Executive Briefings

Next Generation Moves Beyond Demand/Supply Balancing

Analyst Insight: It's been another year of exciting times within supply chain management, especially with regard to S&OP - as we continue to improve upon a 35-year-old process of balancing demand and supply. Approximately 85 percent of supply chain management professionals around the globe say they are exercising the S&OP process (informal polling of approximately1,000 execs over the past year). About 65 percent of those professionals are positioned in Stage I or II of AMR's (now Gartner) S&OP Maturity Model. While this is positive news, it's clear that globalization of our supply chains requires more than just S&OP basics. - Gregory L. Schlegel, adjunct professor, supply chain risk management, Lehigh University Graduate Program

What does it mean to move beyond S&OP basics? A company moves successfully through Stages I & II of the Maturity Model by covering key goals: developing an operational plan and Demand/Supply Matching. This work tends to be internally focused, within the four walls of the organization. Stage III, Collaboration, requires entirely new skill sets and tools. Companies begin to collaborate with customers and suppliers outside the four walls. In this stage the goal of S&OP turns to "Profitability". Moving into Stage IV, Orchestration, sees companies managing a global supply chain, requiring collaboration with other contract manufacturers and orchestration within multiple countries. At this point uncertainty, complexity and risk become much more prevalent within the S&OP process.

Uncertainty. Demand and supply uncertainty have been with us all along. From a demand point of view we've deployed tools and processes to reduce the uncertainty, especially within our own four walls. However, our average MAPE (Mean Absolute Percent Error) is still 35 percent at the SKU level. On the supply side of the equation we continually wrestle with new sources of material in exotic locations, continually expanding our supply chains leading to longer lead times and additional opportunities for disruptions.

• Complexity. It goes without saying that as supply chains expand around the globe, complexity increases: additional nodes within networks, longer lead times, higher probabilities of disruptions and errors, and so on. As a company's market share grows it tends to do so linearly, meaning they take a product portfolio and extend it to serve new markets. This serves to increase supply chain complexity. Here are just a few key takeaways from a study done last year by Appleseed Partners & OpenSky Research.

o 56% of surveyed companies say one of top three pain points was having too many products for their resources

o 45% manage their product portfolios on spreadsheets

o 27% have portfolio delivery projections that are extremely inaccurate

o Only 11% constantly monitor/or stop underperforming products

Complexity can drive up costs, destroy productivity and negatively impact profits!

• Risk. Dr. Richard E. Crandall published an article in June, 2010 in APICS magazine, addressing the theme "beyond the control of the business - or at least containing elements over which the business has little control." In the article he stated: "The recession has contributed to our now acute understanding of how external conditions can severely impact our businesses." As companies grow around the globe it's obvious that their risks increase. Yet there are only a handful of companies who are currently injecting these risks overtly into their S&OP process.

                                       The Outlook

In 2012 and beyond, we will be forced to effectively manage uncertainly, complexity and risk within our S&OP process. Look for increased focus on product rationalization and customer segmentation. We also expect exemplar S&OP teams to develop Total-Cost-to-Serve models, a technique that will highlight the "new product/customer portfolio" and ensure cost-effective supply chain strategies to serve the global footprint. Finally, look for S&OP teams to embrace Scenario Planning utilizing Predictive Analytic Engines to statistically evaluate global "what-if" scenarios across their supply chains. The outcomes will profile probabilities of occurrences for each scenario and a risk factor associated with each scenario - resulting in first-time Risk Response Plans to combat uncertainty, complexity and risk.


Keywords: Sales & Operations Planning, Forecasting & Demand Planning, SC Planning & Optimization, Technology, Business Strategy Alignment, Supply Chain Analysis & Consulting, Global Supply Chain Management, Supply Chain Maturity Curve, Demand/Supply Matching, Appleseed Partners, OpenSky Research, Dr. Richard E. Crandall, Total Cost to Serve, Predictive Analytics, Scenario Planning

What does it mean to move beyond S&OP basics? A company moves successfully through Stages I & II of the Maturity Model by covering key goals: developing an operational plan and Demand/Supply Matching. This work tends to be internally focused, within the four walls of the organization. Stage III, Collaboration, requires entirely new skill sets and tools. Companies begin to collaborate with customers and suppliers outside the four walls. In this stage the goal of S&OP turns to "Profitability". Moving into Stage IV, Orchestration, sees companies managing a global supply chain, requiring collaboration with other contract manufacturers and orchestration within multiple countries. At this point uncertainty, complexity and risk become much more prevalent within the S&OP process.

Uncertainty. Demand and supply uncertainty have been with us all along. From a demand point of view we've deployed tools and processes to reduce the uncertainty, especially within our own four walls. However, our average MAPE (Mean Absolute Percent Error) is still 35 percent at the SKU level. On the supply side of the equation we continually wrestle with new sources of material in exotic locations, continually expanding our supply chains leading to longer lead times and additional opportunities for disruptions.

• Complexity. It goes without saying that as supply chains expand around the globe, complexity increases: additional nodes within networks, longer lead times, higher probabilities of disruptions and errors, and so on. As a company's market share grows it tends to do so linearly, meaning they take a product portfolio and extend it to serve new markets. This serves to increase supply chain complexity. Here are just a few key takeaways from a study done last year by Appleseed Partners & OpenSky Research.

o 56% of surveyed companies say one of top three pain points was having too many products for their resources

o 45% manage their product portfolios on spreadsheets

o 27% have portfolio delivery projections that are extremely inaccurate

o Only 11% constantly monitor/or stop underperforming products

Complexity can drive up costs, destroy productivity and negatively impact profits!

• Risk. Dr. Richard E. Crandall published an article in June, 2010 in APICS magazine, addressing the theme "beyond the control of the business - or at least containing elements over which the business has little control." In the article he stated: "The recession has contributed to our now acute understanding of how external conditions can severely impact our businesses." As companies grow around the globe it's obvious that their risks increase. Yet there are only a handful of companies who are currently injecting these risks overtly into their S&OP process.

                                       The Outlook

In 2012 and beyond, we will be forced to effectively manage uncertainly, complexity and risk within our S&OP process. Look for increased focus on product rationalization and customer segmentation. We also expect exemplar S&OP teams to develop Total-Cost-to-Serve models, a technique that will highlight the "new product/customer portfolio" and ensure cost-effective supply chain strategies to serve the global footprint. Finally, look for S&OP teams to embrace Scenario Planning utilizing Predictive Analytic Engines to statistically evaluate global "what-if" scenarios across their supply chains. The outcomes will profile probabilities of occurrences for each scenario and a risk factor associated with each scenario - resulting in first-time Risk Response Plans to combat uncertainty, complexity and risk.


Keywords: Sales & Operations Planning, Forecasting & Demand Planning, SC Planning & Optimization, Technology, Business Strategy Alignment, Supply Chain Analysis & Consulting, Global Supply Chain Management, Supply Chain Maturity Curve, Demand/Supply Matching, Appleseed Partners, OpenSky Research, Dr. Richard E. Crandall, Total Cost to Serve, Predictive Analytics, Scenario Planning