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!

Register for the webinar here!

Just as the Sales and Operations Planning practice has evolved dramatically over the past decade, so have the global market dynamics and complexities. In global business, volatility is the “new normal.” So, how do S&OP leaders adapt to that volatility and still make the best executive-level decisions that balance supply and demand, and integrate operational and financial plans?

This month’s webinar presenter, noted writer and educator Tom Wallace, asked just that question to some of the world’s best practitioners. He has collected their stories of taking planning to the next level –beyond the basics– to deliver Executive S&OP that runs the business with one set of numbers for better agility, performance and profit against a backdrop of global economic, political and environmental turmoil.

‘Taking S&OP to the Next Level’ is scheduled for Wednesday, November 30 at 10:00 a.m PST. Here, Tom will share case studies from experts who’ve used Executive S&OP to:

• support the merger of two businesses into one high-performance business unit
• serve as the basis for earnings calls to Wall Street
• help create a new business
• optimize global production plans and profits and
• make cash flow projections 18 months into the future based on operational demand and supply plans.

Tom will talk more about his belief that Executive S&OP is quite simple in its structure and logic. But in practice, he sees that this often misleads companies into assuming that the process is simple to implement, while nothing could be farther from the truth.

Following Tom’s presentation, Nari Viswanathan, Steelwedge’s Vice President of Product Marketing will use industry examples to outline the additional value of deploying Collaborative S&OP Platform technology.

Finally, get answers to all of your questions with an interactive Q&A session with Nari and Tom. Find out the process, organization and cultural challenges for achieving Best-in-Class Executive S&OP. Feel free to click here to send your questions in advance.

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.

Register here!
What does Sales and Operations Planning (S&OP) mean to you and your company? Do you know if your demand and supply decisions are in sync with your organization’s strategic priorities? Is it possible to align your S&OP process with the big picture without getting bogged down with the many details in the “process”?

Sales and supply chain decision making is complicated – particularly in today’s era of demand volatility and complex, global supply chains. Every stakeholder in the sales, marketing, finance, and supply chain needs to be queried and considered. Forecasts and assumptions need to be checked, particularly when managers are used to relying on past performance and gut feel. You will likely find yourself spending long hours gathering the necessary data before you can even begin weighing the many sales and supply chain trade-offs at your disposal Is this the best way to spend your time? What if you could optimize the process so that you and your S&OP team can quickly and confidently determine the best way forward for your company?

Chris Turner, co-founder of strategy and change management consulting firm StrataBridge, is set to inspire us to stop fretting about process details and dive right into decision-making mode in a webcast entitled “Forget the S&OP Process … Start Making Decisions!” scheduled for Thursday, December 16 at 4:00 p.m. GMT. You can learn the answers to these questions and more when he teams up with John Sookias, Vice President of International Sales and Managing Director (EMEA) of Steelwedge, to discuss powerful ways to connect strategic planning with operational decision making.

In this webinar, you’ll discover how to view S&OP through a lens of the benefits to the business as opposed to the technicalities of the process. Explore the principles of “joined-up decision-making,” driven from where your organization is going, what it will take to get there, and the decisions it will need to confront along the way and learn how to establish “joined-up behaviors’” by making S&OP relevant to people.

This webinar will help you focus on the big picture of S&OP decision making and give you the tools to get buy-in from your executive team. Join our experts as they help you to save your sanity, increase your efficiency, and improve your bottom line!

Click here to register.

Paul’s fascinating presentation is a must-watch for business people wanting to learn the finer points of  supply chain strategy and sales & operations planning. Click here to view the session on-demand.

Following the live event, Paul was kind enough to respond to audience questions and you can find his answers below.

(To learn more about Paul Dittmann and the University of Tennessee Knoxville’s Demand and Supply Integration Forums, click here.)

What are the key metrics to measure supply chain performance?

We currently we have an issue related to forecast accuracy. The sales team creates a forecast based on the budget, even when they know the number that they put in forecast is not achievable. Is there a way to solve or accommodate this issue?

Is there a way to unleash a company’s potential when the budget for technology is limited?

With supply chain being one of the heaviest users of technology within a company, how is it best to balance a single provider versus best of breed for information systems?

