What, really, could be more fundamental to Supply Chain thinking and practice than aligning Supply and Demand?
Nothing of course. Yet, for any number of reasons, most companies find it extremely hard. Some of those reasons really are challenging – highly variable demand, for example - but many of them are simply self-inflicted. Such as the demand and supply side of the house really don’t talk. Sound familiar?
It’s interesting to take a step back. In just the past few years, two decades after both the term supply chain management was invented and the basic process of sales and operations was defined, S&OP has suddenly become hot. Though many companies have been doing S&OP and a few even been good at it, in the past year I personally have spoken or worked with three or four very large companies that are just getting the S&OP process down, and have a long way to go to come anywhere close to being considered excellent at it.
| Gilmore Says:
"We’d ask, ‘Why did we miss the forecast?’” Dadmun said. “’Because customers didn’t order’ would be the response. But why didn’t they order? That we didn’t know.”
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Awhile back, I had a friendly debate with SCDigest Contributing editor Gene Tyndall, who pushed back on the notion that S&OP was “hot.” But after a few new client engagements, he was reconsidering.
“I thought we had largely solved the S&OP issue by the late 1990s, but I was wrong,” Tyndall told me. He said that some recent experience on corporate boards and other consulting engagements had indicated that many, if not most, companies have still not got their arms completely around S&OP yet.
(All this in the context of our most recent edition of the hard copy Supply Chain Digest Letter – which focused this month on the Sales and Operations Planning. It’s a great issue, and though mailed to almost 30,000 readers, not all e-subscribers receive it. You can subscribe to the Supply Chain Digest Letter for future monthly issues or access our outstanding S&OP resource page right now – where you can download a pdf version of the Letter, access our S&OP library, read expert commentary, review S&OP technology solutions, and more. Feedback on the Letter has been great – think you will agree!)
It’s almost become a cliché, but the statement that “most companies do some form of S&OP, but very few do it well,” still rings true in 2007.
Jon Kirkegaard, President of DCRA Inc., a specialty supply chain solutions firm, agrees.
“S&OP should generally be the first and highest profile supply chain function, as it brings great clarity to where to invest in further improvement,” Kirkegaard said. “Unfortunately, only the best and most advanced firms seem to understand this and use it for great strategic advantage.”
In the S&OP case study featured in the Letter, we also liked the perspective of Tom Dadmun, VP of Supply Chain for high tech firm Adtran. Before its highly successful Sales and Operations Planning initiative, Dadmun said Adtran (as with so many companies), suffered from a “wall of silence” between operations, sales and marketing, and product development.
“We’d ask, ‘Why did we miss the forecast?’” Dadmun said. “’Because customers didn’t order’ would be the response. But why didn’t they order? That we didn’t know.” Sound familiar again?
As we did research for this edition of the SCD Letter, a few interesting things emerged:
- The initial concept of Sales and Operations Planning is giving way to the notion of Sales Inventory and Operations Planning (SIOP), which as should be obvious from the name more explicitly includes inventory levels as part of the planning process (more on this soon from SCDigest). “The basics of S&OP is understanding your inventory and balance sheet risk in as near real time as possible while simultaneously understanding your ability to meet promised dates with inventory to customers,” Kirkegaard added.
- While it is almost always the supply chain function that initiates the S&OP initiative, an increasing number of supply chain executives subsequently push for ownership of the process by the sales or marketing functions.
- Companies far down the S&OP curve start to focus on unearthing information and insight that can’t be found in the numbers. What qualitative information is out there that might impact the baseline or consensus forecasts?
- Clearly, there is recently a much greater focus on better incorporating new product introductions (NPI) and product lifecycle management (PLM) that we ever saw in the past. With today’s rapid product lifecycles, this is critical.
Focus on communication. Even companies that did S&OP well often left the results at the executive suite, or the next level down. Leaders are clearly working hard to drive consensus forecasts and related plans deeper into the organizations.
One question that frequently comes up is: What is the role of technology in making S&OP work? I’d just say this. You can get started with S&OP with relatively little technology. But I’m just not sure how you do it well without strong technology support. What is really changing today is the testing of various alternatives, or what almost might be called simulation of various supply and demand scenarios, and robust tools are certainly required to achieve that kind of capability.
As S&OP guru Tom Wallace, author of our new S&OP Report column notes, the lack of this kind of technology support has been a large barrier to next generation S&OP., “but that barrier is now gone.”
A lot more we could say, but I’m out of space. Again, you’ll find a wealth of resources on our S&OP micropage. If you would simply like a zip file of the best of that material emailed to you, send us a note at firstname.lastname@example.org.
What do you think are the key trends in S&OP? What are the keys to breaking down the “walls of silence” between functions? What was the key to your company’s S&OP success? Let us know your thoughts at the Feedback button below.