Executive Briefings

Turbocharge Your Supply Network with S&OP 3.0!

Analyst Insight: Call it Sales & Operations Planning (S&OP), Integrated Business Planning (IBP), Sales, Inventory & Operations Planning (SIOP) or Demand Driven - it doesn't matter. Arduous to implement, these processes continue to under-perform considering the political, operating and capital investment made. Why? In most organizations the daily working capital decisions are made by planners and schedulers using custom spreadsheets and tribal knowledge. It's time to transform the process, and let's call it S&OP 3.0. – Rich Sherman, author and founder at Gold & Domas Research

Turbocharge Your Supply Network with S&OP 3.0!

Most S&OP processes are designed as monthly analytic cycles for demand, supply and financial planning culminating in a collaborative reconciliation building consensus. It's generally a good process for planning capacity utilization and procurement strategies; however, most would agree that it rarely improves daily stock-keeping unit by location (SKUL) planning and execution. The ERP generates weekly forecasts to provide that level of detail.

However, shortly after the weekly forecast is released, it's wrong. As the gap between plan and actual widens, fires break out and planners make million-dollar working capital decisions with custom spreadsheets based on tribal knowledge. Senior executives challenge IT on why they aren't getting the ROI from the ERP? Simply put, the ERP isn't supporting the working capital decisions despite best intent. Isn't it time to transform to a new organizational model?

In my book, I describe how organizations can be structured for demand management resulting in a financial impact of 30 percent increases in ROIC and even more importantly, increased free cash flow. It’s simple:

1. The same level of thinking and process that generates today’s inaccuracy and inefficiency will not correct itself no matter how hard people try.

2. If you want to change organization behavior and results, you have to change the structure.

Most organizations allocate their planning resources functionally across the organization. While traditional S&OP brings them together, they generally don’t cross-functionally collaborate on even a weekly basis. Further, corporate planning resources are not very senior except at the operations level. There simply isn't a career path. That will all change with S&OP 3.0.

The premise of S&OP 3.0 is that effective demand management is critical to the financial health of the company. All cross-functional planning resources line-report to a Demand Management Program Office (led by a chief demand management officer) and dotted-line-report to their functional management. They are measured on a combination of functional, cross-functional and corporate objectives.

With today’s Web 3.0 (the Internet of Everything), mobile data collection capability, cognitive analytics and collaborative technologies, it is possible to connect the planning resources together. The data is used for both predictive and prescriptive analytics identifying the precise time and location that actual deviates from plan. The affected resources are alerted and provided guidelines to collaborate and re-synchronize plans and schedules to profitably respond to change and variability.

At a recent conference, a P&G supply chain executive presented how P&G was benefiting from supply chain analytics fueled by data being collected across their supply network in near real time. The analytics enabled operations of some high-volume, fast-moving products to make production and inventory adjustments to respond to demand changes twice daily! It’s not theory; it’s best practice!

The Outlook

In 2015, boardroom conversations will challenge the multimillion-dollar “enterprise transformations” that are simply upgrades to newer versions of ERP. They will begin to challenge existing organizational structure as to its relevance in a “connected commerce” Web 3.0 global competitive landscape. Demand and market changes require more effective demand management and will change the focus from enterprise technology to enterprise structure. S&OP 3.0 is architected to support connected competition and profitable growth globally.

Most S&OP processes are designed as monthly analytic cycles for demand, supply and financial planning culminating in a collaborative reconciliation building consensus. It's generally a good process for planning capacity utilization and procurement strategies; however, most would agree that it rarely improves daily stock-keeping unit by location (SKUL) planning and execution. The ERP generates weekly forecasts to provide that level of detail.

However, shortly after the weekly forecast is released, it's wrong. As the gap between plan and actual widens, fires break out and planners make million-dollar working capital decisions with custom spreadsheets based on tribal knowledge. Senior executives challenge IT on why they aren't getting the ROI from the ERP? Simply put, the ERP isn't supporting the working capital decisions despite best intent. Isn't it time to transform to a new organizational model?

In my book, I describe how organizations can be structured for demand management resulting in a financial impact of 30 percent increases in ROIC and even more importantly, increased free cash flow. It’s simple:

1. The same level of thinking and process that generates today’s inaccuracy and inefficiency will not correct itself no matter how hard people try.

2. If you want to change organization behavior and results, you have to change the structure.

Most organizations allocate their planning resources functionally across the organization. While traditional S&OP brings them together, they generally don’t cross-functionally collaborate on even a weekly basis. Further, corporate planning resources are not very senior except at the operations level. There simply isn't a career path. That will all change with S&OP 3.0.

The premise of S&OP 3.0 is that effective demand management is critical to the financial health of the company. All cross-functional planning resources line-report to a Demand Management Program Office (led by a chief demand management officer) and dotted-line-report to their functional management. They are measured on a combination of functional, cross-functional and corporate objectives.

With today’s Web 3.0 (the Internet of Everything), mobile data collection capability, cognitive analytics and collaborative technologies, it is possible to connect the planning resources together. The data is used for both predictive and prescriptive analytics identifying the precise time and location that actual deviates from plan. The affected resources are alerted and provided guidelines to collaborate and re-synchronize plans and schedules to profitably respond to change and variability.

At a recent conference, a P&G supply chain executive presented how P&G was benefiting from supply chain analytics fueled by data being collected across their supply network in near real time. The analytics enabled operations of some high-volume, fast-moving products to make production and inventory adjustments to respond to demand changes twice daily! It’s not theory; it’s best practice!

The Outlook

In 2015, boardroom conversations will challenge the multimillion-dollar “enterprise transformations” that are simply upgrades to newer versions of ERP. They will begin to challenge existing organizational structure as to its relevance in a “connected commerce” Web 3.0 global competitive landscape. Demand and market changes require more effective demand management and will change the focus from enterprise technology to enterprise structure. S&OP 3.0 is architected to support connected competition and profitable growth globally.

Turbocharge Your Supply Network with S&OP 3.0!