Archive for November, 2010

PJ Jakovljevic: S&OP should become a continuous process and not an annual or quarterly chore

Published November 30th, 2010 by Lori Smith 2 Comments

Welcome to the very last post of our S&OP Experts Blog Series.  For the past three months, this series has featured 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.  Here’s your last chance!

Predrag (PJ) Jakovljevic, CPIM, CIRM, CSCP is an enterprise applications industry analyst at Technology Evaluation Centers (TEC ). PJ is an internationally recognized enterprise applications market guru with extensive knowledge of leading software vendors, products, and market trends. He has nearly 20 years of system selections, implementations, and industrial manufacturing experience, with familiarity with broad aspects of business management (development, supply chain operations, sales, marketing). Follow PJ on Twitter and LinkedIn.

Kinaxis: What do you believe is behind the surge of activity around S&OP?  What are the anticipated benefits?
PJ: In a nutshell, the realization that “business as usual” isolated departmental (silo) plans no longer work. There is an urgent need for all constituencies in an enterprise to be on the same page (reach a consensus) and execute on the well-known and agreed upon business strategy (and be responsive to any unplanned events). A well-structured S&OP process can foster needed business alignment between the functional units and the various operational groups so that the whole organization works in unison.

Measurable benefits typically include lower inventory and procurement expenses, reduced expediting and logistics costs, better forecast accuracy, less obsolescence, and more effective production scheduling. From a qualitative standpoint, the benefits of implementing S&OP include increased supply chain visibility, improved customer service, and a better balance among demand, capacity and profitability across the enterprise. Taken together, these factors can add up to significant improvements in overall business performance.

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?
PJ: The traditional S&OP approach that focuses on reconciling the sales forecast with production plans is a good start, but IBP instills the need to think about supply, demand, and finance as equally important issues. When you’re trying to balance supply and demand, you must not forget about the finance side (i.e., profitability).  While Kaplan’s balanced scorecard approach has four strategic business dimensions to measure, the approach must always include the financial perspective, since bottom-line (net income) results are still the final measure of success.

IBP fills a long-standing gap in corporate planning systems to provide the chief executive officers (CEOs) and chief financial officers (CFOs) with a much more accurate revenue forecast. In addition to the business intelligence (BI) and role-based corporate performance management (CPM) tools (i.e., dashboards, scorecards, etc.), other handy IBP-enabling tools include network-wide capacity planning capabilities commonly found in strategic network design applications.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
PJ: This dilemma is not particular only to S&OP: think of so-called “Lean Luddites” who claim that no technology is needed on the shop floor. All you need are just-in-time (JIT) responsiveness and common sense visual signals/triggers, such as empty bins (kanbans), to initiate production. Well, this principle works well for parts that have quite level demand, and how many of those parts are realistic these days of “butchered“ demand and seasonality patterns (think of the anomaly of the 2008 and 2009  holiday seasons when most retailers missed all their predictions and expectations)?

Technology is not useful on its own unless one is able to improve a business process. However, often, without technology, a complex business process like S&OP is cumbersome and cannot support the scale needed to achieve all its benefits. In that case, technology becomes necessary, but not sufficient. Often, the process is dealing with a large complex set of needs that require a level of automation and computational sophistication that goes beyond what can be achieved with manual processes merely supported by spreadsheet tools.

Indeed, one traditional challenge to the wider S&OP process adoption has been the lack of advanced technology to facilitate workflow-based data and process integration across all the functional areas involved. A staggering number of companies are still using “pedestrian” tools such as Microsoft Excel to manage their departments.

Others, more “sophisticated” companies, have a multiplicity of automated enterprise systems in place to manage various functions. Yet, without an enterprise-wide (if not even supply chain wide) integrated information platform, this non-cohesive mix of data crunching systems will likely lead to incorrect assumptions. Especially when one thinks of the need to move and manipulate reams of numbers between disparate systems, one can legitimately raise doubts about the accuracy and integrity of the data used to formulate the S&OP consensus plan.

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

1. S&OP should become a continuous process and not an annual or quarterly chore.
2. A committed top management team is a prerequisite to institutionalizing a standard S&OP process across all business functions.
3. Stakeholders (process owners), business processes, and KPIs need to be clearly defined and managed and must be consistent with the overall corporate strategic objectives.

Kinaxis: What role does exception management play, or should play, in S&OP?
PJ: A very important role. The ability to handle exceptions and real-time adjustments based on what-if scenarios further require workflow and business process management (BPM) features. S&OP is a business process after all, and it should thus benefit from harnessing BPM principles and tools. Creating an overall plan, and identifying and correcting deviations from that plan, requires defined business processes with business rules (to handle exceptions) to coordinate the necessary activities among business units.

In addition, supporting these coordination efforts necessitates data collection and analysis activities, such as demand forecasting, pricing analysis, competitive research, and root cause analysis (RCA). Most advanced S&OP offerings can for example categorize exception messages for root causes.

Without these practices, companies cannot identify deviations and gaps from desired outcomes in the overall plan on a regular basis. Also important is the ability to enforce the S&OP decisions directly into operational planning and execution and close the loop via embedded corporate performance management (CPM) metrics. The system has to enable management and communication of the KPIs.

Kinaxis: How and where do what-if capabilities fit into the S&OP process?  Is it a priority capability for an effective S&OP process?
PJ: In addition to what I already said to the previous question, “the best laid plans of mice and men always go awry”, i.e., hardly anything goes as planned and companies must be ready for Plan B or C scenarios. The scenario analysis and demand shaping capabilities allow companies to run scenarios for different demand and supply profiles, as well as “what-if” alternatives related to strategic, operational, and tactical events.

What-if analyses help manage risk and optimize decision-making. One must perform what-if analysis and scenario evaluation to understand tradeoffs when balancing supply, demand, and simultaneously meeting financial objectives. Each hypothetical scenario may be evaluated by its financial impact, and then incorporated into the monitoring of the overall business plan.

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


Successful outsourcing requires good relationships (not just good contracts) with suppliers

Published November 29th, 2010 by Carol McIntosh 0 Comments

As a result of outsourcing and off-shoring, there are now more tiers in the supply chain, which greatly reduces the visibility of brand owners and makes them increasingly reliant on remote suppliers.  With high volatility in the marketplace, it has become critical for organizations to be able to respond quickly to any sort of unplanned event or supply chain disruption—and that requires use of a supply chain risk management strategy that delivers important capabilities. Organizations need a robust set of tools that enable them to assess risks, visualize and evaluate mitigation and response scenarios, monitor situations and quickly alert appropriate personnel to unexpected events, determine appropriate actions and their consequences, and ultimately respond (quickly and profitably).

