Archive for the ‘S&OP Expert Blog Series’ Category

Consumer Electronics Top 10 Questions: Supply Chain Leadership Series

Published May 7th, 2014 by CJ Wehlage 0 Comments

I am starting a blog series called “Supply Chain Leadership”, where I hope to pose thought provoking, and forward looking questions to executives in my supply chain network. Posted monthly, this series will provide insights into the most pressing challenges, innovative items in their budgets, and how these executives have handled talent, complexity, end-to-end S&OP, and technology.

Continuing the Supply Chain Leadership series, I caught up with an executive in the consumer electronics business. His deep manufacturing, planning and technology background led him to one of the top consumer electronics companies in the world. His insights on the challenges and future of supply chain are incredibly thought provoking.

 

1. As we enter 2014, how would you describe the most pressing supply chain challenges?

a. Expanded product portfolios and product options are challenging our ability to maintain accurate forecasts.

b. Growth in new markets has presented us with challenges in understanding customer response to new products.

c. Material leadtimes have remained in an “extended horizon” status are affecting our ability to respond to demand variation.

d. International markets are growing as a proportion of overall sales, which is driving inventory growth.

2. Looking back at the past few years, what parts of supply chain have improved and what have you seen as the contributing factors for that improvement?

a. The company’s Sales and Operations Process has matured and is now providing consistent insight into Supply Chain challenges (mentioned in Q1), while creating visibility to risks and opportunities in the supply and demand balancing process.

b. The implementation of an enterprise system has enabled us to scale our planning and execution processes to keep up with significant growth and complexity of our product portfolio.

c. Reporting tools have been improved dramatically, driven by in memory based storage and on line (interactive) query capability.

d. Redesigned Supply Chain networks have enabled the company to ship more products direct from the source to the customer with a significant reduction in “hand offs” and material handling (waste).

e. Global Supply Chain operational personnel have matured in experience and skill due to corporate initiated training including; face to face, centralized class rooms, and on line classes.

3. In the creation or support of your Budget Plan, what are the new items you see for this year and beyond, things that haven’t been on prior year Budgets, or things that have seen the greatest increase in priority?

a. The new product portfolio is a much higher proportion of our budget and the volume of new products is generally higher than typical years.

b. Increased regional capacity has been put in place to support international growth.

c. A portion of the company’s portfolio is more margin challenged than in the past, leading to much higher scrutiny of premium freight, rework, and / or pricing flexibility

4. When assessing your S&OP/Integrated Planning, what are the areas you feel need addressed to improve your S&OP/IP process?

a. Much more work is needed to continuously and consistently align the Supply Chain and Financial plans.

b. The company’s ability to sense and respond to market variation is more complex (see Q1), given the broader product portfolio, which is challenging our (reporting) capability to provide ongoing insight to the executive team.

c. Sales and Operations processes in our international operations (local or ‘in region’ S&OP) have improved, but need to mature to keep up with regional challenges.

5. The End-to-End supply chain strategy has been well documented. What capabilities does your company have that is better in class for integrating end to end?

a. The company’s investment in an enterprise wide system using the same planning, transactional and reporting tools gives us the potential to re-plan on an ‘as required’ basis, giving us the capability to respond to any identified opportunities.

i. Typical planning activity is weekly – improved from monthly.

ii. Capability is daily or as required.

b. In region sourcing has expanded, giving the company an opportunity to reduced overall response time and ultimately improved service (flexibility).

c. When we do identify an opportunity (or risk) our integrated manufacturing strategy supports ‘quick turn’ at lower premium costs.

6. How aligned and connected are you to the many supply chain nodes? What are the reasons you would want to improve this alignment?

a. The company’s internal network is completely integrated which gives us the capability to see retail store level activity in remote regions (China) and respond.

b. Point of sales demand data is captured on a real time basis, providing us with responsive execution plans throughout our Distribution network.

c. Improved alignment on re-seller ‘sell thru’ data will give us the capability to ‘see beyond’ the next purchase order.

i. EDI and / or transactional integration is an area of opportunity for our non-Automotive businesses.

ii. Having access to customer sell thru and potentially customer inventory will help us identify risks and opportunities at the customer’s storefront.

