collaborative S&OP
Does your Business Need a General Petraeus? Five Tips for Implementing a Successful S&OP Process
When it comes to implementing an effective S&OP process, do we need a hard-driving commander or a consensus driven committee? After all, S&OP is about collaboration, right? Well, yes and no. An S&OP process must be collaborative. But the implementation need not be heavily committee-based.
The Tony award winning musical Memphis includes a song titled “Change Don’t Come Easy”. Oh how true that is. In social norms and in business, change can be slow and painful. So what’s a successful recipe for S&OP change? Although every enterprise has its own unique characteristics that will influence its approach, here are five observations we see when assisting clients to employ best practice S&OP processes and tools.
Top Management Support: Do your senior executives know what S&OP is? Do they understand the value of S&OP? How committed are they to making S&OP truly ingrained in the culture of your organization? When S&OP implementations fail, often the root cause can be traced back to a lack of senior leadership. At all levels of the organization, it must be clear that the whole organization is committed to making necessary changes.
Company Goals Above Individual or Department Goals: What’s the goal of S&OP? It should be to drive strategic business decisions that benefit the entire company NOT one employee or department. Too often personal goals conflict with the greater good. Strive to minimize such incentives that detract from the overall goals.
Make Decisions and Keep Moving Forward: Cross functional representation is required to get buy-in from all business disciplines. One person will not implement S&OP on her own. Assemble a group of knowledgeable doers who have the company’s interests at heart and know their functional area well. When this group reaches an impasse, a single S&OP sponsor/leader should step in and make key decisions. Keep moving forward. Don’t let anything stop progress. S&OP is an iterative process and changes you make today may need to change again later. Keep moving forward.
Clear Expectations: What is S&OP? Why do we need this? What’s wrong with what we’re doing today? If your employees are asking these questions, you better have the answers. Make sure all participants see the forest. What are the major benefits to collaborative planning? What is each person’s role in the process? How will S&OP make us better at our core responsibilities, drive demand, supply and financial plans and increase profitability? Employees should feel empowered by the process not burdened.
Training: Make sure that ample training is provided to solidify new processes and tools. What ‘sticks’ is often what has been practiced. Comfort with the new process and tool comes with experience. Create those initial experiences through training.
Tips to remember:
- Change don’t come easy
- Top management support is required
- One person will not do it alone
- Cross-functional participation is mandatory
- Make decisions and keep moving forward
- Paint clear expectations
- Solidify change through training
Supply Chain Author Paul Dittmann Responds to Your Questions
Note: On Tuesday, June 22, the University of Tennessee and Steelwedge were pleased to feature author and educator Dr. Paul Dittmann in a webinar entitled, “Transforming the Supply Chain Into a Competitive Advantage.” Dittmann is 30-year supply chain veteran and co-author of the recently published book The New Supply Chain Agenda.
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?
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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?
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Is there a way to unleash a company’s potential when the budget for technology is limited?
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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?
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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?
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How do you suggest incorporating customers and suppliers into the supply chain strategy?
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Lora Cecere: MIRROR, MIRROR ON THE WALL….
by LORA CECERE, Altimeter Group, www.altimetergroup.com
In the movie Snow White, the Queen possesses a magical mirror that answers any question, to which she often asks: “Mirror, mirror on the wall, who in the land is fairest of all?” …to which the mirror always replies “You, my queen, are fairest of all.”
_________________________________________________________________________________________________________________________________________________________________
Companies want to know “who has the best supply chain?” Unfortunately, there is no supply chain magic mirror; however, each June we can get summarized financial data. While not a perfect mirror, it is a partial reflection. It is definately more accurate than mistakenly believing that each supply chain is as good as it gets (e.g. the Queen’s magic mirror in Snow White).
The normal cycle of financial reporting makes June a perfect month to review the past year. So just as students gather around bulletin boards at the end of the school term and check their grades, in June, I scour websites to understand how supply chains stack up. Luckily, two articles –the CFO Magazine’s Working Capital Survey (http://www.cfo.com/article.cfm/14499542) and the CSCMP Annual State of Logistics Report (http://cscmp.org/memberonly/state.asp)– are published in June to serve as year-over-year guideposts to answer the question, who does supply chain best?
