Five Tips to Convince Sales to Join the Sales and Operations Planning (S&OP) Game

Change is a challenge. Implementing sales and operations planning (S&OP) can be a massive challenge. Supply chain executives put recurring processes in place with meetings scheduled months in advance. They gather vast amounts of data and force it into predefined buckets. And they expect diverse functional groups to talk with one another and arrive at a consensus plan. But despite the most diligent efforts, every practitioner of
S&OP—even those who are best in class—encounters obstacles to true collaboration.

The culprit blocking collaboration is often that each functional group may respond to the planning process differently. If you’d like to test the theory in your own company, ask each group the following questions in relation to their priorities:

  • Are we planning in units or dollars?
  • What’s our planning horizon?
  • What level of detail is needed?

The table below demonstrates how goals differ between functional groups. Sales wants to maximize revenue, thinks in dollars and is focused on the near term. The Operations group wants to know what to manufacture, when it’s needed and where it needs to go. Operations is focused on minimizing operating costs, thinks in units and is looking at the medium term. Meanwhile, Finance is trying to maximize profit, manage cash flow, thinks in both units and dollars and is focused on a much longer horizon.

S&OP measures

Combining these cross-functional views into a consolidated plan that respects the dependencies across them is one of the key outputs of S&OP. But, when it comes to Sales, supply chain executives need to understand exactly what they’re asking. What’s needed for S&OP will look like a huge, unwieldy obligation to salespeople. Changing how they perceive S&OP can help you improve the “ask” and get them on board.

Here’s what you’re asking from Sales:

  • Provide your forecast much further into future
  • Tell us what specific products you will sell
  • Tell us the number of units of each specific product
  • For each product-specific unit projection, tell us into which months they will fall
  • And, by the way, if you don’t sell to meet your forecast, we’ll have a conversation about that, too

When confronted with an “ask” of this magnitude with such a different approach than is their norm, the first response from salespeople is to resist. They’ll tell you they need to be out in the field with customers, that they need to be selling to achieve their objectives and that they don’t have time to provide this type of detailed forecast.

As an organization that sees the value of sales and operations planning, you must present your “ask” in a way that overcomes their resistance response. Mandating sales participation may be necessary, but that’s not enough. The organization needs to allow salespeople to do what they do best—sell. This means it’s up to you to make S&OP easy and helpful to Sales. You need to make sure you answer the all-important “What’s in it for me?” question for Sales.

Five Tips for Bringing Sales into the S&OP Partnership

  1. Provide a starting point. Salespeople are much better adjusting a forecast than creating one from scratch. The starting point can be a statistical forecast based upon historical demand.
  2. Make it easy to enter forecasts. Allow salespeople to enter their forecasts in a user-friendly tool. The tool should allow users to view actuals and forecasts at the desired level of aggregation. This means to allow roll up of values by customer, by region, by product family or other levels as defined by planning hierarchies. Then spread the aggregate forecasts across the all other levels using sound business logic. The planning tool does the heavy lifting, not your salespeople.
  3. Share the value of a better S&OP plan. A more accurate consensus plan will translate into better customer service levels and improved customer satisfaction. Yes, it really works, and increased satisfaction usually bodes well for increased sales. Help salespeople to see the value translated to outcomes that help them do their jobs better.
  4. Set realistic and achievable sales targets. S&OP requires one plan that the organization agrees to execute against. Sales should use the same approach to set sales targets. Stretch goals are fine, provided it’s clear that these go above and beyond the S&OP plan.
  5. Put the thumbscrews away. Measuring forecast accuracy is a great way to learn from the past and make improvements. It should not be the means by which to call out underachievers. If a salesperson’s actual sales are significantly and consistently under or over forecast, look into what may be driving that behavior. Does the company demand stretch goals and set commission plans at levels that are unlikely to be achieved? Is the salesperson reluctant to share leads for fear of being held accountable if the deal doesn’t close?

Sales participation is critical for S&OP success. Make it easy and non-threatening, and show salespeople how a consensus plan can actually help to make their lives easier. In this way, the challenge to reap the payoffs of
S&OP maturity may become less massive.

What’s Your S&OP Maturity Score? Answer 9 Questions to Find Out

Sales and operations planning (S&OP) maturity is based on a progressive assessment of where your organization is in relation to the six layers that drive supply and operations planning success. The main reason supply chain executives should strive for S&OP maturity is for sustainability. It shouldn’t go unnoticed that each S&OP process needs an owner in order to gain a consolidated view of supply chain risk based on the reconciliation of supply and demand.

