Welcome to the S&OP Experts Blog Series. This series features a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. Follow-up 'question and answer' sessions are 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.
Patrick Bower is Senior Director of Corporate Planning at Combe Incorporated, the makers of Just for Men, Odor Eaters, other OTC brands. Prior to this experience, Pat worked as a Practice Manager for Supply Chain Planning at a boutique supply chain consulting company, as a Director of Demand Planning, Strategy and S&OP at Snapple / Cadbury Beverages, and has extensive supply chain supply chain systems background. Bower frequently write articles on the subjects of demand planning, production planning, S&OP and speaks at conferences on S&OP and demand planning topics. He is the architect of a patent pending demand planning software tool – known as a demand curve analyzer and has provided strategic supply chain consulting and training to a number of clients including GSK, Bayer, Diageo, Pfizer, Tasty Kake, and American Girl among others. Pat can be reached at firstname.lastname@example.org. Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits? Pat: I believe there are four reasons behind the surge in interest in S&OP.
- First, I think there is broad based recognition that supply chain tools and siloed optimizations are not living up to the sales pitches and internal expectations. After all of the efforts to implement state of the art SCM software and one-off process improvements, many organizations’ supply chains are still not fully integrated into the business. Something is “missing”.
- Second, there has been a professionalization of the supply chain community. Employers are looking for candidates with APICS & IBF certifications, and continuous learning is becoming as important in the supply chain world as it is in other professions. S&OP is a key element in much of that learning and is often positioned as a game changing process – enabling not just better supply chain decisions, but better business decisions. It is not a surprise to me to see the recent buzz around S&OP; but it is interesting to see how the buzz has become deafening in a very short time. Five years ago, I delivered a short ‘best of the best’ S&OP workshop at an IBF conference, and now, entire conferences are being been built around S&OP.
- Third, the severe economic downturn coupled with many years of IT investment has companies looking to squeeze more out those investments, hence the increased focus on people and process to get better integration of, and drive more value from, the systems.
- Fourth, and probably most important, the globalization of supply and demand has required companies to look at joint demand and shared resourcing in a different way. Simply put, as the world has become flatter and the business landscape more competitive, it has led to a more global and complex supply chain. S&OP is a process that helps create alignment in an otherwise complex environment.
As for the benefit stream from S&OP …. The benefit stream tends to be situational and really depends on a company’s “as-is” state. However, generally speaking, a relatively mature S&OP process will often have the following hard benefits: forecasts are almost always more accurate; most companies reduce inventory if only due to the focus on demand planning and inventory metrics; fill rates often improve with right-sized inventory; schedule cuts and other forms of supply side volatility decrease with improved demand planning and inventory management. There are many softer benefits including a better understanding of the supply and demand balance; improved communication between organizational silos; more profit focused decisions, and in the best S&OP implementations - there is a unity in focus – otherwise known as alignment. 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? Pat: There is certainly a fair amount of confusion in the market place about S&OP, with different approaches cutting across nearly every aspect of the process definition. Some experts see S&OP as a detail planning process, while others take a more strategic view. Most believe S&OP should be a monthly process, while there are folks that suggest S&OP should evolve to a process with a weekly frequency. There are many small, and not so small, differences in the naming and number of process steps involved in S&OP, and in the graphical representation of the process itself. If one attends a conference on S&OP – you might find presentations with four, five and nine step S&OP models, and graphical representations of the S&OP process that are linear, circular or stacked / layered models. I am personally partial to the Oliver Wight five step model, but recognize that even that particular process model has limitations and can be insufficient or over kill depending on the needs of the organization. In the last ten years or so – seemingly every consulting organization, software company, and research analyst has attempted to redefine S&OP in some unique or different way. Most of these differences are pure marketing. In many cases, it is differentiation without real difference. As an example, several years ago I was asked by my then employer to define a “reality-based S&OP” process model. I argued that by definition S&OP should be reality based. I simply did not want to create a white paper that would only add more confusion in the market place. Marketing is not a bad thing – if it creates clarity, drives new thinking or highlights real differences. However, with much of what I read and observe - I simply do not see much in the way of difference. My biggest concern is that misguided marketing might create confusion. I personally think there is a huge void in the S&OP community. I believe it would be very valuable if all of the “experts” in S&OP came together to form a non-proprietary or “open source” S&OP process model that is available to be shared. This “open source” S&OP model would come complete with maturity models, graphical representations, metric examples, checklists for implementation and so on. Imagine a SCOR like model for S&OP. It would be a living and breathing entity – but also provide some consistency in messaging and process design. Consulting and software companies can still play within this open-source approach claiming expertise in product categories (like semiconductors, CPG etc), in global integration, systems integration, and in education etc. My definition of S&OP is pretty simple.
