Supply Chain S&OP Technology
April 18, 2011
In a post entitled S&OP: Supply Chain’s Foot in the Boardroom Door, I referred to an article by Karin L. Bursa, Vice President of Marketing at Logility, in which she discusses the importance of people, process and technology in creating a successful S&OP program. [“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.”
In the post mentioned above, I primarily focused on the importance of people. In this post, I would like to focus more on technology — what Bursa calls the “enabler for S&OP.” She continues:
“I like to view technology as the glue that brings together the people and process. The right software solution can significantly improve the quality and integrity of data to create a comprehensive plan that can be evaluated based on multiple units of measure (financial, volumetric, etc.), provide visibility into the future and drive the ability to evaluate multiple scenarios. The right tools also allow you to close the loop on the process, to ensure the agreed upon plan can be easily incorporated back into the supply chain, be repeatable and yet flexible enough to evolve as the business grows.”
Nari Viswanathan, Vice President and principal analyst at Aberdeen Group, insists that more and better technology is needed in the S&OP arena because too many companies are simply utilizing spreadsheets. [“S&OP Is Key Enabler for Managing Complexity within Global Supply Chains,” Supply Chain Brain, 25 February 2011]. He writes:
“In 2011, expect to see a more rapid adoption of technology for automating S&OP-related processes. … [An Aberdeen study revealed that] 84 percent of overall respondents … are using spreadsheets to support the enablement of the S&OP process. Fifty-two percent of respondents indicate the usage of integrated ERP modules. Twenty-one percent of these respondents indicate the use of best-of-breed solutions whereas 31 percent still utilize custom legacy systems. Thirty-eight percent of respondents utilize business intelligence solutions. The variety of technology adoption approaches is due to the fundamentally inter-disciplinary and customized nature of the S&OP process for each organization.”
Nick Allen, referring the Aberdeen study, laments the fact that “most companies still use an Excel spreadsheet to run their S&OP.” [“Piecing together the plan,” Supply Chain Standard, 1 February 2011]. He believes that companies can and must do better because “sales and operations planning is a critical process for most businesses – ensuring that corporate aims are put into effect.” Allen continues:
“Gaining visibility of future demand and accurately planning to match that expected demand is one of the most challenging aspects of supply chain management. What has made this task infinitely more difficult in recent years has been the unpredictable nature of demand in a recovering global economy. Planning against previous years’ figures is little use when markets have fallen away and demand is erratic. When cash is tight no-one wants to be caught out holding excessive amounts of inventory. But then, if demand picks up, no-one wants to miss the sale.”
Technological tools can help move S&OP processes fully into the information age. Fortunately, Allen reports, “There is a growing acceptance of systems that automate this process and make the data visible across the organisation. A recent supply chain management survey, conducted by AMR Research, found that 88 per cent of respondents were already using or planning to deploy an S&OP solution in the next 12 months.” Interestingly, the capability most desired by business executives, according to Allen, is the ability to conduct better “what if” simulations. For more on that top, read my posts entitled Modeling “What If” Scenarios and Examining the “What Ifs” in Life.
I suspect that one reason so many companies still use spreadsheets in their S&OP process instead of more sophisticated software solutions is because they have been stung in the past implementing software that promised and cost a lot without delivering a good return on investment. Supply chain analyst Bob Ferrari posted a two-part series about “How to Evaluate Technology Supporting Sales and Operations Planning” [Part One and Part Two, Supply Chain Matters, 20 and 22 February 2011]. Ferrari admits that there are mixed opinions about “whether an S&OP process can be implemented or effectively sustained without the support of dedicated technology.” Nick Allen, for example, notes that Martin Green, managing consultant at Unipart Expert Practices, isn’t “convinced that expensive software is entirely necessary for efficient S&OP.” Ferrari seems convinced, however, that companies reliant on global supply chains can’t possibly conduct beneficial planning if they don’t utilize technology to help them deal with the complexity they face. He notes three characteristics of the modern supply chain that lead him to that conclusion. First, “many industry supply chains today are either highly outsourced for supply, or have key customers and markets spread globally.” Second, “the clock speed and volatility of business has increased rather dramatically.” Finally, “disruptions to business and supply chain activities have also dramatically risen.” He continues:
“Within this ‘new normal’ of global based business today, there remains the four classic ‘levers’ for supply chain teams to manage supply chains. They are:
- Improving the overall visibility to what is happening at all levels of the value-chain
- Increasing the speed and accuracy of decision-making concerning inventory, production, capacity and other decisions
- Fostering more agility, flexibility and alignment among supply chain business processes
- Being more innovative and adaptable to changing business conditions and needs
“Supply chain teams [that] are considering whether technology augmentation is a requirement for their current or future S&OP process should context this need within the four levers noted above. Are your value-chain activities outsourced and manifested by constantly changing product demand or supply situations? Do you need to accelerate or improve decision-making across external trading partners, where product complexity, geographic distance or time constraints present challenges? Does the existing S&OP process need to be enhanced toward broader objectives and process participants? Finally, there is a new consideration that should be evaluated when evaluating technology assistance. In this new global and social-oriented era, more key data is unstructured in nature. What we mean by unstructured is information presented in email exchanges, S&OP related teleconferences or in-person meetings. Other key information can exist on the global web, such as long-term weather or climatic information, or information sourced in external trading partner sources. If these conditions described above are your challenge, than we recommend you consider some form of advanced technology augmentation.”