S&OP Mini Maturity Assessment

Take the following brief assessment to get an idea of where you stand on the maturity scale for three of the six layers of S&OP.

Maturity can be calculated with a “yes,” “no,” or partial estimation in relation to each factor. For the checklist, you’ll score each item as follows:

  • 0 – No, my company does not perform this activity
  • 1 – My company performs this activity on special occasions based on business events
  • 2 – Yes, my company performs this activity as a normal business practice

Trading Partners – Customers and Suppliers

Question 1: Does your S&OP strategy define the relationships between customers and demand planning, and suppliers and supply planning?

If you have defined how your organization will use collaborative activity with customers and suppliers, then give yourself 2 points for a “Yes.” If you don’t do this, score 0 points for “No,” and if you have defined collaboration for some customers (best accounts, for example) or suppliers, give yourself 1 point.

Question 2: Are your collaborative processes defined to integrate with S&OP?

Collaboration is a tactical process executed over time. People who have done a good job with integrating it into the process have been able to systematically collect collaborative input into demand and supply planning.

Question 3: Have you incorporated into S&OP some of the key performance indicators from a collaborative activity?

The usual KPI that is reported is in relation to forecasts—both for the company and for customers.

Your score for this section will range between 0 – 6 points.

Organization – Commitment, design and an executive dashboard

Question 1: Is your S&OP top down, driven by the leader of the business unit or enterprise?

This is the most common question in the survey, yet critical for S&OP success.

Question 2: Does your formal supply chain organization reflect S&OP structure? Globally?

There are three sub-questions to be considered in relation to this question:

  • Have you defined regional demand in relation to global supply?
  • Have you defined the way the organization is supposed to collaborate on demand, supply and finance?
  • How many global instances of S&OP or businesses that are using S&OP do you have? In answering this question, consider whether you designed it this way or it simply evolved in this fashion and whether there are business units not using S&OP.

Question 3: As part of S&OP, do you review a scorecard that balances internal versus external measures?

In answering this question, consider whether or not you are looking at inventory, service level, relative lead time and cost. Also, are you considering what’s important to the customer in relation to these measures?

Your score for this section will range between 0 – 6 points.

Physical Flow – Using the Network as Intended

Question 1: Have you defined your rough-cut operational capacity goals? Are they aligned with manufacturing, sourcing, and planning?

There are five goals: utilization, run size, order quantity, safety stock, and lead time. Consider whether all five are aligned and agreed to by the three entities.

Question 2:  Is your chosen operational strategy reflected in the item configuration?

Essentially, this question is asking whether or not you’ve defined your item strategy – either make the stock or make the order—and are the master data items reflected appropriately?

Question 3: Are your cost and inventory service-level metrics aligned and managed effectively?

Here’s a hint: If you have unit cost folks working on unit cost, planning folks working on inventory, and commercial people working on service levels and nobody’s talking to each other, the answer is “No.”

Your score for this section will range between 0 – 6 points.

Tallying Your Maturity Score

Add your layer scores together and divide by 18 to get an overall score. Or, you can divide each layer score by 6 to create a score card for each of the three layers.

  • A > 90%
  • B > 80%
  • C > 70%
  • D > 60%
  • F < 60%

The mini assessment for all six layers of S&OP was presented by Peter Bolstorff, co-author of Supply Chain Excellence, during a recent webinar. Watch the on-demand webinar to take the assessment with Peter’s guidance and include the additional three layers of process, people and technology.

The business environment is getting more complex. S&OP maturity can fluctuate over time based on a number of factors. You can look at this quick assessment as a way to define opportunities to improve and educate new team members about your S&OP process. As you work to improve your maturity, you will also find that what-if scenarios can help you move forward in reaching higher levels of maturity based on continuous improvement.

How does your organization assess S&OP maturity? Let us know in the comments.

S&OP: Move from Looking Back to Looking Forward with What-If Scenarios

Sales and operations planning (S&OP) is a collaborative planning process designed to answer the question: Can we satisfy the request for product? The challenge is to identify and solve problems while they’re still low level and before they can escalate to disrupt the supply chain.