7. This “connected nodes” is very much tied to supply chain visibility. How would you rate your complete visibility to all nodes? Why do you believe it is like this? What do you believe are the 2014 actions that need to be taken?

a. I would rate our internal visibility a 9 of 10. The limitation would be that our transactional system will not be global until July 2015. This limits our ability to ‘see’ the entire supply chain and limits (to some degree) our reporting capability.

b. Our entire network is ‘connected’ through system master data which enables a complete and integrated planning process. Each planning event includes retail stores, distribution centers, and manufacturing plants in the same requirements regeneration.

c. One of our limitations to visibility is customer information (see Q6.c.i and ii).

d. Our 2014 supply chain improvement plan includes, but is not limited to;

i. Continued roll out of the company wide transactional system

ii. Implementation of an improved and Hana based sales planning tool. This tool will enable sales ‘event’ planning such as margin analysis on a promotion.

iii. Complete implementation of a Long Range Planning process which will be integrated with the Financial Plan and enable continuous financial planning.

iv. Continued training for Supply Chain personnel.

v. Forecast improvement plans which focus on the adoption of improved reporting and better regional S&OP processes.

 

8. How would you rate your ability to understand risk & tradeoffs? With which functions do you need to improve your “simulation” tradeoff processes the most?

a. Today, we have the right information, but lack timely insight. We are addressing that through Hana based executive reporting and dashboard development. I would rate the company’s capability for scenario planning a 7 of 10.

b. The company’s longer range plan is to an S&OP simulator for risk and benefit analysis. The initial intent is to utilize the tool as a sales planning engine, which would feed our demand planning module.

c. The vision is to utilize this engine for scenario planning across the supply chain.

9. Supply chain “talent” has been brought forward as a concern. How would you assess the talent challenges in your organization, and what actions are you putting in place to address?

a. Our global supply chain maturity has improved from less than 5 to 7, on a scale of 1 – 10 (see Q2.e).

b. The company has stabilized our Supply Chain turnover to nearly zero, which has helped facilitate sustained and improved training. c. Our plan includes, but is not limited to;

i. Expanded on line training modules – related to operational and technical training

ii. Efforts to ‘cross train’ where Supply Chain personnel can work across regions and / or in different functions.

10. New technology, especially comprehensive customer data and internet connected devices, are driving new supply chain models. How has new technology impacted your area and what new supply chain models/capabilities have you put in place or are considering?

a. The most significant change in technology (other than the continued ERP roll out) is the migration to an in memory based storage and retrieval.

b. Our CIS roadmap includes mobile reporting and executive dashboard improvements, but those have not become operational plans to date.

Consumer Electronics is also my primary background, having led supply chains at Apple, Bose and Sony. His answers provide insight to what all consumer electronic companies are facing, customer intimacy. The impact of not getting closer to the customer is degrading forecasts and margin challenges. They are using S&OP to provide visibility to risk and opportunity, although they are challenged to extend a central S&OP to the regions. And, the regions, especially new markets, are where the growing demand is. It also is requiring them to manage freight, rework and pricing with more detail. New supply chain models, such as direct ship to the customer, regional capacity, and sell through analytics, are being created.

This is why consumer electronics is, in some ways, leading the supply chain innovation. Segmentation of demand, creating new supply chain models, analyzing new forms of data, and striving to solve the demand/supply challenge in real time are things that make consumer electronics supply chains a very interesting group to watch.

Posted in Products, S&OP Expert Blog Series, Supply chain collaboration, Supply chain expert series, Supply chain management


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)


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)


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)


Nari Viswanathan:S&OP is no longer a supply chain driven process – it is purely a business level process

Published November 9th, 2010 by Lori Smith 1 Comment

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)

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


Coco Crum: The 7 differentiators between S&OP and IBP

Published November 2nd, 2010 by Lori Smith 2 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.

Colleen “Coco” Crum, a managing principal with Oliver Wight Americas, is considered a thought leader and innovator in demand management and sales and operations planning.  As a consultant and educator with Oliver Wight Americas since 1995, she has assisted companies across the manufacturing spectrum, including agricultural chemicals, consumer goods, electronics, entertainment, telecommunications, pharmaceutical, biotechnology, steel, and aerospace and defense industries. In doing so, she has contributed to advancing the methodology of how to successfully integrate demand and supply processes both inside a business enterprise as well as throughout the supply chain.  Colleen “Coco” Crum’s full bio can be found here.