Your survey indicated that in only 48% of companies sales is heavily involved in SIOP.  This means that in 52% of companies, sales is not heavily involved.  I would be interested to see how successful a “Sales” and Operations Planning Process can be without sales involvement?

How do you suggest incorporating customers and suppliers into the supply chain strategy?

Is there a successful formula for creating a supply chain strategy?

Should the business plan demand be included and compared with the S&OP Demand as part of the process?

How do you address sustainability as it relates to supply chain strategy?

Do you know of any company that is getting the in house union involved in the supply chain process?

The companies in your survey database seem to large companies.  Can this same process be used with much smaller companies?

How do you suggest a company would set up a supplier collaboration effort when the company is dealing with a fragmented supply chain?

How do you start by eliminating the excess inventory from reoccurring again?

Note: 

Tom’s fascinating presentation is a must-watch for business people wanting to master the finer points of Executive S&OP. Click here to view the session on-demand.

If the number of questions that were submitted during the webinar are any indicator, Tom’s presentation certainly  got the audience thinking!  Tom was kind enough to respond to each of these questions following the live session and you can find his answers below.

(To learn more about Tom Wallace and Executive S&OP, we encourage you to visit www.tfwallace.com and consider picking up his book Sales and Operations Planning: The How-To Handbook, 3rd Edition.)

How to Launch Executive S&OP

Webinar Participant: ­Where do you start on creating an Executive S&OP? 

­Tom Wallace: With top management agreement to do a 90-day live pilot. (How-To Handbook, Third Edition, Pages 75-80.)

Webinar Participant: What is the best way to convince the team to attend the meeting and to express how important they are to the entire process?

Tom Wallace: Get top management to convince them. Seriously, if the leader of the business and his or her staff are truly committed to Executive S&OP, most of them will willingly go through the learning process and do their parts.

Webinar Participant: ­I work with small and midsized manufacturing companies. It is hard enough selling them on Manufacturing Resource Planning (MRP). Where do we start to get them to understand S&OP? 

Tom Wallace: Conduct an executive briefing. Get a decision from top management to do a 90-day live pilot. Then, if that looks good to them, and it almost always does, proceed to cut over the rest of the families to Executive S&OP.  (How-To Handbook, 3^rd Edition, Pages 69-73) ­

Webinar Participant: Based on the myths of a company not willing to change for S&OP and education being the solution, what’s the best way to teach your executives and what material do you show them?

Tom Wallace: I’ve mentioned the Executive Briefing, and that’s by far the best way to get started. However, they’ll need more input than that and there are a substantial number of books and videos to help you with that at www.tfwallace.com.

Webinar Participant: ­How do you handle a pilot program when compromise may often include items or pieces (demand or resource constraints) outside of that pilot?

Tom Wallace: If possible, select as your pilot family one with little or no shared resources. If you can’t avoid that, then estimate the impact of the “outside the family” demand to show an approximation of the full picture on the resource.­

Webinar Participant: Does Tom have a perspective on implementing S&OP in a services / distribution environment versus traditional manufacturing?

Tom Wallace: it’s more similar than different. The basics are the same: demand, supply and the related financials. (How-To Handbook, Third Edition, Page 166-167)Overcoming S&OP Challenges

Webinar Participant: Tom has been preaching Executive S&OP for some time now – what does he think is the single most important element of a successful implementation?

Tom Wallace:The three most important things in real estate are location, location, location. The three most important elements are people, people, people. They’re the A item. Your success with the process will hinge almost totally on the quality of the job done with  getting the people down the learning curve on the why’s, what’s and how’s of Executive S&OP.

Webinar Participant: ­Once you’ve established buy-in for the need for an S&OP process, what are some of the larger challenges / obstacles that you’ve faced and how have you overcome them? ­

Tom Wallace: Most of the problems are mindset issues: reluctance to change, aversion to conflict, lack of organizational self-discipline, and discomfort with accountability. These are almost always fixable by two things: a) strong leadership from the top and b) education and learning.

Webinar Participant: ­In a regional environment (e.g. Latin America region), what is the best approach? Should we start S&OP from the regional level and force it down to the markets or start with one or two markets with a pilot?