2009. A Year in Review
2009 was a true litmus test. It was the height of the recession. Aggregate volume declined 23% and fundamental demand shifted. Despite investments in technology, in aggregate, the supply chain response was slower in this recession than in the prior 2001 recession. There is a growing gap between leaders—companies that really understand and practice the concepts of supply chain management—and laggards. Companies that excelled at supply chain management sensed demand changes 5X faster and realigned network decisions than their peer groups (http://www.supplychainshaman.com/category/supply-chain-economic-recovery/).
For many, 2009 was a working capital hangover as companies reeled in the recession aftershocks. It was the worst year ever, in this writer’s history, for working capital management. For 68% of the Fortune 1000 companies, Days of Working Capital (DWC) grew. Facing new market obstacles in collections, payables and inventory management, companies buckled their belts and scrambled for cash. As inventory levels climbed during the first part of 2009, tension grew in supply chain discussions. This was the most problematic –even desperate– for companies when high asset utilization was mistakenly defined as supply chain excellence.
The tightening of credit through 2010 put the spotlight on inventory management (even for companies that had never cared about inventory before). The bloated inventories of 2008 through early 2009, sent a shock wave through executive discussions; and even though business inventories dropped for the first three quarters of 2009 and rebounded in the fourth quarter below pre-recessionary levels, executive teams remain on edge. As the curtain rises for the last half of 2010, the links in the supply chain are weakened. Capacity is tightening and prices will rise. The termsdemand sensing, demand shaping, and demand orchestration have a new meaning for battle-weary supply chain veterans.
2009: How did we do?
The good met the test. The average and poor supply chain processes were not equal and succumbed. What made a difference? Companies focused on traditional supply chain planning and tight integration of planning processes to Enterprise Resource Management (ERP) did the poorest. Companies with an outward-focus on market drivers and building strong what-if analysis to understand demand uncertainty did the best. Leaders have the right stuff. Laggards have a new respect for supply chain excellence.
Let me preface this analysis with a caveat. I do not believe that you can throw all industries in a spreadsheet and declare a supply chain victor. Since value drivers within each industry are different; I think that true supply chain leadership can ONLY be seen when you compare companies within peer groups.
In this downturn, supply chains experienced a seismic shift. Using the earthquake analogy, it was an eight or nine on the rector scale. As I thumbed through the CFO magazine results, I considered many; but settled on three stories:
Containers & Packaging:
Suppliers, at the end of the supply chain, are whipped hard by economic downturns. When it comes to fighting this bullwhip effect, supply chain excellence matters. Contrast the stories of Sonoco Products and Owens Illinois. Sunoco Products, a 3.6 billion dollar company, located in South Carolina, manufacturers packaging film for the consumer products industry. The company has been on a four-year journey to become more demand driven with a strong focus on S&OP. Owens Illinois (OI), a manufacturer of glass containers with US headquarters in Ohio, has been more focused on transactional efficiency, procurement and IT standardization. Sunoco has outpaced OI in learning how to be a supply chain leader. Their 2009 numbers speak for themselves.
Table 2: Comparison of 2009 Results of Sonoco Products and Owens Illinios
| DSO | DIO | DPO | DWC | |
| Sonoco Products | 43 | 31 | 38 | 37 |
| Owens Illinois | 67 | 49 | 45 | 71 |
| Industry Average | 42 | 42 | 31 | 63 |
High Tech & Electronics
When it comes to high tech & electronics, my favorite story of a company successfully navigating the downturn is Cisco Systems. Cisco took its bumps in the 2001 downturn, did a mea culpa with a 2.25 billion dollar inventory write-off and swore never again. They redefined supply chain processes under the banner of Customer Value Chain Management (CVSM), successfully integrated 138 acquisitions over 15 years, and built systems to mitigate risks—simulation of 4300 inputs by a team of 10 people—and build supply chain resiliency in the supply chain from the outside-in. Motorola, on the other hand, has focused more on IT standardization and procurement excellence. The numbers speak for themselves.
