Archive for October, 2010

Bob Ferrari: Process inertia and organizational thinking can derail the progress of an S&OP initiative

Published October 26th, 2010 by Lori Smith 0 Comments

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. Follow-up ‘question and answer’ sessions are 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.

Bob Ferrari is the Executive Editor of the Supply Chain Matters blog and Managing Director of The Ferrari Consulting and Research Group LLC, a consulting, facilitation, and custom research firm. Bob is a highly visible supply chain technology executive and noted industry analyst, with demonstrated experience in business planning, process, and information technology transformation.

Kinaxis: What do you believe is behind the surge of activity around S&OP?  What are the anticipated benefits?
Bob: I believe that the higher adoption of S&OP activities is motivated by three factors.  First, the benefits and effectiveness of an S&OP process have been proven by many companies in many different industry environments. This is especially pertinent when these companies attempt to navigate in the very uncertain and often volatile post-recessionary environment that exists today.

Second, S&OP provides an organized means to build consensus for aligning product demand with various supply plans. 

Finally, S&OP is the best means to engage senior management in the key decision making required in aligning  demand with supply across the global supply chain.

The anticipated benefits for S&OP generally evolve in the areas of:

  • Improved demand and supply planning, better forecasting, and a more responsive supply chain
  • Improved customer service
  • Better, quicker, and more aligned decision-making 

Kinaxis: Many are advocating the evolution of S&OP to Integrated Business Planning?  Are you a proponent of IBP? Tying the financial plan/measures directly into the process is a key component of IBP, what else distinguishes IBP from S&OP?
Bob: I happen to be one who advocates that S&OP can be a stepping-stone towards Integrated Business Planning. That stated, not all companies are ready to move through this maturity. There are many other factors involved with IBP not the least of which are considerations for integrating information across the supply chain as well as organizational alignment and change management factors.

My advice to companies has always been walk before running.  Building a solid foundation to an S&OP process should be the first consideration.  This includes expectations, roles and decision factors assigned to the participants which often include cross-functional discussions. Means of gathering and communication of information to support the process are also important, especially when participants include external supply chain partners.  Only when an organization feels it has a viable and well-understood S&OP process and an aligned organizational culture, should it consider moving towards IBP. 

Kinaxis: Organizational thinking is often inherently bound by the dimensions of the “box” it is currently in because people don’t question working assumptions strongly enough. Do you believe “process inertia” is a barrier to advancing S&OP processes?
Bob: I do believe that process inertia and organizational thinking can derail the progress of an S&OP initiative and supply chain professionals should not be sidetracked with these common types of issues.  Most barriers lie in developing the overall process framework, process cycle time, and overall change management factors.

Supply chain planning, process execution and customer fulfillment is inherently cross-functional in nature, often with conflicting goals. Sales and marketing teams are often goaled on unconstrained sales quotas. Procurement often seeks lowest-cost suppliers, sometimes located in remote regions with less mature business practices.  Product management seeks to meet time-to-market dates, and finance can be persistent in budget adherence.  When large doses of supply chain ‘reality’ are added, inertia can occur since there is a strong reluctance to not deliver ‘unwelcomed news’ to senior management.

In my view, there is sometimes a tendency for S&OP participants to be more focused on building continuous consensus vs. a broader and more challenging perspective on the big-picture of supply chain business issues.  Broader empowerment, sponsorship, peer mentoring  and active participation by senior management helps to overcome this inertia. 

A final thought relates to the overall cycle time of the process which must match the clock-speed of the business.  If for example it takes 4-6 weeks to accumulate and assess all demand and supply information, when the business can change significantly in 3-4 weeks, than the process becomes ineffective, and support wanes.  Technology tools play a key role in facilitating more timely analysis of the required information that can not only sustain, but enhance the cycle-time of the process.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Bob: This is a great question since in my discussions with supply chain executives and professionals, this very question is often raised, with pre-conceived opinion.  The qualifier I often add in these conversations is the notion of “advanced technology”. An S&OP process can be carried out without technology if the scope of your supply chain and supporting organization is small and manageable. Obstacles to the S&OP journey are more often organizational and process related.

However, the most important consideration to an S&OP process is the overall time it takes to conduct the continuous planning cycles, the ability to quickly gather, analyze and report summarized information, along with the ability to perform what-if analysis or quickly analyze various alternative plans that the process wants to consider.  More often, this is where advanced technology plays a very important role. 