Kinaxis: What do you believe is behind the surge of activity around S&OP?
Coco: As my co-author, George Palmatier, and I state in our book, “Demand Management Best Practices,” the pace for adopting business processes is slow. The earliest implementation of S&OP occurred in the early 1980s. We should know, as Oliver Wight pioneered S&OP at that time and continues to bring innovations to clients. As a result, today S&OP is transitioning into Integrated Business Planning (IBP). As you will read later, the benefits are dramatically higher for companies that do S&OP/IBP well versus those who do not.

Widespread use of sales and operations planning did not occur until the mid-1990s. In our experience, it takes a minimum of ten years for fundamental changes in business practices to become widely adopted. It takes another five to ten years for these changes to become a routine way of doing business for the majority of companies.

Today, S&OP is a “hot” for the following reasons:

  1. It is becoming a standard practice and is now evolving into Integrated Business Planning for companies with mature processes. Companies that do not have at least a standard practice of S&OP, operating at a capable level, have more difficulty competing against companies that have effective S&OP/IBP processes.
  2. Software firms have started to push S&OP, as software for S&OP/IBP has been lacking. Unfortunately, only a few software firms offer dedicated S&OP/IBP software that: a) integrates all elements of S&OP/IBP and b) provides both executive graphical views as well as quantitative and qualitative information required to support a robust S&OP/IBP process.

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?
Coco: The definition has become clouded. Some companies do integrated detailed planning over the short-term planning horizon without executive management involvement and call it S&OP. Some software firms, sensing that S&OP is hot, position as S&OP the use of multiple software modules for detailed planning, even calling it “real-time” S&OP.

Following is the widely accepted definition of S&OP/IBP:

A process led by senior management that evaluates and revises time-phased projections for demand, supply, new product development, strategic projects and the resulting financial plans. This is done on a monthly basis, on a planned 24-month rolling horizon. It is a decision-making process that realigns the tactical plans for all business functions in all geographies to support the company’s business goals and targets.

A primary objective of S&OP/IBP is to reach consensus on a single operating plan, to which executives of the management team hold themselves accountable, and allocates the critical resources of people, equipment, inventory, materials, time and money to most effectively satisfy customers in a profitable way.

Compare the above definition, especially the words that are highlighted, with your company’s S&OP/IBP process. Is your company really doing S&OP/IBP?

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?
Coco: There are different levels of maturity for S&OP/IBP that range from:

  1. Disconnected management processes, but there is a desire to do S&OP,
  2. Foundational S&OP in which there is primarily a supply chain focus of balancing demand, supply, and inventory,
  3. Capable S&OP in which all company functional plans are aligned (product and portfolio management, demand management, supply management, and financial management). The process focuses on making decisions to keep plans aligned and agreeing on the tactics required to execute the plan (with a strong set of KPIs),
  4. Integrated Business Planning, which has a strong focus on identifying gaps between the latest projections versus the company’s strategic objectives. The process is used to focus on competitive priorities.
  5. Integrated Business Management in which the process drives responsive optimization of the business in pursuit of business strategy. The process focuses on the use of alternative scenario planning to reconcile gaps between latest projections vs business plan and strategy and to perform contingency planning and risk management.

Results from Oliver Wight clients and studies by research firms, like Aberdeen and Ventana Research, show that companies at all levels of maturity achieve operational and financial benefits from S&OP/IBP. Companies operating S&OP/IBP at a higher levels of maturity achieve significantly greater operational and financial benefits than those companies that are not doing S&OP at all or have a Foundational process with a supply chain focus.

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?
Coco: Oliver Wight has pioneered the evolution of S&OP to include product management and financial management. We also are leading the transition of S&OP to IBP. Here are the characteristics of IBP, which are the chief differences from S&OP:

  1. More robust financial integration
  2. Inclusion of strategic plans, initiatives and activities
  3. More robust product and portfolio review
  4. Improved simulation, modeling, and scenarios
  5. Improved operational risk visibility and management
  6. Gap identification and improved decision making
  7. Easy, effective translation of aggregate plans to detail plans, and vice versa

George Palmatier and I have co-authored an article on the Transition of S&OP to IBP, which can be obtained here.

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?
Coco: Companies certainly struggle with using assumptions effectively in the S&OP/IBP process. Planning over a 24+-month horizon requires an assumption based process.