There is, however, a second required element for successful outsourcing. It’s the human aspect, which sometimes proves to be more challenging than implementing software. In fact, various research indicates that chief among the barriers to globalization are: lack of supply chain flexibility, lack of internal competencies to manage external partners and a reliance on partners who are unable to meet flexibility requirements.

A recent SupplyChainBrain article reports on a new paper that goes even further, asserting that for outsourcing to truly be effective, an organization must not rely solely on contracts with suppliers. Instead, companies must also work to foster an informal supplier-buyer relationship.

Chwen Sheu, Paul Edgerley Chair in Business Management, professor and interim head of the department of marketing at Kansas State’s College of Business Administration, studied how nearly 1,000 companies worldwide manage outsourcing, and co-authored a paper—“What makes outsourcing effective- a transaction cost analysis”—along with John Wacker from Arizona State University and C.L. Yang from Chung Hau University, Taiwan.

Data was collected and analyzed from 970 manufacturing firms in 17 countries, and the researchers found that most of those organizations depend on both legal contracts and an informal supplier-buyer relationship. Sheu says both methods are effective, but informal relationships with suppliers deserve more attention from management since in outsourcing, it’s impossible to cover every risk and outcome contractually.

When an unexpected event occurs, and the contract doesn’t specify how to respond, it’s imperative to be able to sit down and resolve the issue with suppliers, Sheu says. This is really a trust and information sharing issue, which allows both parties to deal with unforeseen risks and uncertainties more effectively. In a truly trusted relationship both parties recognize that all decisions need to be mutually beneficial in order to achieve success.  The people are the difference between a satisfactory relationship and an exceptional one, where both parties will over achieve to ensure their partner’s success.

It’s important to note that not all of a company’s suppliers need to be involved in this level of collaborative discussion. Instead, it’s really only necessary to closely communicate with a few, trusted suppliers. For instance, your company may purchase a number of commodity components from several suppliers. It isn’t necessary—or appropriate—to closely collaborate with all of them.

On the other hand, you should collaborate closely with those few key suppliers that represent the majority of your spend on components, supply components used in products that represent a major portion of your company’s revenue, and supply long lead-time components—especially when there is a potential for excess and/or obsolete inventory.

Successful outsourcing requires developing better relationships with long-term, key suppliers. When that’s done, the brand manager and supplier can share business strategies, mutually evaluate risks and threats, and jointly investigate opportunities. In the end, that allows both companies to realize significant benefits.

Posted in Supply chain management, Supply chain risk management


Startling supply chain stats from Gartner Healthcare Exchange

Published November 24th, 2010 by Trevor Miles @milesahead 0 Comments

Having had some disagreement with a previous post by Kevin O’Marah of Gartner about S&OP, I was very pleased to get his weekly “First Thing Monday” in my inbox the other day.  It is titled “Healthcare Needs Supply Chain … Stat!”  Yes, it does.  Like Kevin mentions, I too have played at being US President for a day and fiddled with the New York TimesBudget Puzzle: You Fix the Budget” game.  These are tough choices and a lot more complex than the game suggests.  But healthcare is one of the greatest contributors to the US budget deficit.  Kevin refers to an article in The Guardian that points out that

… U.S. citizens are dramatically more likely to lack access to healthcare, but that spending per person is higher than it is in Britain by $7,538.

The article in The Guardian is based on a survey run by The Commonwealth Fund which shows a dramatically lower access to healthcare in the US; despite a much greater spend per person.

Click to view larger

Click to view larger

While the argument that the survey by The Commonwealth Fund focused on those in the US without access to healthcare and doesn’t measure the overall satisfaction with the US healthcare system has some merit, the survey still points to an ineffective and inefficient US healthcare system.

Last week I attended the Gartner Healthcare Exchange in Boston.  This was one of the most fulfilling and eye-opening days I have spent recently on a professional basis.  As Bob Ferrari comments,

…one of the most insightful portions of the program involved a lively panel discussion that included four industry executives representing Orlando Health, Dana Faber Cancer Institute, Cook Medical, and Broadline Group.  It was one of the better executive panel discussions I’ve observed this year.

Some startling statistics and observations came out of this discussion which I have not been able to verify.  But I will assume that they are directionally correct, if not absolutely correct.

  • “Three breast implants go out by overnight Fedex, and two come back overnight Fedex.”
    Who pays for this?  Where is the incentive to reduce this cost?  Why were three implants required in the first place?  I am sure this was not emergency surgery, so why were the implants sent by overnight Fedex?  You can bet your bottom dollar that the operating room was scheduled some time ahead.
  • “40% of nursing time is spent looking for items not on the shelf.”
    “15% of product expiring on hospital shelves.”
    Even if these numbers are off by a long way, and I have no reason to believe they are, these two statements side-by-side are a clear example of the wrong inventory at the wrong place at the wrong time.  Even if we halve these numbers and assume the reference to nursing looking for items is related to the manner in which the materials are organized and the reference to products expiring refers only to drugs, these numbers add up to huge inefficiencies in the supply chain.  While undoubtedly there are inefficiencies in grocery stores, there are examples from other industries, particularly grocery retail, that address many of these issues more effectively and more efficiently.
  • “Hospitals think consignment stock is not a problem.  They should be charging for the storage space.”
    At the very least the cost of financing the inventory, not to mention the cost of scrapping the inventory that has expired, will be passed on to the hospitals and therefore to the patients.
  • “Most people who take care of inventory in hospitals have no training in inventory management.  They are usually nurses who have been reassigned.”
    Let’s face it, there is a big difference in an out-of-stock condition in your local electronics store and in a hospital pharmacy.  But the nurses are already struggling to find items on the shelf, some of which has to do with inefficient stocking policies.  Would you get an inventory analyst to administer a morphine drip?

The 2 parts of the healthcare supply chain that distorts the system the most are the distributors and the payers, not necessarily in and of themselves, but because the demand signal is so distorted by these parties. But these are easy targets and my sense is they were being used to deflect from inefficiencies throughout the healthcare supply chain from manufacturers to distributors to retail pharmacies to HMO’s to hospitals to payers and whatever other actors there are in the supply chain, or, as Gartner prefers to call it, the value chain.  But I left the conference wondering who represented the patient?  No-one at the conference anyway.  The reason this is important is that Wal-Mart’s “everyday low prices” mantra is driven largely by consumers voting with their feet.  Without the “voice of the customer” being loud and clear it will be left to the government to mandate change in the healthcare supply chain through legislation.  Which is something no-one wants.

