Almost three decades ago Sales and Operational Planning (S&OP) burst onto the Supply Chain scene as the latest innovation. When S&OP as a concept emerged in 1987, we didn’t even have the internet, much less the Internet of Things. Printouts at the time were from dot matrix printers, and we could not even conceive of 3D printing. It’s amazing we could even have S&OP meetings considering PowerPoint only came out 3 years later in 1990.
S&OP Process Improvement Is An Illusion For Most Companies
What we see now may be an illusion of progress masked by new terms, and executives believing what they want to believe. The more people speak about something, the more we perceive we know about it, and this phenomenon holds true in Supply Chain (it works great in politics as well). Everyone throws out the terms and buzzwords with few of us knowing much about it or if it does what it says.
The truth is settling in that the vast majority of companies, despite intense efforts, cannot demonstrate any measurable improvements in their company’s performance.
What we do know is that repeated research shows over two-thirds are failing to extract any value from their S&OP process. Despite the mountain of research on how to develop a mature process and the millions of dollars spent – the Gartner five step maturity roadmap reveals 68% of organizations are scored at 2.6 or lower – that means they are barely coping with balancing demand and supply. The truth is settling in that the vast majority of companies, despite intense efforts, cannot demonstrate any measurable improvements in their company’s performance.
Possibly the most incriminating report came from the Institute of Business Forecasting (IBF) Global survey (2014). In this study, Dr. Chaman Jain researched 664 North American companies, 471 (71%) of which said they had an established S&OP process. When looking at Days of Inventory, surprisingly there were not only no improvements, but the 471 companies with an S&OP process actually did worse (39 Days of Inventory for companies with S&OP compared to 37 Days of Inventory for all companies). When measuring back orders as a percent of sales and looking at service stock outs, S&OP presented no discernible effect.
If S&OP is having difficulty keeping up with business today, how can it keep pace with the business of tomorrow?
Understanding the Larger S&OP Problem
The bigger question is not whether S&OP is able to add value to Supply Chain today, but whether it will be able to keep up with what is coming. There is no doubt that everything else will continue to evolve around us, including business. All the challenges we face today will be amplified in the future, and we will surely have new people with newer skill sets, new technology and capabilities, and ideally new processes.
Cycles will get shorter, data will be bigger, and collaboration and value may take on a whole new meaning in the enterprises of the future. Although many companies are recognizing the need to become more responsive and flexible, most S&OP processes are not designed to cope well with ambiguity. The leaders in the future will be the ones that can more efficiently see, interpret, and act. This is what executives will be looking for, a better way of gaining insights into their business that enable them to make better and faster decisions. If S&OP is having difficulty keeping up with business today, how can it keep pace with the business of tomorrow?
The limitations of the S&OP process and the changing business landscape necessitate a broader approach to the planning process. Planning can no longer remain within the realm of Supply Chain alone if it is to have a meaningful impact on the business. The S&OP function should be elevated into a central business planning & execution framework. This framework will help executives deliver a better way of making better decisions on a faster timeline.
Rethink People, Process and Technology
Rethink People: The core should be comprised of people with strong analytics capability and people with business savvy & influence. This creates synergies between the business team members to ask the right questions and analytics team members to find the right answers. Talent is scarce, so organizations should recruit from across the organization and nurture potential candidates.
Rethink Process: Organizations should establish a centralized fully integrated forecasting, business planning, and analytics function to support decision making and a repeatable process to create value, manage risk and coordinate enterprise wide decision making. Consider Business Efficiency Planning (BEP) as part of a continuum of a natural progression towards deeper integration across disparate business functions to facilitate deeper alignment and maximize business value. The path to BEP begins with well-established foundational S&OP processes along with other processes such as PLM & FP&A.
Rethink Technology: Organizations should invest in a technology landscape that includes core applications with embedded capability, open-source analytics engines and self-service tools to consolidate data and provide prescriptive and predictive analytics for all business functions. This may include: customer analytics, consumer insights and/or geospatial analytics in addition to traditional forecasting and supply planning capability.
The first step is simple and any company has at their disposal. Organizations can get quick wins by aligning discrete decision-making process and improving participation and alignment between FP&A and S&OP processes. Developing a strong forecasting team and core data & analytics function to serve each function’s needs and acquiring leadership buy-in to define a roadmap that integrates the foundational processes with the overall business strategy. Finally build a roadmap to Business Efficiency Planning to align all functional areas to a unified set of assumptions and to enable and coordinate decision making.
[Ed: this article first appeared on the Arkieva.com Blog. You can find the original at this location.]