Technology can facilitate the quick gathering of cross-functional planning and execution information, the placing of information in proper context, and the ability to quickly analyze that information.  Of late, firms had augmented S&OP with inventory optimization, business intelligence and CRM related software applications to foster a more robust process for sensing and mitigating unplanned changes in either demand or supply.  Advanced technology also overcomes scope and complexity, and with more and more supply chain activity involving global-based participants, such technology keeps the process working in a timely and effective manner.

Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be?
Bob:

  1. If a firm has not initiated an S&OP process, begin with a pilot phase to work through the various needs for bringing participants, information, and decision-making processes together in a single recognized process.  Move from the pilot phase to more mature phases in a well defined and recognized timetable. The most important emphasis for the initial phases of S&OP are organizational alignment and process consistency.
  2. Senior management sponsorship and active participation is mandatory and an important priority, particularly in the decision-making aspects of S&OP.  Question or challenge when senior management attempts to delegate such responsibilities. With senior management sponsorship comes the dedicated resources to support the ongoing process.
  3. Insure that all data supporting the S&OP process is clean, accurate, and updated on a timely basis.  Nothing derails the process quicker than bad data.

Posted in Miscellanea, S&OP Expert Blog Series, Sales and operations planning (S&OP)


The endless debate: Is S&OP about technology?

Published October 25th, 2010 by John Westerveld 1 Comment

I recently saw twitter post which linked to an article by Steve Banker at Logistics Viewpoints titled “S&OP is not about Technology. Wrong!”.  This position clearly aligns with my thinking about the place of technology in S&OP.  There was once a time when everyone believed that S&OP could be done in Excel.  In fact, some S&OP guru’s still believe that S&OP can and should be a process that is detached from the planning and execution system.  Proof is starting to accumulate that this thinking is clearly misguided.

Ok, sure…if you are a small manufacturer with a simple supply chain (wait…is there such a thing as a simple supply chain???), you can probably get away with doing S&OP in Excel.  Heck, you are probably doing your detailed planning in Excel anyway.  But once your business grows to any size of consequence, you will need more than basic tools to be effective in S&OP.

Steve raises three key points in his post describing why a manufacturer needs technology to achieve a robust S&OP process;

  1. A strong S&OP process requires collaboration.  This requires that all parties need to be able to see and modify a common set of data.  Not an easy process to manage with basic tools like Excel.
  2. You need to be able to see potential misalignments between the plan and defined goals.  When those misalignments exist, you must be able to try different resolutions like promotions, while ensuring that you have the manufacturing ability to back it up.  This means being able to identify and resolve issues at the mix level even when planning at the volume level.
  3. Your supply chain operates in units, but your executives operates in dollars.  Your S&OP tool must be able to easily move from units to dollars and dollars to units.

I’ll add to this by saying that having managed an Excel based S&OP processes in a past life, S&OP cycle time is another reason why advanced technology is required.  It typically took two weeks to pull together an S&OP plan (which actually wasn’t too bad.  I’ve talked to one company where it took 6 WEEKS to put together the MONTHLY S&OP plan.)  Traditional S&OP tools simply don’t allow you to react fast enough when you need an S&OP level decision very quickly.

Now, don’t get me wrong.  I’ll never say that technology alone will make for a robust S&OP process.  I’ve written on this before in my post Is Excel the right tool for S&OP. In it, I identified the three pillars of S&OP;  Process,  Executive Commitment and Effective S&OP tools.  An S&OP project that ignores any of these pillars will fail. The best tools without process will not work.  The best tools and the best process without executive commitment will result in great answers that are ignored. An effective process and executive commitment without proper tools will result in sub-optimal performance and frustration amongst the team.  I’ll say it again.  You need all three elements for effective S&OP;  Process, Executive Commitment and Effective S&OP tools.

Your thoughts, as always, are welcome.

Posted in Sales and operations planning (S&OP)


You get what you pay for: Is cost containment your main SCM goal?

Published October 22nd, 2010 by Bill DuBois 0 Comments

Is cost containment your main supply chain management goal? If so, do you think you’ve paid a price for taking that approach?

Given today’s business climate, I believe those are two valid questions. What’s more, if you think your company–or supply chain–has suffered as a result of focusing primarily on cost containment, you aren’t alone.