In addition to developing competence in the utilization and management of assumptions, companies are hindered by software being quantitative based. Few S&OP software packages handle assumptions well – there are exceptions.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Coco: One reason that companies do not evolve their processes and get stuck at the Foundational (supply chain) level is the lack of technology dedicated to supporting best practice S&OP/IBP. Spreadsheets just don’t cut it. Technology to support S&OP requires:

  1. Executive management views of the business shown in graphical format so that exceptions can be quickly and readily grasped
  2. Views of product and portfolio management; aggregate demand plans and assumptions;  aggregate supply plans, assumptions, and resource planning; and financial projections (revenue, margin, and inventory investment at a minimum),
  3. Graphical way of portraying gaps between the latest projections and the business goal and strategies,
  4. Documentation of assumptions, risks, and opportunities for all functional plans
  5. Quick simulations of various scenarios and contingency modeling with “side-by-side” comparisons and documentation of assumptions, risks, and opportunities
  6. Action item management.

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?
Coco: For more than two decades a best practice, or “Class A” behavior, for S&OP/IBP has been that all approved plans must be “doable.” This means that resources must be available and approved to execute all functional plans. Resource planning (manufacturing, operations, sales, marketing, product development, and financial) is a key element of S&OP/IBP.

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?
Coco: It starts at the executive level. The S&OP/IBP process culminates each month in a Management Business Review in which the executive team reviews the latest projections, projected gaps in achieving business and strategic objectives, as well as resource projections and other needs in order to execute the plans.

With strong leadership by the president, COO, or GM (also called the “person in charge”), the leadership team over time begins to think in terms of the health and welfare of the company, rather than optimizing a function at the expense of the company. This is a chief difference between Foundational S&OP and Capable S&OP/IBP.

Companies that achieve the greatest benefits from S&OP/IBP use the process as a collaborative executive management process for running the business – this is the essence of S&OP/IBP. Consider these results from an Aberdeen study, which provide hard evidence that it pays to do S&OP/IBP well:

Ask yourself:

  • What would a profit margin of 12% above the industry norm and 21% above the laggard companies mean to my company’s stock performance and return to shareholders?
  • What is my company’s customer retention rate? What would be the impact on sales productivity and marketing and sales costs if our customer retention rate was over 90%?

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


Bob Ferrari: Process inertia and organizational thinking can derail the progress of an S&OP initiative

Published October 26th, 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.

Bob Ferrari is the Executive Editor of the Supply Chain Matters blog and Managing Director of The Ferrari Consulting and Research Group LLC, a consulting, facilitation, and custom research firm. Bob is a highly visible supply chain technology executive and noted industry analyst, with demonstrated experience in business planning, process, and information technology transformation.

Kinaxis: What do you believe is behind the surge of activity around S&OP?  What are the anticipated benefits?
Bob: I believe that the higher adoption of S&OP activities is motivated by three factors.  First, the benefits and effectiveness of an S&OP process have been proven by many companies in many different industry environments. This is especially pertinent when these companies attempt to navigate in the very uncertain and often volatile post-recessionary environment that exists today.

Second, S&OP provides an organized means to build consensus for aligning product demand with various supply plans. 

Finally, S&OP is the best means to engage senior management in the key decision making required in aligning  demand with supply across the global supply chain.

The anticipated benefits for S&OP generally evolve in the areas of:

  • Improved demand and supply planning, better forecasting, and a more responsive supply chain
  • Improved customer service
  • Better, quicker, and more aligned decision-making 

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?
Bob: I happen to be one who advocates that S&OP can be a stepping-stone towards Integrated Business Planning. That stated, not all companies are ready to move through this maturity. There are many other factors involved with IBP not the least of which are considerations for integrating information across the supply chain as well as organizational alignment and change management factors.

My advice to companies has always been walk before running.  Building a solid foundation to an S&OP process should be the first consideration.  This includes expectations, roles and decision factors assigned to the participants which often include cross-functional discussions. Means of gathering and communication of information to support the process are also important, especially when participants include external supply chain partners.  Only when an organization feels it has a viable and well-understood S&OP process and an aligned organizational culture, should it consider moving towards IBP. 

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?
Bob: I do believe that process inertia and organizational thinking can derail the progress of an S&OP initiative and supply chain professionals should not be sidetracked with these common types of issues.  Most barriers lie in developing the overall process framework, process cycle time, and overall change management factors.

