Our recent white paper, “Four Capabilities Required for 21st Century Sales and Operations Planning“, does an excellent job of outlining both the current state of sales and operations planning (S&OP) and the benefits companies can derive from ensuring the tools being used to support the process include those key capabilities. What the article fails to empathize is that the tools that have traditionally been used to support the process by even some of the best companies (primarily Excel but also Access and other point solutions) have failed to meet the challenges of the new business environment.
That new environment contains three dimensions of change which have changed the shape of most companies fundamentally. The first dimension is outsourcing which makes key operational data that influences the S&OP decisions outside of the direct control of the brand owner, and is therefore more difficult to access, integrate and analyze. The second dimension is the speed of product innovation that requires greater precision in the timing of new product release to gain market share while avoiding unnecessary excess and obsolete inventory on older products. The third dimension is the change in demand volatility driven by the purchasing habits of today’s consumers who leverage the internet to gain product knowledge and access to the global marketplace. The days of blind product loyalty and the exclusive purchase of goods from local retailers are forever gone. The bottom line is that these dimensions of change have exposed serious limitations in the legacy tools’ ability to meet the needs of today’s S&OP activity.
Each of the new dimensions of change outlined above have increased the importance of the capabilities outlined in the white paper. With the increase in demand volatility and shorter product life cycles, a more frequent S&OP cycle helps to drive smaller course corrections and, therefore, reduces risk along several financial dimensions. The outsourcing dimension demands an effective strategy for data acquisition and collaboration so that liabilities and opportunities are identified accurately and evaluated as part of the process. In addition, few of the legacy tools being used today provide an ongoing foundation for monitoring S&OP execution and alerting the organization to critical variations.
While a more frequent S&OP cycle reduces this risk, the very best companies will leverage alert and collaboration capabilities to respond immediately. Lastly, in the area of creating multiple simulations and evaluating the results, the legacy tools have serious limitations in one or more of the following areas:
- The range of variables that can be considered in the simulation
- The ability to compare the results of the simulations along any performance dimension desired
- The number of simulations that can be evaluated simultaneously
- The depth of the data included in the simulation (does it include all of the supply chain partner data?)
So if companies want to achieve world class results in today’s business environment they must acquire a tool that includes the four key capabilities.