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. Atul Chandra Pandey is Industry Head - Enterprise Application Integration and Services, for Infosys Technologies. Atul has more than 14 years of IT experience. He is responsible for sales and engagement for Enterprise Application Integration (EAI) and services such as supply chain, customer care and Master Data Management (MDM) for manufacturing and the banking capital markets industry. He is also involved in program management, process consulting, IT outsourcing, implementation and sustenance services, project management and delivery, and business analysis across leading package and technology services. On the Infosys Supply Chain Management Blog, Atul blogs on business strategy, solutions-driven sales and engagement, EAI, Business to Business (B2B), Supply Chain Management (SCM), customer care and relationship management. Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits? Atul: Sales & Operations Planning (S&OP) has been in existence for decades – both as a discipline and a decision-making imperative. Owing to the highly impactful core processes it is concerned with and the business growth it can drive, it is one of the most talked about topics in the supply chain space. Despite it capturing so much attention, there has been wide variance across sectors on the promised potential of S&OP and its realized benefits. The recent economic downturn has brought to the fore the criticality of leveraging a strong S&OP process for an organizational advantage. While the focus has been to contain cost and ensure survival, I have also observed organizations looking to find new revenue generation opportunities while keeping costs / inventories low. In my view, some of the other key factors which have either influenced or contributed to the heightened focus on strengthening S&OP are ever-shrinking product lifecycles across industry segments (consider the example of consumer electronics which has become similar to fashion industry with new product launch every quarter), diversifying supplier base and increasing outsourcing leading to increased supply dependence and associated risks. The former poses significant challenges in determining the right demand level whereas the latter factor causes constraints in meeting demand through the supply channel – especially when the same source also supplies a critical component to your competitors. Another key disruptive force is the exponential rise of social media (sites such as Facebook and Twitter) which has enabled customers to share product experience with ease, thereby significantly influencing pre-purchase behavior. With customer requirements increasing and the loyalty lifecycle shortening, I believe organizations must create predictable and profitable sales and operations plans in the face of amazingly varied demands. The surge in activities around S&OP is therefore driven by the need to have robust and agile mechanisms to manage and shape volatile demand signals and address increased supply and supplier spread and enhanced financial risks and constraints. 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? Atul: While there is an industry-wide convergence on the broad understanding of the term, I think the answer to the question will vary depending on the level of the person to whom you are speaking. The biggest disconnect is in the area and horizon of focus – by this I am referring to the big picture or the mid- to long-term perspective versus daily organizational activities and immediate concerns. There is an increasing tendency to link S&OP with a continuous review of demand and supply plans on a weekly or daily basis. Such an exercise entails rapid what-ifs at individual product / SKU levels taking into consideration demand, supply and financial constraints (cost, revenue, margin, etc.) to generate new execution plans (allocations, order fulfillment plans, receiving, shipping, etc.). This is not S&OP. Instead, this view deals with ‘perpetual master planning and scheduling’. Promoting this view as S&OP is a problem since it places too much emphasis on execution and the immediate term and does not provide space to plan for the mid- to long-term. It completely overlooks the directional / strategic planning view which is critical to S&OP. Imagine a ship in the ocean. While the engine room crew ensures that the ship keeps sailing, it’s the captain who sets the vessel’s direction and course. Similarly, S&OP must primarily focus on setting the direction and tone of the business as an executive-driven process / function. The focus should be on the mid- to long-term horizon (3-15 months for most industries). The aggregate plan (also termed the volume plan – family level) needs to be the driver for the detailed plan (mix – how much, which SKU). Finally, the operations plan must be constrained by financial plans (cost, margin, revenue, and cash flow). In terms of definition, I tend to agree most with Tom Wallace and Bob Stahl’s view on S&OP. In their book ‘Sales & Operations Planning – The Executive Guide’, S&OP is described as “a set of decision-making processes with three main objectives: 1) To balance demand and supply, 2) To align volume and mix, and 3) To integrate operational plans with financial plans.” Having said that, the focus on detailed daily / weekly plans is also important and these must link to the executive S&OP for directional changes which drive the next cycle of short-term execution plans, thus closing the feedback loop. S&OP therefore provides the connection between the big picture or the strategic plan and the day-to-day plan and operations. 