Tom Wallace: Demand planning should be done at the market level. If the markets have their own manufacturing, they can then do the entire Executive S&OP process. If most markets do not have manufacturing, then typically the S&OP process occurs at the regional level using demand planning input from the markets. (How-To Handbook, Third Edition, Page 167-169­.)

Tom Wallace: We have a mature S&OP process but have difficulty achieving conclusive results after the Executive S&OP. Any thoughts?

Tom Wallace: Forgive me, but I suspect that while your process may be mature, it sure doesn’t sound effective.The essence of this process is decision making. To fix it, you might self-administer the Executive S&OP Effectiveness Checklist, which you can pull off our website: www.tfwallace.com. Go to downloads/free downloads. (How-To Handbook, Third Edition, Page 211) 

Leading the Executive S&OP Process

 Webinar Participant:­Who leads the individual steps like the pre-meeting and the executive meeting?

Tom Wallace: The overall owner of Executive S&OP is the leader of the business. The steps are often facilitated by the S&OP process owner. 

Webinar Participant: Who should be the process owner of S&OP?

Tom Wallace: Someone who knows the business, has good peer relationships, good communication skills with top management — those kinds of things. It doesn’t matter much which department he or she comes from.

Webinar Participant: ­Who and at what level is the “executive”? You used P&G and Dow as examples, but who is the top level person participating in the executive process.

Tom Wallace:The “executive” is the leader of the business. The “business” is that point at which demand and supply align and bottom-line accountability resides. In large companies, this is not at corporate but rather at a business unit level. The results of the various business S&OPs are rolled up and presented to the CEO, CFO etc. to serve as inputs to the quarterly earnings call.­

Webinar Participant: Is it the supply chain team (that leads the process)?

Tom Wallace: Supply chain is only one functional area that plays a role in the Executive S&OP process. There are others of equal importance.­

Webinar Participant: Why is product development not involved even before data gathering? Isn’t it already too late at demand planning time onwards as sales people have already submitted the forecast? ­

Tom Wallace: Product development is involved in developing new products. Their entry point to Executive S&OP is demand planning, i.e., bringing in the status and schedules of the various projects. Sales people submit forecasts as one input among many into the demand planning step. (How-To Handbook, Third Edition, Pages 34-36.)

Defining the Executive S&OP Process

Webinar Participant What is time commitment for the people collecting the data and organizing the meeting for execs, and how do you get away from continual pull cycle of info only and drive more improvement to streamline utilization of resources prior to the meeting? 

Tom Wallace: This varies a great deal on company size and what kind of software is being used. Companies using Excel as opposed to S&OP-specific software will typically spend more time on these activities. Regarding the second part of your question, you might consider getting one of your internal 6 Sigma Black Belts involved in reworking the process.

Webinar Participant:­What’s the main difference between the executive meeting and the pre-meeting regarding info?

Tom Wallace:The pre-meeting is more detailed, both in terms of data and the depth of the discussions.­

Webinar Participant:­How often does the pre-meeting occur between demand planning and supply planning?

Tom Wallace: Never, in my experience. 

Webinar Participant:­Is a monthly timeframe the right cycle?  In your experience, what issues have you seen in a quarterly S&OP process?

Tom Wallace: Virtually all businesses I’ve ever seen are simply too fast-paced to refresh their demand and supply plans quarterly. My advice: don’t even consider doing it quarterly. It won’t work.­

Webinar Participant: What is the best practice planning cycle time of the S&OP process?

Tom Wallace:Most companies will conduct their Exec Meeting around the 15th of the month.

Webinar Participant: ­What kind of range for the number of product families is appropriate for Executive S&OP?

Tom Wallace:Somewhere in the range of 5 to 10, or a half dozen to a dozen, the reason being that these are the items typically discussed in the executive meeting, which should not exceed two hours routinely. Many companies use sub-families to get additional granularity where needed and these would be more prevalent in the pre-meeting and earlier steps. ­

Webinar Participant: ­Does S&OP planning function the same way for distribution based organizations? 