Having lived as an adult in six different countries with six different health systems, I can state categorically that while the issues of inefficiency in the healthcare supply chain are not restricted to the US, it is where the inefficiencies are most apparent.  While I hesitate to suggest a change, end-to-end visibility of the demand signal has been demonstrated to have a dramatic effect on behavior throughout the supply chain.  The famous MIT Beer Game, dating from the 1960’s, springs to mind.  So let’s get started and let’s use supply chain principals from other industries as guideposts.

Posted in Inventory management, Milesahead, Pharma and life sciences supply chain management


Patrick Bower: I believe we are close to a transition point with S&OP

Published November 23rd, 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.

Patrick Bower is Senior Director of Corporate Planning at Combe Incorporated, the makers of Just for Men,  Odor Eaters, other OTC brands.  Prior to this experience, Pat worked as a Practice Manager for Supply Chain Planning at a boutique supply chain consulting company, as a Director of Demand Planning, Strategy and S&OP at Snapple / Cadbury Beverages, and has extensive supply chain supply chain systems background.     Bower frequently write articles on the subjects of demand planning, production planning, S&OP and speaks at conferences on S&OP and demand planning topics.  He is the architect of a patent pending demand planning software tool – known as a demand curve analyzer and has provided strategic supply chain consulting and training to a number of clients including GSK, Bayer, Diageo, Pfizer, Tasty Kake, and American Girl among others.  Pat can be reached at plbowerone@yahoo.com.

Kinaxis: What do you believe is behind the surge of activity around S&OP?  What are the anticipated benefits?
Pat: I believe there are four reasons behind the surge in interest in S&OP. 

  • First, I think there is broad based recognition that supply chain tools and siloed optimizations are not living up to the sales pitches and internal expectations.  After all of the efforts to implement state of the art SCM software and one-off process improvements, many organizations’ supply chains are still not fully integrated into the business.  Something is “missing”.
  • Second, there has been a professionalization of the supply chain community.  Employers are looking for candidates with APICS & IBF certifications, and continuous learning is becoming as important in the supply chain world as it is in other professions.  S&OP is a key element in  much of that learning and is often positioned as a game changing process – enabling not just better supply chain decisions,  but better business decisions.  It is not a surprise to me to see the recent buzz around S&OP; but it is interesting to see how the buzz has become deafening in a very short time.  Five years ago, I delivered a short ‘best of the best’ S&OP workshop at an IBF conference, and now, entire conferences are being been built around S&OP.  
  • Third, the  severe economic downturn coupled with many years of IT investment has companies looking to squeeze more out those investments, hence the increased focus on people and process to get better integration of, and drive more value from, the systems.
  • Fourth, and probably most important, the globalization of supply and demand has required companies to look at joint demand and shared resourcing in a different way.  Simply put, as the world has become flatter and the business landscape more competitive, it has led to a more global and complex supply chain.  S&OP is a process that helps create alignment in an otherwise complex environment.

As for the benefit stream from S&OP …. The benefit stream tends to be situational and really depends on a company’s “as-is” state.  However, generally speaking, a relatively mature S&OP process will often have the following hard benefits:  forecasts are almost always more accurate; most companies reduce inventory if only due to the focus on demand planning and inventory metrics;  fill rates often improve with right-sized inventory;  schedule cuts and other forms of supply side volatility decrease with improved demand planning and inventory management.  

There are many softer benefits including a better understanding of the supply and demand balance;  improved communication between organizational silos;  more profit focused decisions, and in the best S&OP implementations – there is a unity in focus – otherwise known as alignment.

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?
Pat: There is certainly a fair amount of confusion in the market place about S&OP, with different approaches cutting across nearly every aspect of the process definition.  Some experts see S&OP as a detail planning process, while others take a more strategic view.   Most believe S&OP should be a monthly process, while there are folks that suggest S&OP should evolve to a process with a weekly frequency.   There are many small, and not so small, differences in the naming and number of process steps involved in S&OP,  and in the graphical representation of  the process itself.   If one attends a conference on S&OP – you might find presentations with four, five and nine step S&OP models, and graphical representations of the S&OP process that are linear, circular or stacked / layered models.  I am personally partial to the Oliver Wight five step model, but recognize that even that particular process model has limitations and can be insufficient or over kill depending on the needs of the organization.

In the last ten years or so – seemingly every consulting organization, software company, and research analyst has attempted to redefine S&OP in some unique or different way.  Most of these differences are pure marketing.  In many cases, it is differentiation without real difference.  As an example, several years ago I was asked by my then employer to define a “reality-based S&OP” process model.  I argued that by definition S&OP should be reality based.  I simply did not want to create a white paper that would only add more confusion in the market place.  Marketing is not a bad thing – if it creates clarity, drives new thinking or highlights real differences.   However, with much of what I read and observe – I simply do not see much in the way of difference.  My biggest concern is that misguided marketing might create confusion.

I personally think there is a huge void in the S&OP community.  I believe it would be very valuable if all of the “experts” in S&OP came together to form a non-proprietary or “open source” S&OP process model that is available to be shared.   This “open source” S&OP model would come complete with maturity models, graphical representations, metric examples, checklists for implementation and so on.     Imagine a SCOR like model for S&OP.  It would be a living and breathing entity – but also provide some consistency in messaging and process design.   Consulting and software companies can still play within this open-source approach claiming expertise in product categories (like semiconductors, CPG etc), in global integration, systems integration, and in education etc.

My definition of S&OP is pretty simple. 

S&OP is a periodic, forward looking, multi-step process to understand, define and align demand, supply, products, metrics, profitability and strategy.  

The good thing about a simple definition is that it is flexible and open to interpretation.

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?
Pat: I believe a generalized maturity model can give worthwhile directional guidance to an S&OP diagnostic assessment and/or implementation. If used in context, these maturity models provide guideposts or mile markers during the course of an implementation that tie back to the overall project plan. However, it is important to recognize that these maturity models and the resultant assessments can be flawed. These maturity models often see every problem as having the same set of answers.  I liken it to three different patients going to a doctor with a pain;  one has a pain in the knee, the second has a bothersome back, and the last has an achy hip – yet each time the doctor suggests knee surgery.   Only one patient in three will walk away satisfied.   To the extent a maturity model and assessment are focused on the real problems facing an organization, and not on a rigid process definition – I believe maturity models can be useful tools.

