In this blog post, Tom Wallace answers some key questions from his perspective.

Q. Is S&OP ideal for large organizations which have their own manufacturing, inventory & products? Is S&OP applicable to a service company?

Yes to both. Some of the most successful users of S&OP are large organizations with manufacturing, inventory and product: BASF, the largest chemical company in the world; Procter & Gamble, the largest consumer packaged goods company; and Staples, a very large on-line retailer. S&OP has been shown to work well in organizations that don’t make physical products as well: banks, central engineering staffs, IT departments and the like.

Q. Should the same forecast drive both manufacturing and profit and loss?

Absolutely. The forecast, once authorized, becomes the one and only one statement of future demand. Only with this can you achieve a “one-number process,” which means running the business internally with one set of numbers.

Q. How do you balance continuous improvement to the S&OP process against over-engineering the process?

Listen to the people actually using the process, including senior management. The best way I know to drive continuous improvement is, at the end of each executive meeting, ask each person present to rate the meeting on a scale of 10 and give 50 –or fewer– words why, finishing with the leader of the business. Those people will tell you where to improve and where not to.

Q. What is the best approach to organize promotional activities in the forecast process?

Within the 5-Step Process of S&OP, Step 2 is Demand Planning; this includes the addition of promotions and related activities by people from organizations like Marketing, Sales Promotion, and Merchandising. The promotions are added to the forecast early, well in advance of the consensus forecast going to Step 3, Supply Planning.

Q. What are the main pitfalls if you are in an S&OP process implementation?

The primary pitfall, much greater than all others, is to fail to educate the people in S&OP. Note the use of the word “educate” rather than “train.” That’s deliberate: training tells people how to run the software; education addresses how to run the business using this new tool.

Please write to us at info@steelwedge.com should you have any questions or need elucidation on any of the concepts mentioned in this blog.

Have a Happy New Year!

Q: How do you best manage the proliferation of S&OP meetings? People inherently object to having meetings for meetings sake!

It is important to differentiate between meeting and working sessions. Executive S&OP meetings are intended to be very efficient and structured, given the CXO level participants. These meetings should have a very specific agenda with clearly defined goals for the meeting.

Working sessions are more of a combination of structured agenda as well as unstructured time to discuss collaboratively on various topics. Demand review and supply review meetings are examples of these working sessions.

From a technology perspective, the solution should provide the ability to document business context, assumptions, action items and opportunities for further follow-up and tracking.

Q: How do you handle “what if” analysis & scenario analysis within Steelwedge?

Steelwedge provides a platform that balances supply, demand and finance and enables the end-to-end S&OP process. Scenario management and what-if analysis can be implemented at any stage of this process: demand forecasting, supply planning or executive S&OP. For example, as part of the out of the box application called Compass Express that is implemented by this platform, 26 scenarios can be created as part of the Executive S&OP process. These scenarios can be compared based on pre-defined metrics and the best scenario can be ‘promoted’ to be the plan of record for the organization.

Q: How do you do the Bill of Material explosion and how is SW exploding the confirmed demand plan to material requirements?

The Steelwedge S&OP platform has the ability to model both a standard bill of material as well as a statistical bill of material (attach rates).  As part of the Rough Cut Capacity Planning process, the consensus demand forecast at a finished goods level is converted into material requirements at a component level for the purpose of performing a build-versus-buy decision using the sourcing template. In cases of configured products,  the dependent as well as independent demand associated with components is computed as part of this process.

Q: S&OP is limited to quantitative views of supply and demand. How do you validate qualitative assumptions about external factors?

Steelwedge estimates that only about 50% of the decision making at S&OP meetings is based on quantitative factors – the rest of the decisions are made based on tribal knowledge or ‘gut’ feel. It is important to capture these decision factors as part of the process so that the validity of these assumptions can be tracked later. It is expected that over a period of time these assumptions are re-evaluated and quantitative approaches are incorporated instead. We understand that collaborative planning and S&OP is never going to be completely fact based and that the solution should support the ability of the end users to make informed decisions based on data as well as qualitative factors.

