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.

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2 Responses to “PJ Jakovljevic: S&OP should become a continuous process and not an annual or quarterly chore”

  1. Michael Thompson

    I was very interested in this article. My view is that Integrated Supply Chain Planning, correctly applied, supported by well designed responsive processes (that don’t need to be complex) with a decent ERP system can have a profoundly positive impact on most businesses. In some instances S&OP can reduce supply chain responsiveness. However, when correctly applied with the proactive support of the CEO, S&OP is in normal circumstances a business critical process. I have started a recent series of blogs on the subject. They are ‘tongue in cheek’ & start with http://bit.ly/gx8rD1 – would welcome your comments. Thank you.

  2. Malcom Reynolds

    I agree with Michael. I good ERP software that isn’t unduly complicated can be a great boon for a company. I can add little more.

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