S&OP: The Way Ahead

Stephen DeAngelis

July 25, 2012

During a panel discussion he moderated earlier this year, Bob Ferrari asked panel members the following questions: “Many companies are now embracing sales and operations planning (S&OP) processes as a key mechanism to align anticipated product demand with supply and operations requirements. What do you believe are the logical next steps for organizations in their S&OP journey? Do you believe that the benefits of S&OP are being overhyped?” [“Some Thought Leadership Nuggets Related to the Future of S&OP,” Supply Chain Matters, 5 April 2012] Before providing specific thoughts from panel members, Ferrari noted, “All the panelists were in agreement that S&OP is not a short-lived, vendor-hyped process and is not going away anytime soon. They characterized S&OP as a journey toward multiple outcomes and benefits. What is most important is knowing what the current and required maturity level should be.” To see a couple of different frameworks for assessing S&OP maturity levels, read my posts entitled Is S&OP a Guiding Light or a New Religion? and Supply Chain Evolution and Transformation.

The panel member whose observations Ferrari first discusses are those of Matthew Davis, Research Director, Supply Chain, Gartner Inc. Ferrari writes:

“Matthew Davis observed that S&OP can be positioned as a means to determine where decisions and what decisions need to be made regarding the need to represent the one face of the firm to customers. It brings together teams that directly touch and/or influence product demand and supply, along with those responsible for influencing resources or making decisions as to options. The activities incorporated are generally focused on demand shaping or the ability to influence and respond to changing customer needs. In terms of future needs, with more and more manufacturing and service firms positioning product offerings as ‘solutions-centric’, the process will need to synchronize a combination of product, technology and coordinated services needs. As an example, in the high tech industry, a product could involve a combination of hardware, software and services coordination. All of this implies that the planning process changes from that of materials and physical needs to further include a broader context of project management based synchronization. Technology’s role in the process is to help overcome time latency and aide [sic] in the ability to integrate information with the capabilities needed to influence and respond to customers. A broader scope of product solutions adds a project management dimension to the process.”

The most important point that Davis made is that the S&OP process “needs to further include a broader context of project management.” Arnold Mark Wells, a principal at End-to-End Analytics, agrees that the S&OP process needs to be more inclusive. In fact, he believes that an inclusive S&OP process can help bring companies together. [“How S&OP Can Bring Your Organization Together,” SupplyChainBrain, 15 June 2012] I’ll look more closely at Wells’ views later in this post. The next panelist whose observations are paraphrased by Ferrari is Bob Parker, Group Vice President, IDC Manufacturing Insights and IDC Retail Insights. Ferrari writes:

“Bob Parker added the need to incorporate portfolio, situational and scenario based analysis to manage products, tradeoff decisions, as well as to mitigate risk, with an overall goal of continuous planning. He cited as an example, Procter and Gamble’s circles of cadence, involving strategic, tactical and operational decisions that need to be coordinated. The S&OP process never ends, it is continuous.”

It seems to me that common sense would dictate that you would want to include supply chain risk management (SCRM) in the S&OP process. The past couple of years have clearly demonstrated how supply chain disruptions can significantly impact sales and operations processes. I’ve frequently commented that SCRM processes need to be continuous and I agree with Parker that the S&OP process also needs to be continuous. Nick Allen asserts, “A new era of sales & operations planning has arrived as companies learn to deal with an increasingly volatile business environment.” [“S&OP: Managing volatility,” Supply Chain Standard, 25 April 2012] Volatility must be constantly monitored if companies are going to react in time to mitigate its effects. Only a continuous process is up to the challenge. The next panelist whose observations Ferrari provides is Steven A. Melnyk, Professor of Operations and Supply Chain Management, Michigan State University. Ferrari writes:

“Professor Melnyk added the need to focus the process on required business outcomes, not so much in the sense of hard metrics, but on the required outcomes needed to satisfy customer and business needs.”

