The step required to transition from anticipating to collaborating within Sales & Operations Planning is a large one. That was the conclusion drawn from a local session organised by analysts Gartner in Amsterdam, The Netherlands, on 15th November 2011, where Tim Payne, Research Director at Gartner, presented the various stages of maturity of an S&OP process.
In what Gartner calls – to use the military term – a ‘VUCA world’ (volatility, uncertainty, complexity, ambiguity), there is no process more fundamental to drive predictable earnings than S&OP. “S&OP may not be new, but neither is it easy. Three decades later, process and cultural barriers still impede pro- gress. A lack of transparency is still standing in the way of pro- gress for many companies,” says Payne. “Another issue is the use of technology in support of S&OP. No one tool is available today that supports the total needs of a mature S&OP process.”
To illustrate the different stages of maturity, Gartner develo- ped a model comprising four stages, from tactical to strategic. Stage 1 is the development of an operational plan: drawing up a demand forecast and plan. In stage 2, companies try to anti- cipate as well as they can: how can they meet the expected level of demand? The third stage includes consideration of the finan- cial impact of any decisions: the financial planning is integrated with the supply chain planning. In the final stage of maturity, a company works with various scenarios: what is likely to happen if...?
Using a list of questions on Gartner.com, companies can deter- mine at which stage of the model they are. Payne: “It is a linear model. You have to pass through each stage in turn – no-one enters in stage 3. However, in practice, not all the steps up are of equal size. Most companies find moving from stage 2 to stage 3 to be a huge step.”
Payne concluded by talking about sustaining maturity. He offe- red a number of tips, including creating the right kind of cul- ture. However, the tips remained somewhat theoretical. Payne referred to a series of research that Gartner had produced. But the session unfortunately failed to conclusively answer the ques- tion regarding what companies can do in practice to take the step from stage 2 to stage 3, and to ensure that they don’t fall back down to a previous stage.
he first time I learned about S&OP was in 1991, while working as Logistics Innovation Manager at Philips Consumer Electronics. Gerald Davies of Oliver Wight Companies presented this as the mis- sing link in MRP II – and consequently in the business processes that aim to align supply and demand. He emphasised business processes rather than ICT although, of course, ERP was still new at that time and the term APS had not yet been coined.
It was only 15 years later that S&OP popped up again during a discussion with the new Supply Chain Manager Europe of a multinational apparel and shoe manufacturer. He was about to implement an S&OP process to better align supply and demand. His key finding was that, in the three years after i2 and SAP R3 had gone live (at the simple push of a button), the days sales of inventory (DSI) had consistently increased without any increase in finished product diversity. I was not surprised.
Although I am known for being a nerd and include a lot of mathematics when teaching and supporting projects, I consider IT and mathematics as a means to an end. Every problem determines its solution. I consi- der the S&OP process as a solution to the problem that turnover-driven salespeople tend to sell what is not available, while efficiency-driven manufacturing people tend to produce what is not needed (I exaggerate slightly for the sake of clarity). Putting IT in the centre of the universe creates naïve solutions like the single plan’, i.e. the sales plan drives all activities in the supply chain and preferably in detail: Advanced Planning & Scheduling systems produce the production schedules from there. This single plan created increases in stock numbers at a large food manufactu- rer within a year of implementation.
I love multiple plans, as long as they serve a purpose. People should be aligned, not plans. I have run several in-company S&OP workshops over the last five years. My advice: meetings, Excel and ‘KISS’. So far, no com- plaints. Just a means to an end…
Ton de Kok, Professor of Operations Planning and Control at Eindhoven University of Technology, Depart- ment of Industrial Engineering and Innovation Sciences and Director of European Supply Chain Forum