In the course of developing executive S&OP or integrated business planning (IBP), supply chain teams often get stuck with a focus on problem solving in the near term. Until a consistent process for problem solving is in place, it’s difficult to move forward to problem prevention where companies can focus on a longer horizon that rolls out four to 24 months.

S&OP maturity can help teams to make this transition by providing credible information for decisions based on problem solving to mitigate risk. Credible information will also help S&OP stakeholders to develop plans on facts more so than assumptions that tend to be inaccurate.

One of the biggest obstacles to improving S&OP maturity is a lack of visibility into planning assumptions and a failure to tie the plan to actual outcomes. Establishing a collaborative process can help to expose the interrelationships between assumptions as well as to inform scenario planning to help executives avoid unexpected bad results that can jeopardize careers.

Scenario planning, also known as “what-if” analysis, is perfectly suited for the conditions in today’s market environments that have high uncertainty and are prone to costly surprises, such as demand volatility. Organizations need to establish a framework for the future and infuse new insights into strategic thinking to move forward successfully.

Types of Scenarios for What-If Analysis

Business as Usual: Most financial and operational plans assume stable business conditions—that what we are experiencing today will be similar to what we experience tomorrow. However, when considering normal business conditions, it’s important to review parameters that could change.

Examples are both internal and external and can include:

  • A customer wins a large contract and decides to source it out of a new location, creating a need to shift your supply plan
  • A critical machine breaks down and will take months to repair, reducing the units one plant can produce over a time period

Neither of these are major events, but will require a plan modification to address without disruptions.

Status Quo Challenges: Change is the watchword of the day. Markets are dynamic and shift readily, requiring adjustments to facilities, locations and workloads. While these changes are usually planned well in advance, planning for impact to supply and demand must take a forward-leaning approach with what-if analysis.

Examples are usually internal and can include:

  • The organization decides to close an aging plant and distribute its production responsibilities across three other existing plants, each located in a different state
  • The new product launch schedule is compressed, making go-to-market cycles faster

While the planning process provides the luxury of time to make the adjustments, scenario analysis must consider dependencies such as logistics—both shipping and sourcing—and changes to capacity planning.

Major Events: This type of change is caused by external forces, including the environment, weather, natural disasters, regulations or political situations. These types of scenarios should be run as a component of your disaster recovery plan as they can impact both demand and supply.

Examples are mainly external and can include:

  • A hurricane, such as Sandy, on the eastern seaboard
  • A compliance requirement that escalates production costs
  • An unstable region or country due to political unrest or revolt

These situations require that planners understand the potential ramifications from possible scenario in relation to raw material availability, operational costs, and customer impacts.

Develop a Common Framework for the Future

Businesses deal with a variety of conditions, including uncertainty, demand volatility, the perception of limited new opportunities, rapidly changing technology and a number of strong differences of opinions. Many of these conditions are internal, and what-if analysis presents a great opportunity for expanding organizational learning. What-if analysis also offers a great method for resolving those differences and creating the opportunity for collaborative evaluation and planning that is the cornerstone of S&OP.

The beauty of Executive S&OP is that it will adapt to your organization’s specific needs and operational style. There are many methods to choose from—whether a use of systems thinking, examining seemingly unrelated forces or attempting to re-perceive reality, given recent market shifts. As the assumptions used for planning are matched with actuals, improvements can be made.

By using enabling technology for what-if scenarios to forecast how specific events can impact supply and demand, your organization’s leadership will gain the ability to look forward with predictive analytics that act as a “GPS” keeping your processes on the right track to success. With this type of preparedness, leaders have the information and visibility they need to make better decisions that will help the company become more responsive where it matters most—with your customers.

Boost S&OP with Top-Down and Bottom-Up Strategy

Rick Blair

Have you lost faith in Sales forecasts?
Does Sales consistently over or under estimate future sales activity?

A multi-billion dollar global manufacturer is struggling. Two divisions of the company are at odds on how best to achieve world-class forecast accuracy. Regional sales account representatives provide forecasts well above historical sales levels. Why? Because inventories made available to each country are insufficient to meet market demand. The result: predict more sales to try to influence supply decisions and receive a greater portion of supply for your region. One division has decided that a centralized approach is best and is no longer considering regional sales input. The other division is moving to a collaborative S&OP approach where regional input is requested, evaluated and incorporated in the overall plan.

Which method do you think will produce a better plan?
Which method will distribute limited resources better?
Which method will yield higher profitability?

