The Evolution of S&OP

The increase in supply chain complexity due to outsourcing, as well as the increasing speed of business, have led to an unprecedented degree of uncertainty and volatility, demand volatility in particular. As a result, there is an urgent need for achieving better alignment between financial and corporate objectives, which is the reason behind the renewed interest in Sales & Operations Planning (S&OP).

What is most interesting is that the reasons for the renewed interest in S&OP are the very same reasons for needing to evolve S&OP. While the end objective of operational and financial alignment remains the same, in an environment of volatility and complexity, how you achieve that alignment (and maintain it) is very different from before.

Synchronization

While progress has been made on what is often called the East-West axis in demand/supply balancing, there has been little progress made in providing a consistent manner of keeping the North-South axis of longer term financial and operation goals synchronized with the more detailed and shorter term planning functions and operations.

Ultimately, the key to an effective S&OP process is the ability to create feasible plans. While the plan may be created at the aggregate level, it is crucially important to ensure that the plan is feasible at the detailed level. Without this test for feasibility, decisions will be made which cannot be executed leading to distrust of the S&OP plans and therefore lack of adherence at the tactical and execution levels.

When you have different functions independently carrying out their portion of the S&OP cycle -- each with their own objectives, operating on different time horizons, and using different units of measure- everyone, in essence, is speaking different languages. Who is the 'translator' that ensures synchronization across planning functions? How do you ensure that the intentions of each group don't get swallowed up in the black hole between functions? Moreover, given the level of volatility, planning is no longer a sequential process; groups are constantly working in parallel to address plan exceptions. How do you ensure synchronization of a non-linear process?

A mature S&OP process simply cannot be achieved without a highly synchronized form of vertical and horizontal communication and information exchange.

Collaboration

S&OP transcends functional boundaries and can only be realized by different groups working together; yet, one of the most often quoted barriers to the adoption of S&OP is the cross-functional cooperation and collaboration that is required. That's a conundrum for sure.

Collaboration amongst peers is often challenging enough across departments, but given the distributed nature of today's companies, collaboration now means that on a given day, you may very well be collaborating with a complete stranger living on a different continent.

What's more, many companies are heavily outsourced. Their role has become one of coordination, rather than execution. They capture demand, ensure that there is adequate supply, schedule the introduction of new products, and commission new capacity. Key operational data that influences these S&OP decisions are outside of their direct control, and is therefore more difficult to access, integrate and analyze. Communication and collaboration is therefore critical, yet channels are extended and less transparent because of different time zones, languages, information systems, not to mention competing objectives. Achieving a level of maturity in collaboration in this environment is no easy feat, thus it is the area where S&OP excellence will be won or lost.

Frequency

Synchronization and collaboration are not calendar-driven activities, or at least they shouldn't be. Too much of S&OP is tied to a fixed schedule. The volatility of today's business environment guarantees disruptions to the plan, even far into the future. Focus must be given to how a company can enable its organization to respond to the inevitable and frequent plan deviations. Companies must establish a capacity to reconcile operational and financial plans on an ongoing basis, not just as part of a planning cycle. Companies can no longer afford to wait until the end of the month to evaluate how they did, or to take corrective action. They must be able to sense market changes and respond quickly, often requiring changes to the plan within the standard S&OP cycle.

True S&OP proficiency will come with the ability to perform S&OP on-demand. Ideally, teams of people, whenever needed, would be able to quickly re-evaluate demand plans, rationalize supply and review optimal inventory targets to mitigate risks and support growth.
Why can't an S&OP cycle be run in less than a week? Why shouldn't S&OP be a continuous process? Part of that answer lies in the efficiency of the process.

Effective, and Efficient

While many companies may have a fairly well established S&OP process, most of it is carried out with a great deal of slow and manual effort. The level of cross-functional and cross-organizational process synchronization, collaboration, and frequency required to achieve a high-level of maturity simply cannot be achieved with Excel and definitely not without any technology at all.

S&OP maturity requires the adoption of new processes which are enabled by technology:

• synchronize planning using a single system, with a single data model, and a role-specific UI;
• reconcile planning across different time horizons, units of measure and key performance indicators;
• immediately test the feasibility of volume-level plans at the mix level and reflect changes made at the mix-level in the volume-level metrics;
• employ frequent and robust what-if capabilities to evaluate multiple upside and downside scenarios to mitigate against risks and respond to unplanned plan deviations; and
• identify and collaborate whenever needed with team members across organizations and functions to establish quick consensus on action plans.

The bottom line is that traditional S&OP processes (and its legacy technology) are failing to meet the challenges of the new business dimensions. Forward looking companies should be looking at how to create a single, flexible planning capability across the planning and execution horizon in order to reduce planning latency and gain supply chain agility in meeting operational and financial objectives.

Trevor Miles is Director of Industry and applications marketing for Kinaxis, a provider of on-demand service for supply chain management and S&OP.

Interested in information related to this topic? Subscribe to our weekly Value-chain eNewsletter.