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.
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Last month, I launched a new blog series on sales and operations planning (S&OP). In that introductory post, I outlined a number of important topics that I plan to explore throughout the summer. Building upon the last post about foundational elements behind S&OP, I want to consider a question I get all the time from executives: “who really owns, or should own S&OP”? More broadly speaking, it is important to share some leading practices on the organizational aspects of S&OP that includes three components: 1) proper composition of the team, 2) ownership and who leads the team, and 3) how the team performs effectively.
S&OP is a team sport – period. S&OP is arguably one of the most cross-functional processes in an organization and requires input from sales, marketing, finance, supply chain, manufacturing and so on. Some of the best S&OP processes include great cross-functional participation and engagement (the latter being much more critical) from across the organization. When it comes to S&OP, the composition of the team I typically see, in some shape or form, at leading organizations is as follows:
In concept, this team diagram should make sense and be logical to most people, but in practice, oftentimes a number of these functions are either under-represented or missing entirely. Getting the right engagement from the organization requires a few things. First, leadership from the top-down communicating about the importance of S&OP to the business and its priority to the executive team is critical. Second, when I said S&OP is a team sport, I didn’t mean a spectator sport. A well performing S&OP process requires active involvement and contribution to the team, which means engaging in the process and performing the necessary activities and inputs. Finally, in exchange for the inputs and active participation in the process, it’s only fair to return the favor and provide valuable outputs to the team members. After all, most of the team members in the diagram above have day jobs to worry about, so to encourage sales or marketing professionals to engage and provide inputs into the process, make sure some of the outputs create value for them. Keep in mind the WIFMs (what’s in it for me) for the team, it will help with the engagement.
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A few weeks ago, I launched a new blog series on sales and operations planning (S&OP). In that introductory post, I outlined a number of important topics that I plan to explore in more detail throughout the summer. To make sure everyone is on the same page, I want to review the basics, the foundation, which is… what exactly is S&OP? I’ve seen and heard so many different answers and perspectives in response to this question. Therefore, I think it is important to share what I feel are some leading practices and also how leading organizations think about S&OP.
First of all, S&OP is indeed a process by most academic definitions (Merriam-Webster Link), as it follows a series of steps and activities with a particular cycle or cadence. And there are certainly meetings that occur throughout the process, but S&OP is not a meeting. S&OP is so much more than a process or a meeting. Yes, I’ve seen organizations that think they are ‘doing S&OP’ because they have a monthly meeting, but in fact they are actually missing the point of S&OP.
If one thinks about the purpose of S&OP, it is to ultimately match supply and demand, while balancing the cost (supply) and service (demand) tradeoffs of the supply chain. But as most of us know, addressing or solving this tradeoff is not linear in any way. Organizations face a recurring flow of supply chain imbalances that require decisions. S&OP serves to guide that decision making across the organization, making sure everyone is well informed and that trade-offs are analyzed and addressed properly. As a result, S&OP can be thought of more as an operating model to help organizations make better business decisions.
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Kinaxis recently asked me to author a blog series on the topic of Sales and Operations Planning (S&OP). Naturally, I was flattered to be asked to contribute to their popular 21st Century Supply Chain blog. But I was also very excited, because as a strategy consultant at Accenture, I’m able to share a wide range of client experiences on ‘what good looks like’ and what business issues clients are facing across a wide range of industries. In addition, prior to becoming a consultant, I was a practitioner in industry, managing S&OP processes. That gives me a unique appreciation of the challenges organizations face, and what it’s actually like to be part of an S&OP team.
I’ve designed this series to focus on the most common or frequently asked questions I hear from my clients. In this first posting, I will provide an overview of the six key areas I plan to talk about in my blogs. Going forward, I will dive into the details around each of these areas, share examples, and highlight options you may want to consider in your organization. I look forward to sharing my thoughts with you and hope you’ll include this blog on your summer reading list. I also hope we can engage in an exciting dialogue on the topic of S&OP and how we can work to improve your organization’s performance and outcomes.
How can organizations better use S&OP?
I’m often asked as I travel around the country working with various organizations, irrespective of the industry: “What are the most common S&OP challenges facing organizations today and why isn’t our process working?” Many of the organizations are struggling with the long-standing dilemma of effectively balancing customer service with supply chain costs, yet all have some form or shape of an S&OP process in place. So what’s going on? Why is this happening? I get asked these questions all the time. And candidly, I see it all the time too in my everyday personal life… stock outs, backorders, inventory markdowns, and clearance sales. These symptoms all point to a failure or breakdown in an organization’s S&OP process. So, how can organizations better use S&OP to improve their agility and responsiveness to today’s dynamic markets?