An article that recently ran in Aerospace Manufacturing and Design (AMD) reports on the findings of a recent KPMG International survey of nearly 200 senior executives from the aerospace, metals, engineering and conglomerates sectors. Nearly two-thirds of the executives surveyed reported that cost containment remains the top priority in managing their supply chains. What’s interesting here is that almost forty percent of the executives also acknowledge that driving down costs has damaged relationships with their suppliers. In fact, according to the survey results, new strategies for managing the supply chain that are designed to repair relationships with suppliers and weather changing economic conditions are gaining favor among industry leaders.

I have to say I agree with Jeff Dobbs, Global Head of Diversified Industrials for KPMG, when he says that’s an alarming statistic, and those businesses that continue to follow the traditional low-cost-or-bust model in supply chain management are at risk of losing a foothold in the market.  The encouraging news, however, is that according to the survey results, having stronger and deeper relationships with suppliers is now seen as a vital capability by leading companies. More than 50 percent of the respondents expect to enter into more long-term contracts but with fewer suppliers.  Phew!

It isn’t just duration of the relationships that’s changing; depth of the partnerships is also changing. Over half of the survey respondents say their companies plan to collaborate more closely with suppliers on product innovation and development, R&D and cost reduction. Furthermore, the article reports that in more detailed interviews with executives from several top-performer companies participating in the survey, several said they will be working even more closely with suppliers. Some of them said they are strategically investing in key suppliers or bringing parts of the supply chain back in-house, and are applying a mix of both regional and global supply sources to achieve the best combination of speed, quality and cost.

As Dobbs said,

“It used to be that sourcing decisions rested on routine considerations, like who could make the best bolt for the best price. This approach worked when there was little variability in the cost inputs. Now, leading supply chain strategies must involve detailed scenario modeling and the most successful companies will be those who build adaptability and flexibility into their supply chains.”

That’s sound advice. To me—and apparently half of the participants in KPMG’s survey–the days of being able to “beat up” on suppliers to get better pricing are over. If a company is truly going to build an agile supply chain that allows it to quickly seize opportunities, then it makes sense that suppliers must be seen as strategic partners.

It’s time for sharing business strategies, mutually investigating risks and threats, jointly looking at opportunities, developing and linking plans and targets … and treating key supplier as an extension of the business. By sharing more information and working more collaboratively with key suppliers, you can make faster, better decisions. With a more complete view of the facts, you can resolve issues faster. And with more mature business relationships, you can achieve better long-term results.

To be sure, cost containment will continue to be a key goal, but so will overall supply chain performance. Viewing the supplier relationship as a strategic partnership and working more closely with those trusted partners will enable companies to ensure supply, improve demand planning capabilities, manufacture more innovative products and, ultimately, improve the ability to get those products to the customer. Aren’t those the goals in the first place?

Posted in Supply chain management


Trick or treat? Holiday season demand planning

Published October 21st, 2010 by Christopher Hatcher 0 Comments
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Seeing jack-o-lanterns, skeletons and witches on front porches and store-front displays reminds us that—as difficult as it may be to believe–the holiday season and end of the year are right around the corner. And while that’s historically good news because holiday-season sales play a considerable role in many companies’ revenues, the sales season this year looks to be challenging.

One issue is that as orders fell during 2009, inventory levels for many companies stayed high. Since then, they have been able to deplete that surplus inventory, which is good. On the other hand, with that safety stock now either gone or very slim, these companies have become much more dependent on their suppliers’ responsiveness and overall performance.

The problem, as has been noted by both Bob Ferrari and Jim Fulcher, is that suppliers have had difficulty meeting their customers’ requirements this year. Texas Instruments, a supplier of several component chips for the DroidX, EVO and iPhone4 smart phones, is struggling to keep pace with customer demand. It is, however, far from being the only company with supply chain challenges. Mobile phone manufacturers themselves are responding to component shortages by switching to other components that may have more availability.

Furthermore, that situation isn’t just limited to the smart phone market. According to an MFG.com survey, 42 percent of small and medium-sized suppliers said they have received queries or work from larger companies that are urgently in need of assistance due to their own supply chain problems.