Time will tell for this organization. Yet, we can make a prediction today. Experience would suggest that a well-designed, collaborative S&OP process will produce better results. Here’s how we look at how Top-Down and Bottom-Up S&OP drives better results.
1. Bottom-Up Inputs: Bottom-up forecasts are accumulated from many contributors. A distributed sales force may have hundreds or thousands of contributors. Each contributor has a specific area of expertise such as a specific customer, product or geographic area. The contributor enters her forecasts for her specific area of responsibility. Forecasts from all contributors are summed to capture an overall bottom-up forecast.
2. Top-Down Inputs: Top-down projections apply a more centralized view. A small number of forecasters will look at various inputs and generate forecasts. Influencing factors may include market data, economic indicators, and general product and customer trends.
3. Balancing Top-Down and Bottom-Up Forecasts: The beauty of top-down and bottom-up planning is their ability to look at the world from differing vantage points. The folks in the “ivory tower” know important information, but they don’t know everything. The folks in the field have keen insights into their unique areas, but they only see their small piece.

1. Gather Objective Inputs: The collaboration challenge is to capture the small pieces without tainting the field forecaster’s view. In other words, don’t tell the field forecasters the top-down targets. When field forecasters are told what their forecasts are expected to be, they tend to send back values right in line with the top-down values. Such tainted bottom-up forecasts miss the point of gathering field intelligence.

2. Balance Inputs: An effective marriage will capture top-down and bottom-up forecasts separately.

3. Manage by Exception: Look for forecasts with the most significant (unit and/or revenue focused) difference between top-down and bottom-up forecasts. Is there an opportunity the field sees that the top-down approach did not capture? A management by exception S&OP tool will make comparisons quickly to enable users to analyze critical differences and refine the ultimate consensus driven forecast.

4. Provide Feedback: Tell forecasters how they’re doing. Measure forecast accuracy and bias. Track performance at various levels, including individuals. Forecasters who consistently over or under forecast (bias) should know that the organization knows. Such bias may be intentional or unintentional. Either way, behavior needs to change to produce reliable projections to which the organization can deliver.
S&OP really does lead to improved bottom-line results. Break down the walls of distrust and embrace collaboration.


Three Criteria for Selecting S&OP Technology

Even though, according to Gartner, organizations are expected to spend about $10 billion in 2014 on supply chain planning technology, poor forecast accuracy and demand variability remain the top obstacles to meeting supply chain goals. These have been the top two obstacles for the last seven or eight years for sales and operations planning (S&OP). Perhaps it’s time for organizations to change the way they approach technology.

As more data is integrated to provide more visibility across functions, technology must speed up the capability to respond to market changes. Technology that enables this level of agility must be fit for purpose in the newer environments in which supply chain professionals find themselves working. Technology must provide the capability to extend our models, get our practices in place and capitalize on the data, and be able to interpret it in near real-time with higher visibility.

Based on a Gartner survey, the top priorities for companies evaluating technology are integration with ERP, followed by functionality of the tool under consideration. The professional services, support and maintenance provided by the vendor serves as the third-ranked priority. Considering that Gartner estimates that only 25% to 30% of the functionality of S&OP tools are in use with end users, Tim Payne, Lead Supply Chain Analyst for Gartner suggests there’s a better way to move our S&OP processes toward maturity.

Technical Architecture. How well an S&OP tool will support business processes is directly dependent upon its architecture.

Based on what you’re trying to achieve, how will it work in the environments of your supply chain process? Consider how your data models work, as well as your analytics.

  • How hard will it be for end users to adopt?
  • How will the tool allow you to scale, for example, if you want to move from a regional supply chain to a global one?
  • How will speed to visibility and insight be affected if model size increases? In other words, can the tool process thousands of calculations from global, integrated data sources in seconds, regardless of location?
  • How easy will it be to make changes to processes based on continuous improvements?
  • How will the technical architecture of the solution enable us to move our S&OP up in maturity levels?
  • Is there a unified process and data models across functions to extend the visibility of the plan data across an end-to-end supply chain?

Vendor Innovation and Thought Leadership. This is really about how the vendor goes about ensuring that supply chain teams can access and use the right functionality at the right time in the ways that work best for them. But it also includes looking forward:

  • Event-driven planning allows teams to respond to what they see in execution.
  • The willingness of vendors to co-develop your ideas for innovating your processes.
  • An open architecture for applications that opens up the vendor’s planning platform to allow you to co-develop with a third party.
  • Will the system allow you to adopt existing processes that are often offline and bring it into the S&OP framework?