S&OP is a periodic, forward looking, multi-step process to understand, define and align demand, supply, products, metrics, profitability and strategy.
The good thing about a simple definition is that it is flexible and open to interpretation. 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? Pat: I believe a generalized maturity model can give worthwhile directional guidance to an S&OP diagnostic assessment and/or implementation. If used in context, these maturity models provide guideposts or mile markers during the course of an implementation that tie back to the overall project plan. However, it is important to recognize that these maturity models and the resultant assessments can be flawed. These maturity models often see every problem as having the same set of answers. I liken it to three different patients going to a doctor with a pain; one has a pain in the knee, the second has a bothersome back, and the last has an achy hip – yet each time the doctor suggests knee surgery. Only one patient in three will walk away satisfied. To the extent a maturity model and assessment are focused on the real problems facing an organization, and not on a rigid process definition - I believe maturity models can be useful tools. I have been on both sides of four common problems with these process maturity models;
- First, most of these models are incomplete as they do not often assess “technology usage and expertise” – often a constraint in S&OP process implementations.
- Second, most maturity models do not examine the ability of an organization to absorb or manage change - another obstacle to a successful S&OP implementation. Clearly, there are some organizations that need to “go slower” than a typical 90-120 day process implementation agenda.
- The third point I have already alluded to - many of these models assume a cookie cutter “one size fits all” approach where all organizations benefit from similar processes equally—a flawed assumption.
- Finally, most of these maturity models do not assess the need for a given process element, i.e. Do I really need every S&OP process step? Or, what is the level of maturity that is right for my business?
As an example, I worked with a company that introduced only 2-3 new products per year, and had little in the way of production constraints – did this company need a robust product portfolio meeting and a supply and demand balancing tool set? Of course not. Would they be less mature from an S&OP perspective if we excluded unnecessary process steps? In my mind, no. Some assessment models, would consider this company very immature on the S&OP maturity continuum. In a different example, I also worked with a company that had a 15% annual sku innovation turnover, and globally shared production constraints. Clearly, the second company needed a robust portfolio management and multiple business unit RCCP / Supply and Demand balancing process. All of this begs the question of whether the S&OP process should look the same at every company. Would each have the same maturity level if so assessed? In short, I have found that rigidity in S&OP process construct is not the best approach – so maturity models are, to me, nothing more than helpful guides. I do not believe you have to be at a high level of maturity to be “doing S&OP”. S&OP is a journey, not a destination – so you can be doing S&OP structurally (holding meetings etc.), while at the same time be at a relatively immature level from a process efficacy perspective. As companies change, expand, compress, and change systems and people – the S&OP process will evolve. Some S&OP processes improve, some regress during these transitions. I prefer to look at the S&OP process as another business resource that occasionally needs to be re-visited and re-worked as the needs and structure of the business changes. Honestly, what business today looks similar to five years ago? Kinaxis: Many are advocating the evolution of S&OP to Integrated Business Planning? Are you a proponent of IBP? Tying the financial plan/measures directly into the process is a key component of IBP, what else distinguishes IBP from S&OP? Pat: I believe S&OP and IBP to be one in the same. S&OP, properly implemented is integrated business planning - and financial plan integration and measures should always be part of a best practice S&OP process. I have read a number of articles on IBP, and in most cases these articles appear to be pointing out issues associated with a “lower –tech” form of S&OP (i.e. lack of plan iteration capabilities, dynamic what-ifs, exception management, data integration, system integration etc.) As a long time proponent and implementer of a higher- tech form of S&OP – IBP is another one of those differentiations without difference to me. How did we get to this point? For many years, S&OP process consulting firms were telling prospective clients that they did not need any special tools or software (beyond Excel) to implement S&OP. The reality is that it is next to impossible to “sustain” S&OP without using or integrating SCM or Business Intelligence tools. You can certainly start with Excel, but it will not be a sustainable platform for S&OP. I have always disagreed with this low tech approach and always focused my attention on implementing S&OP processes with a high degree of system integration. Of course, these S&OP implementations took longer, but the underlying system integration led to added discipline and usability. By integrating technology - it was not a burden for the participants to “do S&OP” and took away one excuse along the process adoption curve. Of course, there was a practical reason for these consulting firms to focus on solely a process implementation. A process only implementation is shorter and thereby cheaper for the client; did not require a diversity of system expertise at the consulting company; the project had fewer points of potential failure, and eventually the client would find their own way to integrate systems. Process consulting companies got away with this – because no one called them on it. A best in class S&OP process implementation needs integration of people, process AND technology. 