Part 1 of this blog post series talked about my attendance at the APICS 2009 International Conference in Toronto (Canada) in early October. I attended only a few education sessions, as my visit focused more on exploring the expo floor and talking to the exhibitors.
My overwhelming impression from the conference’s expo floor was that the main value propositions this year revolved around the flavors of demand management, most notably sales and operations Planning (S&OP). This made me think about the reasons for the concept’s (and accompanying software solutions’) renaissance in light of its existence of a few decades.
The Traditional S&OP Shortcomings
Until recently S&OP has had a purely tactical and reactive near-term focus, and was therefore disconnected from overall business strategy, which can result in many missed opportunities. Moreover, many laggard companies still have an unstructured and fragmented S&OP process, whereby each department tends to have a spreadsheet-driven process with critical company data stored on dangerously unmanageable (and unsynchronized) spreadsheet documents.
Too often, while the business unit teams involved in creating S&OP plans are executing according to one set of numbers, corporate and financial management offices may be setting, expecting, and communicating a completely different set of financial plans and projections to the board of directors and other key stakeholders. Plan inputs typically reside in multiple sources and formats, challenging unified and timely visibility and the rapid synchronization of plan adjustments.
Disparate plans that do not incorporate key functional and trading partner insights can create a credibility gap for any company and its key executives when performance falls short and customers are left unsatisfied. But even when there is the awareness of aligning plans, it then requires a non value-added manual effort. Namely, corporations spend more time and effort collecting and aggregating data than on planning or making decisions.
When departmental plans are not aligned, there is also a misalignment between how departments are measured against the overall company objectives. For example, sales management is often measured by whether a sales quota is met, even if the sales team is selling products that the supply chain is unable to produce.
This misalignment tends to lead to a very time-consuming and manual process of trying to come to an agreement on what “the forecast” should be. This painful consensus-making process typically yields an inaccurate forecast in the end. This forecast is then “tossed over the wall” to supply chain operations to figure out how to expedite production(”extinguish another fire”) to meet the demand, with no thought to the profitability of the decisions.
This predicament is often further compounded by the aforementioned situation where “approved” plans are only a spreadsheet filed somewhere, while the actual plans being executed are customarily quite different.
To recap, reactive S&OP has no connection between departmental plans, and the overall strategic plan is not tied to execution. Other typical shortcomings are as follows:
A Better Deal: Real-time, Continuously Monitored, and Collaborative S&OP
Now let me talk about what a best-in-class S&OP process should entail. The cycle should start with moving away from a reactive periodic process (with separate and disconnected reviews of demand, supply, available products, and financial projections) to a combined collaborative real-time process where key decision makers are in control and work with a single version of the truth. In this approach, where all planning processes must happen collaboratively and iteratively, decisions are driven directly to execution, and processes are continuously monitored and controlled.
Real-time decision-making can be achieved by providing key managers with instant “live” access to S&OP information. One example of an enabling tool would be a self-service S&OP executive review dashboard. It is important that active plan amendments and changes can be pushed back into the underlying data-supplying operational planning systems for subsequent drill-down, execution via automation, or integration, and they should have full audit trail capabilities.
Moreover, what-if analysis capabilities should enable key managers to determine what alternative S&OP scenarios need to be evaluated by assigning activities to planners. An important characteristic of the S&OP process is the development of alternative plans and scenarios and the subsequent collaborative discussion, evaluation, and management approval of these scenarios.
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 benefit from BPM tools. Creating an overall plan, then 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, such as demand forecasting, pricing analysis, competitive research, and root cause analysis (RCA). 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.
It’s About Profits, Stupid!
The aforementioned enabling traits of these S&OP tools facilitate the move from a periodic reactive process to a real-time iterative and proactive process that profitably balances demand, supply, and budgets. In other words, the objectives are to improve revenue and profits via sensing and shaping demand, and not to simply match supply and demand.
Without the ability to understand the impact of demand, supply, and product mix decisions on revenue and profit margins, planning accuracy remains limited. The ability to weigh actions that can change demand to match available supply enables companies to optimize their decision-making process.
The what-if scenario analysis and demand shaping capabilities of S&OP software packages allow companies to run scenarios for different demand and supply profiles, as well as “what-if” alternatives related to strategic, operational, and tactical events. Each hypothetical scenario may be evaluated by its financial impact, and then incorporated into the monitoring of the overall business plan.
