Welcome to the S&OP Experts Blog Series. This series features a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. A follow-up question and answer session is hosted in the S&OP section of the Supply Chain Expert Community. Registered community members may submit their questions for the expert of the week.
Eric Tinker is the Principal at Nexview Consulting and helps organizations with Sales & Operations Planning as well as performance improvement throughout their supply chains. In 14 years of management consulting, his projects have generated over $114 million in results.
Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits?
Eric: More and more company leaders are realizing that to compete effectively, they need to operationalize their strategy as efficiently as possible and many are using S&OP as the platform for this and for continuous performance improvement. Those who work together better than the next guy are the ones who’ll be most successful. In more tangible terms, this means improvements of between 5 and 25% in the areas of working capital usage, reduction in obsolete inventory, reduced transportation costs, reduced production and material costs, reduced time to market, and sales growth.
By virtue of S&OP’s inherent nature of cross functional collaboration, accountability definition, and measurement of results, S&OP can also be the working platform for team building, leadership development, and the mentoring of the next generation of executive leaders.
Kinaxis: Do you think the definition of S&OP is clear in the marketplace? If not, is that a problem? How do you define S&OP?
Eric: Companies continue to use the term “S&OP” to mean different things. As a career management consultant with tendencies of consistency and desire for implementation of “best practice” in an academic and practical sense, the inconsistency used to get to me. With more experience, I’ve learned to adjust “best practice” to the culture, industry, and needs of each individual client. Thus, from the perspective of working with clients to generate results, I don’t see this as a problem. What’s important is that companies have a process to collectively achieve a consistent financial and operational plan, manage gaps, and make decisions that are in the best interest of the whole with the “right” people in the room discussing the “right” level of detail.
I consider S&OP to be the series of tightly defined and calendar-driven series of product family level meetings (Portfolio Review, Demand Review, Supply Review, Pre-S&OP, and Executive S&OP) that integrate medium to longer-term operational, sales, and financial planning. These S&OP meetings link the business plan on one end, with the more detailed planning processes and subsequent execution on the other.
Kinaxis: How important is a maturity model for S&OP? Do companies have to be at the most advanced stage of S&OP to claim to be doing S&OP?
Eric: The use of a maturity model for S&OP is critical and I use one with every client. The maturity model is the vehicle to align the group around best practice, set expectations as to what will be accomplished over a period of time, and measure against it. The maturity model should not only measure the implementation of an S&OP project and best practices, but also desired behaviors, and achievement of business results.
S&OP is a continuous improvement journey and by no means do you have to be at the most advanced stage to be doing S&OP. You’re doing S&OP when you first start the meetings with a product family level discussion and plan with senior management participation and sponsorship. With practice, you’ll become more efficient with the mechanics of the process and you’ll benefit from more effective decision making and gap management. The more mature stages would also be characterized by items such as the integration of faster scenario modeling/decision support, full integration with the annual budgeting process, and measured improvement in operating and financial results.
Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Eric: S&OP can be done on a spreadsheet for a simple business that has a few products and is likely driven more by the sweat of the entrepreneur and dependencies on a few key people. Once a company progresses to process and system dependencies then it’s time to consider how S&OP should be supported by technology just as you’d consider technology support for other key business processes like accounting or production planning. The basic technology requirement for S&OP include:
- Possession of high integrity data that people trust
- Capability to report at all levels of the product hierarchy (product family and business unit for the meetings, drill down for off-line analysis) and report consistent with your S&OP meeting design structure (e.g. business unit, region, etc.) as well as your financial reporting structure
- Capability to report historical actuals and forward plans on a monthly rolling basis
- Exception reporting or identification
- Capability to produce monetized versions of volume plans
- KPI reporting
Without automation to support the above, for businesses other than the small, start-up scenario described above, your team will soon tire of the data support required for S&OP and the process will die or the “data heavy lifters” will move on.
IT capability should be built into maturity models as well, with the more mature stages of S&OP incorporating features such as automated workflow, and scenario modeling/decision support.
Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be?
Eric: Once companies have the basic meeting flow and reports designed and in place, to get to the next levels of maturity they should focus on:
1. Fine tune the design and/or look for ways to improve the mechanics and inputs to the meetings
Look for ways to improve the meeting designs to save people’s time. Does everyone always need to be there? Can some other meetings be eliminated? Can more discussion in the meetings be taken “off-line”? Is enough work being done prior to the meetings, such that the exception discussion is a quick review of the issues, facts, scenarios and recommendations that lead to a decision?
2. Focus on improving performance – oriented behaviors
Set targets for key performance indicators and manage to them. What root causes will be addressed to manage variances over what period of time? Are people constructively raising questions, challenging variances from target, and providing actionable solutions? Are gaps to budget being addressed openly, realistically, and in enough time to do something about them?
3. Measure the results
Measuring results is one of the toughest things to do at the beginning of any improvement project. The quickest business results come from tactical improvements in the processes under S&OP (like inventory, distribution, or procurement savings) and results such as improved customer service or sales growth can take longer. Both long term and short term results can be measured under the S&OP umbrella. With results areas it’s important to define it, baseline it, and measure progress against it. You’ll hear plenty about why S&OP is too time consuming or isn’t productive and the results will help you separate someone’s opinion from objective fact.