I have been on both sides of four common problems with these process maturity models;

  • First, most of these models are incomplete as they do not often assess “technology usage and expertise” – often a constraint in S&OP process implementations.  
  • Second, most maturity models do not examine the ability of an organization to absorb or manage change – another obstacle to a successful S&OP implementation.  Clearly, there are some organizations that need to “go slower” than a typical 90-120 day process implementation agenda.  
  • The third point I have already alluded to – many of these models assume a cookie cutter “one size fits all” approach where all organizations benefit from similar processes equally—a flawed assumption.  
  • Finally, most of these maturity models do not assess the need for a given process element,  i.e.  Do I really need every S&OP process step? Or, what is the level of maturity that is right for my business?

As an example, I worked with a company that introduced only 2-3 new products per year, and had little in the way of production constraints – did this company need a robust product portfolio meeting and a supply and demand balancing tool set?   Of course not.   Would they be less mature from an S&OP perspective if we excluded unnecessary process steps?  In my mind, no.  Some assessment models, would consider this company  very immature on the S&OP maturity continuum.  In a different example, I also worked with a company that had a 15% annual sku innovation turnover, and globally shared production constraints.  Clearly, the second company needed a robust portfolio management and multiple business unit RCCP / Supply and Demand balancing process.  All of this begs the question of whether the S&OP process should look the same at every company.  Would each have the same maturity level if so assessed?

In short, I have found that rigidity in S&OP process construct is not the best approach – so maturity models are, to me, nothing more than helpful guides.

I do not believe you have to be at a high level of maturity to be “doing S&OP”.   S&OP is a journey, not a destination – so you can be doing S&OP structurally (holding meetings etc.), while at the same time be at a relatively immature level from a process efficacy perspective.      As companies change, expand, compress, and change systems and people – the S&OP process will evolve.  Some S&OP processes improve, some regress during these transitions.  I prefer to look at the S&OP process as another business resource  that occasionally needs to be re-visited and re-worked as the needs and structure of the business changes.  Honestly, what business today looks similar to five years ago?

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?
Pat: I believe S&OP and IBP to be one in the same.  S&OP, properly implemented is integrated business planning – and financial plan integration and measures should always be part of a best practice S&OP process.

I have read a number of articles on IBP, and in most cases these articles appear to be pointing out issues associated with a “lower –tech” form of S&OP (i.e. lack of plan iteration capabilities, dynamic what-ifs, exception management, data integration, system integration etc.)    As a long time proponent and implementer of a higher- tech form of S&OP – IBP is another one of those differentiations without difference to me.

How did we get to this point? For many years, S&OP process consulting firms were telling prospective clients that they did not need any special tools or software (beyond Excel) to implement S&OP.   The reality is that it is next to impossible to “sustain” S&OP without using or integrating SCM or Business Intelligence tools.   You can certainly start with Excel, but it will not be a sustainable platform for S&OP.  I have always disagreed with this low tech approach and always focused my attention on implementing S&OP processes with a high degree of system integration.  Of course, these S&OP implementations took longer, but the underlying system integration led to added discipline and usability.  By integrating technology – it was not a burden for the participants to “do S&OP” and  took away one excuse along the process adoption curve.

Of course, there was a practical reason for these consulting firms to focus on solely a process implementation.  A process only implementation is shorter and thereby cheaper for the client; did not require a diversity of system expertise at the consulting company; the project had fewer points of potential failure, and eventually the client would find their own way to integrate systems.   Process consulting companies got away with this – because no one called them on it.

A best in class S&OP process implementation needs integration of people, process AND technology.

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?
Pat: While I would not call it process inertia, I agree that many existing S&OP processes are held back from further improvement because the working assumptions underneath most of the plans are often inadequately examined or challenged.    

I often wondered why there was a lack of examination – to me it would seem obvious to put a plan through its paces.  On reflection, I believe that the lack of examination comes from the organization’s culture and/or basic human behavior.   As an example, I have found that the behaviors of “Going along to get along” and “Not wanting to be the negative one” – will often prevent the much needed detailed challenges to S&OP plans.   If you think about it – who wants to tell the President of a company that his operating budget is unrealistic?     Or tell the supply chain VP that the inventory plan is not pragmatic given the fill requirements?   Negative people are not successful in most corporations – I can understand the apprehension to challenge a plan too aggressively.

Unfortunately, and particularly with demand plans, an unchallenged plan is usually biased and unrealistically aspirational.  And as we all know, a poorly crafted demand plan impacts all other downstream planning.   As a consultant, I would often find myself teaching people how to actively challenge a plan without being disagreeable – by actually modeling an ‘active challenge’ inside of the demand planning process.

Of course, the easiest way to challenge a plan without being disagreeable is to bring facts to a discussion.  Trends, shipments, deletions, metrics, POS, etc.  all provide data points that can be used to question a plan.  It is also helpful if participants are able to create a trusting environment where a plan can be actively challenged and such challenge is viewed as a positive.   Trust comes from agreement around the intent of a challenging process, and acceptance that all plans can be challenged.   I believe if one empowers a group to question a plan in detail, without bias or bad intent, and use data, trends, etc. to discuss plans – that you can overcome the process inertia mentioned in the question.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Pat: As I’ve mentioned before – there are many consulting companies that believe S&OP can be implemented without an investment in SCM technology or worse yet, with Excel as the cornerstone technology.  I strongly disagree.       

To be done well, especially in organizations with any size or complexity, S&OP requires both vertical and horizontal data integration.   Totaling up from the bottom, and aggregating left to right is a data intensive process not easily solved using Excel.  My “best practice” version of  S&OP requires integrated applications. 

As part of any maturity assessment there should be a skills and utility assessment on the current SCM tool base. Often times there are system changes that would greatly enable an S&OP process implementation that are neither expensive to implement nor hard to train to—if the capabilities of the people and the technology are assessed.

Kinaxis: Is it possible to have an effective S&OP process that only looks at the aggregate or “volume” level? How important it is to consider the operational feasibility of the S&OP plan?
Pat: This is an important question. With the improvements in supply chain computing platforms, I believe we are close to a transition point with S&OP.   In my thinking, best practice S&OP should utilize a summary plan built up from rational and feasible lower level plans.    Many people treat S&OP as a top down process – and certainly traditional thinking on S&OP was much more top down and monolithic.   Yet  in common practice, and using best of breed tools,  the ‘hard work’ in demand planning, supply balancing, and portfolio management can easily being rolled up into summary plans and presented to the senior management team for approval.   These rational and feasible rolled up plans (or alternatives of plans) are presented during the Pre-S&OP process for potential escalation to the Executive level meeting – but they are mostly vetted and evaluated prior to presentation.

In my mind, the concept of traditional S&OP aggregation levels has become passé.  First, demand has become fractionalized with products specific to channels, markets, geographies.  It is hard to find a “product family” in the traditional sense.  Second, computing platforms now easily enable slicing and dicing of data so that planning can happen at a “suffix level’ and still be rolled up into any product aggregation that makes sense from a presentation perspective. 

