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Focus: Supply Chain Trends/Issues

Feature Article from Our Supply Chain Trends and Issues Subject Area - See All

From SCDigest's On-Target E-Magazine

 

April 14 , 2011

 
Supply Chain News: S&OP Thought Leaders Discussion: In Search of Excellence

 

Qualitative Aspects of S&OP Starting to come to the Forefront, JDA's Baumann Says; Integrating S&OP with CPFR

 

SCDigest Editorial Staff

 

SCDigest editor Dan Gilmore recently sat down with Fred Baumann, Vice President of Industry Strategy at JDA Software, and a recognized expert on S&OP, on several issues related to S&OP Excellence.


Gilmore: What are some things that you see changing in terms of the practice of S&OP?


Baumann
: For S&OP leaders, we are really seeing a lot of focus around the qualitative elements of S&OP. While everybody loves to talk about inventory optimization models and workbenches and those sort of things, one of the things that strikes me, especially as you are going into an executive S&OP or integrated business planning process, are the qualitative elements. Sometimes, they just get overlooked.


As important as the time-phased demand and supply plans are, the assumptions behind those plans are usually just as important. So are the risks inherent in that plan, and consideration of what the opportunities are to achieve an upside to the current plan.

SCDigest Says:

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You could have a perfectly balanced unit-based supply-demand plan and totally fail to meet shareholder expectations.

Fred Baumann, JDA Software

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Often when the participants are in the room the following month and they are wondering why reality didn’t match the forecast, the root cause is more often than not bad assumptions that haven’t been well documented. We put a lot of energy into capturing those types of qualitative elements in the S&OP process, as well as the work load associated with action items that come out of the S&OP meeting.


Gilmore: I agree that after getting pretty good on the process and the technology aspects, that many companies are re-focusing on the qualitative aspects that impact success in S&OP. What else is there to consider?


Baumann: I recently wrote a white paper on the top 10 myths and realities of S&OP, and one of those points that readers might find interesting is that this whole concept of S&OP relies heavily on those quantitative elements. Fact and assumption management and the qualitative aspects of S&OP are at least as important as the quantitative aspects of the business plans. The numbers used in S&OP are derived from assumptions about the marketplace, customers, pricing tactics, new products and supply capability.


While we obviously believe in number crunching, optimization, and analytics, this is an assumption-heavy process. Especially as you are looking at companies that are going out at least is 18 to 24 months on a rolling basis, which we consider best practice. You really have balance the quantitative/scientific and more qualitative and strategic elements as you are looking out over longer time horizons.


Gilmore: Is S&OP strategic, tactical or both?


Baumann: Great question. It’s usually a mix of some strategic and tactical planning, but it isn’t operational. Sometimes you will hear people talking about “real time S&OP,” for example, as if you should be making decisions for tomorrow. Certainly companies need to manage real-time supply and demand issues, but that’s not the role of S&OP. That’s operational planning and execution processes outside of S&OP.


I have seen many cases where S&OP turns into a near-term allocation meeting, or how to manage backorders. That is usually a mistake. Those issues need to be handled elsewhere.


(Supply Chain Trends Story Continued Below)

CATEGORY SPONSOR: SOFTEON

 

 

Gilmore: How granular do you need to get in terms of data analysis in S&OP?


Baumann: Typically, the product family level is the right level of analysis. I don’t want to dismiss SKU-based analysis entirely, depending on the company, but there is kind of a counterintuitive point that no amount of adjustment at a detailed level is going to correct an error at the aggregate level.


Ultimately, the firefighting, real-time type of focus is really an expensive, non-value-added activity, and is the result of or leads to insufficient aggregate planning.


Gilmore: S&OP or “Integrated Business Planning” - does the term matter?


Baumann: When someone asks me what is the difference between traditional S&OP and “integrated business planning,” what I say is this: You could have a perfectly balanced unit-based supply-demand plan and totally fail to meet shareholder expectations.


This whole concept of IBP is essential, and part of that is covering “what if” analysis around longer-term budget gaps and operational gaps to strategy. That is a big difference versus the more detailed SKU-level supply and demand balancing exercises that are going on in many S&OP processes.


Gilmore: Does anyone truly have S&OP nailed yet?

Baumann: Many companies are close, but I am not sure anyone is excellent yet at everything. Sara Lee is one example of a company that is very far evolved. They have been migrating to more of an integrated business process, closely tying in the financial elements in the executive-level S&OP meeting so that it spans well outside the supply chain, which I think is key. They have made significant progress. So have any others.


But S&OP excellence really still is a moving target. That’s the challenge for all of us.

What is your reaction to Baumann's comments. Are leading S&OP companies focusing more on the qualitative aspects of S&OP? Let us know your thoughts at the Feedback button below.


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