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.
Nari Viswanathan is Vice President and Principal Analyst for the Aberdeen Group’s Supply Chain Management Practice. Nari is a well recognized industry expert with extensive experience across industry analysis, market research, product management/marketing, consulting, solution design/development and presales. Nari Viswanathan counsels enterprises on their supply chain planning strategies in areas such as Integrated Business Planning, Sales and Operations Planning, Demand Management, Inventory Management, Network Design, and customer/ supplier collaboration with specific emphasis on financial performance.
Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits?
Nari: The surge of activity around S&OP is purely driven by the economy related challenges that companies are facing. A recent Aberdeen study highlights the results of over 196 companies participating in a survey on S&OP related initiatives. Fifty-nine percent (59%) of respondents indicate that improving top line revenue in 2010 (versus 45% of respondents in the July 2009 Sales and Operations Planning: Integrate with Finance and Improve Revenue report) is the top pressure driving attention and resources toward S&OP initiatives. The other key pressures that companies are facing with respect to S&OP processes include the need to reduce supply chain operating costs (53%) and the management of increasing demand volatility (49%), which creates the need for balancing these mutually exclusive business pressures. All of these pressures are competing against each other amidst an increased complexity of supply chain processes and the global nature of these supply chains.
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?
Nari: The traditional definition of S&OP is too supply chain focused. Here is a definition that is commonly adopted within the industry (from Wikipedia): The Sales and Operations Plan is a managerial tool used for manufacturing planning and control. Its fundamental objective is to reconcile sales forecasts with production plans in terms of volume. To do so, the S&OP has to coordinate planning efforts among the various departments involved in the process.
Aberdeen’s view point on this is as follows. Traditional sales and operations planning (S&OP) processes and supporting technologies are no longer sufficient in today’s high-pressured business environment. Sales and Operations Planning has evolved to become Integrated Business Planning.
It is a truly cross-functional, multi-dimensional process that includes all elements of demand, supply and financial analysis in relation to the business goals and strategy. (Source: Technology Strategies for Integrated Business Planning, June 2006)
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?
Nari: The only reason why we advocate the Integrated Business Planning concept is not to create a new category or Three Letter Acronym. It is done to elevate the process from a supply chain process to more of a Business Planning process. There are tangible differences between IBP and S&OP as shown in Table 1.
Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Nari: Aberdeen research finds that S&OP process maturity today definitely requires technology investments. Best-in-Class companies are now leveraging technology as a differentiator as shown in Figure 1. In addition to the traditional areas associated with inventory planning, demand and supply planning, Best-in-Class companies are also getting differentiation with the areas around executive reporting.
We still see rampant usage of spreadsheets across all the categories – 84% of overall respondents indicate that they are using spreadsheets to support the enablement of the S&OP process. Fifty-two percent (52%) of respondents indicate the usage of integrated ERP modules. Twenty-one percent (21%) of these respondents indicate the use of best of breed solutions whereas 31% still utilize custom legacy systems. Thirty-eight percent (38%) of respondents utilize business intelligence solutions. The variety of technology adoption approaches is due to the fundamentally inter-disciplinary and customized nature of the S&OP process for each organization. For a detailed discussion of how S&OP technologies have evolved and how Integrated Business Planning is the next frontier of S&OP please refer to the December 2008 benchmark report Making Integrated Business Planning Pay Off: Bridging Supply, Demand, and Finance.
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?
Nari: Indeed there is a significant amount of cross-functional cooperation and collaboration that is required for managing S&OP. Here are some of the findings regarding organizational approaches that companies are adopting:
- Best-in-Class companies are 1.5-times as likely as all others to have customers involved in the S&OP process
- For large organizations, Best-in-Class companies are 1.5-times as likely as all others to have a VP of supply chain (and above) as the top ranking supply chain executive (rather than having a head of manufacturing or procurement be the top ranking supply chain executive)
- Best-in-Class companies are 2.5-times as likely as all others to have sales be the organization most responsible for driving or leading the S&OP process
- Best-in-Class companies are 2.5-times as likely than all others to have marketing be the organization most responsible for driving or leading the S&OP process
The key takeway of these is that S&OP is no longer a supply chain driven process – it is purely a business level process. The sales and marketing organization(s), with their responsibility for revenue generation and business expansion opportunities, also plays a key role. Where revenue growth and expansion opportunities are scarce, senior management is looking to sales and marketing to enhance margins and prevent share erosion, at the very least. These objectives are tied both to extended supply chain costs/efficiencies and new product infusion.
To assist, product development is being asked to accelerate speed to market and improve reliability through the product development cycle to increase the percentage of sales from new products.
Conventional Sales and Operations Planning (S&OP) processes have failed to integrate these broader lifeblood issues of the sales, R&D/Product Management, marketing and financial business leaders into the process. The next step in the evolution of S&OP, what has come to be known as Integrated Business Planning (IBP), elevates S&OP from a purely operational process to a strategic one. IBP merges the operational and financial plans into one seamless business planning and tactical execution-directing process.
Two examples of the broader scope of the process are as follows:
Product Management: an important requirement of the process is the integrating the results from portfolio & product life cycle management into a Product Review process.
Sales and Marketing: the analysis and refinement of marketing plans, sales account management tactics like pricing can be used as gap-closing actions during the Demand review process.
(Source: Sales and Operations Planning: Integrate with Finance and Improve Revenue, July 2009, S&OP Process is a Strategic Driver for Improving Business Performance, December 2008)
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- Simon Ellis: According to IDC's IT application surveys, S&OP has been the number one or two prioritized investment