Month: October 2014

S&OP: The Evolving Supply Chain Lifeline

Being a Supply Chain Practitioner, Observer and Analyzer, recently one concept that really caught my imagination and seems to be the Holy Grail for manufacturer, distributor or retailers is “Sales and Operation Planning”. Now one would say, we all do it, we have the whole process sorted out with plethora of meetings scheduled each month or quarter and that very interestingly involves most of the business functions like Finance, HR, Sales , Marketing, Materials, Product, Operations.

But even if the whole recipe for an effective planning is established , the companies are still facing regular challenges of  Stock-outs, Low inventory turnover, Lost customers, Supply interruption, Forecast errors, Inventory Pile ups, Markdowns, Customer Service Degradation,Increased Obsolescence, etc.

These persistent issues have provided enough inkling to revisit the S&OP basics and track down the real obstruction for materializing an effective S&OP, build with enough tolerance in order to counter the ever changing dynamics of supply chain and deliver results as per the strategic goals targeted by an organization.

S&OP As They Say:

APICS defined it as “A process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer focused marketing plans for new and existing products with the management of supply chain.”

  • The Process brings together all the plans for the business(sales, marketing, development, manufacturing, sourcing and financial) into one integrated set of plans.
  • The plan covers horizon for near to intermediate term and links the strategic plans for the business with its execution and reviews performance measures for continuous improvements.

To put it succinctly, I like to quote Tom Wallace and Bob Stahl as they define S&OP as “a set of decision-making processes to balance demand and supply, to integrate financial and operational planning, and to link high level strategic plans with day-to-day operations.”

S&OP: Supply Chain Nerves Control

S&OP forms the brain that controls the whole supply chain nerves directing what products to make, how much to make, where to make, how much to procure, right inventory level, where to distribute, what products to be introduced, promotions, etc. in terms of both value and volume and are soundly based on the signals received through demand forecasts, capacity constraints, financial constraints, company policies etc. along with strategic objectives of organization.

Today it’s just not the organizations that are in competition but there is whole “Supply Chain Network War” out there and to grab a winning edge by providing the desired product at the right time and place, an effective and collaborative “S&OP” plays the most crucial role.

S&OP: What’s Different Now

The table below very clearly depicts the required elements gone into standard S&OP process. Implementing the underlined process with a disciplined and structured approach have served some of the organizations well by reaping in benefits like efficient operation, reduced costs etc. but with the increased complexity in form of ever changing customer loyalty and

BCG

requirements, shrinking lead times, short product life cycle, evolving technologies etc. has called for a much more sophisticated, collaborative, robust, agile and responsive S&OP processes in place. The time to react in the marketplace is constantly getting shorter and organizations need to continuously reconcile their supply chain strategy in order to fulfill the strategic objectives of the company.

With the elongated supply chain both downstream and upstream there is increased complexity in value chain resulting in little control and visibility over the processes, demand and resources. The frail relationship within the supply chain stakeholders has only aggravated the situation, where the supposedly well run S&OP processes are now struggling in making accurate forecasting and planning.

Today’s global business environment demands for an integrated decision making, encompassing even the company’s customers and suppliers, along with internal functional departments of the organization. Working in silos will not serve any benefits but a focused integrated effort to realize strategic goals by establishing a collaborative network of retailers, suppliers and manufacturers will go a long way in creating a win-win situation for all the stakeholders involved.

Below are some complexity challenges highlighted that have an impact on current S&OP practices:

Booz

Advanced S&OP: Integrated Business Planning(IBP)

The increased uncertainty and volatility induced by above mentioned complexity factors has compelled the organizations to look beyond ensuring alignment and synchronization of company’s internal functions through making an earnest effort in understanding and decoding the dynamics of external environment and its effect on their supply chain as well.

evolution

Source: Transitioning from Sales & Operations Planning to Integrated Business Planning, Oliver Wight Americas

This shift to Strategic Management is termed as Integrated Business Planning and has following additional S&OP attributes associated with it:

  1. More Robust Financial Integration
  2. Inclusion of Strategic Plans, Initiatives and Activities
  3. More Robust Product and Portfolio Review
  4. Improved Simulation Modeling and Scenarios
  5. Improved Operational Risk Visibility and Management
  6. Gap identification, improved decision making
  7. Improved Trust Across the entire management team
  8. Easy Effective Translation- Aggregate and Detail

Source: Transitioning from Sales & Operations Planning to Integrated Business Planning, Oliver Wight Americas

S&OP/IBP: Seize The Winning Edge

Involving all the concerned stakeholders and implementing S&OP in the right spirit is of paramount importance to get the supply chain right in the first place and is inevitable to create a win-win situation for all the stakeholders in supply chain.

