Nothing Without Propagating the Strategy

Communication of the strategic purpose to supply chain constituents should not remain in the minds of top executives without filtering out to other levels of management. If lower-level managers are to help make change happen, they need to fully understand why some actions are good for the business, the customer, their own areas, and themselves.

Aligning supply, demand, and profits helps ensure product availability with minimal waste and inefficiency. This process of aligning must be designed to ensure that the plans in all functions and geographies are aligned with and support the corporate strategy. Once a consensus is reached on a single operating plan, the members of the executive and operational management teams must hold themselves accountable for allocating critical resources to effectively and profitably meet customers’ needs in order for the plan to work.

One should resist the deeply ingrained temptation to use the balanced scorecard (BSC) (explained in part 3) mainly as a brainstorming tool without understanding that the four BSC focus areas need to be mutually reinforcing and aligned with the strategy. For example, if the supply chain strategy is to penetrate a new, high-end market with an innovative electronics gizmo, then the business process perspective in the scorecard might be to develop a more rapid product innovation cycle. This aim could then be linked to measures of process innovation and design workshops in the scorecard’s innovation and learning area, reduced delivery cycles in the customer perspective area, and a profitability measure in the financial area.

I would say that products from Logility, Oracle, i2 Technologies, Demand Solutions, and JDA Software could all be considered strategic S&OP solutions. The key is these vendors’ S&OP offerings’ ability to link back to the actual supply chain planning (SCP) and enterprise resource planning (ERP) systems that are feeding data to the S&OP process, along with the ability to drill down to the stock-keeping unit (SKU) level of information.

John Bermudez, Senior Director of Oracle’s SCM Product Strategy (who was mentioned in Part 2), said:

“I think the popularity of S&OP is a combination of the economy and the availability of better technology. The rapid downturn in business was a wake-up call to even the best-run companies that nothing less than a fully synchronized response from all functional areas would enable companies to survive this turbulent business environment. Improving their S&OP process is the fastest way for companies to coordinate their response to changing market conditions. As companies look to improve their sales and operations planning processes, they find that they are supporting this process with inadequate spreadsheets and reports that are not integrated with the ERP and supply chain planning systems.

The Oracle Sales and Operations Planning solution is built into Oracle’s Value Chain Planning applications so that as planners are doing their daily planning work they are also contributing to the sales and operations planning process. This means once decisions are made at the Executive S&OP meeting, these changes are immediately reflected in the systems that drive the required changes to purchase and manufacturing orders. With spreadsheets, these changes must be done manually with great difficulty.”

The Buck Stops With Top Executives

At the end of the day, all departments involved in the S&OP process should submit annual budgets for review by the top financial executives. The final plan should merge and reconcile all functional areas’ plans and be reviewed by top management. Indeed, to work as envisioned, S&OP must be much more than a once-a-year process of formulating a plan to print out and distribute (and forget about) for the next 12 months.

The essence of the S&OP is the monthly executive meeting, which is preceded by two weeks or so of preparation by all the members of the team. Sure, the process could be run on a different timetable, but monthly data collection, analysis, and meetings are typical.

Karin Bursa, VP of Marketing at Logility (whose Voyager S&OP solution I currently consider as one of the top five in the market), believes that the revived S&OP popularity comes from the fact that many company executives are feeling the “pain” directly. Leveraging a better S&OP process is back on top executives’ agendas, as it will impact their ability to make the “best decisions” for the business. Executives need the ability to evaluate multiple scenarios (i.e., good, bad, most likely, etc.) that weigh all areas and aspects of the business.

Figuratively speaking, for a long time these executives have been “driving blind.” They are operating off disconnected data for a variety of time periods that are brought together in a spreadsheet for most businesses (even though robust S&OP solutions are available in the market). Bursa believes that the key issues in today’s volatile global market are the following:

* Dynamic changes in demand – up significantly above historic highs for select products (e.g., value products) and dramatically low for many others (e.g., premium products)
* Inventory investments — most business have reduced inventory so dramatically that they run the risk of poor customer service or losing market share. They need to “build” the inventory that the market wants and is therefore most likely to sell
* New product developments (NPD’s) – most companies have a hit-and-miss track record with their NPD’s, which is expensive in terms of time, materials, and production disruptions. We are seeing an increased focus on improving the “win rate” and acceptance of NPD’s.

When executed properly, the new S&OP paradigm is a formal process led by senior management that, on a monthly basis, evaluates time-phased projections for new products, demand, supply, and the resulting financials over a rolling timeframe ranging from 18 to 36 months. Some even use the “Executive S&OP” term to denote the last step in the S&OP process, or the top management component of the overall set of S&OP processes.

Several success factors can influence top management participation in the S&OP process, including executive-level S&OP education and change management training, a focused meeting agenda addressing strategic decisions, and what-if analysis to help manage risk and optimize decision making.

Also crucial is the ability to view the plan in both unit volumes and financial terms. To that end, some leading S&OP solutions feature the ability to keep a monetary forecast (typically used by finance and sales) synchronized with a unit forecast (typically used by operations). This means that financial and sales targets are always visible to the operations group as they make decisions about balancing supply and demand. Moreover, the finance executives always have a current operating plan with updated cost of goods sold (COGS) on which to base their financial projections.