For its part, demand shaping is a mechanism that allows a company to introduce actions that change demand to match its available supply, including price changes and promotions. Scenario analysis and demand shaping also play an important role in deriving plans for S&OP process playbooks. Scenarios are run with different demand and supply profiles, and their impact on the company’s financials are evaluated.
As part of the longer-term balancing of supply and demand within the S&OP solution, some basic constraint-based optimization capabilities are needed to support the evaluation of feasible, longer-term product family plans, without having to dive back into the details of the operational planning applications. Another key requirement of an S&OP solution is the ability to manage the assumptions that underpin the plans. A critical agenda item for S&OP review meetings is the validation and updating of these assumptions, risks, and opportunities.
The Role of Integration and MDM
Due to the diversity of data sources, integration and data management of the necessary operational planning applications and processes, such as demand planning, inventory planning, replenishment, manufacturing planning, marketing planning, new product development (NPD) planning, etc. are also critical. The integration capability may also include the ability to perform the master data management (MDM) and transformations necessary to support harmonization across a heterogeneous operational planning system landscape.
S&OP processes within supply networks require significant time for data gathering and management. The data collation process becomes much more problematic in global corporations. Different data formats, levels of aggregation, varying information systems among regions, and integration of data from trading partners outside the enterprise all create significant challenges.
Companies today require a comprehensive MDM strategy and the capabilities to reduce the inordinate time and effort associated with data collation to support the global S&OM process. MDM acts as a metadata management layer that provides mappings and common data definitions for various dimensions of data, including organizational units, product lines, and geography. This approach allows different regions and supply network members to map their data elements to each other, and enables proper demand and supply roll-up, roll-down, aggregation, disaggregation, and allocation.
Thus, most often S&OP software offering comes as a composite application overlay that has its own database and can sit over many underlying applications. Traditional supply chain planning (SCP) vendors, such as i2 Technologies, Logility, and JDA Software, are offering SCP-based S&OP overlay solutions.
For their part, enterprise resource planning (ERP) suite vendors, such as Oracle, Infor, and SAP, have been integrating separate modules of functionality to form composite S&OP solutions. A third category would be stand-alone S&OP vendors (such as Steelwedge Software or River Logic) that are providing discrete S&OP solutions, some even as on-demand software.
The S&OP Best Practices and Capabilities: Redux
Fred Baumann, JDA’s VP and Solutions Expert, in his article entitled “Next-Generation S&OP: Tracking the Evolution from Tactical to Strategic” and published in the JDA Real Results Magazine, January 2009, outlined a number of S&OP best practices. Industry-leading firms have been implementing the following capabilities to pave the way to the new paradigm of integrated business planning (IBP) that was introduced in Part 1:
The Top Three S&OP Providers, According to Aberdeen
Nari Viswanathan, Aberdeen Group’s VP and principal SCM analyst, who gave a keynote address at the APICS 2009 conference (mentioned in Part 1), also recently co-authored the S&OP AXIS Report (subscription required). Aberdeen’s S&OP AXIS report praises i2 Technologies, Oracle, and Demand Solutions as the vendors that are leading this software category.
In summary, i2 is the leader because of its long history in implementing S&OP-enabling tools like demand planning and SCP. The same holds true for Oracle subsequent to its Demantra acquisition. Finally, Demand Solutions [evaluate this product], a child company of Logility, stands out because of its indisputable strength in the mid-size sector.
i2 has long been supporting elements of the S&OP process through the multiplicity of its SCP applications over may years. Leveraging its Agile Business Process Platform and MDM capabilities, i2 has been offering a flavor of S&OP solution called Sales and Operations Management (S&OM). The use of an integrated Microsoft Excel front end, workflow and BPM tools, some financial impact analysis, and the ability to write back changes to the aggregate plans made within S&OM to the underlying planning systems makes this S&OP solution stand out.
The vendor explains that S&OM differs from S&OP by also focusing on plan achievement through the plan-do-check-act (PDCA) paradigm of closed-loop management. The “plan” and “do” phases encompass the traditional planning and execution processes of S&OP, as well as additional SCP functions, which create, operationalize, and execute business plans. In the “check” phase, feedback is continuously collected and analyzed.
Finally, in the “act” phase, adjustments are made on an ongoing basis to ensure that all planning is maintained and executed accordingly through the use of process playbooks. Process playbooks are formalized decision trees for major events that provide a planned, repeatable process to evaluate the deviation of execution from the plan and provide action items to reduce or eliminate the deviation.