The second issue companies increasingly struggle with is demand uncertainty. Whether it’s toys, shoes or smart phones, no one really knows what future consumer spending will look like. In recent months consumers have shown a willingness—albeit somewhat guardedly at times—to spend. But with unemployment hovering around 10 percent and persistent fears of possible end-of-year layoffs, consumers may scale back their spending on holiday gifts this year.

The watchword in all of this then is “volatility.” That applies to suppliers’ ability to meet manufacturers’ demands as well as unpredictable consumer demand.

Addressing those market conditions requires companies to walk a tightrope of sorts. No one wants to lose possible sales and fail to meet customer expectations, so faced with uncertain demand and supplier volatility, the temptation is to build inventory levels. That way, there always is sufficient inventory on-hand to meet a potential sudden increase in demand. However, carrying that inventory presents drawbacks as well. Most notably, there is the high cost of carrying that surplus inventory—not to mention the possibility of being stuck with excess and obsolete inventories in case potential demand never materializes.

Use of S&OP helps alleviate these concerns because, as a cross-functional planning process, it helps organizations better identify and respond to demand so they can not only maximize opportunity—but also mitigate risk. That’s possible because S&OP helps users strike a balance between the sales and operations planning disciplines.

Key capabilities play an immense role. The ability to conduct what-if analyses–for instance—for both supply and demand is crucial, as is being able to evaluate analyses against both financial and operational targets. Secondly, event-driven S&OP is increasingly valued because it delivers the ability to actively monitor the current plan and notify the appropriate people when the plan is at risk. That, in turn, allows them to take immediate action to correct the course.

So, how is your S&OP process? Will you receive treats, or tricks, in the coming months?

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Posted in Inventory management, Sales and operations planning (S&OP)


Steve Puricelli: S&OP Evolving into a powerful mechanism to manage and shape business performance

Published October 19th, 2010 by Lori Smith 0 Comments

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. Follow-up ‘question and answer’ sessions are 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.

Steve Puricelli is a Senior Manager in Accenture’s Supply Chain Management Service Line and he is also the North America S&OP Offering Lead. He has an extensive background in sales and operations planning including forecasting and production planning, both as a practitioner and as a consultant. Prior to Accenture, he worked at Information Resources Inc (IRI), HP, and General Motors. He has more than 15 years of experience working across the high-tech, consumer packaged goods, aerospace, and automotive industries. He holds a BS degree in mechanical engineering and an MBA degree in operations from Vanderbilt University. Based in San Francisco, he can be reached at steven.j.puricelli@accenture.com.

Kinaxis: What do you believe is behind the surge of activity around S&OP?  What are the anticipated benefits?
Steve: A number of market drivers are putting pressure on supply chains and the S&OP process – specifically the volatility and uncertainty we’ve seen over the past 18-24 months. In addition, supply chains have grown more complex over the past decade, which has created a very dynamic operating environment. As a result, organizations are starting to realize that the supply chain and S&OP are important mechanisms to managing the business effectively. Traditionally, supply chains and S&OP are volume or unit focused, but now I’m seeing more senior executive involvement at organizations in S&OP because of the revenue and margin aspects it can control. Once viewed as simply the process or meeting to balance supply and demand, S&OP is evolving into a powerful mechanism to manage and shape business performance.

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?
Steve: An S&OP maturity model to me is comprised of a number of capabilities and is not a single entity – and understanding each capability and where your organization plots on the curve is certainly important. However, most organizations generally do not need to have, or be at the most advanced stage for each of those capabilities. In fact, I advocate that organizations selectively invest in those capabilities that drive value to their supply chains, and are on the leading edge of the maturity curve, while the other capabilities could reside lower on the curve. A term we use is Supply Chain Masters, and we’ve found through our research that leading organizations, or Masters, are not great at everything they do. We’ve found that these organizations selectively invest in capabilities that are critical to their business – and they are very comfortable and confident having capabilities lower on the maturity curve in those other non-critical areas.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Steve: The short answer is yes. I’ve seen a lot of organizations with “manual” S&OP processes that are also leaders when it comes to supply chain performance. Having said that, I’m a firm believer that technology plays an important role in a leading S&OP process, but it is not the driving capability. If you think about S&OP philosophically for a minute, it’s more than just a process or a monthly meeting; it’s actually a governance model for the supply chain comprised of organizational, process, and technology capabilities. I tend to see leading organizations, or Masters, focus more weight on the organizational and process aspects of S&OP over technology, but that’s not to say technology in these organizations is missing. In relation to an S&OP maturity model, there is certainly a correlation where technology plays a more important or less important role depending on the attributes or characteristics of the business. A supply chain with a small number of products, limited number of manufacturing and distribution locations, and only a few customers or channels – using a manual technology solution such as spreadsheets might be sufficient – or even appropriate. On the other hand, technology is often a key enabler for S&OP to scale – and providing the breadth and depth to S&OP is generally not achieved with manual approaches.