Application Deployment Models. This is oriented around the distinction of on-premise or in the cloud.

  • Cloud solutions are maturing and moving forward.
  • Cloud becomes more important as you think about speed, scale, and multi-enterprise environments that involve customers and suppliers.
  • The environment selected is also important when you think about bringing planning closer to execution with cloud-based respond planning capabilities.
  • Cloud can also be more conducive to supporting the requirements for multi-enterprise collaboration.

When considering the criteria you use to evaluate S&OP technology platforms, it’s important to consider whether you need a system of record, a system of differentiation or a system of innovation to reach maturity with planning processes. It’s likely that you will identify a mix of needs, but it’s also important to realize that the more innovative tools will most likely utilize cloud as the delivery framework. The key is to consider the technical architecture and the way the vendor is thinking about innovation.

Selecting S&OP technology should be predicated on how the solution can deliver business value based on alignment and agility because the value comes from moving up through those processes and through the stages of S&OP maturity. The three criteria presented here will allow you to look beyond the basics of integration and functionality to help you select technology that can have demonstrable business impact—today and well into the future as your needs and capabilities evolve.

This blog is based on a webinar with Tim Payne, Lead Supply Chain Analyst at Gartner, Selecting the Right Planning Technology: Time to Revisit Priorities, available to view on demand here.

Six Details to Consider in Forecast Accuracy Measurement

Rick Blair

What’s your forecast accuracy telling you? Stop and ask a few questions.
Forecast accuracy is an important performance metric in any effective S&OP process, but it can be measured in various ways. Comparing your company’s accuracy to an industry standard will be difficult to impossible if you don’t know the details behind the measurement. More importantly, the metric needs to resonate within your organization as a meaningful indicator of forecast relevance. So then…
What details should one consider for forecast accuracy measurement?

Here’s the Steelwedge Top Six:
1. Aggregation level: Are you measuring accuracy at a product SKU or family level? What about other hierarchy levels? Odds are your accuracy will appear to be better at an aggregated level such as family. This happens because variability of forecasts and actuals tend to cancel out one another as data is combined. The result is a smoothing of results and lowering of error calculations. Recommendation: Measure accuracy at the same level as the majority of forecasts are captured.

2. Error Calculation: In its most basic form, accuracy is a measure of the difference between a prediction and what actually happened. How far off were we? Error is equal to the difference between forecast and actual. Often, this is captured as a percentage value called percent error. Mean absolute percent error (MAPE) calculates the average of errors. Since we don’t want positives and negatives to cancel out each other, we use the absolute values of each error. There are other methods, but MAPE is fairly common. Weighted MAPE is a method used to give greater importance (weight) to items with greater activity. Amount of activity may be defined as the proportion a particular item is of the total. Recommendation: Keep it simple. Make sure people understand the measurement and how they can impact it.

3. Unit of Measure: “We forecast in both units and dollars. Which should we use for measuring accuracy?” Weighted accuracy measures, such as weighted MAPE, will give greater influence to items that constitute a greater portion of the sales volume. Higher dollar but low unit volume items will contribute much more to a measurement in dollars. Conversely, high unit volume, low dollar items will factor in more prominently using a unit based forecast. Which is preferable? It really depends on your business. Recommendation: Consider important business decisions made in the Executive S&OP meeting. Are they usually focused on $ or units?
4. Offset period: If we measure accuracy using the most recent forecast for a given period, it will likely be more accurate than a forecast made three months prior to a given period. That’s because we have better information as we get closer to the current period. But, how valuable is a forecast made in the very near term if the organization cannot act upon that forecast? It has virtually no value. The offset period defines the number of periods prior to an actual period for which a forecast will be measured against the given period’s actuals. For example, if our offset is 3 months, we can measure accuracy using actuals from August and the forecast for August that was captured in May. Recommendation: Set the offset period to most closely match the organization’s planning horizon.

