If you were to ask a senior leader of a company about initiatives that are being taken to move the S&OP process in the company to next level, majority of them will tell you that they already do it very well. Some of them may give you an impression that they have, sort of, perfected the process. The next question I would ask is, “If that is so, then both customers and shareholders must be delighted”. The most common response to the statement is a blank look.
S&OP concept is three-decade old that was originally designed to balance and getting cross-functional alignment to demand and supply plans. The companies adopted the process for varied reasons – some genuinely believed in its greatness and others because they did not want to be seen as not doing the right things. Whatever may have been the reasons, in most cases it was perceived and implemented as a process by supply chain and for supply chain. And, it made sense as the main objective was balance demand and supply. Other functions i.e. Sales, Marketing, Finance, Manufacturing understood their roles in the process but their ownership has always remained a challenge. The key reasons of disengagement are:
- Misalignment in the reward system e.g. sales being rewarded on achieving annual targets while supply chain on forecast accuracy, inventory & so on.
- Silo mindset continues to exist. People meeting for the demand and supply reviews should not be construed as collaboration. Most meetings end up in fixing blames for the past problems and sandbagging the future plans.
- No clear accountability for the metrics
- Inadequate process governance. The discipline of the meetings, preparation, data quality etc. take a backseat making the whole process inefficient and burdensome.
It has been found that the business heads, the owners of S&OP process, also lose interest after few cycles. The primary reason for this behavior is too much focus on short term and operational level details. The business heads are interested in answers to three fundamental questions:
- How are we performing against the business goals and strategy?
- What are the key risks and gaps that can derail the journey towards the goals?
- What needs to be done to safeguard against these risks and overcome the gaps?
When the business heads do not see these questions being addressed through the S&OP process they tend to disengage. They also hate to play the role of referees in the verbal fights between different functions in the executive S&OP meetings.
These symptoms indicate that the S&OP in these companies has reached a dead end. According to a study by Gartner most of the companies are stuck in stage 2 of S&OP maturity.
The only way to get past the dead end is to re-position and reorient the entire process as business focused, instead of demand & supply focused. Oliver Wight, the originators of S&OP process, have rechristened the process to Integrated Business Planning (IBP) – not just a change in the name but it is a change in the approach as well as mindset. Anything that helps in answering the three questions from the business heads, mentioned above, should be part of the IBP scope. All the business reviews and decision making meetings should be merged with and made part of IBP. Oliver Wight talks about number of differentiators of IBP process, but there are three main drivers of change that can help you to take your S&OP journey past the dead end.
- Broaden the Scope
While the demand and supply balancing may continue to play heavy on the agenda but the scope should include key strategic initiatives and projects e.g. new customers acquisition, products phase in and phase out, operational efficiency improvement, new supplier development etc. Broadening of scope will automatically engage and excite all the functional stakeholders.
- Change the Language
Supply chain folks speak the language of SKUs and volumes, whereas business heads understand the language of value or dollars. Therefore, a strong financial integration and capability to translate plans into revenue, profit and cash flow is the key to the transformation. Similarly, the sales heads need to be spoken in the language of customers, channels and territories. Marketing heads like to hear the language of products, categories and markets.
- Recognize uncertainty
Traditional S&OP has always tried to project one number. We all know, that in the current business environment reality can change significantly between two planning cycles. Therefore, it makes sense to also look at the potential downside or the upside to the plans. By doing so, you may not end up one number but can still have one version of the plan, which is also known as the range forecast. It immediately enhances your capability to recognize risks and opportunities in the business and entrenches the adequate response in decision making. It would also help in reducing gaps between the plans and execution.
In a nutshell, S&OP is a journey to continuously improve the capability of a business to achieve its goals. There is no maturity level that qualifies for the title of “perfect or ideal S&OP”. While supply chain may continue to play a pivotal role in the process but it is a process owned by the business leaders for the business.