This week, the Wall Street Journal pegged it: Global companies took years building supply chains. In 2011, natural disasters took just days to break them all apart. Like it or not, VUCA (volatility, uncertainty, complexity and ambiguity) is the new normal, and more than ever before, time is the new currency.

Here’s what I mean by that: with the rapid outgrowth of linear supply chains into multi-enterprise networks, loss of control and visibility have become the top challenges for many supply chains. Proliferating risks in the demand-supply network and increasing lead-times due to expanding networks makes flexibility the key to overcoming challenges.

This was indeed a hot topic at the latest trade show I attended, Supply Chain Logistics 2011, where the theme was agility and flexibility.  Leaders of supply chain strategies and leading global companies were on hand to discuss, debate and deliver ideas about how they—and the industry at large—can tap different approaches, such as Integrated Business Planning, to ensure they are more agile. It is imperative that they are able to beat the clock and deliver better returns to their companies in a world where VUCA reigns and no one has the luxury to sit out the storm and wait for smoother seas.

Well known risk management expert, Yossi Sheffi of MIT drove a fascinating discussion on resiliency. He used case studies to highlight examples of enterprise resiliency in the face of unexpected “Black Swan” disruptions. Gerry Smith, Global VP of Supply Chain at Lenovo, brought home the message with real-life examples of the challenges Lenovo faced during the Japanese Tsunami and the Thai Floods of 2011.

Think of it this way: you advance your planning process with flexibility; you protect your business with agility. While both flexibility and agility have short-term and long-term results, it is no longer enough to focus primarily on the short-term benefits. There is a limit to the strategies and tactics that companies can adopt in the short term within the lead-time.  To optimize the new time currency, you must be able to look at strategic scenarios and analyze longer term tradeoffs based on the market conditions within the lead-time. This mix of strategic and operational scenario management has become mandatory due to the rising complexity of supply chains.  Sales & Operations Planning provides the ideal balance: an antidote to volatility.

What do you think? Are you capitalizing on time?

Visit the Steelwedge community on LinkedIn to share your views or to discuss the topics in this blog post.

Indeed, as a global community there is much to be lauded, much to be learned and much to be leery from 2011. Cultural revolutions from the Middle East to Wall Street to Main Street; regional economic fissures, that have produced a global network of fiscal fault lines; and a heaping helping of Mother Nature’s wrath have both threatened and united us. It is the same in our industry, where finance, sales and operations teams are increasingly aligning to better recognize, respond and recalibrate to these same global dynamics. We are all learning the lessons of better alignment and agility in our ability to thrive.

Like it or not, VUCA (volatility, uncertainty, complexity and ambiguity), is our “new normal.” Nassim Nicholas Taleb, the author of one of my favorite books, The Black Swan, explores the idea that an event—positive or negative—that is deemed improbable, like the appearance of a Black Swan, can cause massive consequences.

I am inspired by what I’ve seen in 2011 from our customers, from our peers and from our Steelwedge team in approaching and resolving their own Black Swans. I’ve seen 100-year-old businesses face recession-driven loss in demand, and realign to come out tighter, stronger and better; I’ve seen consumer electronics powerhouses stare down the reality of ever-shortening product lifecycles with laser-focus on smart new product development; I’ve seen a Phoenix rise from the ashes of the automotive industry through powerful focus and improved management; I’ve seen manufacturers rebound after losing a supplier of 90% of a core part in the devastating tsunami; and I’ve seen hard choices made clearer, and sooner with better empirical data.

So, though we may not know the next Black Swan coming just around the corner in 2012, I raise a cup of kindness to what we’ve seen, what we’ve done and who we’ve met that have changed us for the better in 2011.

We too have paddled in the stream,
from morning sun till dine;
But seas between us broad have roared
since auld lang syne.
And there’s a hand my trusty friend!
And give us a hand o’ thine!
And we’ll take a right good-will draught,
for auld lang syne.

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.

Further,  businesses haven’t limited their SaaS investments just to sales and human capital management like the recent acquisition examples of RightNow  and SuccessFactors.

Ironically, in the supply chain arena, for at least the last five years, it has been the new breed of SaaS player that has actually added more value to the very on-premise systems where Oracle and SAP dominate.

Sales & Operations Planning (S&OP) which informs better supply chain agility, is all about bringing together the planning process across demand and supply organizations for a single view of the truth to make better business decisions.  While the process of S&OP has been in place for a few decades, it hasn’t been until the last few years that technology—especially easy to access, implement and configure SaaS-based technology—has enabled companies to unite the disparate ERP, CRM, SCM, BI and Finance systems data to achieve their S&OP priorities. Indeed some of the world’s largest, most complex manufacturers are trusting cloud-based S&OP solutions to help them harmonize their ERP and other rigid, on premise systems and, in turn, become more agile organizations, able to cope with today’s volatile business environment.

Since cloud computing solutions have been delivering better business leverage from ERP systems, it is time that ERP vendors give cloud computing the credit it deserves and has rightly earned.

What used to be an annual spreadsheet event is no longer an option for global businesses that have to navigate and course correct for the daily onslaught of economic, political and environmental events that could derail the best laid plans.

Supply chain complexity is multiplying as businesses become more global and interconnected. To remain competitive, organizations are changing how they source , sell and develop products. The rate of product obsolescence in consumer electronics market alone puts business agility to the test. Add to that the disruption and risk that is part of the volatile global marketplace, and business leaders recognize that the “new normal” is likely nothing like last year…or even last month. Agility is imperative; and it is keeping business leaders up at night.

Next week, On December 7th, I look forward to leading a discussion at the Supply Chain and Logistics Summit in Dallas in a workshop I will be presenting there: “S&OP: Enabling Agility and Flexibility in a Global Organization.” Sales and Operations Planning is the ammunition companies require today to combat complexity, respond to market events faster and manage risks. In this session, we will look at how companies need to create an S&OP plan, ensure that it is executed well so that the desired business performance is obtained to gain profits. In other words, S&OP is not only about the strategy but also about how the strategy can be executed.

I hope to see you in Dallas at my session or at the Steelwedge booth ,#9, to understand how you are addressing business agility in your organization. But even if you can’t be in Dallas, we’d like to hear from you on what agility issues keep you up at night.