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In a previous post, I discussed the sometimes surprising technology choices some organizations are making to manage their S&OP process. Now I’d like to take a look at the Top 4 technology capabilities you need in order to achieve a successful sales and operations planning process:
#1: A single application with deep data
We know that successful S&OP must be fed by solid and complete information from across the extended supply chain and supported by robust advanced planning analytics. Only when you have that all in one place can you achieve broad and deep visibility, fast and accurate analysis, and effective and continuous alignment.
From one system, you should be able to:
- Integrate data from every division, location, department, product family, legacy system, and supply chain partner
- Administer both demand and supply planning
- Centralize, track, and test assumptions of the plan
- View data at multiple hierarchies at any time to support the specific analysis you need to do
- Make changes at the volume level that will automatically ripple down to the mix level, and vice versa
- Translate between units, dollars, and other units of measure
- Evaluate different scenarios simultaneously, and against multiple operational and financial metrics
Managing S&OP from a single application enables companies to better balance tradeoffs and most effectively align volume and mix, as well as Operations and Finance.
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In my previous blog post, I compared a pilot flying from New York to LA at night without any modern navigation systems or instruments, to supply chain teams trying to effectively manage their organizations without a proper S&OP process. Obviously, the likelihood of either arriving at their intended destination in an effective and timely manner is quite slim.
Successful sales and operations planning provides a navigation system to help determine where you are going, where you have been, when you are off course, and how to get back on course. To be effective, S&OP must:
- Bring together demand and supply planning (often referred to as East-West integration)
- Bring together Finance and Operations (North-South integration).
- Tie volume and mix plans together
- Facilitate S&OP on-demand, not only on-schedule
I covered the first two bullets in my last post, so let’s discuss the other two here.
Key #3 Tying together volume and mix plans
One of the stumbling blocks of traditional S&OP is that volume-only plans often end up being infeasible when disaggregated to the mix level. The challenge is to translate the aggregate, volume-level plans to a SKU or mix-level operational plan and then test the feasibility of the plans before committing to them. Otherwise, the S&OP plan will lose credibility within the organization.
The second challenge is to keep the plan feasible.
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In a previous post, I talked about the ineffectiveness of Excel, ERP, and legacy planning for S&OP. If those aren’t the right tools for the job, what is?
I heard a colleague once give the following analogy: Imagine a pilot flying from New York to Los Angeles at night without any navigation systems or instruments to measure his location, wind speed, or altitude. Instead, every two hours he checks the stars with a sextant, extracts data from the flight recorder about his throttle settings, and draws in the plane’s likely location on a map.
What are the chances of that pilot actually getting to LA? Can he arrive on any predictable timetable? You’ll likely agree his chances are slim to none.
A modern pilot embarks with a general flight plan, but then monitors a continuous readout of key metrics, which he uses to make numerous small course corrections to arrive at the proper destination on schedule.
It’s the same for business. Successful S&OP provides a navigation system to help determine where you are going, where you have been, when you are off course, and how to get back on course.
The four keys to highly effective S&OP are:
- East-West integration – bringing together demand and supply planning
- North-South integration – bringing together Finance and Operations
- Tying together volume and mix plans
- S&OP on-demand, not only on-schedule
With this model of S&OP, process execution evolves into operational orchestration, efficiency goals are coupled with measures of effectiveness, and cost control objectives are appropriately balanced with mandates for delivering business performance and value-based outcomes.
In this post, I’ll tackle the first two keys and I’ll follow-up with a second blog post for the latter two.
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Can the S&OP process be done without technology?
The answer to that question has certainly evolved over the years, and while there are still some holdouts, most will now agree that technology is indeed required. Whether its objective should be to support the process or help define the process remains a healthy debate.
Fundamentally, the more complex the organization and the more mature the process, the greater the need for technology. So what technologies are today’s supply chain teams using to support the critical S&OP process? Amazingly, it seems most organizations are running their process with spreadsheets.
It never ceases to surprise me when I hear how many enterprises entrust a mission-critical task to the desktop spreadsheet software Excel®. On the other hand, the fact that so many turn to Excel is proof that despite the plentitude of systems (or perhaps because of it), existing ERP and legacy planning apps are not meeting the requirements for S&OP processes regardless of where that process is positioned on the maturity curve.
Consider the Supply Chain Insights report, Research in Review (Nov 2014), that states:
“Many companies have five to 30 Enterprise Resource Planning systems and two to three supply chain planning systems. In addition, companies will have two to five S&OP processes working independently.”
This demonstrates an enormous level of complexity, from both a process and data perspective.
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