The differences between traditional monthly S&OP planning and day to day supply chain planning are blurring.  It is now easy to plan deep into the horizon using the same modeling tool and constraints used in day to day planning tools.  S&OP ‘applications’ that use the best of breed systems integration, can use same constraints as any other planning horizon – but apply them to future demand buckets – most often looking out 18 months or more beyond the frozen planning horizon for imbalances.

In the “olden” days plans were rolled into product family aggregations for simplistic modeling of the supply and demand balance.    Today, there are planning platforms capable of long range, iterative and dynamic planning.  Thank God for progress.

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

  1. Focus on reality based planning. One of the biggest failure points in S&OP—and  misuse of resources including inventory and capacity – is the lack of reality based plans. 
  2. Work the demand data. Leverage as much market, consumer, macroeconomic, POS and other data sources to drive to the best possible estimate of demand – thereby improving all downstream planning.  While this is intuitive to many – it is also lost on many.
  3. Integrate, Integrate, Integrate – many S&OP processes fail under the burden of providing data to the process.   Find ways to draw S&OP data simply and easily.  Engage your IT group in supporting S&OP.

Kinaxis: What role does exception management play, or should play, in S&OP?
Pat: Many of the underlying planning processes within S&OP (such as demand planning) benefit from the use of exception processing to manage through the veritable boatloads of data.  Sorting out the significant from within the pile of trivial when you are dealing with tens of thousands of items can be a challenge.  Exception processing allows S&OP participants to focus attention on the items that are falling outside the bounds, i.e. which forecasted items are biased, have high error, excess inventory, have production attainment issues, and / or have low yields?  The same exception process can apply to resources, i.e.  which production units or cells are over or under loaded, or which warehouse is bursting at the seams?  I believe exception management can also be used to test planning efficacy by answering questions such as: Which new product introduction is behind its intended timeline or volume plan?   Or – where are we to original budget?

S&OP process meetings cannot (and should not) discuss every item – they should discuss items with problems in need of resolution.   Exception management helps determine the challenges in the plan.

Kinaxis: How and where do what-if capabilities fit into the S&OP process?  Is it a priority capability for an effective S&OP process?
Pat: What-if capabilities are incredibly important within the S&OP process. Yet, is it a process requirement?  No. Could what-if capabilities make an S&OP process significantly more effective? Yes.  I think what-if capabilities built around an “organizational” model would help not just the S&OP process, but most planning processes.

I have been in  demand consensus meetings where I heard about an opportunity that Wal-Mart might buy a bunch of product and distribute to each store in the US.   If this happened to you, how would you assess your company’s ability to handle this extra demand?    Or whether or not you could source it domestically?   Would you be able to quickly determine any additional warehouse requirements?    Demand opportunities and supply constraints are everyday occurrences in today’s competitive landscape – and being able to react quickly with credible data is an advantage, whether used for S&OP or not.  These relatively simple examples speak volumes to the need for simulation tools. I have been implementing these tools for 15 years in support of S&OP processes.

Effective “what-if tools” need three elements;

  1. they must model the business realistically – offering results that are acceptable and executable – a true simulation of the operational environment;
  2. the tool must be flexible – allowing for slicing and dicing, and multiple scenarios at the same time; and finally
  3. it must be fast – churning on a problem for hours does not enable what-ifs.  What if’s are rarely managed in a serial fashion – the desire is often to test 3-4 approaches at once.   Speed is important.

Where are these tool best used in the S&OP process?  Everywhere.  New distribution or customer opportunities can be dollarized and bottom lined in demand consensus or Pre-S&OP.   Capacity issues can be modeled and alternative plans and cost assessed in the Supply and Demand balancing process.  Regardless of the scenario, I have always suggested that what-ifs are brought to the Pre-S&OP process, where they are vetted for recommendation to the Executive S&OP meeting.

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


Is everyone on the same page?

Published November 22nd, 2010 by Bob May 1 Comment

I’ve been thinking a lot about an article I read recently. While it focused on procurement, I believe it also correctly points out the flaws in many companies’ supply chain processes—and S&OP specifically.

The article, which ran on Supply Chain Digest’s Website, explained that the rising cost of raw materials and other input costs are a significant and growing concern for corporate financial performance. One reason why, is that it’s increasingly difficult for companies to simply raise their prices as a means to cope with those growing costs.

The real obstacle, however, is that a lack of robust, integrated processes to deal with this price volatility often results in companies leaving profit dollars on the table, said Patricio Ibáñez, an associate principal at McKinsey & Company, in a recent article in Inside Supply Management magazine.

Traditional approaches to raw materials management often leave decisions in the hands of a single function at each step in the value chain, Ibáñez says. For example, product development makes decisions early in the cycle, procurement makes their decisions later, manufacturing decisions come after that, and so on. The net result is a host of problems, especially in a lack of alignment between contracts signed with suppliers and those with customers.

As is often the case with supply chain issues, the key to successfully addressing the situation is to improve cross-functional collaboration. So when contracts come up for renegotiation, for example, collaboration among the finance, procurement and sales functions is particularly critical, Ibáñez says. Additionally, procurement should review supply contracts and, together with experts from finance, propose modifications that will protect the company against raw materials price spikes while simultaneously maximizing gains when prices fall.

That requirement for improving cross-functional collaboration, however, is what reminded me of S&OP processes—and the barriers to their success.

To be sure, technology is a vital component of S&OP. Indeed, given the global nature of today’s supply chains, the ability to overcome both time and geographic barriers necessitates the use of IT. Furthermore, the level of cross-functional and cross-organizational process synchronization, collaboration and frequency that is required to achieve S&OP maturity simply cannot be achieved by simply using Excel spreadsheets.

Technology, however, is really more of an enabler. The real challenge–whether your company is trying to improve procurement capabilities to reduce margin volatility or improve S&OP processes to boost top line revenue–is change management. Lora Cecere, of Altimeter Group wrote a post the other month, where she stated that “The largest problem with S&OP is change management.  Companies that tackle change management FIRST accelerate results.  Their S&OP processes mature 3X faster.”  There is, after all, considerable difference between S&OP and mature S&OP, and advancing toward mature S&OP clearly requires changing mindsets and aligning goals.

