There is good reason for the current spotlight on sales and operations planning (S&OP). Analyst house AMR Research has shown consistently that those businesses which fully embrace S&OP continually outperform those who do not, and ‘that S&OP maturity goes hand-in-hand with supply chain excellence’.
However it is also clear that a number of S&OP implementations have not gone to plan and as a result, many organisations now approach the technology with some trepidation. What can businesses learn from recent history to ensure their implementation is a success?
It is possible to chart a spectrum of S&OP sophistication - ranging from the implementation of simple demand planning to totally integrated business planning - often called ‘strategic’ S&OP. Along this continuum there are many lessons that can improve the chances of success.A wise man will make more opportunities than he finds - demand planning
Implementing a demand planning solution is often the first step many businesses take on the road to arriving at S&OP (whether the business leaders consciously aim to, or not). Moving from the flat, retrospective use of Excel spreadsheets, a demand planning solution usually delivers quick tactical benefits by enhancing the visibility of demand.
This improvement in visibility can differ. In the case of Hallmark Cards, use of Infor SCM Demand Planning delivers a clearer, single company-wide view of forecasted demand from which inventory and production is planned. Alternatively, automotive parts manufacturer JAE, uses the same solution to increase demand visibility from weeks to months, seeing further ahead into the future.
Demand planning delivers quick operational improvements, usually by reducing inventory and better aligning that which is left with customer demand. This represents a clear reduction in the risk faced by the business as less cash is tied up in stock, and fewer resources such as warehouse space are required for that which remains.
Lastly, demand planning can improve customer service. Safety clothing distributor Arco realised better performance from its selling partners by forecasting demand more accurately and making the necessary improvements to customer service to capitalise on this.
However, at such an early stage in S&OP development, these improvements remain limited. Critically there is no move to proactively shape and manage demand as a business input - for example by the use of promotions. As such the benefits tend to stay within the supply-side of the business and ultimately planning remains reactive.Nine tenths of being wise is being wise in time - ‘Classic’ S&OP
Moving beyond the confines of the operations department and involving sales and marketing, demand planning begins to evolve into the next ‘classic’ level of S&OP. By not only aligning output and manufacturing activities to the current or planned levels of sales, but also influencing that demand, the benefits delivered to the business increase.
For example, as part of its S&OP development, AB World Foods found that the sales and marketing teams were ‘out of step with the supply chain department’. By integrating demand planning with stock plans and sales forecasts, AB World Foods significantly improved sales and risk Storyreporting. Additionally, this helped integrate the two teams and improved communications.
For AB World Foods, classic S&OP has become a key tool in ensuring consistency and economies of scale across many different brands. Again, customer service has also improved as delivering consistency across the teams has helped to improve service levels from 91 per cent to 96 per cent towards a target of 98.5 per cent.
However, this take on classic S&OP also has limitations. The lack of finance integration means there is no precise insight into the potential financial impact of the changes being made. Whilst it moves towards a more customer-centric view, it fails to account for other external parties such as suppliers, partners and competitors. Classic S&OP has only a narrow scope for collaboration throughout the supply chain and prevents any comprehensive orchestration of demand. To overcome these barriers we must look to strategic S&OP.The art of being wise is the art of knowing what to overlook –
Achieving the fully integrated business planning that defines strategic S&OP drives an entire business. The Association for Operations Management defines this level of S&OP as: ‘The function of setting the overall level of manufacturing output and other activities to best satisfy the current planned levels of sales (sales plan and/or forecasts), while meeting general business objectives of profitability, productivity, competitive customer lead times, etc...It must extend through a planning horizon sufficient to plan the labour, equipment, facilities, material, and finances required to accomplish the production plan.’
With this level of maturity comes complexity. Firstly, the sheer amount of data required for an effective S&OP strategy can become a problem. In his introduction to S&OP, Dr Larry Lapide of the Center for Transportation and Logistics at MIT outlines that a typical Fortune 500 manufacturer, looking to develop weekly S&OP plans six to 18 months in advance, will have to account for around ten million planning elements. That is a huge amount of data.
As a result it is important to look at gathering ‘more information but less data’. The difference (in this definition) is that information is clean, accurate and relevant to the issue you are attempting to address. Chasing ever increasing amounts of data is at best a dangerous distraction.
Many of these issues will originate from outside of the company. Indeed most events that will have a profound, negative impact on sales and operations strategy are those outsideof a businesses control. These are due to the decisions and actions of customers, partners, and competitors.
As a result, strategic S&OP has two hallmarks. Firstly it must be comprehensive, accounting for the impact of a wide range of groups. Secondly the strategy is frequently revisited and updated to track and monitor the effect of these changes. Larry notes that this process is usually driven by a framework of three meetings: “The first is focused on establishing an unconstrained demand plan and forecast, and this is followed by a second meeting to establish a draft or rough-cut supply plan and a constrained demand plan. These are followed by a third meeting to fine tune and finalise the alignment of the demand and supply plans.”
These meetings from the first of a series of factors that define successful, strategic sales and operations planning:
- Ongoing, routine S&OP meetings with structured agendas
- Pre-work to support meeting inputs
- Cross-functional participation with participants empowered to make decisions
- An unbiased, responsible organisation to run a disciplined process
- Internal collaborative process leading to consensus and accountability
- An unbiased baseline forecast to start the process
- Joint supply and demand planning to ensure balance
- Measurement of the process
- Supported by integrated supply-demand planning technology
- External inputs to the process
To this list we can add the lessons of demand planning and classic S&OP implementations. S&OP is not a point solution, or a piece of software, which can deliver a silver bullet in isolation. The software and strategy require substantial process refinement in order to deliver full benefit.
When these processes are in place, the technology must link all relevant organisational departments - supporting individual processes is not enough. That means that ERP, transactional and legacy solutions across both supply and demand-side planning capabilities must feed into the S&OP workbench or dashboard. Missing out any one of these areas will result in a fragmented approach and compromise ROI.
Just as the technology must span departments, full, strategic S&OP demands input and buy in from everyone in the business. The processes handled by this technology and driven by this group must align demand and supply both internally and externally. As a result it must include external collaboration with most customers and suppliers (and again the technology must enable this).
In following these points businesses are learning from the lessons (and mistakes) of others. This can not only boost the ROI from an investment in S&OP but also reduce the overall exposure to risk, without painfully experiencing such lessons first hand.John Pulling
John Pulling is vice president, Supply Chain & Distribution Solutions Infor. Prior to joining Infor in 2005, he was vice president and chief operating officer at Provia Software. John studied Mechanical Engineering at the University of Waterloo.Infor
Infor is a leading provider of business software and services, helping 70,000 customers in 125 countries improve operations and drive growth. To learn more about Infor, please visit: www.infor.com