Is Sales and Operations Planning a Digital Age Process?

Stephen DeAngelis

August 14, 2018

According to Niels van Hove (@sctrends), the term Sales and Operations Planning (S&OP) was coined back in 1987. Back then mobile phones looked like bricks, IBM was introducing its Personal System/2 desktop PC, the Simpsons were introduced to television, and Ronald Reagan was urging Mikhail Gorbachev to tear down the Berlin Wall. As van Hove notes, “The times since Sales & Operations planning (S&OP) was born in 1987 as a solution for operational issues are long gone.”[1] He adds, “After existing for over 30 years, the development of S&OP as an end to end business management process method has come to a standstill.” Van Hove argues one reason for this lack of progress is supply chain bias. He explains, “S&OP has been developed as a supply chain capability, not as an end to end business capability.” Emerging technologies can help overcome this supply chain bias and bring S&OP into the Digital Age.

People, Processes, and Technology

Although discussions about the Digital Age necessarily focus on technology, successful businesses have always concentrated on people, processes, AND technology. Henry Canitz, Product Marketing & Business Development Director at Logility, calls these business’ three “Ps” by replacing “technology” with “platform.”[2] He notes, “The formula for business success varies greatly from industry to industry. However, most business leaders believe that when you focus on the right areas and create a winning culture success will follow.”

People. In the area of S&OP, Canitz argues you need to start with the right people. “Having people with not only analytical skills but also people, communication, and negotiation skills is critical for S&OP success,” he writes. “The person who owns the S&OP process must have organization influence, be a strong leader, be able to set an S&OP vision, and be able to manage change to enable that vision. Key S&OP process participants also need to be very familiar with a company’s products, customers, and strategic objectives and goals to be success in their roles.” In other words, a good S&OP process must be an end-to-end business capability.

Processes. Lora Cecere (@lcecere) argues making S&OP an end-to-end business process is harder to accomplish than most people think. “The processes are out of control,” she explains. “As companies transitioned from regional to multi-national organizations, Sales and Operations Planning processes proliferated. Today, the average company has seven S&OP processes, but a global chemical company averages over 30. … The proliferation of S&OP might sound like a good thing; and it could be, but only if the processes are built with the goal in mind. A frequent mistake is letting each business build their own systems without governance. … To maximize the effectiveness of S&OP there is a need for a corporate view of data.”[3] To maximize S&OP process effectiveness, Cecere argues every process needs to incorporate some commonalities. They are:

  • Common Definition of Time Horizons. “The roll-ups are only possible if the time horizon between tactical and operational planning is consistent across the organization.”
  • Cycle Frequency. “The frequency of the plan needs to be common across the organization. If one business has a weekly planning system, and another has a monthly system, good luck!”
  • Metrics Definition. “The organization needs to be clear on the metrics that matter and the alignment of vertical silos’ metrics to the balanced portfolio. There needs to be a common definition of supply chain excellence.”
  • Reporting Structure. “The S&OP process needs to report to a P&L leader.”
  • Flow-Based Architectures. “Many businesses do not operate in isolation. Diagram the flows and understand how businesses within the company interoperate. Build a system to enable these flows.”
  • Financial Reporting. “Forecasting hierarchies need to roll up to define business requirements, and inventory needs to be reported by form and function. All need to be clear on the role of the budget. (The budget is very controversial. I believe that S&OP should inform the budget, but the budget should never constrain S&OP.)”
  • Business Strategy. “The flows need to support a common business strategy. This needs to be common across all businesses.”