The reality is that at many companies, there simply isn’t much collaboration occurring in S&OP meetings. That’s because everyone’s objectives are different. Consider, for instance, that remembering their commissions are built on revenue, sales and marketing want all orders to ship immediately. And manufacturing people, who concentrate on production output, want high inventory levels. At the same time, the finance team, which is interested in maintaining low levels of working capital, is driven to keep inventory levels down. Consequently, collaboration is difficult, at best, because there is no way to reach consensus. It simply isn’t possible when all the players have different personal and departmental goals. Again I turn to a post Lora Cecere wrote, she made the analogy of someone training for a decathlon…

“In a Decathlon, there are ten events.  The winner is judged by total performance, not by a single score in a single event. Because the athlete must do well in the four runs and six field events, he has little opportunity to perfect any one event. A decathlete trying to improve performance in one specific event is likely to deteriorate in another, because the physical demands of the various events are conflicting. His training is necessarily different as he strives to improve all techniques, gain strength without losing speed, and acquire the stamina to perform through a competition that lasts anywhere from 4 to 12 hours per day. In short, he trains to raise performance making trade-offs with the end in mind.”

The goal, which, admittedly, is easier said than done, is to create an overarching set of end-to-end supply chain metrics that align with operating strategy. When there is executive sponsorship, organizational goals are properly aligned and players clearly understand the interdependencies of functions, they can collaboratively work to make the right tradeoffs (such as balancing cost and inventory against service levels) to win the race.

Posted in Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management


Using what-if when production has been grounded

Published November 18th, 2010 by Chuck Thomas 0 Comments

If you’ve been following the story of Boeing’s 787 Dreamliner development, or even if you only read about it here, you already know that the program is quite problematic for Boeing—to say the least.

Boeing outsourced design and manufacturing to slash development costs for the 787 Dreamliner, which features all-new technology. One crucial problem has been that some of the suppliers have delivered parts that were not up to spec or failed critical testing, which further postpones the already delayed delivery of the aircraft.

A story that ran the other week on The Wall Street Journal’s Digital Network (WSJDN), reports that while Boeing’s customers remain flexible while they wait for the 787 aircraft, the company’s investors are still awaiting details of financial penalties that the company may face after a nearly three-year delay in its first delivery. Reparations, the story reports, are likely to involve a mix of cash penalties and nonfinancial “credits” such as subsidized freighter conversions or guaranteed future delivery slots.  And a more recent report in the Seattle Times indicate that Boeing management is telling Wall Street that the two-dozen 787 Dreamliners already rolled out onto Paine Field are “in various stages of final assembly” and their delivery “will take longer than expected, particularly those with the Rolls-Royce engine.”

That’s all interesting enough, but there’s something else that caught my attention. An Associated Press (AP) story reported that Boeing says it has now stopped receiving deliveries of big pieces of the 787 jetliner at its Everett, Wash., plant from a supplier in Italy. According to the story, the two-week pause is meant to give the supplier, Alenia, time to fix gaps in horizontal stabilizers it makes.

This is the third time this year that Boeing has suspended shipments of 787 parts because of problems with components. It’s important to note, however, that Boeing has also asked other suppliers to slow their deliveries while Alenia gets back up to speed.

What’s intriguing about this latest development isn’t Boeing’s woes, but rather instead, the ramifications for other members of the supply chain. Since Boeing asked other suppliers to slow their deliveries, those companies may now need to revise their own production accordingly—and also perhaps ask their suppliers to temporarily slow delivery of parts or components as well.

I have to wonder if these other companies are now slowing or stopping production, or simply continuing on as originally planned? The answer, I suppose, will hinge to a certain extent on two key factors. The first is what they produce, and the second factor is  whether they manage their supply chain using Excel spreadsheets, an ERP solution’s SCM suite or a comprehensive supply chain management application that enables them to effectively coordinate internal and outsourced operations. That type of comprehensive application makes it possible to create a supply chain plan, actively monitor performance to that plan and immediately coordinate a response when the plan is at risk.

Again, depending on what they produce and the length of their lead times, this may also be an ideal opportunity to use what-if? simulation technology. That will allow, for example, simulating the outcome of potential reactions to their customer’s request. Those simulations can then be quickly analyzed to determine which response—if any–best matches the operational and financial objectives. This type of simulation should be based on current MRP and MPS data from throughout the extended supply chain to ensure accuracy. Furthermore, including internal and external participants will ensure complete stakeholder input on the simulations and end-decisions.

What do you think? Are you involved in this situation? If so, how have you and your company been effected?

Posted in Response Management, Supply chain risk management


3 tips for mitigating master data issues in integrated demand and supply planning

Published November 17th, 2010 by Martin Buckley 0 Comments

The advent of the latest recession and slow recovery has led many companies to realize the benefits, nay, the necessity, of integrating demand and supply planning across the enterprise. The benefits of increased response to demand fluctuations, reduced inventory without adverse effects on service levels, and the resulting increased profit margins, are too good to pass up.

This has driven the growth in ERP and other planning systems in the last decade, with the goal of a fully integrated system from top to bottom, allowing maximum responsiveness with minimum slack. Many companies have come to realize, however, that most enterprise systems are either not actually integrated, have weak links, or lack some required functionality. This has led to numerous systems being implemented across the enterprise, with varying levels of integration between each one, ranging from none to very tight integration.

The implementation of these various systems has been driven by the needs of the various business units, which often have very different requirements and priorities. This in turn has led to a disconnect in common data terminology and usage across the enterprise, as each area of the business focuses on the data required to meet their immediate needs in their own terms. When the time comes that an enterprise solution is to be implemented across several different business units or functional areas, it is then discovered that the definition of the same piece of data differs from unit to unit or area to area. This leads to the necessity of building exception handling rules and look-up tables in order have the data flow through the enterprise with consistent meaning. This can greatly add to the project’s cost and time to implement, and is usually an unexpected complication of the project. It also significantly increases the amount of effort required to support the solution.

The question becomes, what is the best way to deal with this situation in order to reduce cost and timeline impacts? Following are some suggestions that might help mitigate these issues:

  1. Perform an audit as part of the preliminary planning phase. While this will not do much to fix existing data issues, it will highlight gaps in the ‘data chain’ across the enterprise that will need to be bridged. Key data fields should be identified and their exact meaning to each functional group in the organization should be spelled out. This will quickly identify areas where cross reference tables or extra business logic is required.
  2. Centralize the administration of business rules and data schema, especially as they apply to enterprise-wide initiatives. While ERP systems generally ‘hang together’ because of their module interdependence, the business apps that reside above this transactional layer tend to be more isolated. When an enterprise-wide application is implemented to replace and integrate these business functions, the gaps become readily apparent. The most successful method I have seen used is to drive all data definitions from the transactional ERP layer, or the layer where the best cross functional integration occurs, and build a common base on top of this.
  3. Plan and implement every business process as an enterprise-wide initiative. This will ensure that data and business rules are defined at the enterprise level, not at individual, possibly differing functional units. However, in order to do this, it is much easier if you are using a tool that supports enterprise level business processes. This includes the ability to tie disparate data sources together, large multi-user scalability, and is flexible enough to be configured to meet the varying requirements of all the functional units involved.

