Welcome to the S&OP Experts Blog Series. This series will feature a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. A follow-up question and answer session will be hosted in the S&OP section of the Supply Chain Expert Community. Registered community members may submit their questions for the expert of the week. Lora Cecere is a Partner with Altimeter Group and the author of enterprise software blog “Supply Chain Shaman.” Lora is known as a supply chain visionary who understands software. She brings seven years of industry analyst expertise coupled with two decades of manufacturing, marketing, and software expertise. As an enterprise strategist, Lora focuses on the changing face of enterprise technologies. Her research is designed for the early adopter seeking first mover advantage. Current research topics include the digital consumer, supply chain sensing, demand shaping and revenue management, demand-driven value networks, accelerating innovation through open design networks, the evolution of predictive analytics, emerging business intelligence solutions, and technologies to improve safe and secure product delivery. Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits? Lora: The surge of activity around S&OP is largely driven by economic uncertainity. Based on the research, companies with mature S&OP processes sense and respond to market changes 5X faster. When companies start with change management, they get there 3X faster. Kinaxis: Do you think the definition of S&OP is clear in the marketplace? If not, is that a problem? How do you define S&OP? Lora: The process is 25 years old, and the definition has changed and morphed over time. There are as many definitions of S&OP as there are mutts in the dog pound. I define the process of S&OP as a cross-functional planning process to help organizations better sense, shape and respond to demand to maximize opportunity and mitigate risk. When it is done correctly, there is balance between the “S” in S&OP and the “OP”. It is a monthly process with weekly operational reviews to tie planning to strategy. This most often happens when the process reports to the profit center manager with the following characteristics:
- An assigned S&OP planning team
- Clarity on the operating strategy. There is a clear definition of how many value chains the company has and what drives value in each.
- A tie of assumptions to build a “playbook” for the month, and the tracking of the playbook by an operational team on a weekly basis.
- Clarity of roles on what global means. How does the organization make global planning decisions to execute locally?
- Tight integration with new product launch
- Clarity of complexity: Streamlining of processes and products to ensure that the right level of complexity is achieved in the business (product and services portfolio).
I take a demand-driven or market-driven view. I contrast this difference in table 1: Kinaxis: How important is a maturity model for S&OP? Do companies have to be at the most advanced stage of S&OP to claim to be doing S&OP? Lora: A maturity model provides a roadmap for process maturity. As such, I think that it is extremely important. The process starts with reacting to demand, then progresses to balancing demand with supply, and then moves to managing a profitable demand response. In the last and most mature stage of S&OP, companies can answer these three questions with these answers:
- What is the Goal? The goal of our S&OP process is to maximize opportunity and mitigate risk.
- How do we Make Decisions? The S&OP process reports to a profit center manager. We manage a monthly process to only bring critical decisions to the executive S&OP meeting where the profit center manager ultimately makes the critical decisions to balance the opportunity for go-to-market strategies with the risk of the supply plan.
- What does Good Look Like? We have X number of supply chains. We use the same metrics with different targets for each. The critical metrics are forecast accuracy, inventory turns, margin, revenue, and customer service.
Frankly, I don’t have energy for this argument. Essentially S&OP has moved bottoms-up and Integrated Business Planning has moved tops down. I find that both are important, but since the tops down approach has not matured as fast or as quickly as the bottoms-up approach, I prefer to talk about the process as S&OP. I find that the most mature processes tend to call it S&OP. Kinaxis: Organizational thinking is often inherently bound by the dimensions of the “box” it is currently in because people don’t question working assumptions strongly enough. Do you believe “process inertia” is a barrier to advancing S&OP processes? Lora: I think that we are bound by history, and conventional paradigms. The largest barrier is change management. I believe that it is 60% change management, 30% process and 10% technology, but you cannot get there without technology. Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model? Lora: Yes, it can be carried out without technology; but not well. In general, companies that are greater than 250 Million in revenue, with more than 100 employees need a S&OP technology. This becomes more acute if there are constraints or demand/supply variability. Kinaxis: Is it possible to have an effective S&OP process that only looks at the aggregate or “volume” level? How important it is to consider the operational feasibility of the S&OP plan? Lora: Yes, if there are no issues with demand or supply variability or constraints. Very few companies have this luxury. Kinaxis: There is indeed a great deal of cross-functional cooperation and collaboration that is required for managing S&OP – how are companies enabling this, and are they doing it successfully? Lora: It starts with tackling the change management issues (see my recent post). The process is monthly and clearly defined by roles, responsibilities and workflows. There is a defined and rigorous cadence to both define the planning process (monthly) and to tie the planning process to execution (weekly). Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be? Lora:
- Tackle the change management issues
- Build a S&OP organization reporting to the profit center manager
- Identify the monthly/weekly processes with clear roles and responsibilities
Exception management is needed in both planning and execution. For planning it is used to streamline “what if analysis” while in execution, it helps to trigger deviations to the planning playbook. Kinaxis: How and where do what-if capabilities fit into the S&OP process? Is it a priority capability for an effective S&OP process? Lora: Absolutely! The most mature processes hinge on what if analysis not only for supply, but especially for demand. They also have strong capabilities for demand translation and orchestration.