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? Pat: While I would not call it process inertia, I agree that many existing S&OP processes are held back from further improvement because the working assumptions underneath most of the plans are often inadequately examined or challenged. I often wondered why there was a lack of examination – to me it would seem obvious to put a plan through its paces. On reflection, I believe that the lack of examination comes from the organization’s culture and/or basic human behavior. As an example, I have found that the behaviors of “Going along to get along” and “Not wanting to be the negative one” – will often prevent the much needed detailed challenges to S&OP plans. If you think about it - who wants to tell the President of a company that his operating budget is unrealistic? Or tell the supply chain VP that the inventory plan is not pragmatic given the fill requirements? Negative people are not successful in most corporations – I can understand the apprehension to challenge a plan too aggressively. Unfortunately, and particularly with demand plans, an unchallenged plan is usually biased and unrealistically aspirational. And as we all know, a poorly crafted demand plan impacts all other downstream planning. As a consultant, I would often find myself teaching people how to actively challenge a plan without being disagreeable – by actually modeling an ‘active challenge’ inside of the demand planning process. Of course, the easiest way to challenge a plan without being disagreeable is to bring facts to a discussion. Trends, shipments, deletions, metrics, POS, etc. all provide data points that can be used to question a plan. It is also helpful if participants are able to create a trusting environment where a plan can be actively challenged and such challenge is viewed as a positive. Trust comes from agreement around the intent of a challenging process, and acceptance that all plans can be challenged. I believe if one empowers a group to question a plan in detail, without bias or bad intent, and use data, trends, etc. to discuss plans – that you can overcome the process inertia mentioned in the question. Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model? Pat: As I’ve mentioned before – there are many consulting companies that believe S&OP can be implemented without an investment in SCM technology or worse yet, with Excel as the cornerstone technology. I strongly disagree. To be done well, especially in organizations with any size or complexity, S&OP requires both vertical and horizontal data integration. Totaling up from the bottom, and aggregating left to right is a data intensive process not easily solved using Excel. My “best practice” version of S&OP requires integrated applications. As part of any maturity assessment there should be a skills and utility assessment on the current SCM tool base. Often times there are system changes that would greatly enable an S&OP process implementation that are neither expensive to implement nor hard to train to—if the capabilities of the people and the technology are assessed. 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? Pat: This is an important question. With the improvements in supply chain computing platforms, I believe we are close to a transition point with S&OP. In my thinking, best practice S&OP should utilize a summary plan built up from rational and feasible lower level plans. Many people treat S&OP as a top down process – and certainly traditional thinking on S&OP was much more top down and monolithic. Yet in common practice, and using best of breed tools, the ‘hard work’ in demand planning, supply balancing, and portfolio management can easily being rolled up into summary plans and presented to the senior management team for approval. These rational and feasible rolled up plans (or alternatives of plans) are presented during the Pre-S&OP process for potential escalation to the Executive level meeting – but they are mostly vetted and evaluated prior to presentation. In my mind, the concept of traditional S&OP aggregation levels has become passé. First, demand has become fractionalized with products specific to channels, markets, geographies. It is hard to find a “product family” in the traditional sense. Second, computing platforms now easily enable slicing and dicing of data so that planning can happen at a “suffix level’ and still be rolled up into any product aggregation that makes sense from a presentation perspective. The differences between traditional monthly S&OP planning and day to day supply chain planning are blurring. It is now easy to plan deep into the horizon using the same modeling tool and constraints used in day to day planning tools. S&OP ‘applications’ that use the best of breed systems integration, can use same constraints as any other planning horizon – but apply them to future demand buckets – most often looking out 18 months or more beyond the frozen planning horizon for imbalances. In the “olden” days plans were rolled into product family aggregations for simplistic modeling of the supply and demand balance. Today, there are planning platforms capable of long range, iterative and dynamic planning. Thank God for progress. Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be? Pat:
- Focus on reality based planning. One of the biggest failure points in S&OP—and misuse of resources including inventory and capacity – is the lack of reality based plans.