Supply chain planning, process execution and customer fulfillment is inherently cross-functional in nature, often with conflicting goals. Sales and marketing teams are often goaled on unconstrained sales quotas. Procurement often seeks lowest-cost suppliers, sometimes located in remote regions with less mature business practices.  Product management seeks to meet time-to-market dates, and finance can be persistent in budget adherence.  When large doses of supply chain ‘reality’ are added, inertia can occur since there is a strong reluctance to not deliver ‘unwelcomed news’ to senior management.

In my view, there is sometimes a tendency for S&OP participants to be more focused on building continuous consensus vs. a broader and more challenging perspective on the big-picture of supply chain business issues.  Broader empowerment, sponsorship, peer mentoring  and active participation by senior management helps to overcome this inertia. 

A final thought relates to the overall cycle time of the process which must match the clock-speed of the business.  If for example it takes 4-6 weeks to accumulate and assess all demand and supply information, when the business can change significantly in 3-4 weeks, than the process becomes ineffective, and support wanes.  Technology tools play a key role in facilitating more timely analysis of the required information that can not only sustain, but enhance the cycle-time of the process.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Bob: This is a great question since in my discussions with supply chain executives and professionals, this very question is often raised, with pre-conceived opinion.  The qualifier I often add in these conversations is the notion of “advanced technology”. An S&OP process can be carried out without technology if the scope of your supply chain and supporting organization is small and manageable. Obstacles to the S&OP journey are more often organizational and process related.

However, the most important consideration to an S&OP process is the overall time it takes to conduct the continuous planning cycles, the ability to quickly gather, analyze and report summarized information, along with the ability to perform what-if analysis or quickly analyze various alternative plans that the process wants to consider.  More often, this is where advanced technology plays a very important role. 

Technology can facilitate the quick gathering of cross-functional planning and execution information, the placing of information in proper context, and the ability to quickly analyze that information.  Of late, firms had augmented S&OP with inventory optimization, business intelligence and CRM related software applications to foster a more robust process for sensing and mitigating unplanned changes in either demand or supply.  Advanced technology also overcomes scope and complexity, and with more and more supply chain activity involving global-based participants, such technology keeps the process working in a timely and effective manner.

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

  1. If a firm has not initiated an S&OP process, begin with a pilot phase to work through the various needs for bringing participants, information, and decision-making processes together in a single recognized process.  Move from the pilot phase to more mature phases in a well defined and recognized timetable. The most important emphasis for the initial phases of S&OP are organizational alignment and process consistency.
  2. Senior management sponsorship and active participation is mandatory and an important priority, particularly in the decision-making aspects of S&OP.  Question or challenge when senior management attempts to delegate such responsibilities. With senior management sponsorship comes the dedicated resources to support the ongoing process.
  3. Insure that all data supporting the S&OP process is clean, accurate, and updated on a timely basis.  Nothing derails the process quicker than bad data.

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


Steve Puricelli: S&OP Evolving into a powerful mechanism to manage and shape business performance

Published October 19th, 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.

Steve Puricelli is a Senior Manager in Accenture’s Supply Chain Management Service Line and he is also the North America S&OP Offering Lead. He has an extensive background in sales and operations planning including forecasting and production planning, both as a practitioner and as a consultant. Prior to Accenture, he worked at Information Resources Inc (IRI), HP, and General Motors. He has more than 15 years of experience working across the high-tech, consumer packaged goods, aerospace, and automotive industries. He holds a BS degree in mechanical engineering and an MBA degree in operations from Vanderbilt University. Based in San Francisco, he can be reached at steven.j.puricelli@accenture.com.

Kinaxis: What do you believe is behind the surge of activity around S&OP?  What are the anticipated benefits?
Steve: A number of market drivers are putting pressure on supply chains and the S&OP process – specifically the volatility and uncertainty we’ve seen over the past 18-24 months. In addition, supply chains have grown more complex over the past decade, which has created a very dynamic operating environment. As a result, organizations are starting to realize that the supply chain and S&OP are important mechanisms to managing the business effectively. Traditionally, supply chains and S&OP are volume or unit focused, but now I’m seeing more senior executive involvement at organizations in S&OP because of the revenue and margin aspects it can control. Once viewed as simply the process or meeting to balance supply and demand, S&OP is evolving into a powerful mechanism to manage and shape business performance.