Q: How do we get end users more engaged in the process. What kind of reports / alerts are commonly presented at S&OP meetings?

Excel continues to be the most commonly used business planning tool. That is why Steelwedge provides a platform that utilizes Enterprise Enabled Excel, which powers the S&OP process on top of the Excel application. A familiar paradigm is one way to get end users more engaged in the process.

Another common problem that sales reps face as part of S&OP process is that they are asked to input data into very complex Demand Planning applications, resulting in loss of interest and use.  Also,  sales people are often completely mobile and don’t have the internet bandwidth to provide inputs into these Demand Planning applications.  Steelwedge addresses this two ways:

a) One Click Planning provides an event driven push based mechanism to alert sales executives of areas that require their input. When the users click on an email that they receive from the application, they are taken directly to a template that they can fill out for products that they have access to.

b) Offline tools – this allows sales reps to input data without being connected to the internet. Once they log into the internet, they can do a net change submit to the server to sync up the data.

Q. If Sales is more focused on opportunity conversion, who should build sales forecast and revenue plan? Is that Finance?

A. Sales should definitely focus on building the sales forecast based on opportunity conversion. Finance should focus on building the revenue plan.

In the near-term, Sales should be able to leverage the opportunity pipeline as a somewhat rationalized basis for the sales forecast. Beyond the opportunity pipeline horizon another basis for sales forecast is needed. Depending on accuracy this can take the form of the marketing forecast, the demand plan or in some cases the stat forecast. This also applies to industries that are not opportunity driven. Whatever the basis, it’s important Sales participates in building the sales forecast and has an ownership interest in it. There is no better way to bake the ‘field’ perspective into the forecast.

To reiterate the point expressed in the webinar, S&OP/IBP should really start at the first stage of the order lifecycle. This will bring greater engagement from the sales team.

Q. You mentioned integrating the Third Party Logistics providers into the S&OP process, could you please share with us an example of this and the benefits achieved?

A. An example of this is industries such as apparel which involve a short life cycle in terms of fashion changes or season changes but also involve offshore manufacturing which results in long lead-times. In-transit inventory plays a critical role in these industries because if the demand for products in the short term is greater or less than expected, any action that has to be taken to balance supply and demand should include in-transit inventory. 3PLs are the entity that have access to the in-transit inventory.

Q. Some relatively new and growing buzz in the Financial (FP&A) crowd is the concept of using Rolling Forecasts versus using the traditional annual budgeting processes.  This process seems more in line with what a traditional S&OP process suggests,  rolling forward forecasts over a 18-36 month time fence.  Thoughts?  Are you seeing client companies modifying annual financial planning processes to a more fluid rolling forecast process for all functions to use (Demand, Supply, Finance, Leadership)?.  (Note:  Let it Roll, Why More Companies Are Abandoning Budgets in Favor of Rolling Forecasts, about organizations including Unilever modifying their current annual processes to a rolling forecast process, seems to suggest that the monthly S&OP output gains much more importance and forces integration.)

A. We agree with this statement – Integrated Business Planning involves taking the output of the process and feeding it to the FP&A process in a rolling fashion. Due to Sarbanes-Oxley regulations we see existing customers adopting some intermediate steps to cleanse the S&OP data and incorporate it into the FP&A process.

Q. If one doesn’t have a time phased price definition, do you still recommend monetizing S&OP using current price and cost? Or is it better to start with a non-monetized S&OP?

A. The answer depends on the industry – are the prices highly variable across time buckets (maybe greater than +- 10%)? If so, then adopting an average price and cost will result in incorrect results. It is better to adopt a non-monetized S&OP in this case. If the price fluctuations are not as high, then we can adopt a current price and cost.

Q. We have a heterogeneous supply side organization, with complex supply networks in some areas and independent supply structures in other areas. On what level should one fix its S&OP process in terms of local, regional or global?

A. S&OP process needs to be driven more by the customer facing situation than the supply side. If there is a need to maintain a single face to a customer across multiple divisions and geographies then it is better to adopt a global S&OP process. If each business division has a separate customer base which is completely different (for instance commercial versus defense) then a regional S&OP process is sufficient.