Kinaxis: There is indeed a great deal of cross-functional cooperation and collaboration that is required for managing S&OP – how are companies enabling this, and are they doing it successfully?
Steve: Building on the previous question and thinking about S&OP as a governance model comprised of three key areas: organizational, process, and technology capabilities – each area serves a distinct and important role to enabling cross-functional collaboration across the supply chain. The organizations that are collaborating successfully look at their S&OP capabilities holistically across each of those three areas. Addressing process without considering the organizational or technology capabilities may only yield marginal improvements. Each area plays a role in enabling cross-functional collaboration:

  • Organizational capabilities are needed to help integrate more business functions into S&OP than are typically involved.
  • Process capabilities should address and allow for integration into the upstream and downstream processes that S&OP touches.
  • Technology capabilities should integrate and normalize the disparate data and system environments that generally exist with S&OP.

I’ve found that the leading organizations recognize there is no “silver bullet” when it comes to addressing S&OP effectively – just implementing a new tool or a new process isn’t going to enable S&OP. First and foremost, organizations that are doing this successfully have clearly defined ownership and accountability of S&OP and they also understand that all three components of S&OP should be addressed. But I’ve also found that the reality is that organizations need to manage and operate with limited budgets and resources and may not be able to address S&OP in this holistic manner. And leading organizations are not immune to these constraints either, but they approach the enablement thoughtfully, and with a well defined roadmap that address the three components of organizational, process, and technology capabilities in an integrated manner.

Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be?
Steve: Use of the word “evolve” implies a good or an acceptable S&OP process is already in place and the organization is looking to improve or further develop their capabilities. Under that assumption, I would recommend the following:

  • Incorporate financial information into S&OP. As I noted earlier, supply chains have been traditionally very volume or unit focused, and have lacked the information and capabilities to make decisions based on the financial impact to the business. We recently developed an offering called PS&OP or Profit, Sales, and Operations Planning that specifically addresses this issue of evolving an existing S&OP model into a more enhanced version that incorporates profitability into S&OP decisions.
  • Enable what-if modeling and predictive insight capabilities into S&OP. The growing complexity of supply chains, and inherently S&OP, is creating an increasing number of trade-off decisions that organizations are faced with each and every week.  These trade-off decisions, such as revenue vs. margin or cost vs. service level, are also complex. Effectively analyzing and testing each of the various scenarios that present themselves during the S&OP cycle through the use of predictive what-if modeling capabilities should allow for improved supply chain performance.
  • Instill commitment and patience into the S&OP evolution. S&OP is one of the more complex business processes – primarily because it is so cross-functional and touches so many different parts of an organization. Whether an organization is evolving or transforming their S&OP process – commitment to making changes and improvements is needed from the organizational leadership and patience is needed from those involved with S&OP.  Leading organizations, or Masters, understand that driving real change around complex business processes requires both of these characteristics, as well as the understanding that there is not a finish line, but rather it’s an ongoing journey to continually be nurtured.

Posted in Miscellanea, S&OP Expert Blog Series, Sales and operations planning (S&OP)


S&OP stumbling block: Volume only plans are often infeasible at the mix level

Published October 14th, 2010 by Lori Smith 0 Comments

I grabbed our flip cam the other day and caught up with both Trevor Miles (director, industry and applications marketing) and Kerry Zuber (director, business consulting) to ask them some questions around S&OP. Of course, they had lots to say, but we managed to boil it down to about 3 1/2 minutes. Check out the video on the community to hear their thoughts on how and why S&OP is evolving.

One particular issue they address is the notion of volume vs. mix planning.  As they state…

One of the stumbling blocks is that volume only plans are often infeasible at the mix level and therefore lose credibility within the organization. The challenge becomes in the ability to translate that volume level data to an operational plan – one that can be executed on.  For many companies, they don’t have the tools to simply perform that translation.

