Oliver Wight has long been at the forefront of Sales and Operations training and consulting - even to the point that many companies will tell you very proudly that they have attained Ollie Wight Class A certification for a variety of processes. Oliver Wight has also spawned several off-shoots, including Ling-Coldrick, who has done some really great work in getting S&OP started in many organizations. Oliver Wight promotes the concepts of their ‘Proven Path Methodology’ on a ‘Journey to Business Excellence’, which I have captured below. This is a business process maturity chart, ultimately ending up in integrated business processes.
Maybe it is just me being impatient, but whenever I look at this diagram, I cannot help wondering who is going to embark on a 10 year process. In the current market conditions who can afford to wait that long? Anyway, Ollie Wight has been doing process consulting and change management for a lot longer than me, so perhaps they are correct. But it must be nice for Oliver Wight to get someone to commit to a 5-10 year project. Wow. Having been around supply chain management since the early 1990’s, I wonder how many companies have progressed to Phase 3, and are nibbling at Phase 4. Perhaps the answer lies with a different maturity model promoted by Roddy Martin, formerly of AMR Research, which is now part of Gartner’s Supply Chain Management practice. Notice how there is a different value trajectory for the companies that are beyond Stage 3, when the focus is more on business value than operating efficiency.Comparing these two maturity models I would say that Stage 2 of Roddy’s model equates to Phase 3 of Oliver Wight’s model, which is the focus on functional excellence supported by the automation of functional processes. Roddy contends that most companies are at 2.5 on the maturity curve, and some have reached 3.0, with Proctor & Gamble ahead of the pack at 4.7. In other words many companies have reached Phase 3 of the Oliver Wight model and a few have progressed into Phase 4. It is in this context that I was fascinated by a recent daily email feed I get from George Palmatier of Oliver Wight in which he describes principles he wishes he had understood earlier in his life. (You can sign up for the daily feed here.) It is the ‘Integrated Planning and Control’ aspect that I find really different and interesting. This equates to Roddy’s notions of ‘Demand Driven’ (Stage 4) and ‘Value Translation’ (Stage 5). Fundamentally it is the recognition that while planning is necessary, planning alone is insufficient. One point on which I disagree with George is that he refers to ‘changes in the market’ without acknowledging that most of these are not changes but rather evidence that we did not have 100% knowledge of the market in the first place, and we never will. The significance is that by using the term ‘changes in the market’ there is an implicit assumption that a perfect plan that captures market conditions exactly can be created. We all know that any plan we create is aspirational, especially the long term plans, which is why, to me, ‘control’ sounds too much like measuring a supply chain’s performance based upon Plan Conformance. If the plan was never 100% right in the first place, why are we forcing the supply chain to follow it? Instead of ‘control’ I would use Gartner’s term ‘Profitable Response’ (see the diagram below), which is the core message of the middle paragraph in George’s principle. The diagram is from a recent Gartner article titled ‘Elevate Your S&OP Process From Traditional to Demand-Driven’ (subscription required) published by Todd Applebaum and Jan Kohler in which they recommend that companies
Create a vision for S&OP that moves beyond operational planning to drive business value by driving profitable demand responses based on trade-offs and conscious choice.
Sounds to me like they are making the same point that George is making: Planning and XYZ. The important bit to me is the association of profitable response with demand sensing and demand shaping. What I like about the term demand sensing is the implicit recognition that we did not have a complete understanding of demand in the first place, whether in the long term, medium term, or short term. Obviously some of the need for demand sensing can be put down to ‘changes in the market’, not just lack of knowledge.But what goes into being able to sense and shape demand, and then provide a profitable supply response? The strength of a large organization like Gartner is that there is often some really interesting work going on in multiple related areas. In June 2011 Roy Schulte, Janelle Hill, Nigel Rayner of Gartner published a report titled ‘The Trend Toward Intelligent Business Operations’ (subscription required) in which they address the Sense-Shape-Respond need from techy perspective, but the messages are consistent with what both Todd and Jan write (Gartner), and what George writes (Oliver Wight), and in which I believe. The key findings of the Gartner report on Intelligent Business Operations are
- The adoption of integrated analytics is increasing as business managers and knowledge workers are asked to make faster and better decisions, and thus need improved visibility into their operations and environments.
- "Real-time" operational intelligence serves different needs and uses different design patterns than tactical and strategic business intelligence (BI) and performance management (PM).
- There are two fundamental styles of real-time operational intelligence: analytic services that run on request and active analytics that continuously monitor conditions in a company and its environment.
- Organizations that pursue the business process management (BPM) approach to implementing systems are among the most enthusiastic and successful adopters of intelligent business operations, because business people and analysts can readily see where analytics and decision management should be used, and the project team has a commitment to explicit business process modeling and continuous process improvement.
My conclusion is that Gartner is seeing the need to plan, monitor, and respond in multiple business areas, not just supply chain management. The necessary technical capabilities they describe are captured in the following diagram.For the less technically minded, the acronyms used in the diagram are as follows:
- BAM – Business Activity Monitoring refers to the aggregation, analysis, and presentation of real-time information about activities inside organizations and involving customers and partners.
- CEP – Complex Event Processing is event processing that combines data from multiple sources to infer events or patterns that suggest more complicated circumstances. The goal of complex event processing is to identify meaningful events (such as opportunities or threats) and respond to them as quickly as possible.
- CBO - Constraint-Based Optimization, in the context of supply chain management, is essentially what we have called planning, and is focused on functional excellence.
- BPMT – Business Process Management promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology.
- Sim. - Simulation is the imitation of the operation of a real-world process or system over time. The act of simulating something first requires that a model be developed; this model represents the key characteristics or behaviors of the selected physical or abstract system or process. The model represents the system itself, whereas the simulation represents the operation of the system over time.
But we can see all the elements of the integrated planning and control discussed by Oliver Wight and Gartner’s Sense-Shape-Respond. Both capture the essential point that while planning is necessary, it is not sufficient on its own.
Likewise processes and systems, such as event management, that can only alert you when a particular metric is out of whack without being able to tell you the downstream or upstream impact are insufficient. Similarly predictive analytics processes and systems that are based upon statistical analysis without any notion of the underlying model are insufficient. This is the point brought out in the definition of ‘simulation’. And what better model of the supply chain do you have than the model you used to generate the plan in the first place? Most supply chain planning systems fail to address the needs for ‘intelligent business operations’ described by Gartner because their entire focus is on creating the perfect plan. The term ‘supply chain planning’ indicates their focus. They do not provide the capabilities to monitor, manage, and control the business once planning is “done”. Where supply chain planning systems fail is in being able to
- identifying the upstream and downstream impacts of events
- directing the alerts to the people responsible for the impacts
- orchestrating the multi-functional simulation of ways to resolve the issues
- incorporating both operational and financial metrics in the comparison of simulations
- incorporate human judgment as the key element of making trade-offs across functions and competing metrics
- doing all of this quickly
Doing some of this is not enough. Doing all of it slowly is not enough. Doing all of it quickly provides the Sense-Shape-Respond capabilities described by Gartner that are required to satisfy the needs expressed by George Palmatier of ‘Integrated Planning and Control’.