In our Part One commentary, we outlined some grounding on how business and supply chain cross-functional teams can context the need for augmenting sales and operations planning (S&OP) with considerations for advanced technology. We provided four levers of process capability in which to evaluate the need for dedicated S&OP technology.

Once teams have determined that advanced technology is the path forward, we would like to offer some guidelines to help these teams evaluate technology offerings, along with some guidance on weighting criteria.

First and foremost, we recommend that you spend time to define the desired S&OP end state, the ‘should-be’ vs. the current ‘what-is’, but we also hasten to add that teams should breakdown the end-state into phased, incremental stepping-stones to the end state.  Each phase should include the process, people, and technology enablement changes required to complete that phase.  Ideally, each phase should be divided into 6 to 9 month increments on a continuous journey of change, where each step builds the foundation for the next step change.

When evaluating dedicated S&OP technology, teams should evaluate overall functionality needs in reference to the end-state, which addresses which technology vendors have the capabilities and resources that can support the achievement of the final objective.  This also helps in the evaluation of overall cost vs. quantitative benefits desired. That stated, another important consideration will be the vendor’s resources, flexibility, implementation and partner ecosystem capabilities to support each of the phases of transformation, without major disruption to existing processes. S&OP is not the sole purview of the major ERP vendors, and in many cases today, more of the technology innovation in this area has come from specialty vendors.

Certainly, individual firms will have varying needs for desired functionality, but it is rather important for implementation teams to consider both technology and vendor capabilities that have a track record of reliability and responsiveness to business and process needs.  In the overall laundry list of desired functionality, we would submit that the most important criteria to weigh, aside to overall cost, will be application ease-of-use.  We state that for a number of reasons.  The S&OP process by its nature, involves a multitude of participants representing internal, and increasingly, external trading partners.  Participants will not embrace technology if they perceive it is too difficult to use, too rigid and inflexible, or if they do not understand what the information represents.  Each of the S&OP team participants, spanning cross-functional to executive level, will have their desired level of ‘useability’ criteria, and it is important for evaluation teams to weigh these criteria in the ultimate selection. Another trend to factor is that there can be a constant level of turnover or change of S&OP participants over time, and each should be able to quickly ramp-up on adoption and use of the technology tool supporting the process.

The above stated, we recommended that evaluation also include some of the following important criteria in their technology evaluation:

• Role-based useability features, with the ability of a process participant to easily configure the application to their specific role or involvement within the S&OP process. It is rather important that the application include visualization tools to summarize large amounts of information or key-in on significant root-cause trends. Easily configurable dashboards or user screens are important.
• Bring multiple externally based data and information, such as demand, financial, supply, production, procurement and capacity, into the process, coupled with the ability of S&OP decisions to be executed within external systems. Information transfer should also include user-friendly means to transfer information among spreadsheets, files and databases, which is often required when including smaller trading partners in the process. Many S&OP decisions will involve specific products and/or customers and it is important that the application has the ability to support analysis, drill-down, drill-up, and decision actions at the item or SKU level.
• Perform scenario or what-if planning across a singular database of integrated information, along with the ability to create or track multiple scenarios helps S&OP teams to weigh and determine viable options to rapidly changing business conditions. These capabilities must be able to be performed in a near real-time speed, since teams will lose creditability if analysis takes multiple hours to complete.
• Assess and evaluate supply chain wide risk considerations, such as a major disruption in production, supply, or failure of a key supplier. Ability to asses a decisional impact on a firm’s financial and asset performance goals, or the ability to perform ‘cost-to-serve’ or profitability analysis related to key customers is another important criteria.
• Documenting and tracking the audit trail of decisions, along with the assumptions related to certain decisions, helps teams to determine a context for prior actions or a trend in supplier, customer, facility or trading partner actions.

Current advances in information technology can well serve the needs for a broader, more integrative and externally focused S&OP process.  Take the time to assess your long-term process needs, and context some of the considerations we have outlined.  As many industries begin to transition through post-recession recovery and new business models, now is the time to position senior management for investment in the process.

