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: You could have a perfectly balanced unit-based supply-demand plan and totally fail to meet shareholder expectations. Fred Baumann, JDA Software What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

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)