On the supply side, if there are critical components that are shared across multiple divisions then allocation of the supply should be done to ensure that the material constraints are met.

Q. I want to follow-up on your experience with IBP in non-manufacturing environments. Any cases in upstream oil & gas? If so, which companies?

A. IBP is an effective methodology for any industry. While the measures may be different, the need to align supply, demand and finance is the same. In addition to manufacturing companies we have seen IBP used successfully in process, agriculture and service organizations.

Q: Do we need to have a customer forecast for every customer?

A. No, Steelwedge provides a forecastability analysis wherein we identify the key customers, products and regions for which statistical forecasting has to be done and where collaborative processes could be adopted.

In general, only the high priority customers require a customer level forecast.

Q. How to convince sales force that statistical approach can help versus them dealing with sku level forecasting based on a same-as-last-year approach?

A. It is difficult to convince sales about statistical forecasting approaches. A better approach would be to perform demand policy optimization to identity the SKUs for which statistical forecasting should be done. For the other SKUs, a collaborative process can be adopted with sales involvement. This will ensure that the sales team will focus on the SKUs that require their input.

Q. Can you expand on decisions analyzed by Solver optimization models?

A. Steelwedge provides a solver based approach to perform Rough Cut Capacity Planning versus a heuristic based approach. The following are some of the capabilities and decisions taken:

• Allocation/Supply Balancing – user selectable rules for allocating global demand to multiple markets
• Basic Constraints – lead times, batches, minimums, increments
• Load Levelling – slotting the demand into the gaps in the capacity plan, load levelling forward or back
• Supply Calendars – setting up work calendars for each resource

Q: Much of S&OP is product related. Do you agree that services (which are product-like) too could be supported by the S&OP process?

A. Yes. Any situation that requires the ability to balance demand with supply can be supported by the S&OP process. For example, an engineer-to-order environment supply includes the engineer’s hours available to perform engineering tasks and demand includes custom projects which require the engineer’s expertise.

Lisa has over twenty years of executive experience scaling services organizations for supply chain software companies.  Previously, Lisa ran the global services organization for ModelN, Navis, Savi, and Extricity.  Lisa has also worked as a Senior Production & Materials Planner and as a Senior Manufacturing Engineer at Harris RF Communications where she helped drive their Sale and Operations Planning process. Lisa holds an MBA in Supply Chain Management from the Rochester Institute of Technology (where she completed her Master’s Thesis on “Demand Planning”) and a Bachelor’s Degree in Manufacturing Engineering.  She and her husband reside in the hills above Silicon Valley where she serves as a volunteer Firefighter and Emergency Medic.

Q. Why did you choose to join Steelwedge?

Lisa: Supply chain, S&OP and IBP run through my blood and have been in my DNA for 30 years.  Both my Bachelors degree (Industrial/Manufacturing Engineering with minor in Operations Research) and Masters thesis were all around Demand Planning and Demand and Supply matching.  The first 10 years of my career were in manufacturing playing all types of roles that are significantly impacted by how well a company understands and executes integrated business planning.  I have personally experienced poor planning as both a vendor and supplier and wanted to join Steelwedge, the leader in the market, in order to help solve this critical global issue.

Q.  What business problems are customers solving everyday with the help of Steelwedge’s process consulting and technology?

Lisa: Our services and products are helping customers on many fronts.  We offer business process definition and IBP roadmap planning sessions for newcomers to S&OP to help them plan and execute a people, process and technology roadmap that fits their business needs and challenges. We offer change management and extensive training options to help users of all levels understand the benefits of S&OP and how they fit into the journey and how important the movement is for their company and them personally. Our product suite is the icing on the cake that automates process, ensures data and decision security, provides real life scenarios and detailed analysis. Simply put, we provide timely and accurate information to make excellent decisions for the entire supply chain related to a company.

Q.  You’ve focused on building a team comprised of consultants with real-world S&OP and IBP expertise.  Why is this an important benefit for our customers?

