S&OP: Supply Chain’s Foot in the Boardroom Door
April 14, 2011
Nari Viswanathan, Vice President and principal analyst at Aberdeen Group, asserts, “The chief supply chain officer’s (CSCO) role provides a way for the supply chain to earn a place in the board room and drive strategic decision making.” [“The Priority of the Chief Supply Chain Officer Is Strategic Supply Chain Planning,” Supply Chain Brain, 11 February 2011]. It’s almost mind-boggling to think that executives dealing with supply chain processes must still shoulder their way into meetings at the highest levels of corporate decision-making. I believe it’s a truism that “companies don’t compete — only supply chains do.” That is why I remain flummoxed to learn that some supply chain professionals aren’t getting their just recognition. In a previous two-part series on Sales & Operations Planning (S&OP) [Some Thoughts Concerning Sales & Operations Planning, Part 1 and Part 2], I referred to a post by supply chain analyst Lora Cecere, who wrote:
“Over the past six years, I have spoken to over 150 companies on Sales and Operations Planning (S&OP). When I started this research, less than 10% of companies had a well-defined S&OP organization and a focus on S&OP excellence. This has changed. Today, three out of five projects for Supply Chain Planning (SCP) software are driven by a person with a S&OP-specific title.”
Viswanathan sees supply chain planning as the opportunity that opens doors for supply chain professionals. He writes:
“Supply chain planning is an important approach for CSCOs to create value for their enterprise. In fact, 86 percent of respondents [in a recent Aberdeen study] indicate that their management team has asked them to review the supply chain process in order to find opportunities to improve their company’s supply chain planning processes, and 71 percent of respondents have indicated the same for supply chain technology improvement.”
Viswanathan and Cecere seem to disagree about what role (or, at least, job title) is most important for a supply chain professional to fill. Cecere seems to favor Supply Chain Planner while Viswanathan seems to favor Chief Supply Chain Officer. In this name game, Cecere seems to be winning. As noted above, she indicates that about 60 percent of the companies with which she consults have “a person with a S&OP-specific title.” On the other hand, Viswanathan reports, “Sixty-four percent of respondents indicate that they don’t have a chief supply chain officer role in their organization.” I suspect the reason that Viswanathan favors the CSCO title is that, by definition, it gets the individual into C-level discussions.
Karin L. Bursa, Vice President of Marketing at Logility, agrees that Viswanathan and Cecere are on target for concentrating first on the “people” aspect of S&OP. [“A Foundation for Successful S&OP,” Supply Chain Digest, 10 February 2011]. She writes:
“Although technology is an important enabler for S&OP, technology alone is not the answer to building a successful program. In a 2009 AMR Research report, Lora Cecere highlighted this fact when she wrote, ‘Successful S&OP projects focus 50% of their efforts on change management, 40% on process alignment, and 10% on the implementation of technology.’ This trio of people, process and technology, is the foundation for success. This foundation will provide needed structure along with the flexibility to evaluate and respond to a variety of business challenges and opportunities. Critical to the success of any initiative is the people behind it. You need to ensure you have the right people for the job. Just as important, you must empower them. Provide each person with the authority to make decisions and drive confidence across the enterprise.”
In another article, Viswanathan provides support for Cecere’s position that having a strong person in charge of S&OP is important. [“S&OP Is Key Enabler for Managing Complexity within Global Supply Chains,” Supply Chain Brain, 25 February 2011]. He writes:
“S&OP is no longer a supply-chain-driven process – it is purely a business level process. The sales and marketing organizations, with their responsibility for revenue generation and business expansion opportunities, also play a key role. Where revenue growth and expansion opportunities are scarce, senior management is looking to sales and marketing to enhance margins and prevent share erosion, at the very least. These objectives are tied both to extended supply chain costs/efficiencies and new product infusion.”
Although Viswanathan asserts that “S&OP is no longer a supply-chain-driven process,” he nevertheless continues to believe that the person over the process should be the CSCO. He writes:
“Sales and operations planning (S&OP) is the key integrated process that the supply chain organization (specifically the chief supply chain officer) can leverage to achieve visibility and transformation across the entire organization and throughout the value chain.”