Come hear more….

Posted in Miscellanea, Sales and operations planning (S&OP)


Andrew Reese: Practitioners say organizational change is hardest part, but most important success factor for deploying S&OP

Published October 12th, 2010 by Lori Smith 0 Comments

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. Follow-up ‘question and answer’ sessions are 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.

Andrew K. Reese is Editor of Supply & Demand Chain Executive. Reese joined the magazine in May 2000, and he is responsible for development and oversight of editorial content and production.

Kinaxis: What do you believe is behind the surge of activity around S&OP?  What are the anticipated benefits?
Andrew: The recent economic turmoil obviously has created a huge amount of real volatility – as well as anxiety about volatility – in the marketplace, and that, not surprisingly, has reignited interest in S&OP as a tool to help navigate the corporate ship through these choppy waters. If by no other indicator, this has been evidenced by the ‘standing-room-only’ (SRO) attendance at the IE Group’s S&OP conference in Las Vegas at the start of this year, and the reports of a capacity crowd at IE’s follow-up event in Boston in September. Of course, many companies had already started their S&OP journey before the Great Recession began, and the economic turmoil merely added to the urgency of better aligning supply with demand.

Another (increasingly common) factor influencing activity around S&OP is the movement of experienced executives who have led successful S&OP initiatives at Company X moving to (or being recruited by) Company Y to lead a similar initiative at the new organization, often from the ground up. That speaks to the growing recognition of S&OP’s value in the corner office, as C-level leaders are willing to invest in executives with S&OP bona fides on their CV.

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?
Andrew: Crawl-walk-run would seem to be a requirement when undertaking something as potentially fundamentally transformational as S&OP. It’s like training for a marathon – you can’t expect to walk out the door and run 26.2 miles; you need to build up miles over time, measure your results and progress, use the incremental gains for motivation, and recognize that trying to ramp up your training too fast will only lead to problems. Even a regular runner must adapt to the significant pounding that a marathon inflicts on the body, just as an organizational organism – even one that is good at functionally specific planning –must adapt to the changes necessary to be successful in an enterprise-encompassing process like S&OP.

To extend the metaphor, the most important step in running a marathon is the first one you take out the door on your first day of training and on every subsequent training day as you put in your miles. Similarly, the most important steps in S&OP are the first ones down the road on your S&OP journey (making the initial commitment) and the first step you take every day thereafter (continuing to be committed over time). That latter point is crucial because S&OP really doesn’t have a “finish line”; each planning cycle lays the foundation for the next, and each milestone in terms of improvement should become the baseline for the next stage of the journey.

Kinaxis: Organizational thinking is often inherently bound by the dimensions of the “box” it is currently in because people don’t question working assumptions strongly enough. Do you believe “process inertia” is a barrier to advancing S&OP processes?
Andrew: I have yet to speak with any practitioner engaged in deploying S&OP who has not said that organizational change is the hardest part of the process and also the most important success factor. Some say that change management is 50 percent of the work; others peg it much higher, in the 70+ percent range. Regardless, getting stakeholders to buy-in to the new way of doing things is undoubtedly a key barrier to S&OP. Perhaps this is why we have seen S&OP embraced in organizations that have gone through some sort of “shock to the system,” whether that means a financial crisis that has prompted a cultural change, or new leadership coming board and, again, initiating a change in the organization’s culture.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Andrew: The old joke that the most common supply chain technology is the Excel spreadsheet is probably just as applicable today as it was 10 years ago, so to the extent that spreadsheets drive S&OP process for many – if not a majority of – companies, and that spreadsheet software is a technology, then the answer to your first question is justifiably “no.”

But by your question you more likely mean, “Can S&OP be done without highly sophisticated, dedicated software solutions?” And that does relate to the second part of your question around maturity levels. To use another metaphor from the world of sports, you could ask whether a cyclist “needs” technology beyond just a bike to ride well enough, and the answer would be “no.” But professional cyclists rely on technologies like wind tunnels (to improve time trialing position) and power meters (to measure and improve output performance) to make the kinds of incremental gains that get them over the line faster than the competition.