- Work the demand data. Leverage as much market, consumer, macroeconomic, POS and other data sources to drive to the best possible estimate of demand - thereby improving all downstream planning. While this is intuitive to many – it is also lost on many.
- Integrate, Integrate, Integrate – many S&OP processes fail under the burden of providing data to the process. Find ways to draw S&OP data simply and easily. Engage your IT group in supporting S&OP.
Kinaxis:What role does exception management play, or should play, in S&OP?
� Pat: Many of the underlying planning processes within S&OP (such as demand planning) benefit from the use of exception processing to manage through the veritable boatloads of data. Sorting out the significant from within the pile of trivial when you are dealing with tens of thousands of items can be a challenge. Exception processing allows S&OP participants to focus attention on the items that are falling outside the bounds, i.e. which forecasted items are biased, have high error, excess inventory, have production attainment issues, and / or have low yields? The same exception process can apply to resources, i.e. which production units or cells are over or under loaded, or which warehouse is bursting at the seams? I believe exception management can also be used to test planning efficacy by answering questions such as: Which new product introduction is behind its intended timeline or volume plan? Or - where are we to original budget? S&OP process meetings cannot (and should not) discuss every item – they should discuss items with problems in need of resolution. Exception management helps determine the challenges in the plan. 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? Pat: What-if capabilities are incredibly important within the S&OP process. Yet, is it a process requirement? No. Could what-if capabilities make an S&OP process significantly more effective? Yes. I think what-if capabilities built around an “organizational” model would help not just the S&OP process, but most planning processes. I have been in demand consensus meetings where I heard about an opportunity that Wal-Mart might buy a bunch of product and distribute to each store in the US. If this happened to you, how would you assess your company’s ability to handle this extra demand? Or whether or not you could source it domestically? Would you be able to quickly determine any additional warehouse requirements? Demand opportunities and supply constraints are everyday occurrences in today’s competitive landscape – and being able to react quickly with credible data is an advantage, whether used for S&OP or not. These relatively simple examples speak volumes to the need for simulation tools. I have been implementing these tools for 15 years in support of S&OP processes. Effective “what-if tools” need three elements;
- they must model the business realistically – offering results that are acceptable and executable – a true simulation of the operational environment;
- the tool must be flexible – allowing for slicing and dicing, and multiple scenarios at the same time; and finally
- it must be fast - churning on a problem for hours does not enable what-ifs. What if’s are rarely managed in a serial fashion – the desire is often to test 3-4 approaches at once. Speed is important.
Where are these tool best used in the S&OP process? Everywhere. New distribution or customer opportunities can be dollarized and bottom lined in demand consensus or Pre-S&OP. Capacity issues can be modeled and alternative plans and cost assessed in the Supply and Demand balancing process. Regardless of the scenario, I have always suggested that what-ifs are brought to the Pre-S&OP process, where they are vetted for recommendation to the Executive S&OP meeting.