The Oracle-Demantra Factor
The foundation of Oracle’s S&OP capability is Oracle’s Demantra Real-Time Sales and Operations Planning solution that Oracle acquired as part of the Demantra acquisition in 2006. This acquisition provided best-of-breed demand planning functionality, which now forms the foundation demand planning solution for Oracle’s Value Chain Planning application suite.
Overall, Oracle has significant SCP applications presence and savvy, including supply planning, demand planning, inventory optimization (IO), available-to-promise (ATP), trade and promotions management, and strategic network optimization (SNO), coming from a long-forgotten acquisition of Numetrix by former J.D. Edwards in 1999.
Therefore, Oracle can deliver a complete IBP solution ranging from shop-floor scheduling to strategic financial planning. Optionally, customers can select individual pieces, such as Oracle Hyperion Planning and Oracle’s Real-Time Sales and Operations Planning to supervise their current supply planning and demand planning systems.
Given the importance of top executives’ buy-in (mentioned in Part 1), top executives can directly control the decision making process within Oracle Advanced Planning Command Center. This product provides the ability to compare alternative business scenarios, which enables executives to define the business planning action plan, for which they can assign tasks (activities) to mid-level managers and planners for execution.
Executives and managers can also track assumptions and attach supporting documents to the scenarios that need to be implemented, such as the results of a financial analysis or external market data and industry reports. The system has the ability to automatically translate detailed planning information to corporate metrics so as to drive both tactical and execution decisions, and continuously monitor performance to get real-time visibility of deviations.
The general idea is to engage managers and empower planners by driving planning from KPIs and providing aggregate forward-looking information for decision-making. Oracle, i2 S&OM, Logility Voyager, JDA, and Demand Solutions can provide aggregate metrics for managers, detailed analysis for planners, and what-if scenario management for planning requirements.
A Number of Challengers Are Still Out There
Of course there are a lot of pure-play providers like Steelwedge, Jonova, River Logic, etc., that don’t yet have a strong base of customers for Aberdeen to use its quantitative approach to score them higher in the AXIS report. In fact, how do vendors prove to customers that “our S&OP is better than the others” in general? More specifically, what differentiates a specific provider from the S&OP pack, given the abundance of providers?
Namely, in addition to the solutions mentioned thus far (including those mentioned in Part 1), below is a comprehensive list of S&OP providers in alphabetical order:
Glen Margolis, Steelwedge Software’s chief executive officer (CEO) and founder, said:
Steelwedge is the only dedicated provider of S&OP solutions, the only vendor offering a purpose-built Cloud Computing-based S&OP solution, and the only vendor that is able to quickly deploy and engage users in a globally collaborative S&OP solution that reaches beyond a company’s firewall to engage users. Our ability to enable global, complex manufacturing organizations to benefit from S&OP in an extremely short term period is also unique. The fact that General Electric (GE), Hewlett Packard (HP), Honeywell, Emerson Electric, Sara Lee and many other leading global brands have selected Steelwedge speaks for itself.
John Bermudez, Senior Director of Oracle’s SCM Product Strategy, said:
The proof is having successful S&OP implementations at your customers that are sustainable over the long term. Oracle has a number of successful S&OP solution implementations across many industries. Many S&OP efforts are like diets, they work for a while and then companies fall back to old processes. By building S&OP support into our SCP applications, Oracle helps companies to adopt better processes as part of their daily/weekly planning routine.
Another key differentiator for Oracle is our Demantra Demand Management that enables companies to implement a global demand planning process that senses local demand changes, generates a much more accurate forecast, and supports a cross-functional consensus planning process that forms the foundation of a superior sales and operations planning process. To complement this consensus planning capability, Oracle also provides integrated what-if simulation analysis tools that enable planners to quickly resolve supply/demand issues and then immediately push this new plan into the ERP system for execution.
Part 3 of this blog post series will analyze the key success factors of deploying S&OP solutions and approaches. The article will also go further into what has lately changed to enable a revival of customer interest in the concept.
Your views, comments, opinions, etc. about S&OP and about the overall demand management software category per se are welcome in the meantime. We would also be interested in hearing about your experiences with this software category (if you are an existing user) or your general interest in evaluating these solutions as prospective customers.