Likewise, you don’t need a dedicated technology solution to do S&OP “well enough,” but “well enough” isn’t going to get you across the finish line first. Go to the industry conferences, talk with your peers from competitor companies, find out what tools they’re using and ask yourself whether the results that they’re reporting are giving them a competitive advantage over your organization. If so, maybe it’s time to start building the business case for investing in those same sorts of tools.

That said, it’s important to remember that technology alone doesn’t win any race. Lance Armstrong said that he won the Tour de France because he went out training on Christmas Day – meaning that he had the dedication and drive to get up every single morning with one goal in mind, getting across the finish line in the yellow jersey in Paris come July. Winning the Tour de S&OP is going to take the same kind of organizational drive and dedication.

Kinaxis: There is indeed a great deal of cross-functional cooperation and collaboration that is required for managing S&OP – how are companies enabling this, and are they doing it successfully?
Andrew: The three keys to change management that seem to come up most often in conversation are executive sponsorship, senior executive sponsorship and C-level senior executive sponsorship. Someone has to set the tone, establish the credibility of the process, empower all the participants, and – let’s face it – bang heads when necessary. Beyond that, people typically point to the importance of having one agreed set of numbers to work from as the basis for effective collaboration, both in the sense of agreeing on the credibility and validity of the inputs into the process, and the sharing of responsibility for the outputs from the process.

Posted in Miscellanea, S&OP Expert Blog Series, Sales and operations planning (S&OP)


S&OP needs to evolve – I’m frustrated with traditional thinking!

Published October 6th, 2010 by Trevor Miles @milesahead 0 Comments

Much has changed in the business environment, let alone the technology environment, since the origins of the term S&OP by Oliver Wight nearly 30 years ago.  From a business environment perspective we have only to look at the rise of the BRIC countries – Brazil Russia, China and India – let alone the rest of Asia first as a source of cheap labor for the Western world, but now source of demand that is expanding far more quickly than Western economies.  Many of the companies that used to be sources of cheap contract manufacturing have now developed their own brands and market presence, such as Huawei, Lenovo, and Acer, competing against Western brands not only in Asia but also in the Western economies.  One of the biggest shake ups in the pharmaceutical industry is the rise of manufacturing of active pharmaceutical ingredients and generics in India in particular.  The same is true of many other industries.  The greatest change for the Western brand owners is that the majority of their supply chain is external to their organization, and therefore external to their ERP system.  And yet they are as dependent on an effective and efficient supply chain for good financial performance as they ever were before outsourcing.  The rise of interest in S&OP is largely driven by the need to regain control of these global, multi-tier, multi-enterprise supply chains.

Microsoft was incorporated in July 1981, a month before IBM announced its first personal computer. There was no “PC industry” back then, just tools for hobbyists. And because IBM didn’t think the PC was a serious product, it made the biggest blunder of its history: It left control of the operating system to tiny Microsoft and the central processor chip to Intel Corp. While IBM is still a strong and viable company, its business and revenue streams have changed dramatically since the early 1980’s.  Microsoft Windows was first released in 1985, but it wasn’t until Windows 4.0 that widespread adoption occurred. Microsoft released the first version of Excel for the Mac in 1985, and the first Windows version in November 1987.  The key point is that S&OP predates Excel, which many advocate as the technology of choice to support S&OP.

While the history of the internet can be traced back to the 1960’s in terms of communications protocols used by the US military, but in the early 1990’s it was still a niche used by the US military and a few research organizations, with broad adoption only beginning in the mid-1990’s. And yet 10-15 years later we have the rise of cloud computing, the emergence of terms such a social media, and the rise of brands such as Google, Facebook, and Twitter, all of which are changing the manner in which we communicate and exchange data.  The FAX was invented because postal services were too slow, but the items exchanged where still paper, only the delivery mechanism changed.  Now we exchange not only the details electronically, but increasingly we also exchange the meanings and nuances of the spoken word through electronic means because they are both more efficient and effective.

And yet much that is written about Sales and Operations Planning harks back to its origins nearly 30 years ago.  Without a doubt the biggest challenges of S&OP are still related to process and people.  What I am continually surprised by is that the S&OP process advocated by many of the process consultants is rooted in what was possible 30 years ago, when S&OP was first performed on paper using double-entry concepts borrowed from accounting.  Clearly there were strong limitations on the amount of data that could be analyzed in a timely manner, even given that S&OP used to be run on a quarterly basis.  But the very sequential process of demand planning, supply planning, pre-S&OP consensus, and executive S&OP meeting reeks of a process that was developed at a time when the technology available to support S&OP was double-entry accounting paper.  In case there is any misunderstanding, let me repeat that I have no question that successful adoption of S&OP is about process, people, and technology, in that order.  I think it is time to rethink the S&OP process.