5. Time buckets: Should we measure accuracy using weeks, months or quarters? Typically, you will want to measure accuracy in the same period buckets used to forecast. In some cases, where demand patterns follow a “hockey stick” high demand in the last month of a quarter, it may be more appropriate to use quarterly buckets. Recommendation: Measure accuracy using the same buckets you use to forecast unless there’s a compelling reason to move to a bigger bucket.
6. Which Forecast?: In a collaborative S&OP process, there may be several forecasts captured (Sales, Marketing, Demand Planning, Consensus, etc). Which should we use for accuracy measurement? If you’re only going to use one, then go with the forecast used by Operations to build or procure product. A typical example would be the Consensus Plan. Measuring accuracy against multiple forecasts will provide greater insights into potential areas for improvement. Recommendation: Measure accuracy using the forecast provided to Operations. Publish results throughout the organization. Also, measure accuracy across other forecasts to isolate areas for improvement.
Are there other aspects you’d add to this list? Please let us know in the comments.

S&OP Technology Drives the Alignment that Enables Agility

Alignment and agility go together. The overall goal for S&OP as agility increases is to align on sales, orders, and shipments, but additionally to be able to align on market data, such as distributor pull through, retail sales, supplier inputs, and market drivers.

Each goal along the way to S&OP maturity will require orchestration with technology that helps to create visibility and alignment. Beginning with demand and supply, then integrating inventory, manufacturing and finance to determine what tradeoffs in the models could occur based on fluctuations or disruption.

Supply chain executives must be able to manage the plan against the execution by establishing balance between the “S” and “OP” sides of the equation. This is best achieved when cross-functional collaboration is elemental to the process and breaks down the individual cycles to align and reconcile them against the plan.

In other words, everyone must be on the same page and understand the impacts of the decisions made against each functional area. With this in place, the transition can be made from measuring and tracking volume and balancing demand and supply to analyzing profitability. Technology enables these transitions in maturity to occur.

Today, only about 20 percent of organizations will say their S&OP process is balanced between sales and operations. The organizations that lean toward one side or the other in the S&OP equation tend to have a more functional organization that really hasn’t established alignment or defined agility.

Doing so requires technology that can help you orchestrate a progressive and balanced path to S&OP maturity. Technology designed specifically to integrate cross-functional data and provide visibility across all of the inputs to S&OP replaces a disparate collection of spreadsheets, business intelligence and traditional supply chain reporting tools.
S&OP technology provides a central cross-functional planning environment that enables…

  • The S&OP process to become an input to budget, but without introducing constraints on the process, to ensure that companies have the ability to become more market-driven and to maximize opportunities that are more profitable.
  • A move from looking at inventory levels to assessing inventory form, such as finished goods, return inventory, and obsolete inventory. This visibility enables companies to hold back supply to wait for demand, thereby increasing agility.
  • Development of an S&OP process that allows you to look at inventory functions, such as cycle stock, safety stock, in-transit inventories, seasonal bills, promotional inventories, and new product launch builds to decide which forms of inventory to hold and which to push.
  • Visibility into costs that enable better management of operating margins. One of the key elements of agility is to be able to determine cost so that when you do the modeling of demand and supply volatility you can answer the question: Can we have the same cost, quality and customer service?

It is difficult for companies to become agile when visibility is limited across functions involved in the S&OP process. While companies may have processes in place to manage their supply chain, they will not establish more effective and efficient means of managing the outcomes without S&OP technology.

Technology is the key to the balancing of demand and supply and insights that create the understanding of how the form and function of inventory can impact profitability based on “what-if” analysis against operating margins.

Coordinating Alignment for S&OP
S&OP requires a tremendous amount of cross-functional coordination with marketing, sales, supply chain, finance and IT. Alignment across these functions is critical to reap the benefits of S&OP. The value that results from alignment that drives S&OP includes increased revenues, forecast accuracy, and customer service and decreased inventory and costs, to name a few.

Establishing a supply chain center of excellence is a becoming a best practice for orchestrating this alignment. Thirty-seven percent of respondents to a Supply Chain Insights survey say they have a supply chain center of excellence. But only 56 percent of them say they’re successful in managing it.

If your organization wants to accelerate S&OP maturity with agile practices, alignment must be part of the plan. A center of excellence enables the establishment of defined metrics, process best practices, planning and strategy. As you can see, S&OP maturity is about agility and reliant on alignment for successful outcomes. Technology is the facilitator that simplifies the complexity involved.

Who Has the Best Supply Chain? And Is That the Right Question to Ask?

How do you “rank” a supply chain? How can you compare the supply chain of a consumer packaged goods company to that of an automaker or a pharmaceutical company? Each one faces unique challenges, courts diverse customers, and encounters different risks.