Table 3: Comparison of 2009 Working Capital Results for Cisco and Motorola
| DSO | DIO | DPO | DWC | |
| Cisco | 48 | 11 | 7 | 52 |
| Motorola | 65 | 22 | 40 | 46 |
| Industry Average | 57 | 23 | 27 | 53 |
Semiconductor
Intel is my pick within the semiconductor industry. Their focus on supply chain talent development and steadily improving supply chain capabilities helped them through the recession. They made a conscious choice to not be aggressive on DPO to ensure a strong supplier base. This focus on supplier development built resiliency into the supply chain. Again, supply chain excellence matters. Contrast Intel with Fairchild Semiconductor. Fairchild Semiconductor has a strong focus on IT systems, is building supply chain talent and is early in the execution of S&OP. Likewise, while Texas Instruments has a deep legacy of supply chain planning excellence, their focus has been more vertical (source/make/deliver) than horizontal (e.g. Sales & Operations Planning, order to cash, etc). Consider the working capital impact of three companies in the same industry at very different points in supply chain maturity.
Table 4: Comparison of Intel, Freescale Semiconductor and Texas Instruments
| DSO | DIO | DPO | DWC | |
| Intel | 24 | 30 | 20 | 35 |
| Fairchild Semiconductor | 41 | 58 | 37 | 63 |
| Texas Industries | 45 | 42 | 18 | 69 |
| Industry Average | 50 | 44 | 33 | 61 |
What is next?
The only thing certain for 2010 is uncertainty. The litmus test—2009 results at the height of the recession—supports that true supply chain excellence matters. However, the best working capital numbers do not make the best supply chain. It is about conscious choice. Just as Intel made a choice about paying suppliers quicker to improve reliability, companies need to make similar choices about the alignment of working capital targets into supply chain strategy, setting targets for each and active management of the horizontal process that underlies each of the metrics. For leaders it is deliberate; for laggards it is largely uncontrolled.
These lessons are even more important as the recession hangs over us like a black cloud with the possibility of a double dip recession. No doubt about it, we are writing case studies in supply chain excellence. If only there was a magic mirror…. I hope that you do not become a supply chain casualty.
What do you think? Did I miss a great story in the data published by CFO magazine? Is there a story of supply chain excellence that you would like to share? Please share your thoughts with the over 2000 readers of this blog.
Footnote:
Definitions of Days of Working Capital (DWC), Days of Sales Outstanding (DSO), Days of Inventory Outstanding(DIO) and Days of Payables Outstanding (DPO) and the numbers contained in this article are sourced from CFO Magazine’s June 2010 article on Fortune 1000 company working capital performance.
The stories shared on these supply chain leaders are based on publically available information: investor calls, public presentations, and public forums. While I have personally worked with all seven of the supply chain teams listed in the article; and there is much more to share on each of these stories, I have limited my comments to publically available information.
The names of specific technology providers are deliberately omitted from this article
Note: This article provided by courtesy of Lora Cecere, Altimeter Group, www.altimetergroup.com
Top Ten S&OP Critical Success Factors
Story
A man was walking with his four year old daughter. The girl was full of energy, her attention easily caught by many interesting street activities. The father instructed the girl to stay on the sidewalk. After the girl repeatedly roamed off the sidewalk, the father became quite stern, scolded the child and demanded that she follow his instruction. The girl, tears in her eyes, turned to her father and asked, “what’s a sidewalk?”
Clear Expectations
Do the members of your organization really understand what is Sales and Operations Planning? Do they have the tools needed to efficiently and effectively run S&OP?
The Strategic Se
rvices team at Steelwedge Software has experience with a wide range of companies. Some companies say they have an S&OP process but it may consist of a Sales forecast thrown over the wall to Operations. Others say they do not have an S&OP process yet they have many elements that make up the foundation of successful S&OP.
Top 10
Here are the top 10 most critical elements we see in building a productive S&OP process.
10. Cadence – Defined monthly process with consistent participation
9. Top Management Support – Executives mold, participate and highlight importance of process. Executives should refrain from dictating the process and expected outputs.
8. Product Lifecycle Management – New product and end of life modeling; timely visibility to new product launch dates and resource implications
7. Performance Measurement – feedback loop enabling continuous improvement
6. Analysis – Using resource time for analysis rather than data gathering and manipulation
5. Easy access to critical information – one repository with frequent updates and quick access
4. Units and Dollars – Aligned unit and revenue projections; agreement on unit of measure conversion method
3. Tool Enabled Collaboration – a forecasting and planning platform that allows individuals to see exactly what they need while contributing to the consensus driven process
2. Collaboration – a willingness to place organization goals ahead of personal goals
1. Clear Expectations – clearly defined objectives, roles and responsibilities
How does your organization stack up? Do S&OP participants know what’s expected? Do they really understand what is a sidewalk?