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? Atul: With its ability to enhance performance and competitiveness through effective and agile responses to market demands, S&OP has become an organizational prerequisite. It is nearly impossible to imagine a business without a sales, inventory and financial plan. However, to ensure that your S&OP consistently scores a bulls-eye in fine-tuning customer demand to meet supply resources over an extended time period, it is necessary to formally recognize and institutionalize it as a formal executive-led process. The commitment of senior executives is vital as S&OP is an ongoing journey of aligning strategic business goals and direction with the right operational levers. This works best only if there is a formal organization focus coming from the top. Once established, the S&OP process necessitates establishing process interventions at different levels to drive operational improvements and tighter performance measurements and controls. It is important to have a maturity model for S&OP. One of the key differentiating factors separating companies which are advanced on S&OP from the ones which are not is the lead time to determine changes to direction and actually making it happen. Companies having advanced S&OP capabilities can detect changes within days (and not weeks) of the monthly S&OP and can steer directional changes in execution plans just as quickly. S&OP maturity is a combination of multiple capabilities – the ability to generate rapid aggregate-level plan, what-ifs at the aggregate level (including financial plans and budgets), integration into operational plans, and workflow management to collaborate with partners for execution. 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? Atul: While IBP is a key enabler for S&OP, it cannot be a substitute. This is primarily because of three reasons:
- Constraint-Oriented Reasoning (COR) – which is the heart of IBP – helps identify appropriate decision levers rapidly by solving a large number of mathematical equations representing varied business aspects. However, the output needs to be comprehensible to senior executives and they may choose to exercise a different set of levers based on their understanding of the competitive priorities of the business.
- Ownership and control of the operational processes that need to be improved or changed must rest with the people managing the respective functions to close the gaps and loop feedback into next planning cycle.
- Data quality of inputs for IBP needs to be very high if it is to be effective in making the right recommendations.
Therefore, in my view, IBP cannot be a substitute for an executive-led process such as S&OP. In the latter, people play a critical role – either taking decisions or acting on decisions – at every stage. However, IBP does have its strong points. It is a great enabler in reducing the business simulation and analysis lead time which can make a discernable difference in the effectiveness of S&OP. I have seen that the typical S&OP process in many organizations takes 2-3 weeks to complete. Getting data is highly time-consuming and a less than optimum amount of time is spent on analysis. With IBP, even with limited analysis time, executives can rapidly simulate multiple business scenarios and understand the ramifications quickly, thus actioning the implementation of changes with more confidence. Another advantage of IBP lies in the ease of communicating the changes to the next level and building consensus on decisions taken at executive level as the impact of high-level decisions on local functions (marketing, finance, production) is visible to all. 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? Atul: My answer to this question would be a ‘Yes’ and a ‘No’. While process inertia is indeed a barrier to making advancements in respective individual functions, S&OP is not about managing the functions in silos. The focus and direction needs to be set from the top. In my view, the biggest impediment to S&OP effectiveness and success stems from a gap in communication between the senior executive level and the levels below. Information on setting and acting on new goals and the reasoning behind changes for better process performance needs to be transmitted smoothly to the lower organizational levels. While people want to change, these required alterations will not happen at lower levels unless the right incentives are in place. Take Apple for example. It has managed to deliver unimaginable business growth (from $4-5b a few yrs back to ~$30b last year) year on year without significantly ramping up headcount. This means the company has revamped most of the core functions significantly with the same workforce – a scenario that is hard to imagine without senior executive-level drive. Hence, while process inertia hampers S&OP advancement, the real deciding factor is an organization’s ‘change propensity’ as process inertia is not generated by itself. It has to do with an organization’s culture for embracing change and this starts at the top. Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model? Atul: It’s like asking “Can we communicate without email or internet?” or “Can we go to Boston from San Francisco without catching a flight or driving a car”. Of course you can reach Boston on foot – but only if you are not faced with a time constraint. If your goal is to reach Boston in a day, a flight is your only option and if you can stretch your time in hand to a week, you can drive. Technology is a great enabler and offers speed and agility in meeting goals. This is especially true when you need to embrace a lot of change in a short time span. So, while it is possible to carry out business functions without technology, it is naïve to think that an organization can ignore the tremendous power of technology today. Even hard-core lean manufacturing leaders such as Toyota embrace technology to drive business and operational excellence. In the context of S&OP, technology has a pivotal role to play in several areas. These include cutting down on data acquisition time and connecting facts (sales, operations, finance) to generate high-level business scenarios. Moreover, technology in S&OP helps perform rapid simulations to show executives quickly what the impact of a decision lever (cut cost, reduce capacity, postpone product launch, shorten product family, etc) will be on business goals (profitability, revenue growth, market share, etc.). In turn, this enables the executive push decisions out to the lower levels for execution through workflow-based assignments, enabling decision enforcement through exception management. Hence, without technology support, implementing actions identified by the executive S&OP level is simply not possible in a short timeframe (and time is a factor which is getting increasingly constrained for most organizations). Given this reality, I believe the role and importance of technology in S&OP will only increase. 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? Atul: It is not possible since an effective S&OP must be a closed loop process. While executives need to focus on the aggregate / volume level (and not too get bogged down with the details), the actions coming out of the executive S&OP level need to be rationalized at lower levels where the focus is more on execution. The need here is to look at numbers at the mix level (specific SKUs, quantities), weekly / daily level plan and actual numbers. Actions at this level determine how the goals set at the top are realized, which then need to be fed back into the next executive-level S&OP cycle. The key is to effectively integrate the granular lower-level picture with the one at the higher level. Appropriate aggregation needs to be carried out while passing information up the chain and disaggregation needs to take place while passing information down. 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? Atul: Based on what I have seen so far, this is clearly an area of marked attention and much more needs to be done. While there has been progress in document collaboration – thanks to MS SharePoint – and proliferation of business intelligence dashboards for executives, the actual collaboration is still an E2 (Email, Excel) process. Moreover, a lot more time is spent on merely getting the data as opposed to the time and effort expended on analysis and decision making. Most organizations have yet to embark on the journey for:
- Workflow-driven S&OP collaboration for data gathering
- System-suggested rules-based simulation during executive cycles, and
- Workflow-driven enforcement of S&OP decisions filtered through daily / weekly exception management at lower levels
From a technology perspective, a combination of rapid analysis and planning tools, collaboration infrastructure and business process management tools with comprehensive workflow and rules capabilities will go a long way in enabling S&OP collaboration. Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be? Atul: At the top of my list would be:
- Establish S&OP as a formal organization process with named senior executive responsible for this function
- Strengthen / improve rapid simulation and analysis capabilities and integration between big picture items and lower level details, and
- Enhance collaboration infrastructure including workflow- and rules-based management
� Atul: Exception management has a key role to play at the executive and lower levels. At the executive level, it helps identify the right level of business parameters by filtering the outliers for a given set of business goals. Once goals are determined at the aggregate level, it is important to focus on achieving these goals at lower levels i.e., allocation plans may be set at the family level, but they must be managed at downstream SKU levels as actual orders are placed. Exception management helps identify the situations where these goals are violated, thus requiring human intervention. It is therefore an enabling mechanism to ensure a tighter feedback loop downstream. 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? Atul: As described in some of the responses, what-if capability is critical to shortening the lead time on analysis and improves decision-making quality during executive S&OP meetings. It also directly adds to the maturity of the S&OP process as much of the time during the S&OP cycle is spent on data acquisition. There is always so much to analyze and by the time an S&OP meeting is due, the pressure to take decisions quickly is acute. A strong what-if simulation capability not only helps ease this pressure, but also assists in presenting the right levers for optimal business results. What-if simulations are also helpful downstream to analyze potential fluctuations on a daily / short-term basis and take corrective actions to ensure that operations at the lower level are consistent with the higher-level S&OP goals.