Success realized, not only could be depicted by quantifiable parameters like reduction in forecast error and inventory, increase in inventory turn & service level, contribution to top line growth and SKU rationalization but also instill improvisation in coordination, communication, anticipating risks, machine and resource utilization, which ultimately led to fulfill customer needs with utmost efficiency and effectiveness.

S&OP Journey to Advanced S&OP/IBP has elevated the role of this process and is now the central element in achieving strategic business goals of an organization. Although there are still some refinement possible to extract the best out of S&OP process. Some of those are as follows:

Harnessing Information: Till now technology has aided in bringing more structure, increase collaboration but the real glory lies in harnessing the ever growing data to have better intelligent insights not just of markets but of their partners also.

Prompt/Unobstructed and relevant information flow and visibility with complete synchronization of all levels of decision makings: strategic, tactical, operational and execution is vital for swift decision making.

Building capability to tap into the available granular information of external factors linked to demand and supply, like new channels, new regulations or new alliances between competitors or suppliers, customers’ buying behavior, competitors’ products and pricing, etc. is the need of the hour and adapting the available technology to do so brings in the real competitive edge for the company.

Value Chain Driven: In today’s global business world planning between sales and operation should not be restricted with sales playing major role in determining demand but here supply side should also play a bigger role by reaching to extended supply chain integrated with complete visibility of tier-1 to tier-2 suppliers, having complete clarity of sourcing places, constraints, vulnerabilities, capacity, innovation potential, to optimize the product quality with reduced cost and putting out the right product in right quantity in the market.

Decision making should be driven based on trade off keeping in account the total cost to serve across the entire value chain.

Bespoke Strategy as per the Business Streams: As each business streams demands different service levels, extent of collaboration and information sharing, an enterprise needs to prioritize and adapt their S&OP activities, investments and attention based on product, channel and customer segmentation and molding their policies based on the strategic importance and its supply chain impact.

Streamlining Key Performance Indicators (KPI): Renouncing KPI’s assessing functional performance of different departments to a more integrated value chain specific KPI’s could help in deep diving and resurfacing the core problems hindering the optimized supply chain performance. Establishing a shared functional and performance metrics aligned with organization strategic objectives will help in increased collaboration, where incentive gained of value chain will far outweigh the results of functioning in silos.

Leadership Commitment: Last but not the least: Finally the right intention, right commitment, clear objectives and greater sense of purpose induced into organization culture is the only way to dispel distrust or any dysfunctional interaction among internal and external stakeholders. Continuous and dedicated engagement of top leadership is quintessential to set and drive the right behavior and balance in organization.

Just to conclude I like to quote one of my favorite lines from Kirby Ferguson:

‘We are not self-made. We are dependent on one another. Admitting this to ourselves isn’t an embrace of mediocrity and derivativeness, it’s a liberation from our misconceptions.” 

References:

George Palmatier and Colleen Crum,Transitioning from Sales & Operations Planning to Integrated Business Planning, Oliver Wight Americas (http://georgepalmatier.com/white-papers/transition-sop-ibp-palmatier.pdf)

The Hidden Supply Chain Engine: Sales and Operation Planning, BCG India,(http://www.bcgindia.com/documents/file83399.pdf)

A Fresh look at Sales and Operation Planning: Booz & Company (http://www.strategyand.pwc.com/media/file/Fresh_Look_Sales_Operations_Planning.pdf)

Sales and Operational Planning Process: Anand Subramaniam (http://www.slideshare.net/anandsubramaniam/sop-process)

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