One of the reasons that supply chain professionals have had a difficult time finding a seat at the head table is because traditional siloed corporate structures didn’t know how to fit in an executive over a process better suited to an integrated corporate structure (in other words, the supply chain doesn’t neatly fit into a silo). Fortunately, that seems to be changing. Nowadays you hear all sorts of business executives talking about integrated corporate structures and globally integrated enterprises. Trevor Miles writes, “Because S&OP is a cross functional business process, it is natural that getting alignment is one of the most difficult, but most valuable, outcomes of S&OP.” [“Dilbert Explains the Value of S&OP,” The 21st Century Supply Chain, 3 March 2011] He goes on to note that “often, collaboration will result in alignment, but if the trust level is very low, you may need to address alignment first.” That is why a good S&OP process begins with getting the “people” part of it right. To demonstrate why trust is often missing in a corporate setting, Miles turn to the Dilbert cartoon shown below (click to enlarge).
Metrics used to judge the performance of corporate departments often create the tension that leads to mistrust and lack of collaboration. About that subject, Miles writes:
“Tom Wallace in a recent blog titled ‘Cross-functional collaboration is not a pre-requisite for successful S&OP: it’s a result‘ states that:
Improved teamwork is a natural by-product of S&OP. I tell people that if they’ve implemented S&OP and have not seen an improvement in teamwork, they didn’t do it right. It’s that simple. Enhanced teamwork follows successful S&OP just as day follows night.
“Of course it isn’t that everyone is a liar as in the Dilbert cartoon, but rather that frequently the objectives and performance measures of individual functions are not aligned, preventing what Tom Wallace calls teamwork. All too often the VP of Operations is measured on asset utilization and the VP of Sales is measured on revenue or margin increase. These are often in conflict because satisfying the most demand often means doing so ineffectively from an asset utilization perspective, especially inventory. Conversely, the most efficient asset utilization often does not lead to the most effective demand capture because the tendency is to have long production runs to reduce change-overs, leading to high inventory levels and a product mix that may not match market demand. But we have to get beyond having meetings at which conflicts are discussed, to a process in which different functions can explore alternative what-if scenarios collaboratively. They need to have immediate feedback on the effect their decisions have not only on their own metrics, but also on the corporate metrics and other functions’ metrics. When people can compare what-if scenarios side-by-side and understand the broader consequences of their decisions they will often behave in a less parochial manner.”
I agree with Miles assertion that one of the side benefits of a good S&OP process is that it helps break down the silos that plague many corporate structures. For more on that subject, read my posts entitled The Curse of Silo Thinking, Breaking Down Silos, and Silos in the Supply Chain. When you get it right, like Newell Rubbermaid has done, good things happen [“Newell Rubbermaid Optimizes S&OP,” by Alliston Ackerman, Consumer Goods Technology, 18 March 2011]. Ackerman reports:
“Newell Rubbermaid’s Sales and Operations Planning (S&OP) process has been the subject of an intensive improvement effort over the past two years. An initiative launched in 2008 generated 30 percent more cash for a total of $603 million in 2009 despite one of the most challenging business environments in a generation. As an enterprise-wide initiative, Newell Rubbermaid executives Andrew Downard, director of Supply Chain; Bill Hess, vice president of Supply Chain; Steve Sigrist, vice president, Customer-Facing Supply Chain; and Tracey Grimshaw, vice president, Global Organizational Development, all took part in the development and implementation.”
Ackerman’s article interviews the principals involved and they provide their insights about how they put the process in place. It’s worth reading in its entirety. Lora Cecere wishes that companies would quit trying to come up with new names for S&OP [“ENOUGH!,” Supply Chain Shaman, 25 January 2011]. She writes:
“Warning! A holy war is raging. It is a religious war … one of holy factions. It cannot be won, and it is not worth trying. When you peel back the heat of the battle, you find that it is the battle of acronyms: Integrated Business Planning (IBP) versus Sales and Operations Planning (S&OP). It is fueled by analyst pundits, and driven largely by software vendors trying to hawk their wares into a mature market. At the center of the battle — as the fury rages over who is right and who is wrong– companies are losing perspective. … Remember Shakespeare’s wisdom? ‘What’s in a name? A rose by any other name would smell as sweet. …’ I feel that when the focus is on the NAME–versus the OUTCOME– we all lose. No matter what we call it, cross-functional tactical planning matters; and this is at the center of the discussion. However, many are unable to take advantage of the benefits, because they are stuck in the holy war.”
Lora gets stimulated by this topic because she believes “the integration of the financial plan into the tactical operational plan is the number one change management issue for companies in tactical planning processes.” Read her post and you’ll get stimulated as well. The bottom line to this discussion is that supply chain professionals have a real opportunity with a good S&OP process to secure their rightful place in C-level business discussions.