Can the S&OP process be done without technology?
The answer to that question has certainly evolved over the years, and while there are still some holdouts, most will now agree that technology is indeed required. Whether its objective should be to support the process or help define the process remains a healthy debate.
Fundamentally, the more complex the organization and the more mature the process, the greater the need for technology. So what technologies are today’s supply chain teams using to support the critical S&OP process? Amazingly, it seems most organizations are running their process with spreadsheets.
It never ceases to surprise me when I hear how many enterprises entrust a mission-critical task to the desktop spreadsheet software Excel®. On the other hand, the fact that so many turn to Excel is proof that despite the plentitude of systems (or perhaps because of it), existing ERP and legacy planning apps are not meeting the requirements for S&OP processes regardless of where that process is positioned on the maturity curve.
Consider the Supply Chain Insights report, Research in Review (Nov 2014), that states:
“Many companies have five to 30 Enterprise Resource Planning systems and two to three supply chain planning systems. In addition, companies will have two to five S&OP processes working independently.”
This demonstrates an enormous level of complexity, from both a process and data perspective.
So what’s wrong with Excel? It’s a great tool for personal productivity. And it’s helpful for department-level planning and budgeting. But spreadsheets can’t scale up to support the rigorous, multi-tier decision-making that S&OP requires. For example, with Excel you can’t easily:
- Integrate information from many sources
- Provide in-depth analysis using complex analytics
- Simulate numerous “what-if” scenarios
- Support reliable data quality and secure data exchange
These observations are supported in the same Supply Chain Insights report I referenced above:
“Today’s S&OP process needs to be modeled using technologies that recognize constraints and bottlenecks and can model volatility and demand/supply probabilities. The supply chain of today is just too complex to be modeled in a spreadsheet.”
So, if organizations are not able to do the analysis they need using spreadsheets, then you have to ask yourself why is it so prevalent?
I believe it is because supply chain teams are ill-equipped to support their S&OP process using their ERP systems. The multi-million dollar ERP system does all the essential jobs it was designed for: taking, making, shipping and accounting for customer orders. But it’s tough to get to the next level of S&OP using ERP and a collection of add-on modules or other advanced planning systems. In most cases, each piece is a stand-alone product designed for just one part of the process. The integration effort is cumbersome.
This piece-process approach has proven to lead to ineffective and inefficient planning cycles that drive less than maximized value for the organization, largely because it does not adequately address cross-functional (and cross-enterprise) issues or concurrent activities.
Here’s how the design of ERP systems compares to S&OP requirements:
As you can see, ERP and the associated legacy supply chain planning solutions were originally designed for a much slower, more centralized world, so they struggle to support today’s requirements for intense participation from multiple players in different locations using different systems.
Here are four critical limitations of legacy planning systems when it comes to S&OP:
- Inaccurate forecasts based on statistical forecasting that can’t keep up with volatile markets and ever-changing business assumptions
- Slow and limited “what-if” simulations to test assumptions and alternative actions
- Limited collaboration support to bring teams together, either planned or ad hoc, to provide input and secure buy-in
- No accounting for outside value, such as inventory being purchased, assembled or shipped by third parties
If you’re not using Excel, your ERP system or legacy applications to manage your S&OP process, you are likely using a purpose-built S&OP tool. If that’s the case, it’s important to understand that these tools
primarily focus on an aggregated view of demand and a static and high-level representation of supply. At best, supply constraints are determined using rough cut capacity planning where only key constraints are included. In some cases, key or constrained materials are considered. Further, timing and interactions of those key constraints are ballpark estimates at best. The true impact and/or feasibility of the plan isn’t actually known until after the S&OP plan is disaggregated down to the MPS.
To have the most effective S&OP process, you need to link ‘cause’ to ‘effect’, which can only be achieved by having a complete representation of your supply chain – from the highest level demand signal (e.g. product family forecast) to the very lowest level raw material component – in one system!
|S&OP in the 21st CenturyAs the S&OP process continues to evolve and mature, a different interpretation and expectation for S&OP is emerging that entails better, broader goals. This recently published eBook elaborates on the evolving horizontal S&OP process capabilities that are required in order to achieve a transformation. Download your own copy here.|