Technology. Rich Weissman, an Assistant Professor at Endicott College, argues, “A dose of technology plus supply chain collaboration may be the awakening that is missing to achieve better forecasting.”[4] He notes, “The use of data analytics has had a dramatic impact on business planning and execution for companies choosing a more technological approach to operations.” Since we live in the Digital Age, it should come as no surprise that advanced data analytics can have a significant and positive effect on planning and execution. Madhav Durbha, Vice President of Industry Strategy for Kinaxis, told Weissman, “The use of technology has evolved and is an important component of S&OP. A key foundational capacity of S&OP is the ability to evaluate a range of scenarios and be prepared for what works best.” What works best will likely involve technologies that will transform organizations into digital enterprises. Canitz notes, “Transformation is coming to your supply chain and according to most industry research, most CEOs and executives believe their supply chain will be substantially or unrecognizably transformed by 2020. … I firmly believe that one viable path to more automated and intelligent supply chain operations is through moving up the analytics maturity ladder. There should be no mystery to analytics. Analytics is simply the discipline that applies logic and mathematics to data to provide insights for making better decisions.”[5]

By now it should be clear that S&OP processes can be brought into the Digital Age, but technology alone won’t do the trick. According to Kai Trepte (@treptekai) and Jim Rice, from the MIT Center for Transportation & Logistics, getting S&OP right provides another important benefit — supply chain resilience.[6] “By embedding resilience in operational processes,” they write, “companies will be better prepared to react to disruptions and recover speedily. Our preliminary research suggests the S&OP/IBP process can provide such a platform.” Canitz suggests five ways advanced analytics can be used in the S&OP process to make organizations more resilient. They are:

1) Analysis through Supply Chain Network Simulation. “Simulating the supply chain can often provide unique insights. From a display of the full, end-to-end supply chain or just a segment, you can derive critical information needed to conduct robust analysis.”

2) Analysis through Segmentation. “Numerical and visual segmentation is a powerful application of diagnostic analytics that can provide powerful insights into the operation of your supply chain.”

3) Analysis through Heat Maps. “Heat map displays is another form of diagnostic analytics that enable rich analysis of complex data. At a glance, you are able to discern areas of concern based on color, size or position of a specific grouping of information. For example, a heat map displaying total revenue (represented by the size of the box) and forecast accuracy (represented by the color of the box) by sales region will quickly identify which sales regions that might warrant additional analysis such as those with high volume and low forecast accuracy. The next logical step would be to conduct a root cause analysis to determine exactly what product groups and specific products are causing the high forecast error situation.”

4) Analysis through What-If Scenarios. “One of the most powerful advance analytic techniques is the use of multiple side-by-side ‘what-if’ scenarios to determine an appropriate response to a planned or unplanned supply chain event. To be effective, these scenarios must be easy to set up, intuitive and simple to run and modify.”

5) Analysis through Algorithmic Optimization. “Algorithmic optimization enables some of the most advanced examples of predictive and prescriptive analytics today. Systems provide recommended actions and, if desired, the system can be enabled to automate the optimal decision. Examples of algorithmic optimization used in the supply chain include:

  • Inventory Optimization
  • Advanced Production & Scheduling
  • Supply Optimization
  • Transportation Load and Route Optimization
  • Optimized Selection and Application of Demand Planning Algorithms

Summary

Despite its origins in the 1980s, S&OP can be brought into the Digital Age if emerging technologies are put at the disposal of far-sighted leaders. These leaders must come from all corners of the organization. Analysts at Supply Chain Dive assert, “It’s time to take sales and operations planning out of the back room and shed light on this far too opaque process.”

Footnotes
[1] Niels van Hove, “The rise and fall of S&OP,” Supply Chain Trend, 28 February 2015.
[2] Henry Canitz, “The Three ‘Ps’ of Sales & Operations Planning Success,” Supply Chain Digest, 12 July 2018.
[3] Lora Cecere, “Lassoing S&OP,” Supply Chain Shaman, 2 August 2017.
[4] Rich Weissman, “It’s time to reboot S&OP,” Supply Chain Dive, 10 July 2018.
[5] Henry Canitz, “Enabling S&OP through Advanced Analytics,” Logility Blog, 10 May 2018.
[6] Kai Trepte and Jim Rice, “Is S&OP in Your Resilience Toolbox?Supply Chain @ MIT, 21 June 2018.