While I have not covered all the different techniques that can be applied to help mitigate this very prevalent issue, I hope I have given people an idea of where to start in tackling this significant implementation problem. If anyone has other ideas or techniques they have seen or used, I am sure everyone in the community would be very interested in hearing them.

Posted in Best practices, Supply chain management


Atul Chandra Pandey: S&OP must be a closed loop process – volume to mix; executive to execution

Published November 16th, 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.

Atul Chandra Pandey is Industry Head – Enterprise Application Integration and Services, for Infosys Technologies.  Atul has more than 14 years of IT experience. He is responsible for sales and engagement for Enterprise Application Integration (EAI) and services such as supply chain, customer care and Master Data Management (MDM) for manufacturing and the banking capital markets industry. He is also involved in program management, process consulting, IT outsourcing, implementation and sustenance services, project management and delivery, and business analysis across leading package and technology services.  On the Infosys Supply Chain Management Blog, Atul blogs on business strategy, solutions-driven sales and engagement, EAI, Business to Business (B2B), Supply Chain Management (SCM), customer care and relationship management.

Kinaxis: What do you believe is behind the surge of activity around S&OP?  What are the anticipated benefits?
Atul: Sales & Operations Planning (S&OP) has been in existence for decades – both as a discipline and a decision-making imperative. Owing to the highly impactful core processes it is concerned with and the business growth it can drive, it is one of the most talked about topics in the supply chain space. Despite it capturing so much attention, there has been wide variance across sectors on the promised potential of S&OP and its realized benefits.

The recent economic downturn has brought to the fore the criticality of leveraging a strong S&OP process for an organizational advantage. While the focus has been to contain cost and ensure survival, I have also observed organizations looking to find new revenue generation opportunities while keeping costs / inventories low.

In my view, some of the other key factors which have either influenced or contributed to the heightened focus on strengthening S&OP are ever-shrinking product lifecycles across industry segments (consider the example of consumer electronics which has become similar to fashion industry with new product launch every quarter), diversifying supplier base and increasing outsourcing leading to increased supply dependence and associated risks. The former poses significant challenges in determining the right demand level whereas the latter factor causes constraints in meeting demand through the supply channel – especially when the same source also supplies a critical component to your competitors.

Another key disruptive force is the exponential rise of social media (sites such as Facebook and Twitter) which has enabled customers to share product experience with ease, thereby significantly influencing pre-purchase behavior. With customer requirements increasing and the loyalty lifecycle shortening, I believe organizations must create predictable and profitable sales and operations plans in the face of amazingly varied demands.

The surge in activities around S&OP is therefore driven by the need to have robust and agile mechanisms to manage and shape volatile demand signals and address increased supply and supplier spread and enhanced financial risks and constraints.

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?
Atul: While there is an industry-wide convergence on the broad understanding of the term, I think the answer to the question will vary depending on the level of the person to whom you are speaking. The biggest disconnect is in the area and horizon of focus – by this I am referring to the big picture or the mid- to long-term perspective versus daily organizational activities and immediate concerns.

There is an increasing tendency to link S&OP with a continuous review of demand and supply plans on a weekly or daily basis. Such an exercise entails rapid what-ifs at individual product / SKU levels taking into consideration demand, supply and financial constraints (cost, revenue, margin, etc.) to generate new execution plans (allocations, order fulfillment plans, receiving, shipping, etc.). This is not S&OP. Instead, this view deals with ‘perpetual master planning and scheduling’.

Promoting this view as S&OP is a problem since it places too much emphasis on execution and the immediate term and does not provide space to plan for the mid- to long-term. It completely overlooks the directional / strategic planning view which is critical to S&OP.

Imagine a ship in the ocean. While the engine room crew ensures that the ship keeps sailing, it’s the captain who sets the vessel’s direction and course. Similarly, S&OP must primarily focus on setting the direction and tone of the business as an executive-driven process / function. The focus should be on the mid- to long-term horizon (3-15 months for most industries). The aggregate plan (also termed the volume plan – family level) needs to be the driver for the detailed plan (mix – how much, which SKU). Finally, the operations plan must be constrained by financial plans (cost, margin, revenue, and cash flow).

In terms of definition, I tend to agree most with Tom Wallace and Bob Stahl’s view on S&OP. In their book ‘Sales & Operations Planning – The Executive Guide’, S&OP is described as “a set of decision-making processes with three main objectives: 1) To balance demand and supply, 2) To align volume and mix, and 3) To integrate operational plans with financial plans.”

Having said that, the focus on detailed daily / weekly plans is also important and these must link to the executive S&OP for directional changes which drive the next cycle of short-term execution plans, thus closing the feedback loop. S&OP therefore provides the connection between the big picture or the strategic plan and the day-to-day plan and operations.

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?
Atul: With its ability to enhance performance and competitiveness through effective and agile responses to market demands, S&OP has become an organizational prerequisite. It is nearly impossible to imagine a business without a sales, inventory and financial plan. However, to ensure that your S&OP consistently scores a bulls-eye in fine-tuning customer demand to meet supply resources over an extended time period, it is necessary to formally recognize and institutionalize it as a formal executive-led process. The commitment of senior executives is vital as S&OP is an ongoing journey of aligning strategic business goals and direction with the right operational levers. This works best only if there is a formal organization focus coming from the top. Once established, the S&OP process necessitates establishing process interventions at different levels to drive operational improvements and tighter performance measurements and controls.

It is important to have a maturity model for S&OP. One of the key differentiating factors separating companies which are advanced on S&OP from the ones which are not is the lead time to determine changes to direction and actually making it happen. Companies having advanced S&OP capabilities can detect changes within days (and not weeks) of the monthly S&OP and can steer directional changes in execution plans just as quickly. S&OP maturity is a combination of multiple capabilities – the ability to generate rapid aggregate-level plan, what-ifs at the aggregate level (including financial plans and budgets), integration into operational plans, and workflow management to collaborate with partners for execution.

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?
Atul: While IBP is a key enabler for S&OP, it cannot be a substitute. This is primarily because of three reasons:

  1. Constraint-Oriented Reasoning (COR) – which is the heart of IBP – helps identify appropriate decision levers rapidly by solving a large number of mathematical equations representing varied business aspects. However, the output needs to be comprehensible to senior executives and they may choose to exercise a different set of levers based on their understanding of the competitive priorities of the business.
  2. Ownership and control of the operational processes that need to be improved or changed must rest with the people managing the respective functions to close the gaps and loop feedback into next planning cycle.
  3. Data quality of inputs for IBP needs to be very high if it is to be effective in making the right recommendations.