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?
Steve: An S&OP maturity model to me is comprised of a number of capabilities and is not a single entity – and understanding each capability and where your organization plots on the curve is certainly important. However, most organizations generally do not need to have, or be at the most advanced stage for each of those capabilities. In fact, I advocate that organizations selectively invest in those capabilities that drive value to their supply chains, and are on the leading edge of the maturity curve, while the other capabilities could reside lower on the curve. A term we use is Supply Chain Masters, and we’ve found through our research that leading organizations, or Masters, are not great at everything they do. We’ve found that these organizations selectively invest in capabilities that are critical to their business – and they are very comfortable and confident having capabilities lower on the maturity curve in those other non-critical areas.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Steve: The short answer is yes. I’ve seen a lot of organizations with “manual” S&OP processes that are also leaders when it comes to supply chain performance. Having said that, I’m a firm believer that technology plays an important role in a leading S&OP process, but it is not the driving capability. If you think about S&OP philosophically for a minute, it’s more than just a process or a monthly meeting; it’s actually a governance model for the supply chain comprised of organizational, process, and technology capabilities. I tend to see leading organizations, or Masters, focus more weight on the organizational and process aspects of S&OP over technology, but that’s not to say technology in these organizations is missing. In relation to an S&OP maturity model, there is certainly a correlation where technology plays a more important or less important role depending on the attributes or characteristics of the business. A supply chain with a small number of products, limited number of manufacturing and distribution locations, and only a few customers or channels – using a manual technology solution such as spreadsheets might be sufficient – or even appropriate. On the other hand, technology is often a key enabler for S&OP to scale – and providing the breadth and depth to S&OP is generally not achieved with manual approaches.

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?
Steve: Building on the previous question and thinking about S&OP as a governance model comprised of three key areas: organizational, process, and technology capabilities – each area serves a distinct and important role to enabling cross-functional collaboration across the supply chain. The organizations that are collaborating successfully look at their S&OP capabilities holistically across each of those three areas. Addressing process without considering the organizational or technology capabilities may only yield marginal improvements. Each area plays a role in enabling cross-functional collaboration:

  • Organizational capabilities are needed to help integrate more business functions into S&OP than are typically involved.
  • Process capabilities should address and allow for integration into the upstream and downstream processes that S&OP touches.
  • Technology capabilities should integrate and normalize the disparate data and system environments that generally exist with S&OP.

I’ve found that the leading organizations recognize there is no “silver bullet” when it comes to addressing S&OP effectively – just implementing a new tool or a new process isn’t going to enable S&OP. First and foremost, organizations that are doing this successfully have clearly defined ownership and accountability of S&OP and they also understand that all three components of S&OP should be addressed. But I’ve also found that the reality is that organizations need to manage and operate with limited budgets and resources and may not be able to address S&OP in this holistic manner. And leading organizations are not immune to these constraints either, but they approach the enablement thoughtfully, and with a well defined roadmap that address the three components of organizational, process, and technology capabilities in an integrated manner.

Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be?
Steve: Use of the word “evolve” implies a good or an acceptable S&OP process is already in place and the organization is looking to improve or further develop their capabilities. Under that assumption, I would recommend the following:

  • Incorporate financial information into S&OP. As I noted earlier, supply chains have been traditionally very volume or unit focused, and have lacked the information and capabilities to make decisions based on the financial impact to the business. We recently developed an offering called PS&OP or Profit, Sales, and Operations Planning that specifically addresses this issue of evolving an existing S&OP model into a more enhanced version that incorporates profitability into S&OP decisions.
  • Enable what-if modeling and predictive insight capabilities into S&OP. The growing complexity of supply chains, and inherently S&OP, is creating an increasing number of trade-off decisions that organizations are faced with each and every week.  These trade-off decisions, such as revenue vs. margin or cost vs. service level, are also complex. Effectively analyzing and testing each of the various scenarios that present themselves during the S&OP cycle through the use of predictive what-if modeling capabilities should allow for improved supply chain performance.
  • Instill commitment and patience into the S&OP evolution. S&OP is one of the more complex business processes – primarily because it is so cross-functional and touches so many different parts of an organization. Whether an organization is evolving or transforming their S&OP process – commitment to making changes and improvements is needed from the organizational leadership and patience is needed from those involved with S&OP.  Leading organizations, or Masters, understand that driving real change around complex business processes requires both of these characteristics, as well as the understanding that there is not a finish line, but rather it’s an ongoing journey to continually be nurtured.

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