Management consultants have long touted S&OP as a cure-all for the dysfunctions that plague so many supply chains. The concept is supposed to tear down organizational silos, encourage everyone to collaborate on sales planning, and impose a coherent structure on that effort.
All well and good. Too often, though, the promised results don’t materialize. “A lot of effort goes into it,” says Eric Tinker, managing principal with Nexview Consulting, LLC, a specialist in S&OP. “But some companies say, ‘It all sounds like a great idea, it kind of makes sense, but what are we really getting out of it?’”
When S&OP efforts disappoint, the dearth of results is often chalked up to weak executive support, or lack of participation company-wide. And while those elements are crucial to the success of S&OP, they’re often not the major reason why it stalls.
Not, at least, according to Tinker’s research. Nexview’s most recent survey on the topic asked 27 companies with revenues of between $100m and $10bn-plus to cite their top challenges in implementing S&OP. Participation and executive support ranked at the bottom, at approximately 11 percent and 7 percent, respectively.
And the biggest challenge, according to respondents? A lack of key performance indicators (KPIs) and clear results. In other words, the beleaguered companies had no way of measuring the success of their S&OP programs.
You can’t manage what you can’t measure. Business leaders are pounded with this mantra. Yet it doesn’t appear to have gotten through to a significant number of top executives.
To be fair, it’s not easy to measure what’s going on in a complex, global supply chain. “It takes a bit longer than most people would think,” says Tinker, author of a new book on S&OP. Companies, he points out, are dealing with a constantly moving target. Take fuel prices, a major factor in determining how and where product should be moving through the chain. The recent plunge in the price of oil presents companies with a major opportunity to re-source their freight. But such factors often are overlooked, or not tracked on a frequent basis. Planners who have spent months hashing out the details of a supplier contract might be loath to alter its contents even if circumstances demand it.
Tinker believes companies are doing a better job these days of adopting effective KPIs. But many are still failing to deploy those metrics at the highest level, in the form of balanced scorecards that provide management with a comprehensive view of operations.
The bigger issue, Tinker says, is what companies are doing with those KPIs. “Do they have a target that changes over time as they improve on it? Do they change it up or down? Do they even have the right baseline to start from?”
Beyond just having the numbers, the trick lies in moving from measuring results to managing them. Companies need to propagate the relevant data throughout the organization, while making sure that the proper executive champion in a given area is up to speed. It’s all about “getting distribution of accountability across a management team,” says Tinker.
Having that level of management discipline in place can help companies to get at the root cause of supply-chain failures. Distribution might conclude that it has too many stock points. Logistics might realize that it’s relying too heavily on premium freight. Too many intra-company shipments between warehouses could be leading to a substantial waste of resources, and excessive freight costs. Only when managers become aware of such problems can they begin to question how they can be corrected.
The same goes for decisions related to the S&OP process, which is supposed to help companies do a better job of balancing supply with actual demand. Armed with the right intelligence, Tinker says, they can begin practicing such valuable techniques as customer segmentation, providing insight into which accounts are generating the most profit, and which the least.
One valuable tool to deploy is a results tracker, which can take the form of a spreadsheet that shows each area of potential benefit, a firm baseline from which to start, targets for improvement in each area, and a month-by-month accounting of the overall plan. Subject, of course, to changes in the real world, which are relayed to management in the form of exception reports that highlight which issues require their attention at any given moment.
Tinker urges companies to think in terms of “tangible change management” – nailing down numbers, defining accountability and ensuring that the information flows into a “real, live” S&OP project. Much of the relevant data is already there, he points out. It’s just a question of making proper use of it.