already commented about the tools, so let’s talk about Executive Commitment and Process.
You need to get your executive team on-board. I’ve talked to many companies that tried to get their S&OP process off the ground but failed because the executive team weren’t on-board, didn’t attend the meetings or operated as they did before.
Once you get the executive team on-board, you need to develop an S&OP process that works for your company. APICS has many resources on S&OP processes and is a good reference. There are other groups and organizations (IBF for one) that can help as well.
Best of luck getting S&OP off the ground Gulzar.
thanks..good blog