A final and perhaps parochial note, bringing in an objective perspective from other industries who have matured their S&OP process, or a third-party consultant, can also help in forming the change management and future framework for S&OP.

Bob Ferrari

©Copyright 2011, The Ferrari Consulting and Research Group and Supply Chain Matters Blog.

Editorial Note: This series of S&OP commentary will also be available in a research report available for purchase and distribution.  Please email info <at> supply-chain-matters dot com for additional information.

The following commentary can also be viewed and commented upon on the Supply Chain Expert Community web site.

In March of 2010, Supply Chain Matters provided commentary on how the aftereffects of major economic downturns can often lead to new and different business models.  We specifically cited an evolving trend for disintermediation and structural change within certain industry supply chains, motivated by certain business performance needs.  The ongoing developments currently occurring in the beverages industry provide learning for certain other industries.

Within the beverages industry, the separate acquisition announcements by both Coca Cola and PepsiCo for buyout of each of their major North American distribution groups made significant news for that industry.  Both previously held major equity interests in their named franchise bottling groups, but major shifts in consumer buying preferences toward flavored waters, juices and other drinks caused both industry giants to embark on a strategy of acquiring the assets of major bottlers.  PepsiCo was first by acquiring both Pepsi Bottling Group Inc. and PepsiAmericas Inc. for $7.8 billion. Coca Cola followed later with its acquisition of the North American operations of Coca Cola Enterprises for $15 billion.  Both companies at the time indicated the need for more flexibility in production, distribution and new product innovation cycles.

In our prior commentary we speculated that both companies were about to gain a new appreciation for geographical supply chain operational flexibility, inventory management and smarter asset management.  We also wanted to keep an eye toward the evolution of both efforts, since there are often mixed results to major M&A efforts.  Both companies have now posted fourth quarter and 2010 earnings and the first signposts are emerging.

Coca Cola’s fourth quarter earnings soared, and the Wall Street Journal report attributed some of the results to the acquisition of North America bottling operations.  Sales volumes in North America rose 3%, excluding the impact of acquisitions, and unit shipment volumes are increasing. Quarterly profit nearly quadrupled and total worldwide revenues were up 40 percent. Current opinion in the Wall Street analyst community is that growth has come at market share expense of competitors.  Coca Cola was not immune to higher inbound commodity costs and anticipates overall costs to be up $400 million in 2011. More importantly, increases in juice, aluminum, plastic and energy will be more impactful since Coke now controls major portions of bottling and distribution, and the company has already embarked on incremental price increases among products, which may extend through the remainder of 2011.

PepsiCo reported fourth quarter revenues up 37 percent but earnings came in at 10 percent. Full year earnings increased 34 percent, with profits up a mere 6 percent. North America operations grew operating profit by 8 percent, the strongest growth in the decade.  However, volume levels were relatively flat.  Total inventories were also up 28 percent from a year ago. The company indicated in its earnings briefing that synergies from its previous acquisitions are exceeding original estimates.  Hmm…

PepsiCo further indicated that commodity costs could increase to as much as $1.6 billion, considerably more than was reported by Coke.  We should however point out that PepsiCo has a more diverse snacks and food portfolio, including its Frito Lay division, which increases its exposure to increased commodity costs.  Some on Wall Street are skeptical on Pepsi’s outlook, expressing concern on the bottling acquisition as well as investments in a major Russian distributor and other emerging markets were Coke is stronger.

Wall Street may be on the right track in terms of its observations, and I’m sure that our community readers will have more pointed observations as to these initial signposts on efforts to own more of the bottling and distribution value-chain.  From this author’s perspective, the initial evidence points to how more efficient inventory, operational and commodity management can impact the overall success of these initiatives, as well as the bottom line. In the end, supply and value-chain capabilities always matter.

Students and practitioners of supply chain management should continue keep a keen eye on the beverages industry because what is unfolding is yet another case study on how supply chain transformation, change management and process capabilities do matter for companies and industries. We previously commented on the notion of an integrative improvement framework where operational improvement efforts scale with the clock speed of business.  The beverages industry continues to undergo a living test of these concepts.

Bob Ferrari