An effective S&OP process can have huge benefits for a business. But putting the process in place means involving senior management right across the business and facing up to some harsh realities. Malory Davies reports…
Demand is growing for S&OP services as companies struggle to come to terms with economic uncertainty and consumer fickleness in the Eurozone and BRIC countries.
Hugh Williams, managing director of Hughenden Consulting, points out: “Companies realise that they need to measure the overall business impact of major decisions, like whether and from where to outsource services; where to manufacture goods; how much inventory to hold. So many companies have been making decisions like these in silos and they have turned out to be false economies. Sound S&OP helps companies avoid making costly mistakes.”
Liam Harrington, partner at Oliver Wight, points out that the benefits that come from using analytics effectively are considerable: “Research proves that organisations using a high level of analytics are twice as likely to be top financial performers, because their decision-making is three times more effective, and they make decisions five times faster.”
Steve Lykken, vice president, cust-omer solutions at E2open, takes up the point arguing: “Although the focus on S&OP isn’t all that new, it continues to be a critical coordination effort within companies, and it now has increasing participation between companies, as they incorporate input from customers and suppliers.
“S&OP is evolving to not just the domains of forecasting and demand planning but also more to realistic supply visibility enabled by collaboration. Better information about feasibility and constraints is creating a more accurate picture of supply that improves upon the consensus forecasts of the past.
“As a result, company business plans are becoming more executable and predictable, which is a critical enabler to quickly adjusting plans in the future, following those inevitable unplanned events that occur between cycles,” says Lykken.
The critical moment in the process is right at the beginning, according to Harrington.
“S&OP is a process to run a business not just a supply chain,” he says pointing out that all too often it is seen as a purely supply chain process – so the supply chain people go ahead and do it.
Oliver Wight prefers the concept of Integrated Business Planning to S&OP, arguing that this brings a truly strategic perspective, integrating diverse processes in the extended supply chain, product and customer portfolios, customer demand and strategic planning – into one seamless management process.
Harrington highlights the importance of getting sales and marketing people on-board – not just supply chain people – and ensuring they are committed to the way of working.
That’s important, he says, because you have to truly believe the numbers and make decisions based on what they are telling you.
He argues that if you don’t have confidence in the numbers there is a temptation to not believe them and bypass them in the decision making process.
Oliver Wight believes this is an education issue and executives need to be educated in what S&OP really is, says Harrington, pointing out that often executives think they are speaking a common language when they are not.
The first issue is to get that common understanding – and get executives’ commitment. The rest is relatively straightforward, he says.
“You need people always to be open and honest and tell the truth. That is very difficult.”
He highlights the fact that we all have a tendency to want to “adjust” the numbers to give a more acceptable answer, and that in turn can put pressure on others. Nevertheless, he says, for an effective S&OP process you need to “face up to the brutal reality”.
A company starting on an S&OP project now first needs to engage and educate the executive team about what the process is. You don’t make any decisions until got that common understanding, he says. Everything else then falls into place. Companies that have been through that journey get good analytics and modelling, he says.
Williams agrees: “The biggest challenge is getting people engaged. This has nothing to with processes or technology, but getting people to understanding the true meaning of S&OP and why it’s important. S&OP requires a huge amount of discipline and big-picture thinking, which is usually anathema to commercial people who are conditioned only to reach sales targets. S&OP will only appeal to people if they genuinely see its value, understand their role in it and are rewarded appropriately. This depends on top-down leadership and often, culture change.”
Lykken highlights the importance of getting good data, understanding the feasibility of the supply chain, analysing information quickly, and being able to model impacts to a supply chain. “In particular, it’s difficult to test the impact of S&OP on your supply chain” he says.
Julian Mosquera, director at LCP Consulting points out that the structure is critical, as it is important to establish the correct sequence and level of detail the business needs to work at to leverage the clear benefits delivered from good planning and S&OP.
“Process design is also important and this must be sufficiently detailed to enable the two key roles of demand and supply managers to orchestrate the process and all of the players and stakeholders.
“To effectively transform an S&OP process, organisation is also required as restructuring of organisational roles and reporting lines will need to take place to ensure S&OP has a prominent and influential positioning, to be able to effect change and direct decision making.
“Finally, competencies are essential, as it is all well and good designing a process, but if the staff in key roles don’t understand the technical aspects of what they are doing, or have the planning acumen and social skills to manage the process, then it will never be as successful as it promises to be. For this reason the S&OP team, is usually a relatively tight group, and often centralised (with regional representation where appropriate),” says Mosquera.
Getting clean, current and accurate data is core to a successful S&OP implementation. “First of all you need to make people care about it because it’s a pretty dull subject,” says Williams. “Why should they care? Because if you start with bad data, all your plans will be inaccurate! However it’s not just about being able to spot flawed data. This is normally pretty easily done by exploring data sets and seeing where the gaps are. Where it goes wrong is when people introduce guesswork into the planning process, arbitrarily entering numbers like inventory levels or demand levels without any data to back them up. There is no way to spot something like that and it can completely throw off your plans. Putting nothing in is better than taking a wild, inaccurate guess.”
Lykken says: “You have to reliably enable the connectivity of the data to get complete and accurate information, and then validate the data to have the confidence to use this information in your plan. If you don’t have a strong data integration and validation set of tools, then you probably don’t have a good foundation for your S&OP plan.”
A key enabler is the ability to run the S&OP process with the minimum effort and in a predictable and timely manner, says Mosquera.
“Consistency of reporting is therefore critical, as is the speed and availability of report generation. The focus has to be on enabling managers the time and focus to manage – so giving them the necessary information and time to investigate whatever they need to to direct their teams or investigate solutions to emerging problems.
“Separately, it is my personal view that with today’s technology there is no excuse to not build this process from the detailed level i.e. SKU. Summarising and reporting at the appropriate level for management, but with drill down capability to get to the detail where action can be taken,” he says.
Spreadsheets will only get you so far, argues Williams. “Those involved in planning need systems that can handle the grunt work so that they’re freed up to make the decisions. The key point is that technology should enable S&OP, but not be viewed as the whole solution. Companies that invest in technology and processes, without engaging people are throwing money out the window.”
And he points out that those companies that have successfully implemented S&OP and have it as their ‘way of working’ “would easily recognise that it’s 70 per cent about people, 20 per cent about process and only 10 per cent about technology. I would urge companies to make the brave decision to make S&OP investments in that proportion, instead of the traditional, reverse way.”
Ultimately, says Harrington, to establish a viable modelling process, it is vital for organisations to first model the current situation, using real data and known performance, so they can test the model and be sure it works. “Then they can model new ‘real world’ scenarios and optimise to find the most pragmatic option for the future – based on real parameters rather than assumptions,” he says.