My recent exhaustive series of articles on sales & operations planning (S&OP) entitled “APICS 2009 From the Expo Floor: Is S&OP Coming of Age?” and the related blog post entitled “Linking S&OP and CPFR (For Retailers and Manufacturers Sake): An Executive Panel Discussion” have drawn solid interest and valuable feedback. But even more, this prolonged exposure on the S&OP topic has resulted with an offer from Kinaxis to join the guest interview series on the Kinaxis blog on the same topic.
Prior to my participation, Kinaxis had published nearly a dozen blog posts from a series of expert guests (i.e., “a who’s who in S&OP”) including Lora Cecere of Altimeter Group, Coco Crum of Oliver Wight, Tom Wallace of TF Wallace & Co., Simon Ellis of IDC, Nari Viswanathan of Aberdeen, Steve Puricelli of Accenture, Bob Ferrari of the Supply Chain Matters blog, and Atul Pandey of Infosys, to name only a few. You can see all the posts here.
In addition to the honor of inclusion among the abovementioned luminaries, what attracted me was my realization that the entire series was meant to be thought-leadership — there are no references or endorsements of any vendors (the host vendor Kinaxis included). While I was honored to close the series with my post, the down side was in my concern that I might not have much to add to this conversation after all these experts had voiced their kernels of wisdom. I will leave up to you to judge how successful my post was here.
Vendors Have Experts Too
But the simple fact is that analysts, pundits, and consultants are not the only S&OP experts in the market. Thus, it occurred to me to pose similar questions to vendor staffers, and give them the opportunity to voice their opinions and establish their expertise as well.
One of the first persons that came to my mind was Karin Bursa, the longstanding Vice President (VP) of Marketing at Logility, given that her valuable input was already featured in my aforementioned articles. For more information on Logility and its subsidiary company Demand Solutions (that runs fairly autonomously), see my previous series of articles.
My questions and Bursa’s answers are as follows:
PJ: What do you believe is behind the surge of interest and activity around S&OP? What are the anticipated benefits?
KB: S&OP gives companies the ability to tie strategic corporate goals and initiatives to specific operational activities and tactics. The result is greater visibility across the supply (value) chain network, higher accountability at all levels of the organization, and better decision-making with the ability to evaluate multiple scenarios.
The benefits are significant and will boost visibility and collaboration across the organization. In addition to better communication between departments, most businesses see increased forecast accuracy, reductions in inventory, higher revenue as a result of better in-stock positions, and overall improved production utilization. Increased revenue, lower inventory, and better service performance all add up to higher margins.
PJ: Do you think the definition of S&OP is clear in the marketplace? If not, is that a problem? How do you personally define S&OP?
KB: There are many in the industry that are trying to “add another letter” to the process to attempt differentiation. Some are adding “I” for SIOP to indicate “inventory” alignment is a critical component. Others are appending an “E” for e-S&OP to indicate “executive” level participation. I contend that it’s impossible to have an effective S&OP process without considering inventory, engaging the executive team or aligning with the company’s financial plan.
After all, S&OP is about leveraging company assets and ingenuity to serve customers and drive profits. The outcomes are greater visibility, accountability and flexibility.
- Balance and synchronize operational plans to achieve corporate objectives
- Profitably match supply and demand
- Profitability, market share, customer service
- Create consistent accountability and commitment to a cohesive plan
- Meet customer service targets
- Minimize promotions that unprofitably disrupt manufacturing and supply-side processes
- Adapt quickly to dynamic market conditions
- Increase the success of new product introductions and new market initiatives
- Optimize costs and investments
PJ: 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?
KB: Whether you call it S&OP or not, your executive team is making decisions that would be better if they had the valuable information that comes from a well-synchronized S&OP process. The C-level is constantly balancing where investments are prioritized and risks are taken.
Regardless of what stage a company may be at, access to reliable, real-time information is a necessity for an effective S&OP process the executive leadership will trust and move forward with.
PJ: Many are advocating the evolution of S&OP to Integrated Business Planning (IBP)? Are you a proponent of IBP per se? Tying the financial plan/measures directly into the process is a key component of IBP, what else distinguishes IBP from S&OP?
KB: The financial plan – or rather the investment and profitability plan – must be part of any S&OP initiative. Remember, inventory and time-to-market have monetary value assignments. So, if for “political reasons” you need a term other than S&OP, Integrated Business Planning is fine.
PJ: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
KB: Sure, but why put your team through the non-value added activities of data aggregation and time-phased alignment in Microsoft Excel spreadsheets. S&OP involves evaluating multiple market scenarios and the ability to “pull” several levers across the business in the areas of pricing, promotion, products, manufacturing, etc. Do you really want to take an optimized inventory plan and dump the data into the chaos of an Excel spreadsheet? How will you evaluate multiple “what if” scenarios and compare the anticipated outcomes?
PJ: 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?
KB: For longer range planning family level aggregation is effective. You also need the visibility to look at both volumetric and financial analysis by target market and/or channel. When the S&OP plan executes “as expected” there’s no reason for looking at more granularity. However, when exceptions occur, you need the flexibility to drill down and evaluate if the problem is with the entire product family or only a select set of items.
PJ: If you had to name three priorities for a company looking to evolve their S&OP process, what would they be?
KB: It is hard to narrow it down to just three priorities and you can always use the consultants’ caveat “it depends”, but here are three to consider:
- S&OP will only be successful if it’s a top-down business process. One of the goals is to give the executive management team the information they need to make the best possible decisions for the business. It’s hard to push that upwards from an analyst position in the business.
- Tie the S&OP plan to a small set of specific quantifiable metrics that really matter to the company and monitor the plan based on the tolerance zone around these metrics. That means you need the ability to alert the S&OP cross-functional team when there’s an issue. So, leverage that increased visibility to proactively resolve any issues…don’t wait for the next S&OP session to take action. Hand in hand with this is the need for a set of shared metrics across the S&OP team – everyone should have some skin in the game. Without visibility into forecast accuracy, your sales team will present a plan that allows them to ship any product on any day. If they aren’t concerned with profitability, they’ll want as much inventory as the warehouse will hold. Likewise, if the manufacturing team isn’t tied to inventory turns they’ll want to produce as much product as they can efficiently manufacture to leverage their “uptime” and reduce changeovers.
- Your plan is only as good as the data you use. Access to reliable, accurate information from your Supply Chain systems, such as forecasts at multiple levels of detail, inventory targets based on multi-level inventory optimization and available capacity to allow executives to shape demand, is critical and without it, your S&OP process will veer off track. Once data errors start to appear, the S&OP team will lose confidence in the process and executive buy-in will become more difficult.