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.

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.

A very interesting statistic – the Purchasing Managers Index (PMI) for August 2011 – caught my eye this morning. This metric tracks the financial activity of purchasing managers connected to their acquisition of goods and services. It is calculated on a monthly basis through a survey conducted by the Institute of Supply Management (ISM).

Surprisingly, the statistic concluded:

“Economic activity in the manufacturing sector expanded in August for the 25th consecutive month, and the overall economy grew for the 27th consecutive month,” say the nation’s supply executives in the latest Manufacturing ISM Report On Business^®.”

A visual representation of the metric is below. Please note that the way the metric is captured, any value above 50 percent is an improvement and a 100 percent value indicates that everyone in the survey indicates an improvement. The degree of change month-over-month is reflected in the actual value. For instance, 65 percent PMI for a month is a bigger change than 55 percent PMI.

Figure: PMI for 2010-2011

Source: Institute of Supply Management

So what does this mean for the supply chain executive who is looking at S&OP and IBP initiatives?

1. Need for Operational Efficiency: According to the ISM survey, the overall sentiment is one of concern and caution. In this sort of a situation, increasing operational efficiency and reducing waste in the end-to-end value chain is the best approach that companies can take. S&OP and Lean are two weapons that companies can adopt in this endeavor. In fact ,we see that these two initiatives dovetail into one another when the S&OP plan needs to be executed.

1. Multi-business S&OP: According to the ISM survey, respondents in general are reporting reduced domestic sales and increased international sales. This implies that large multi-national companies need to look carefully at balancing their supply towards demand and look at their S&OP process as more of a multi-enterprise/multi-business process rather than within their silos; for instance, being able to position supply in tax efficient countries and moving it closer to customer when the demand signal arrives (looking at building capacity in Eastern European countries, etc.). IBP processes should allow visibility not just at the divisional level but at the corporate level too .

1. Working Capital Management: According to the ISM survey, respondents are reporting that their inventories are in general higher than their customer’s inventories. This is of course a result of network wide inventory reduction efforts that have gone on for many years. What it has really resulted in is pushing out of inventory upstream into the supply chain where every node believes that they are at the receiving end with respect to holding inventory. Companies need to really look at inventory from a working capital standpoint and as part of the IBP process. The working capital is dependent on the customer sales, supplier purchases and inventory – the IBP process is the only process that provides visibility to all three. These three variables have to be looked at holistically and not in silos. So, implement IBP processes that  can model supply, demand, finance and inventory in a holistic fashion

Figure. ISM Inventory Index for Manufacturers and their Customers

What are your thoughts? Do you agree with the analysis? Also, more importantly, why are the unemployment numbers so high when manufacturing is apparently growing? I have thoughts on this but would love to get your feedback.

The Steelwedge S&OP Service Delivery Platform dramatically enhances the ability of our clients, partners and users to rapidly configure, integrate, implement and train users on a process-driven collaborative Steelwedge S&OP solution.

S&OP has quickly become a management necessity for companies operating complex, global supply chains in today’s climate of uncertainty and risk.  Executives facing pressure to manage volatility and risk have embraced Steelwedge to align demand and supply decisions with revenue, margin and customer service goals.  Companies that have rolled-out best-in-class S&OP practices have realized big gains, including a year-over-year gross profit margin increase of 48 percent, according to a recent study published by Aberdeen Group.

“In today’s volatile world, companies need to rapidly respond to changes in supply and demand as never before.  The Steelwedge S&OP Service Delivery Platform is truly a breakthrough for companies desiring to rapidly implement and adopt a flexible S&OP solution that drives corporate agility.” explained Glen Margolis, CEO of Steelwedge. “This new technology platform enables companies to quickly and cost effectively adopt globally collaborative S&OP processes.”

To learn more about our cool new technology, visit our web site.

Lora Cecere:

Why have companies with strong S&OP processes done better in today’s economy?

Lora Cecere discusses the business challenges that are driving S&OP adoption. Learn why Lora has concluded that companies with strong S&OP processes and tools are flourishing in today’s economy, and in fact, are able to sense changes in demand five times faster than their competitors. Lora is a partner with Altimeter Group and is known as a supply chain visionary who understands technology. She brings seven years of industry analyst expertise coupled with two decades of manufacturing, marketing and software expertise.

Blake Johnson:

Why do companies need to incorporate supply and demand uncertainty in their S&OP process?

Blake Johnson, Ph.D. explains how leading companies are incorporating demand and supply uncertainty into their S&OP process to overcome the challenge of demand volatility. Learn why Blake encourages leading companies to forecast a range of potential demand so that managers can confidently evaluate trade-offs to achieve the optimal level of supply chain flexibility. A consulting professor at Stanford University, Blake is an internationally recognized expert in the field of supply chain risk and flexibility.

Tom Wallace:

Why is S&OP of such vital importance to many of today’s most successful companies?

Tom Wallace was present at the birth of sales and operations planning (S&OP) and has seen firsthand how it has evolved to become a vital management tool for many of today’s most admired companies. The author or co-author of more than a dozen books about S&OP, Tom answers the most essential questions about the S&OP. Learn what Tom thinks every CEO should know about S&OP and why companies are investing in purpose-built S&OP technology to maximize the effectiveness of the process.