Is Supply Chain Ready for the Next Generation of S&OP?

Adopt a business culture of planning and get on the fast track to S&OP success

Whenever the topic of Sales & Operations Planning (S&OP) comes up, the question is always “what’s new?” And rightly so as the business process, which has been around since the late 1900s,’ is applied across numerous market segments in the supply chain. And as anything that must evolve with time, S&OP transitioned from a siloed approach—where in many cases, the finance component and supply chain operations acted individually to forecast business predictions—to one that defines the need for an integrated process.

But whether you want your company to improve on its service levels or capitalize on inventory demand, one must adopt a business culture of planning, in the raw sense, before even beginning to discuss the IT systems they must have in place to adopt S&OP technology; the challenges they’re looking to overcome or potential gained benefits with S&OP; or global S&OP initiatives.

Regardless of the case, S&OP is always going to be a work in progress, as one U.S.-based retail company confirmed, which continues to implement S&OP across its business since it began the process 10 years ago. In the company’s case, the need for S&OP stemmed out of a disconnect between its merchandising strategies and operations configuration. What were its sales? What was its buy? How much turns did they need to produce? How much operations flow would occur? The company was able to address such questions over time—but not before first addressing that business cultural challenge.

In fact, the senior leader of S&OP for this U.S.-based retailer confirmed that his company could not have had a successful S&OP adoption rate without that culture of planning—a huge enabler of improved S&OP processes. This meant not only the value planning from a merchandise- and financial-point of view but also valuing it from an item- and operations-point of view.

Avoid the systems of your yesteryears

Yet, while having a culture of business planning may be the first step to S&OP, reality for many companies sets in when they realize that the S&OP processes they had five to 10 years ago no longer work in today’s evolving global environment.

That system infrastructure that companies have in place where the sales component of the business passes their business projects across to the supply chain operational side—those planning processes of S&OP on the front end and back end have yet to evolve successfully, according to Blake Johnson, Consulting Professor, Stanford University.

“That process—while it may work just fine in a more predictable, simpler world where it was relatively easy to get a decent sales forecast—does not work today and businesses are feeling that pain,” said Johnson. “But what’s happened over the last 10 or 20 years is the world became a lot more of an uncertain dynamic. And that is really what’s making S&OP so critical today. Everybody’s systems, all of their organizational processes are still those prior ones. And that’s breaking down today. That is really why everyone is interested in S&OP—they know that it’s the reality.”

Enter the process of Integrated Business Planning (IBP). “That is what companies are really striving towards because they see that S&OP, in its traditional sense, starts to get a little bit dull after time,” confirmed Douglas Kent, Vice President, Avnet Velocity (of Avnet Inc.) “And yes, there is this consistent attempt to build, for example, a demand and supply matching mechanism inside of the company. But most companies have not built that up to that level where they are taking big business decisions upon that as opposed to really more tactical decisions about the attempts to avoid the mismatch in demand and supply. So that’s what the common theme is—what is integrated business planning? How is it different than S&OP? And what’s it going to mean culturally and benefit wise to my organization?” said Kent.

With the Stanford Global Supply Chain Management Forum, which partners with a select group of industry leaders to advance global supply chain management, Johnson helped spread awareness regarding S&OP over the past three years in terms of best practices, its maturity spectrum and adoption rate, executive summaries from S&OP-focused events, in addition to S&OP’s current challenges. The forum helps facilitate collaboration between Stanford University and companies; as well as between industry thought leaders within those companies to help them connect with their peers and interact with other companies and industries.

“People are still learning about S&OP,” added Johnson. “Some people are very clear on what stage of S&OP they are at and some people are just trying to educate themselves with a lot of different viewpoints and stories. There are definitely people that know where they are and where they are going but there are quite a few people that don’t.”

As such, the industry must continue to fundamentally connect the sales and operations planning processes “but also make tradeoffs that expand the two sides in an integrated way,” he said.

“By the same token, businesses are fundamentally different when you get below that macro level,” continued Johnson. “You have the process industries and the assembly-driven industries and the service-driven industries. And there are very important differences to each and that’s where the apps side of things comes in really strong. There is a foundational level that is very shared and common and there are going to be a lot more tailored vertical- and industry-specific things that people are going to naturally want.”

Industry movements in S&OP

Pleasanton, Calif.-based Steelwedge Software Inc. is one such S&OP solutions and services provider that, in addition to its work with Stanford University in spreading educational awareness regarding the business planning process, continues to help businesses in the supply chain tackle their S&OP adoption challenges on a global scale.