Lisa: Our customers demand experience and excellence from every single services and support team member.  Our goal must be to be one step ahead of our customers and partners and show them the way to mastering IBP. One step ahead means that we all understand S&OP and IBP and that we are keenly aware of all of the best practices already offered within Steelwedge’s products so we can keep the process, technology and change simple, yet extremely effective.  If we can look, act, and speak the role of any customer user, we can lead them successfully through the journey of S&OP and IBP leadership.

Q.  What steps has the Services team taken under your leadership to help Steelwedge customers realize faster time to value and greater ROI?

Lisa: Over the past year we have been focusing on simple and effective solutions with a crawl, walk, run project rollout methodology.  We also now deliver with an iterative approach to get our solution and benefits in front of users as soon as possible. This allows for customers to understand the vision of S&OP, get some momentum and excitement built up with process and solutions definition and see the benefits early on with specific functions and/or business units. We also have solution design and project reviews as part of our standard operations that enable us to stay on track and get expected value to our customers as soon as possible.

Q.  Steelwedge recently announced the launch of the Service Delivery Platform (SDP), what benefits can Steelwedge customers expect to realize from this new technology?

Lisa: Our customers and partners are very excited about the concept and first delivery of SDP this past August.  SDP will allow and enable certified members to be able to perform changes and own project work that is currently only handled by our services and support team.  By enabling customers and partners to be more self sufficient and creative with our product and its valuable reports, scenarios and dashboards, we can focus on providing critical strategic services, being our customer’s trusted advisor on S&OP and IBP and focusing on how we can be the robust but low cost solution for all industries for S&OP.

Sales and Operations Planning (S&OP) is a function that corporate executives often fail to recognize as a key contributor to success.   From a revenue perspective, an accurate S&OP plan allows for high levels of customer service.  When demand is predicted accurately, it can be shaped and met in a timely and efficient manner.  Of course, accurate forecasts help organizations avoid stock outs and lost sales.  The impact of an inaccurate S&OP plan on profit margins is also profound.  Raw materials and components are more cost-effectively acquired on the basis of advance planning instead of last minute, rush orders.

The impact of excellence in S&OP is profound.  In a number of cases, clients working in tandem with the Steelwedge team to develop, improve or automate their S&OP processes have seen increases in product margins of upwards of five percent and reductions in inventory levels of over fifteen percent.   In spite of such tangible benefits, many companies fail to prioritize this critical executive process.  Although no management function can be reduced to seven items or even seventeen items, there are certain basic S&OP improvement lessons learned that can be generalized across clients and industries.

Each of these steps is summarized below:

Each of these seven steps offers substantial opportunities for improvement.  In coming weeks we will discuss these steps in greater detail.  What barriers does your company face to adopting these steps?

Paul Intrieri, Director of Business Development, represented us at the APICS/IBF Best of the Best Conference in Chicago last week…

“I’m happy to report that there seems to be no end in sight to the swell of large enterprise interest directed at both raising corporate competency around Sales & Operations Planning, and accepting how mission critical cross-company collaborative planning is to enterprise competitiveness.

We had the opportunity to speak to leaders in most every major industry vertical including Pharma, CPG, Chemical, Communications and Technology, Raw Materials, Healthcare and more - from as far away as northern Europe. Many innovative tweaks to the classic 5-step process were discussed and a common theme became evident. As much as there is no one textbook practice that can fit all companies or business units in a company, clearly S&OP is being embraced as the process “to run your business by”. That said, with the speed, complexity and high variability of today’s global markets, it was also clear that planning off spreadsheets is just neither dynamic nor robust enough to enable enterprise class S&OP or the informed exception-based proactive executive decision making it is intended drive. From our standpoint it’s nice to be in a place where we can say yes to virtually every request we fielded. Scenario modeling, financial integration and reconciliation, new product launch tools, item through aggregate level transparency and reporting are all things we provide standard and that were part of every conversation I had.

I would say that  if you’re like the many companies we encountered in Chicago and need to get away from planning off spreadsheets we’re a perfect solution to consider.”