I’m pleased that Ferrari mentioned the fact that much of the important information needed to manage today’s supply chains comes in the form of unstructured data. That is one area in which my company, Enterra Solutions, does a lot of work. Ferrari concludes his introductory post this way:
“The good news in this area is that new developments in in-memory technology, cloud-computing and business intelligence tools have caused many software vendors to dedicate more development and applications specifically addressed to augmenting S&OP processes.”
To learn more about the importance of business intelligence (or business analytics), read my post entitled Supply Chain Analytics. Having set the stage by discussing why technology is needed to improve S&OP processes, Ferrari, in his second post, offers “guidelines to help … evaluate technology offerings, along with some guidance on weighting criteria.” He continues:
“First and foremost, we recommend that you spend time to define the desired S&OP end state, the ‘should-be’ vs. the current ‘what-is’, but we also hasten to add that teams should breakdown the end-state into phased, incremental stepping-stones to the end state. Each phase should include the process, people, and technology enablement changes required to complete that phase.”
I’m glad Ferrari’s first guideline includes a reminder that S&OP isn’t just about technology. He reiterates what Bursa told us earlier, the “trio of people, process and technology, is the foundation for success.” Ferrari continues:
“When evaluating dedicated S&OP technology, teams should evaluate overall functionality needs in reference to the end-state, which addresses which technology vendors have the capabilities and resources that can support the achievement of the final objective. This also helps in the evaluation of overall cost vs. quantitative benefits desired. That stated, another important consideration will be the vendor’s resources, flexibility, implementation and partner ecosystem capabilities to support each of the phases of transformation, without major disruption to existing processes. S&OP is not the sole purview of the major ERP vendors, and in many cases today, more of the technology innovation in this area has come from specialty vendors.”
I know when we talk with clients that they are concerned about process disruption. That is why my company offers solutions that cause little or no disruption to operations and are ambivalent about any legacy systems that may be in place. Our solutions complement rather than replace existing IT systems. Ferrari continues:
“In the overall laundry list of desired functionality, we would submit that the most important criteria to weigh, aside to overall cost, will be application ease-of-use. We state that for a number of reasons. The S&OP process by its nature, involves a multitude of participants representing internal, and increasingly, external trading partners. Participants will not embrace technology if they perceive it is too difficult to use, too rigid and inflexible, or if they do not understand what the information represents. Each of the S&OP team participants, spanning cross-functional to executive level, will have their desired level of ‘useability’ criteria, and it is important for evaluation teams to weigh these criteria in the ultimate selection.”
Ferrari makes a really important point. If a system is not user-friendly, it won’t be used (or will be used by just a handful of specialists). As I have pointed out in past posts on S&OP, one of the benefits of a good S&OP process is that it enhances collaboration and breaks down silos. User-unfriendly technology can hurt collaboration and raise barriers — just the opposite of what you should be trying to accomplish. Ferrari then provides a list of other “important criteria” he believes you should consider. They are:
- Role-based useability features, with the ability of a process participant to easily configure the application to their specific role or involvement within the S&OP process. It is rather important that the application include visualization tools to summarize large amounts of information or key-in on significant root-cause trends. Easily configurable dashboards or user screens are important.
- Bring multiple externally based data and information, such as demand, financial, supply, production, procurement and capacity, into the process, coupled with the ability of S&OP decisions to be executed within external systems. Information transfer should also include user-friendly means to transfer information among spreadsheets, files and databases, which is often required when including smaller trading partners in the process. Many S&OP decisions will involve specific products and/or customers and it is important that the application has the ability to support analysis, drill-down, drill-up, and decision actions at the item or SKU level.
- Perform scenario or what-if planning across a singular database of integrated information, along with the ability to create or track multiple scenarios helps S&OP teams to weigh and determine viable options to rapidly changing business conditions. These capabilities must be able to be performed in a near real-time speed, since teams will lose creditability if analysis takes multiple hours to complete.
- Assess and evaluate supply chain wide risk considerations, such as a major disruption in production, supply, or failure of a key supplier. Ability to asses a decisional impact on a firm’s financial and asset performance goals, or the ability to perform ‘cost-to-serve’ or profitability analysis related to key customers is another important criteria.
- Documenting and tracking the audit trail of decisions, along with the assumptions related to certain decisions, helps teams to determine a context for prior actions or a trend in supplier, customer, facility or trading partner actions.
Ferrari claims that if you get your technology solution right it will “serve the needs for a broader, more integrative and externally focused S&OP process.” Since he believes that fostering better S&OP processes is critical for future success, he concludes by recommending that “now is the time to position senior management for investment in the process.” Nick Allen agrees that “S&OP has become an essential business process in de-risking the supply chain.” So does Karin Bursa, who writes, “Sales and Operations Planning is critically important as executives try to strike the optimum balance between what generates the most profit and what will satisfy the company’s strategic and operational goals.” With so many analysts agreeing that companies need to move beyond spreadsheets, this looks like a good time to look into technologies that will propel your company into the future.