Providing a number of architecture apps that address demand policy, inventory segmentation and stocking strategy, the Steelwedge Integrated Business Planning (IBP) platform assembles data from multiple systems in any format—including ERP, SCM, CRM, BI and finance—into a single, unified cloud-based platform. More specifically, one of the other applications Steelwedge provides is a range-based forecasting approach to address the need for range-based statistical forecasting viewing as opposed to from a single view.

“With almost all of our clients, there’s some level of inventory optimization that we support because you can’t look at tradeoffs in supply and demand without looking at both finished goods and intermediate work in progress,” explained Glen Margolis, Chief Executive Officer, Steelwedge Software Inc. “A lot of the things that we work on with Professor Blake Johnson at Stanford University is integration not just for clients but on a broader S&OP scale. For ex., if you know the variability of the time zones of suppliers as well as demand, how do you use that knowledge to more effectively assess tradeoffs as you develop an S&OP plan? When you are looking at tradeoffs, you have to ask yourself ‘Do I want to make some investments here? Do we take a hedge here because we want to protect ourselves from any unwanted surprises? What do we do in terms of investing in inventory?’”

Addressing the global scale

In extending S&OP beyond the four walls comes the factor of businesses expanding operations to global regions. And what S&OP processes work for one company may drastically differ for companies in another region dealing with other economic factors, government regulations and business ideologies.

For ex., while the U.S.-based retail company which we referenced earlier in this story initiated S&OP into its business after developing its planning culture, not every country yet embraced such solid disciplines around planning.

In the United Kingdom, planning is not necessarily seen as an integral hands-on approach to ones business, confirmed the senior leader of S&OP for this U.S.-based retailer. In that environment, each buyer instead keeps their own plans off to the side—with nothing utilized or disciplined about this strategy.

Suffice to say that S&OP technology, let alone the planning culture, is not viewed today as the cost of doing business but instead, just an optional area, according to Nari Viswanathan, Vice President, Product Marketing and Management, Steelwedge Software Inc.

“And that’s why you have 80 percent of companies still using Excel for solving their S&OP processes,” said Viswanathan. “Instead of just a volumetric problem of identifying how many units to sell in one’s local market, S&OP became a lot more strategic in identifying which market one should go to, which product to sell in what market and at what price point should it be sold at to make the most amount of profit.”

And as companies continue to look to newer markets—such as China, India, Brazil, Russia and even Vietnam—to expand some component of their business, they must address how S&OP will not only operate in such countries but what factors it will address differently based on regional economic demand and issues.

The maturity level of S&OP usually differs in geographies,” continued Viswanathan. “You will have a very mature S&OP process in North America. But even with our own customers—we have a very large consumer electronics manufacturer who has divisions in the U.S., in Latin America and in China—the maturity levels of the processes are very different. However, the organization wants to rule the demand and look at the forecast at an aggregate level. Certain parts of that organization are more sophisticated—they want to do forecasting, they want to collaborate with their customers. But other parts of the organization don’t have that maturity level yet. So the ability to have multiple S&OP processes work alongside each other to support more of a global S&OP process is very critical.”

But not only is the global scale an important factor in S&OP adoption, supply chains are different based on a business’s strategy as well. For ex., some industry verticals are very much about capacity, such as in the chemicals space; while others deal more with raw materials and lowest cost of labor, such as in retail. As such, there is still question in the industry whether S&OP can be applied to certain market sectors—such as the financial space, which instead of handling tangible product deals with liquidity and stocks and services.

Yet while discussion around such factors is important, it’s not to say that S&OP in a services space cannot be implemented efficiently.

“Applying S&OP to a service-based industry always requires some creativity,” confirmed Kent. “Whether it’s a banking institution or an insurance company or even a hotel, you have to take a look at what are their products. A banking institution has different services which in some instances they may even call product—such as a mortgage product or a lending product. When I work with services companies, I talk to them as if their services are products. And when we have the discussion on how do you apply these to S&OP, I’d say don’t try to follow strictly the rule of the law as if you were a product-based company doing manufacturing. But rather, think of your services as products and allow yourself to apply the best principles to S&OP to your business—to that unique environment.”

Make S&OP part of your business

Whether you are educating yourself on S&OP, at the implementation stage or at the point where IBP and S&OP are concurrent factors in your business’s planning phase—its success is around collaboration that can provide you with the data and visibility you need to grow your business into the future. Errors will happen along the way, but whether you are at the crawl, walk, run or sprint stage, S&OP is one way your business processes can evolve to gain more ROI for your company at the end of the day.