Gartner makes its annual assessment with its Supply Chain Top 25. It’s a relative industry standard after ten years, but faces a notable critic in Lora Cecere of Supply Chain Insights, whose thoughts on the Gartner Supply Chain Top 25 can be found here and here.

Lora recognizes that a valid need does exist to have a “measuring stick” for supply chains, while also questioning the goal of identifying supply chains as “the best.” So she and Supply Chain Insights set out to assess global supply chains with a different goal in mind: measuring improvement. As a result, they developed the Supply Chain Index, which is based on analysis of financial balance sheet and income statement data for the period of 2006-2013, as available, and cooperative research conducted with Arizona State University.

Two years of that research culminated this week in Supply Chain Insights’ “Supply Chains to Admire” report, which uses Supply Chain Index data to analyze the progress of companies within 13 industries for performance and improvement. The “Supply Chains to Admire” were determined to be operating at top performance levels and still driving improvement.

So who made the list? Congratulations go to these “Supply Chains to Admire”:

  • Anheuser-Busch InBev N.V.
  • Apple Inc.
  • Audi AG
  • Cisco Systems, Inc.
  • Colgate Palmolive Company
  • Eastman Chemical Company
  • EMC Corporation
  • General Mills, Inc.
  • Intel Corporation
  • Nike, Inc.
  • Ralph Lauren Corporation
  • Seagate Technology PLC
  • Taiwan Semiconductor Manufacturing Company Limited
  • TRW Automotive

Supply Chain Insights created a chart to show the differences between its approach to assessing supply chains and that of Gartner’s:


In her Supply Chain Shaman blog, Lora lists lessons learned from the research:

  • Despite a rise in demand and supply volatility, companies are becoming more resilient in 11 out of 15 companies studied. However, due to a variety of factors, companies are losing ground on driving progress on both inventory turns and operating margin. Supply Chain Insights believes that this is largely due to rising complexity.
  • Companies are not doing as well as Lora thought they were doing on driving balance sheet improvement. There are a lot of projects, but many companies are struggling to see these results on the balance sheet. Nine out of ten companies are stuck at this intersection.
  • Lora is surprised at how many companies are raising improvement in one of the three metrics, but not driving performance improvements in the total portfolio. This is often due to the lack of understanding of the supply chain as a complex system. Supply Chain Insights finds that companies will establish metric targets in isolation and throw the supply chain out of balance.
  • There are a lot of misconceptions about inventory. It is a hot spot of misunderstanding. Inventory is one of two primary buffers in the supply chain. A buffer absorbs volatility. With the rise of demand and supply volatility, buffers are more important that ever. However, most companies are still looking at inventory levels, and there are a host of crazy consultants running from company to company advocating cutting inventory to free up cash. Cutting inventory without right-sizing the form and function of inventory throws the supply chain out of balance. Each industry has a very different potential, and it is important to not generalize the answer.
  • Excellence is easier to say than to do.

Today Supply Chain Insights wraps up its Global Summit, during which Lora and her research team delved further into the “Supply Chain to Admire” methodology and results. The event, which was held in Scottsdale, AZ, and streamed live on the web, also featured an agenda packed with compelling presentations from supply chain thought leaders.

Were you at the Supply Chain Insights Global Summit (or watching online) this week? What did you think of the “Supply Chains to Admire”? Share your thoughts in the comments section!

New Documentary Examines the Evolution from “Supply Chain” to “Value Chain”

The traditional notion of supply chain management takes a linear approach to moving goods from the supplier’s supplier to the customer’s customer. Anyone involved in the industry knows that today’s marketplace dynamics are anything but linear. So a “supply chain” becomes a bit of a misnomer. The term “value chain” was popularized in the 1980s and gained momentum in the late 1990s as business became increasingly global.Traditional SC

A value chain involves conversations among multiple partners in the chain that may not be directly “next to” each other. This model has evolved as modern, global business necessitated that manufacturing and distribution become more collaborative and mutually beneficial for all parties.