Actually, let me rephrase that: It’s time to think of the planning process as a continuum across time, product, and functional dimensions.  S&OP is the process to drive this ‘unified theory’ of planning.

Recently Tom Wallace commented that “Cross-functional collaboration is not a pre-requisite for successful S&OP: it’s a result”. I agree, though I imagine that the CEO had more concrete objectives in mind when approving the adoption of an S&OP process.  And yet the five step S&OP process being advocated by many process consultants only provides for monthly cross-functional collaboration in “consensus” meetings.  No, no, no.  How can Marketing decide on a promotion plan without close consultation with Finance, Sales, and Manufacturing early on in the process?  What if the drop in revenue for a particular product line being observed by Marketing is due to a capacity shortage leading to customer service issues and consequently a drop in market share?  But all too often Marketing will make a decision to run a promotion, not because they are stupid, but because they don’t have ready access to all the information and they have no way of discussing and evaluating the impact of their decisions in a timely and cross-functional manner.  Doing so in a monthly consensus meeting is both ineffective and inefficient, and way too slow for most industries, particularly the high-tech/electronics industry where prices can drop as much as 5% over a month, new products are introduced every 3-6 months, most of the supply chain is external to the brand owner, and supply lead times have been extended because of off-shoring and outsourcing. Let us use the advances in technology, particularly the Internet, to redefine the S&OP process to be more collaborative, more consensual, more timely, more dynamic.  Let’s get to the point of assuming collaboration as a base requirement and drive S&OP to delivering real tangible benefits.  As long ago as 2003, Charles Poirier included the following diagram in his book.  It is time we put this into practice and make S&OP a truly collaborative process throughout the cycle, not just on select days during the month.


Using Models to Improve the Supply Chain by Charles C. Poirier

The other issue I have with current S&OP practice is cadence.  I have no question that it makes sense to bring everyone together on a regular basis to surface risks and mitigation strategies that require executive approval.  I have no question that there is great value on providing executives condensed summaries and allow them to challenge assumptions and the mitigation strategies chosen by the S&OP team.  But why are these activities only carried out on a cadence?  Given that the technology is available, why are they not carried out on a continual basis?  I work for a software company.  Do you really think our CEO waits for a monthly status meeting with his VP of Sales?  They have close to daily calls and the topics are not just about opportunities about to close, but they are also about hiring plans, marketing plans, lead generation, and market penetration.  Effectively they run a near daily S&OP process.  Isn’t this something all CEO’s want; a constant finger on the pulse of the business?  They don’t need to know every detail, but they sure as heck want to know early and often about significant opportunities and risks. And when real opportunities and risks are identified, I don’t know of a single CEO that would be satisfied with a process that would only surface these at a monthly S&OP cadence meeting before taking action.

I know this has been a bit of a rant, but I am a bit frustrated.  Often when talking about the role of technology in S&OP I think of my father-in-law, who is a dear man, but only learned to use a computer in his 60’s.  To him technology is a bolt-on, not an integral part of the process. When he receives an email he prints it out and deletes the email.  He has a big metal filling cabinet in his home office where he stores the emails he wants to keep.  Until recently he would often write back to us on paper, often by hand but sometimes on the computer, sometimes including a printout of our original email on which he had written comments and questions.  If he was pressed for time he would FAX us his reply.  All of you who are smiling quietly in amusement at this anecdote, how many of you are running S&OP meetings using print-outs of PowerPoint or Excel?  How many of you have the ability to create and evaluate scenarios in seconds so the consensus meeting can be interactive rather than a ‘presentation’ followed by frantic activity to evaluate issues raised by the executives during the meeting?

Yesterday, we announced RapidResponse, S&OP edition, which goes a long way to realizing my vision of what true cross-functional collaboration is all about, incorporating Finance, Marketing, Sales, Engineering/Design, and Operations, incorporating long term and near term planning, incorporating high level volume planning and detailed mix planning.  All in a single application.

Posted in Milesahead, Miscellanea, Sales and operations planning (S&OP)