Lora Cecere on the SAP Insider Event: Where is SAP APO headed?
Those following Supply Chain Industry Analyst Lora Cecere’s new Supply Chain Shaman blog (http://www.supplychainshaman.com) have read with keen interest her observations about SAP’s progress in the area of Supply Chain Planning. Lora points out that while SAP has made tremendous progress in many areas it is also struggling with integrating its many components – specifically Lora says that the “integration of business intelligence and performance management is moving [too] slowly.” Her notes on the growing disappointment with SAP APO – from within and outside the SAP organization – are also worth noting (http://www.supplychainshaman.com/2010/04/inside-insider:
“I leave the event with two major disappointments. The first is that the integration of business intelligence and performance management is moving slowly. …too slowly for this curmudgeon analyst. I was hoping to see the results of the Teradata/SAP Business Objects integration and the launch of a new generation of predictive analytics. While there is some progress in Performance Management, it is largely traditional reporting/dashboards.
The second is that SAP APO—SAP’s supply chain planning suite—was largely business as usual. At the event, I saw small, incremental changes, but no major innovation like I saw in MII, PLM and transportation management. I keep crossing my fingers. I would love to see SAP have the courage to blow up APO and start again. Who knows if it works for PLM, maybe there is a chance to bring innovation to a solution — and the larger Supply Chain Planning (SCP) market– that sorely needs to be redefined.”
As SAP friends and partners know, SAP has some truly outstanding employees and the SCM Product Group continues under the brilliant leadership of Lori Mitchell-Keller. Yet, overcoming legacy products and dated, mis-guided inertia is difficult for even the most effective of executives. The great news is that a whole new generation of cloud-based supply chain planning and S&OP applications that integrate tightly into the SAP suite are now available. These applications are changing the game and will ensure that SAP users are well supported well into the next generation or whenever it is that SAP is finally able to overcome its legacy and move forward.
Tiger Woods, S&OP and Elephants
As Tiger Woods s
lowly recedes from visibility in today’s fast paced, polyphonic, multi-media environment, I am driven to identify some sort of meaning in it all. And, in a world in which bits, bytes and terabytes of data stream before us daily this is no easy task. Living in an age when global conflict shares a table with global social networking, creating personal connections has become the Holy Grail. On occasion connections do occur. When this happens the information that fog my life temporarily lifts. So, ending a long day immersed in Sales and Operations Planning (S&OP), I ponder — do S&OP, Tiger Woods and Elephants share something in common?
At its best, a highly collaborative, data-driven Sales and Operations Planning process creates visibility. The consequences of bad choice become clear. And, elephants sitting in the room – or perhaps obsolescent inventory lying in a warehouse – cannot be avoided. In good S&OP scenarios are created, alternatives examined, and the path forward is understood. Often, the process of S&OP itself surfaces important issues that might otherwise have been missed. Were there early indications of bad choice in Tiger Wood’s behavior? Was his life story of discipline and perfection to good to be true? Was there an elephant in the room all along that we were all ignoring?
We all love a hero. And of course, we seek to avoid unpleasant experience. While the world worshipped Tiger, Tiger was spending his energy struggling to contain a boiling maelstrom of problems. There indeed was an elephant in Tiger’s room and neither he nor the rest of the world was willing to confront this painful fact until the elephant crashed through the house. The good news is that life will go on for the rest of us and Tiger will survive the storm.
However, in today’s troubled economy, corporate executives cannot afford to ignore the elephant’s in the room. There is no room for bad choice. Constant vigilance and decisive action are imperative. Sales and Operations Planning is a process that can elucidate the elephant in the room. Moreover, Steelwedge S&OP drives better decision making and good choice. Did a major customer in a remote region of the world just cancel a major order? If so, how should we react? Should we discount aging inventory before promoting new products? Can we improve profitability with a different price structure? The answer to these questions is the fuel that powers successful corporate governance. And, indeed the story of Tiger Woods, Elephants and S&OP provides an important message.
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