Value chainTIA NOW, who provides programming on the latest information and communication technology (ICT) insights and trends, recently published a documentary on this topic entitled, “The Value Chain: Building Value in the Chain.” Here’s a description of the film, which explores the evolution of yesterday’s supply chain to what’s now known as the value chain.:

No matter where you are in the supply chain of the ICT industry, collaboration between your suppliers and customers increasingly dictates the success of your new products and services. The value chain is changing with each cycle, from chip maker to end user and everybody in between. So how does increased collaboration help strengthen your company’s position in the marketplace? What is driving a more communicative value chain towards multi-vendor systems and increased demand for heterogeneous technologies and applications?

EJ documentaryEJ Tavella, Chief Evangelist and Vice President Strategic Sales and Solutions at Steelwedge, is featured in the documentary as an expert on supply chain management in the Silicon Valley.

EJ discusses the old way that businesses managed their supply chains, stating, “When you looked at most of the people I worked with in the Silicon Valley, they thought of their supply chain as one of their golden jewels. They didn’t want to share information. They wanted to make sure that how they did it was specific to their business. They would share information, but share it sparingly. You’d see companies that would specifically give one set of plans to a supplier because they wanted them to perform to that, while they had their own set of internal plans.”

Drawing on the depth of experience of numerous supply chain experts interviewed in the film, the documentary goes on illustrate how the value chain concept has driven more cooperative business processes, to the benefit of everyone involved. You can view the documentary here.

Steelwedge has championed supply chain collaboration for more than a decade, developing technology that extends your planning process to your partners and customers to provide an outside-in perspective. Steelwedge customers can securely share forecast and supply planning assumptions with key partners to dramatically improve everyone’s planning accuracy.

Have you been in the industry long enough to experience the shift from “supply chain” to “value chain”? Share your thoughts on the evolution in the comments!

S&OP Agility is About Maturity

Agility in the supply chain is the ability to recalibrate the plan while maintaining comparable cost, quality and customer service. According to research by Supply Chain Insights, 85% of supply chains have experienced a disruption and 90% are grappling with skyrocketing costs and supply volatility. The ability to address these issues to maximize opportunities and profitability grows as supply chain management increases in agility. Getting there is reliant on the maturity of sales and operations planning (S&OP) processes.

Maturity in S&OP processes depends upon developing the ability to drive a response quickly within the supply chain when an event impacts demand or supply. While many supply chain executives may define agility as the ability to shorten cycle times, they’re overlooking the possibility that they may just be empowering their teams to do the wrong thing faster. Responsiveness must be based on decisions made with insights derived from cross-functional alignment and integrated data.

Efficiency must lead to effectiveness. In a poll of 66 supply chain executives conducted by Supply Chain Insights, 89% of them rated agility as highly important, but only 27% of them said their companies had achieved it. This is the gap that needs to be closed to enable supply chains the ability to minimize impacts from disruption and volatility.

S&OP Maturity Is an Evolution

Because S&OP encompasses many disciplines across a company, it takes time to increase agility. As your S&OP maturity evolves through each stage, there are three questions to answer:

  • What is the goal? It’s imperative to get stakeholders to agree. Goals will also change as maturity increases. For example, a recent Supply Chain Insights survey found these goals in place for supply chain executives in regards to maturity:
  • How do you measure it? Measurements must direct improvements to performance. Focus on the metrics that matter, such as revenue profitability, cash-to-cash inventory turns, and customer fulfillment.
  • What defines success? Balance must be achieved for S&OP so that the plan can be connected with execution.

Answering these three questions can become extremely challenging when you consider that companies, on average, have four S&OP processes, not just one.

Agility Requires the Components of S&OP to Work Together

To get to the answers, companies must focus first on the definition of S&OP. The “S” in S&OP, Sales, is really about focusing on the market drivers that shape demand. To get to these insights, companies need to build the technology and process capabilities that enable supply chain executives to look at the design of the trade-offs in the value chain in order to conduct “what-if” analysis. The “&” in S&OP is about designing the value chain to optimize tradeoffs, minimize risk, balancing cycles and orchestrating demand. This, in turn, allows the “OP” or operations part of the planning to put those tradeoffs into practice with more informed decisions about the most effective means to make, source and deliver. The combination of all three of the components of S&OP enables the improvement of the organization’s capability to increase agility, as well as to improve alignment.

As agility increases, supply chain executives will also be able to gauge higher results for the five qualitative factors that help assess your organization’s success in closing the variance between forecast and actual equilibrium between demand and supply. If you’d like to learn more about whether your S&OP process delivers agility, watch this webinar with Lora Cecere of Supply Chain Insights.