Therefore, in my view, IBP cannot be a substitute for an executive-led process such as S&OP. In the latter, people play a critical role – either taking decisions or acting on decisions – at every stage.

However, IBP does have its strong points. It is a great enabler in reducing the business simulation and analysis lead time which can make a discernable difference in the effectiveness of S&OP. I have seen that the typical S&OP process in many organizations takes 2-3 weeks to complete. Getting data is highly time-consuming and a less than optimum amount of time is spent on analysis. With IBP, even with limited analysis time, executives can rapidly simulate multiple business scenarios and understand the ramifications quickly, thus actioning the implementation of changes with more confidence. Another advantage of IBP lies in the ease of communicating the changes to the next level and building consensus on decisions taken at executive level as the impact of high-level decisions on local functions (marketing, finance, production) is visible to all.

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?
Atul: My answer to this question would be a ‘Yes’ and a ‘No’. While process inertia is indeed a barrier to making advancements in respective individual functions, S&OP is not about managing the functions in silos. The focus and direction needs to be set from the top.

In my view, the biggest impediment to S&OP effectiveness and success stems from a gap in communication between the senior executive level and the levels below. Information on setting and acting on new goals and the reasoning behind changes for better process performance needs to be transmitted smoothly to the lower organizational levels. While people want to change, these required alterations will not happen at lower levels unless the right incentives are in place.

Take Apple for example. It has managed to deliver unimaginable business growth (from $4-5b a few yrs back to ~$30b last year) year on year without significantly ramping up headcount. This means the company has revamped most of the core functions significantly with the same workforce – a scenario that is hard to imagine without senior executive-level drive.

Hence, while process inertia hampers S&OP advancement, the real deciding factor is an organization’s ‘change propensity’ as process inertia is not generated by itself. It has to do with an organization’s culture for embracing change and this starts at the top.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Atul: It’s like asking “Can we communicate without email or internet?” or “Can we go to Boston from San Francisco without catching a flight or driving a car”. Of course you can reach Boston on foot – but only if you are not faced with a time constraint. If your goal is to reach Boston in a day, a flight is your only option and if you can stretch your time in hand to a week, you can drive.

Technology is a great enabler and offers speed and agility in meeting goals. This is especially true when you need to embrace a lot of change in a short time span. So, while it is possible to carry out business functions without technology, it is naïve to think that an organization can ignore the tremendous power of technology today. Even hard-core lean manufacturing leaders such as Toyota embrace technology to drive business and operational excellence.

In the context of S&OP, technology has a pivotal role to play in several areas. These include cutting down on data acquisition time and connecting facts (sales, operations, finance) to generate high-level business scenarios. Moreover, technology in S&OP helps perform rapid simulations to show executives quickly what the impact of a decision lever (cut cost, reduce capacity, postpone product launch, shorten product family, etc) will be on business goals (profitability, revenue growth, market share, etc.). In turn, this enables the executive push decisions out to the lower levels for execution through workflow-based assignments, enabling decision enforcement through exception management.

Hence, without technology support, implementing actions identified by the executive S&OP level is simply not possible in a short timeframe (and time is a factor which is getting increasingly constrained for most organizations). Given this reality, I believe the role and importance of technology in S&OP will only increase.

Kinaxis: Is it possible to have an effective S&OP process that only looks at the aggregate or “volume” level? How important it is to consider the operational feasibility of the S&OP plan?
Atul: It is not possible since an effective S&OP must be a closed loop process. While executives need to focus on the aggregate / volume level (and not too get bogged down with the details), the actions coming out of the executive S&OP level need to be rationalized at lower levels where the focus is more on execution. The need here is to look at numbers at the mix level (specific SKUs, quantities), weekly / daily level plan and actual numbers. Actions at this level determine how the goals set at the top are realized, which then need to be fed back into the next executive-level S&OP cycle.

The key is to effectively integrate the granular lower-level picture with the one at the higher level. Appropriate aggregation needs to be carried out while passing information up the chain and disaggregation needs to take place while passing information down.

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?
Atul: Based on what I have seen so far, this is clearly an area of marked attention and much more needs to be done. While there has been progress in document collaboration – thanks to MS SharePoint – and proliferation of business intelligence dashboards for executives, the actual collaboration is still an E2 (Email, Excel) process. Moreover, a lot more time is spent on merely getting the data as opposed to the time and effort expended on analysis and decision making.

Most organizations have yet to embark on the journey for:

  • Workflow-driven S&OP collaboration for data gathering
  • System-suggested rules-based simulation during executive cycles, and
  • Workflow-driven enforcement of S&OP decisions filtered through daily / weekly exception management at lower levels

From a technology perspective, a combination of rapid analysis and planning tools, collaboration infrastructure and business process management tools with comprehensive workflow and rules capabilities will go a long way in enabling S&OP collaboration.

Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be?
Atul: At the top of my list would be:

  1. Establish S&OP as a formal organization process with named senior executive responsible for this function
  2. Strengthen / improve rapid simulation and analysis capabilities and integration between big picture items and lower level details, and
  3. Enhance collaboration infrastructure including workflow- and rules-based management

Kinaxis: What role does exception management play, or should play, in S&OP?
Atul: Exception management has a key role to play at the executive and lower levels. At the executive level, it helps identify the right level of business parameters by filtering the outliers for a given set of business goals. Once goals are determined at the aggregate level, it is important to focus on achieving these goals at lower levels i.e., allocation plans may be set at the family level, but they must be managed at downstream SKU levels as actual orders are placed. Exception management helps identify the situations where these goals are violated, thus requiring human intervention. It is therefore an enabling mechanism to ensure a tighter feedback loop downstream.

Kinaxis: How and where do what-if capabilities fit into the S&OP process?  Is it a priority capability for an effective S&OP process?
Atul: As described in some of the responses, what-if capability is critical to shortening the lead time on analysis and improves decision-making quality during executive S&OP meetings. It also directly adds to the maturity of the S&OP process as much of the time during the S&OP cycle is spent on data acquisition. There is always so much to analyze and by the time an S&OP meeting is due, the pressure to take decisions quickly is acute. A strong what-if simulation capability not only helps ease this pressure, but also assists in presenting the right levers for optimal business results. What-if simulations are also helpful downstream to analyze potential fluctuations on a daily / short-term basis and take corrective actions to ensure that operations at the lower level are consistent with the higher-level S&OP goals.

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