Last month, I launched a new blog series on sales and operations planning (S&OP). I outlined a number of important topics I plan to explore this summer. Building upon my post about the ownership of S&OP, it’s time to talk about defining the operating model for S&OP. Executives frequently ask: “How should I structure S&OP and organize it to account for different divisions, brands, or geographies”?
One of the more difficult aspects to get right behind a good S&OP process is the underlying structural design…or what I call the operating model. Most S&OP teams are tasked with managing an extensive and complex web of functional departments, sub-processes, products, customers, brands and geographies. A foundational framework that creates the appropriate intersections and touchpoints is imperative for S&OP to function effectively. When I reflect on leading S&OP processes, two key foundational aspects are always present: 1) a well understood conceptual model and 2) a well-defined structural model. They help define the operating model for S&OP.
The purpose of the S&OP process, which I discussed in my second blog, is to enable cross-functional information sharing, trade-off analysis, and decision making for the supply chain and overall business. The S&OP process is a broker of information…or to use one of today’s common supply chain buzzwords, a ‘control tower’. A recent Accenture article describes the importance of eliminating the disconnect between sales and supply chain, which is what a proper S&OP operating model seeks to create. This part of the S&OP operating model is as much a cultural mindset as it is something that gets defined by tangible organization charts or team diagrams. High performing S&OP processes do a tremendous job sharing information efficiently across the organization using a hub and spoke model as shown in the figure below…there’s incredible communication and alignment.
I will talk about ways to help enable this information sharing and how organizations are using technology to support communication in a future post. When alignment or information sharing is lacking in an organization’s S&OP process, two scenarios oftentimes emerge as a result of not having a clearly understood (or adopted) conceptual model.
Common Scenario #1: Point-to-Point – In a point-to-point model, as shown in the figure below, information flows between nodes, but not through the centralized S&OP team…or information hub. Functional departments connect directly and bypass other nodes, resulting in inconsistent information sharing. Certainly there are times when it’s appropriate and expected that functional areas on the S&OP team will connect directly on specific topics or action items, but key information, decisions, and plans need to flow through the entire team. Thinking about a football analogy, it’s similar to a quarterback only telling half of his teammates on the field what the next play will be.
Common Scenario #2: Functional Gaps – In some operating models for S&OP, functional nodes are often missing as shown in the figure below. Information sharing is occurring, but without key functional departments that are likely needed for input into a decision. The essence of this issue was aptly stated by a client years ago: “our S&OP process is more like O&P”.
Desired Conceptual Model: Hub and Spoke – A proper conceptual model for S&OP is one that is structured as a hub and spoke as shown previously. Functional departments share information through the S&OP process…with the S&OP team lead acting as an information broker, not a filter. This last point is important – good S&OP processes function not only by sharing information freely, but also openly. As noted in the point-to-point model above, there’s an inherent information filter built into that model which restricts information sharing and alignment.
The first aspect of defining a proper operating model for S&OP is to establish a hub and spoke design that the organization engages with and embraces. Enabling this type of structure requires a collaborative mindset, one of integration and alignment across departments… time to break down those functional silos in your organization.
The second component supporting the operating model for S&OP is the functional structure. S&OP is a complex process that has a number of dimensions that must be ‘structured’ to operate effectively.
To get started on the design, consider outlining the different elements within demand and supply that S&OP must address and identify the appropriate intersection points.
As noted in the table above, the S&OP dimensions (as well as stakeholders) on the demand and supply side are very different. High performing S&OP processes successfully address the intersection of the two sides and have an appreciation for how information is used. It goes without saying, the demand side processes in an S&OP cycle need to be structured around the customers, channels, and brands that inform the forecast. However, the operating model and process need to be structured around the consumption and usage of information further down in the process…by the supply side stakeholders in this example. Similarly, the same thinking needs to be applied to geographies or regions and channels or customers. It doesn’t matter which dimension we’re talking about, what is important is that the structure of the S&OP process appropriately considers how the team will use the information.
Too often demand plans or forecasts are simply not usable or “digestible” by the supply side stakeholders. As an example, a demand forecast by brand or product family (where the individual SKUs are supplied by multiple factories or assembly lines), is meaningless to the supply planning team. Manufacturing doesn’t care about the forecasted demand for a brand…what they care about is within that brand, how much demand is supplied from which factories or lines. In high-performing S&OP processes, the demand forecast may be viewed and analyzed by brand or product families (rightly so), but it will also be structured to provide the same information by factory so aggregate capacity plans can be examined. As shown in the figure below, the demand forecasts are structured around brands (comprised of different product types or formats), yet the S&OP operating model pivots to address the needs on the supply side (in this example, the different product types or formats are manufactured at different factories). When this structural component is missing in the operating model, information sharing and team alignment fails.
Typically, the structural model for S&OP starts with the demand side dimensions, but it will pivot at the intersection point where other stakeholders need to consume the information. Certainly there are data and system capabilities to enable the slicing and dicing of data to give each stakeholder the view and level of information they require, but at the core of the operating model design, is the consideration of the stakeholders and their use of information in the S&OP process. Organizations with leading S&OP processes appreciate how each member of the S&OP team needs to look at information…not just how one department needs to look at it. All the processes, reports, and discussions in meetings center on this pivot point and common structure.
Let’s continue the dialogue online about how to define the S&OP operating model. Up next: An exploration on the importance of the workforce involved in the S&OP process.