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.
Simon Ellis currently leads the supply chain strategies practice area at IDC Manufacturing Insights, one of IDC’s industry business units that address the current market gap by providing fact-based research and analysis on best practices and the use of information technology to assist clients in improving their capabilities in key process areas.
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?
Simon: I happen to think this is a very important capability. The ability to run scenarios through the S&OP process, particularly where ‘gap closing’ activities are concerned is the only way that companies can make coherent decisions about changing strategies or tactics. If, for example, I’m $500,000 behind my annual plan, how can I understand both the requirements for and the result of changed business plans without what if capability. Whether it’s moving up a new product launch, running additional promotions, or creating custom pallets, without what if capability, companies are flying blind!
Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits?
Simon: It is interesting that in the IT application surveys we have run at IDC this year, S&OP has been either the number one or two prioritized investment – this for a concept that has been around for over 20 years! I think the renewed focus has a lot to do with the recession of the last two years, and the realization by a lot of companies that they just cannot perform optimally without a more coordinated, synchronized business planning process. I still hear large companies talking about the fact that they manage the business from multiple disparate plans which drives inefficiency and sub-optimal business performance.
The benefits, I think, are ultimately about getting to a consensus plan and forecast for the business that Finance, Marketing, Sales and Supply Chain can get behind in a coordinated, consistent fashion. S&OP also allows the Supply Chain, for example, to be clear about business requirements both in terms of the forecast and the flexibility to respond to changes in the forecast.
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?
Simon: This gets to the heart of whether S&OP is a business process, an application, or both. I tend to see it as a business process that can be facilitated by the use of purpose-built IT tools. Ultimately, the requirements of a particular business will dictate where they should ideally be in terms of S&OP maturity, but if they are very immature, any improvement in the process will have a corresponding benefit.
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?
Simon: What’s in a name!
I tend not to worry too much about the three letter acronym, but rather what is involved in the underlying business process. People have also talked about SI&OP – where the ‘I’ stands for inventory – which strikes me as silly because inventory is just one parameter that you need to plan in the context of the overall business. I think that IBP is simply a more mature implementation along the journey that is S&OP, and, whether the new name or not, is a worthwhile aspiration for manufacturing companies.
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?
Simon: I think that there is no question that functional silos get in the way of many cross-functional business processes – and S&OP is no exception. But I think companies that recognize this can relatively easily overcome the ‘inertia’ if they take the appropriate steps. Although hardly comprehensive, things like aligned incentives, cross-functional teams, and clear accountability can help greatly. I also think it is important to align the various levels of decision-making within an organization. Are, for example, strategic S&OP decisions properly ‘translated’ into operations and business tactics.