The State of S&OP in 2011- Wide-Scale Adoption and New Thinking on What’s Coming- Part One

Today, Supply Chain Matters attended the two-day Sales and Operations(S&OP) Summit meeting sponsored by IE Group. This was the second year that we attended this particular conference and hence we had a baseline of comparison.  As was the case last year, the conference was again filled to capacity, with a far larger meeting room.  Our unofficial estimate was a range of 150-175 attendees. In this Part One posting, we will highlight some observations and key takeaways from day one of the conference.

First, it remains striking to observe the continued wide-scale adoption of S&OP across multiple industry, production, and service industry sectors. Many of today’s presentations were insightful and helpful in understanding current process maturity levels. This is a process that continues to deliver value for many companies. Wide scale adoption brings continuous learning, and many speakers shared more of their learning.  To cite some examples, John Hellriegel, Global Director of Sales, Inventory and Operations Planning at Honeywell provided a key takeaway that to be successful; the S&OP process needs to:

•  Support each and every function for achieving individual goals
• Assess the business honestly
• Offer a realistic picture with options and solutions
• Be the one and only process to plan the business.

Cathy Budd, Supply Chain Director for Dow Chemical Company has had 18 years of experience implementing individual S&OP processes across the various business divisions at Dow. Budd shared her key learning:

Do not assume the process design is always easy. You sometimes have to take a step back to ascertain the overall strategic goals of the process.

• Keep it simple, even when the environment seems complex.
• Think broader than just demand, supply, and inventory.  For Dow’s insulation business, a key determinant to the planning process was freight cost optimization.  In other businesses, it can be profitability or customer service level.
• Stay focused on the questions you are trying to answer and the decisions that need to get made by the process.

Sean Willems, Chief Scientist, Inventory Optimization Solutions at Logility, and faculty member at Boston University made an outstanding argument for jointly optimizing production and inventory planning with S&OP.  Professor Willems was quick to note that inventory is often an outcome of the efforts of various planners yet most companies do not have an inventory planner. His key message is that all inventory is not equal, and consideration of all classes of inventory, along with where they are positioned in the value-chain, are required to jointly optimize supply, inventory and service level needs.  Incorporating multi-echelon inventory optimization in an S&OP process can enhance service levels and inventory mix.

Beyond these and other insights relative to the state of S&OP maturity, other speakers today spoke to thinking more about what teams should be considering in their evolution plans for S&OP.  This can sometimes be a topic with controversy, since many labels are affixed to the next iteration. Industry analysts and we in the blogosphere are sometimes just as guilty in arguing semantics and labels vs. objectives and needs. There are terms like integrated business planning (IBP), SIOP, RBM, IPP, and others.  Similar to our observation from last year’s event, a consensus of today’s speakers advised to avoid arguing the labels but rather focus on what the process needs to iterate to.  Listening to speakers such as Joe Boszarek of Jonova, Andy Coldrick of Ling-Coldrick, Don Wood of Cott Beverages, Rob Borrows of One-Point Group caused me to ponder that perhaps some of the classical process tenets of S&OP may need to be revisited in this new era of business.

As Rob Burrows astutely noted, S&OP thinking was incubated in a supply rich environment when excess production and inventory was far more tolerated. Today supply chains exist in an on-demand and pull-driven business environment where factors of market share, customer service and utilization of capital can outweigh operations driven planning.  One of the sacrosanct tenets of S&OP thinking is the “one-plan, one-number” perspective that drives the process. As Burrows noted, a ‘market-savvy’ S&OP that has a market-in and management by analytics perspective may call for scenario-based planning.  What’s the best-case plan for meeting required service levels?  What is the most profit optimized plan?  What is the worst case plan if demand falls short of budget or an unplanned supply shortage occurs?   Predictive analytics applied to S&OP introduce scenario and continuous planning, and in our particular view, an era where true business intelligence becomes the enabler of integrated business planning.

This is an exciting but least understood facet of next generation S&OP and Supply Chain Matters will feature additional commentary and insights in the coming weeks.

We look forward to day two of the conference.

Bob Ferrari

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1. Bruce Edward Spurgeon says:

   September 16, 2011 at 12:30 pm

   I think the scenario planning as part of S&OP is going to be big. Many companies discuss scenarios as part of the S&OP process but then go to the consensus “1 plan, 1 number” implementation. In my current company we do just that but we are small and have the “alternate scenarios” ready to go and can change the plan at any time. This enables us to move to the optimum service/profit combination as the market changes. We also did this in the oscillator business but most companies are still in the “1 plan” mode. As you note, enabling technologies will help make this “new” approach much more viable.