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By Sean Rollings | Supply Chain Management review
Product companies have attempted to synchronize supply and demand through Sales & Operations Planning (S&OP) programs for more than 30 years, but most organizations today report that they are nowhere near satisfied with the results. As supply chains become increasingly complex, it’s no surprise that supply chain leaders see great opportunity for improvement in S&OP. In fact, research consistently shows that improving the S&OP planning process is a top three supply chain priority for most companies.
The benefits are clearly compelling: industry analysts estimate that S&OP systems can reduce inventories by 5-10%; increase inventory turns by 5-10%; and increase service levels by 5-10%. All of these combined improvements can help boost top-line growth by 2-5%.
Why is S&OP So Challenging?
Business complexity is exploding within the supply chain. Globalization and the embrace of outsourced manufacturing and distribution have vastly increased complexity, leading to information fragmentation and overload. Customer demand is volatile; product life cycles have become shorter and product variation has created mind-numbing supply conditionality, making forecasting and planning more an art than a science.
Just to make things harder, SKU proliferation, alternate parts, alternate suppliers and features are forcing organizations to plan demand at the product family level rather than the detailed level that drives the execution of the S&OP plan. The same complexity forces supply planning to occur at a commodity level. Planning demand and supply only at an aggregate level is disconnected with the reality of execution which plays out at the granular level and is sure to result in supply disruptions. Further compounding the issue is the fact that demand and supply translation for execution is usually performed manually (i.e., mostly on spreadsheets) and communicated via email, meaning that valuable information is lost or miscommunicated while propagating it across stakeholders. Because it is communicated in a one-to-one fashion, information is obviously out of sync among participants – they’re playing off different sheets of music.
With information siloed among a heterogeneous mix of information systems and numerous spreadsheets this highly fragmented information infrastructure poses one of the greatest challenges to S&OP. In addition, with a variety of systems inside the enterprise, as well as a plethora of systems (that don’t talk to each other) across trading partners, most information is exchanged in a serial, one-to-one fashion, causing latency and requiring synchronization. Worse yet, demand and supply organizations typically speak different languages, operating relatively independently when one would expect to have a seamless, end-to-end process.
The Business Value of Improved S&OP
No excuses: Sales and Operations must find a way to plan for demand they can’t predict, with supply they don’t control. As supply chains become increasingly complex, supply chain leaders see enormous potential for improvement in S&OP. What would it be worth for your organization to have near-real-time access to your departments’ and trading partners’ supporting facts, and a single version of the truth? What if you could align your operational, commercial and financial plans across all of your stakeholders and achieve those plans in synch together?
We like to think of this goal as “closed-loop S&OP.” This term implies collaboration among organizations within the enterprise, along with partners across the trading network. One major roadblock for internal alignment is the common mistrust of underlying assumptions for the supporting data. These assumptions are often wrong, outdated or incomplete. What’s needed is a collaborative platform that can help teams integrate, plan, align, and execute stakeholder resources to maximize their efficiency over multiple planning horizons.
These four steps are the essential “must-haves” for ensuring future S&OP success:
Integrate: Brand owners need a collaborative platform for integrating people and their data in participating organizations within the enterprise; typically supply chain, or operations; commercial, typically sales and marketing; finance and executives. This collaborative platform must also extend beyond the enterprise enabling integration and synchronization trading partners’ data: manufacturers and distributors on the supply side, and distributors and customers on the demand side.
Plan: You can’t plan with a junkyard of data. Brand owners need network planning and response tools, fueled with fresh, synchronized data to enable demand-driven supply optimization with the ability to match granular demand with granular, often constrained supply and capacity.
Align: Once the plan is agreed upon by the S&OP team, the collaborative platform must enable feasibility testing by suppliers, distributors, and customers. Resulting recommendations for modifications to the plan can then be considered and confirmed by the S&OP team. Empowering the S&OP team with network planning and “what-if” course correction tools to handle constraints and frequent change enables the organization and its partners to achieve demand-driven supply optimization.
Execute: Once the S&OP stakeholders agree to a plan of record, this operational plan can be seamlessly executed across the collaborative trading partner platform. I’m standing on my soapbox now: It’s 2014 – now is the time for integrated planning and execution. We need to say goodbye to the stone-age swivel chair, manual movement of plans among planning and executions systems with the inherent errors and latency of data transfer and entry.
Next Steps for S&OP Leaders
In this fast-paced global business climate, product companies need to know that they can commit with confidence to their customers and suppliers. To do so, S&OP teams needs to adopt state-of-the-art platforms with collaborative planning and execution tools that facilitate real-time information sharing across their trading networks. Only in this way can trading partners, procurement managers and C-level executives work in unison to deliver the right sets of products to the right destinations at precisely the right times.