Tom Wallace: Yes. In implementation, you may need to work a bit harder to determine which supply elements will be tracked in the supply planning step.­

Webinar Participant: ­Can you clarify the level of detail for Executive S&OP? It seems to be volume, but things like new product plans and margins involve mix. 

Tom Wallace: Often mix data enters into the process but it must be aggregated to a volume level to serve Executive S&OP.­

Webinar Participant: ­Should the result of an S&OP session be a consensus forecast or a production schedule? 

Tom Wallace: Both, as well as updated financial plans and perhaps revised schedules for new product launch. And, updated hedge to support risk management­

Webinar Participant: I am constantly battling the separation of these distinct processes now lumped as one and referred to as ‘sales and operations management’.  All this tends to do is lead to confusion and unnecessary battling over terminology.  It is part & parcel of the misunderstanding about the amount of time required for this most important process. How do we change or get the correct terminology mindset back?

Tom Wallace: We’ve developed the term “Executive S&OP” as a defensive measure against the morphing of Sales and Operations Planning to include pretty much all of what used to be ERP. Executive S&OP term is gaining traction, but it’s not happening quickly.

Webinar Participant: ­Where is the boundary between S&OP and Integrated Business Planning (IBP)? 

Tom Wallace: I’m not sure what IBP is. I’ve been told by a senior person within the Oliver Wight group, the organization that coined the term, that it’s quite close to Executive S&OP.­

Optimizing Executive S&OP Performance

Webinar Participant: ­Do you have any concrete tips on how to get to a “single number”? We often struggle in talking about financial forecast versus sales forecast.

Tom Wallace: They should be one and the same. Sales forecasting is done in units and then “translated” into dollars. This is why finance people need to have hands-on involvement in the demand planning step. (How-To Handbook, Third Edition, Page 66­.)

Webinar Participant: How can we best quantify the success of S&OP since many other factors determine overall success such as days on hand and delivery percentage?

Tom Wallace: Some people apportion a percentage of the improvement to Lean, some to Six Sigma, some to Executive S&OP, etc. Others take the position: “If we’re getting the improvement, we’re not going to care about exactly where it’s coming from. We know that if S&OP is working well, it’s making a big contribution.” Since it doesn’t cost much to implement the process, many people don’t feel the need to relate actual results to what was in the cost justification.

Webinar Participant: What will be best way to increase time horizon discussed during Executive S&OP?

Tom Wallace: 1) Once per year, they go out into the future 15 or more months when they do the annual plans. All we’re saying here is to do that every month. (It’s not as much work as it may sound, since you’re only adding three months of forecast every three months.) 2) Even if the forecast is uncertain 12 or more months out, it’s  more accurate than zero — which is the default forecast if your horizon is four months. Forecasting over the medium and long range should not be by SKU but rather by aggregate, market-facing families that can be much more validly forecasted, in most cases using external data.

Webinar Participant:  How can Operational S&OP make be tied effectively to Kanban or min/max strategies? These strategies defeat the purpose of a time-phased forecast leaving S&OP as an executive review focused on volume.

Tom Wallace:Executive S&OP sets the volume plans (e.g., sales rates, run rates, etc.) For Operational S&OP, the specific, detail-oriented processes such as Kanban and others operate with their own logic within the framework of the volume plans set by Executive S&OP. (How-To Handbook, Third Edition, Page 17-18 .)

Webinar Participant: ­Which aspects in S&OP need to be looked at closely to help with highly volatile demand products? How can you best stop forecasting from being viewed as useless exercise?

Tom Wallace: Start with a live 90-day pilot. If you get good results, then make sure that everyone understands that the forecast played an important role and that it’s not a useless exercise. As you bring the rest of the families into Executive S&OP, pay close attention to the forecasts and work hard at making them better and better. And as they get better, make sure everyone knows.  

The Future of Executive S&OP

Webinar Participant: What improvements do you foresee in S&OP in the next 5-10 years?  What is your vision?

Tom Wallace:Executive S&OP will continue to grow in capabilities, and will be used in more ways to support running the business very well. Its job is to help top management, and companies will continue to find creative ways for that to happen. S&OP-specific software will help in this, particularly with simulation. By 2020, it will be the de facto standard for managing those parts of the business that deal with demand, supply, and related financials.