Numerous supply chain analysts have pointed out that the clock speed of business is increasing. That means that efforts to “steer the ship” by looking at the wake (i.e., historical data) are not likely to take the company where it wants to go. That’s why I agree with Melnyk that companies need to focus on desired or required outcomes. The final panelist whose observations are provided by Ferrari is Roddy Martin, Senior Vice President, Global Supply Chain Practice, Competitive Capabilities International. Ferrari writes:

“Roddy Martin added that the future of S&OP is framing the process differently, as a journey toward integrative decision-making. Too often, S&OP teams rush to include senior executives in the process without the process maturity, and the right level of information that can context business impact or business options. Having arguments as to the accuracy of information or the meaning and implications of information, chases senior executives away and can derail efforts. That is perhaps, the worst mistake. Executive S&OP is the summarization of all business planning and execution across various time horizons, along with the business decision implications related to resource plans.”

Lora Cecere has predicted that horizontal processes are going to become much more important to businesses in the decades ahead. There is no more important process to make horizontal than the S&OP process. In an interview with the SupplyChainBrain staff, Arnold Mark Wells appears to agree with both Martin and Cecere. The article states:

“Wells views sales and operations planning as ‘a decision process with several sub-processes.’ Chief among them is the anticipation of market requirements, through such disciplines as demand planning and forecasting. But companies need to remember that S&OP requires the participation of multiple partners, including those responsible for supply and contract management, in the chain. The challenge, Wells says, lies in making sure that they are fully involved.”

In his concluding comments, Ferrari agrees with Wells that the context for framing the S&OP process “needs to broaden.” The SupplyChainBrain article continues:

“S&OP is all about eliminating the unscientific assumptions that tend to guide decision-making. They need to be replaced by a full understanding of the constraints that exist in a given sourcing situation, along with the opportunities that can be realized as a result. Visibility, of course, depends on good communications among supply-chain partners. S&OP provides companies with the excuse to achieve it. In looking at supply management, Wells says, companies need first to analyze the current sourcing situation, in terms of both risk and opportunities. They should consider the full range of terms and conditions that apply to a sourcing relationship. At the same time, those in supplier management need to be having an ongoing conversation with sales, to discuss how constraints should be factored into the picture. Given the natural tendency toward turf protection, sales could be threatened by such an approach. The solution, says Wells, is transparency. Sales and marketing must understand where the constraints are, and supplier managers need to stress their interest in working with them to reach a common goal. ‘That’s what gets their attention,’ he says. A certain amount of business-process change is required to implement an effective S&OP initiative. Technology, says Wells, can help to enable such change. One key to success is aligning the metrics and incentives that guide various functions. In addition, participants need to address the full range of relevant topics: working capital, finance, products, brands, marketing, channels and demand planning among them. Armed with such intelligence, marketing can understand how its goals to boost sales or enter new markets will be translated in terms of manufacturing, distribution and sourcing.”

Obviously, integrating data so that participants in the S&OP process are working from a single version of the truth is important to achieving Wells’ vision of an effective system. Nick Allen agrees with Wells that a good S&OP process can bring organizations together and help break down silos. He writes:

“One of the big issues with S&OP is that it cuts across so many different functional silos within a business. However, [Paul Ducie, partner at Oliver Wight], advises: ‘If a company designs the right process, then the process itself forces the organisational silos to work together, so they start to create a synchronised plan throughout the organisation. Then we look at coaching behaviours, so that we get the collaboration and common ownership.’ He says an important point is to have an individual in place that can ensure ‘integrated reconciliation’, to make sure the process is flowing through the various steps with the right information and that all parties are acting and performing in a way that will deliver the strategy.”

A good S&OP process helps promote transparency and communication. It’s not easy because the goals of various organizational departments can be in conflict. The S&OP process can help ease those tensions by promoting better organizational alignment as desired outcomes are agreed upon and worked towards.