Welcome to the very last post of our S&OP Experts Blog Series. For the past three months, this series has featured a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. Follow-up ‘question and answer’ sessions are hosted in the S&OP section of the Supply Chain Expert Community. Registered community members may submit their questions for the expert of the week. Here’s your lastPJ.jpg chance!

 

 

 

Predrag (PJ) Jakovljevic, CPIM, CIRM, CSCP is an enterprise applications industry analyst at Technology Evaluation Centers (TEC ).PJ is an internationally recognized enterprise applications market guru with extensive knowledge of leading software vendors, products, and market trends. He has nearly 20 years of system selections, implementations, and industrial manufacturing experience, with familiarity with broad aspects of business management (development, supply chain operations, sales, marketing). Follow PJ on Twitterand LinkedIn.

 

 

 

Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits?
PJ: In a nutshell, the realization that "business as usual" isolated departmental (silo) plans no longer work. There is an urgent need for all constituencies in an enterprise to be on the same page (reacha consensus) and execute on the well-known and agreed upon business strategy (and be responsive to any unplanned events). A well-structured S&OP process can foster needed business alignment between the functional units and the various operational groups so that the whole organization works in unison.

 

 

 

Measurable benefits typically include lower inventory and procurement expenses, reduced expediting and logistics costs, better forecast accuracy, less obsolescence, and more effective production scheduling. From a qualitative standpoint, the benefits of implementing S&OP include increased supply chain visibility, improved customer service, and a better balance among demand, capacity and profitability across the enterprise. Taken together, these factors can add up to significant improvements in overall business performance.

 

 

 

Kinaxis: Many are advocating the evolution of S&OP to Integrated Business Planning? Are you a proponent of IBP?Tying the financial plan/measures directly into the process is a key component of IBP, what else distinguishes IBP from S&OP?
PJ: The traditional S&OP approach that focuses on reconciling the sales forecast with production plans is a good start, but IBP instills the need to think about supply, demand, and finance as equally important issues. When you’re trying to balance supply and demand, you must not forget about the finance side (i.e., profitability). While Kaplan's balanced scorecard approach has four strategic business dimensions to measure, the approach must always include the financial perspective, since bottom-line (net income) results are still the final measure of success.

 

 

 

IBP fills a long-standing gap in corporate planning systems to provide the chief executive officers (CEOs) and chief financial officers (CFOs) with a much more accurate revenue forecast. In addition to the business intelligence (BI) and role-based corporate performance management (CPM) tools (i.e., dashboards, scorecards, etc.), other handy IBP-enabling tools include network-wide capacity planning capabilities commonly found in strategic network design applications.

 

 

 

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
PJ: This dilemma is not particular only to S&OP: think of so-called "Lean Luddites" who claim that no technology is needed on the shop floor. All you need are just-in-time (JIT) responsiveness and common sense visual signals/triggers, such as empty bins (kanbans), to initiate production. Well, this principle works well for parts that have quite level demand, and how many of those parts are realistic these days of "butchered" demand and seasonality patterns (think of the anomaly of the 2008 and 2009 holiday seasons when most retailers missed all their predictions and expectations)?

 

 

 

Technology is not useful on its own unless one is able to improve a business process. However, often, without technology, a complex business process like S&OP is cumbersome and cannot support the scale needed to achieve all its benefits. In that case, technology becomes necessary, but not sufficient. Often, the process is dealing with a large complex set of needs that require a level of automation and computational sophistication that goes beyond what can be achieved with manual processes merely supported by spreadsheet tools.

 

 

 

Indeed, one traditional challenge to the wider S&OP process adoption has been the lack of advanced technology to facilitate workflow-based data and process integration across all the functional areas involved. A staggering number of companies are still using "pedestrian" tools such as Microsoft Excel to manage their departments.

 

 

 

Others, more "sophisticated" companies, have a multiplicity of automated enterprise systems in place to manage various functions. Yet, without an enterprise-wide (if not even supply chain wide) integrated information platform, this non-cohesive mix of data crunching systems will likely lead to incorrect assumptions. Especially when one thinks of the need to move and manipulate reams of numbers between disparate systems, one can legitimately raise doubts about the accuracy and integrity of the data used to formulate the S&OP consensus plan.

 

 

 

Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be?
PJ:

 

 

 

1. S&OP should become a continuous process and not an annual or quarterly chore.
2. A committed top management team is a prerequisite to institutionalizing a standard S&OP process across all business functions.
3. Stakeholders (process owners), business processes, and KPIs need to be clearly defined and managed and must be consistent with the overall corporate strategic objectives.

 

 

 

Kinaxis: What role does exception management play, or should play, in S&OP?
PJ: A very important role. The ability to handle exceptions and real-time adjustments based on what-if scenarios further require workflow and business process management (BPM) features. S&OP is a business process after all, and it should thus benefit from harnessing BPM principles and tools. Creating an overall plan, and identifying and correcting deviations from that plan, requires defined business processes with business rules (to handle exceptions) to coordinate the necessary activities among business units.

 

 

 

In addition, supporting these coordination efforts necessitates data collection and analysis activities, such as demand forecasting, pricing analysis, competitive research, and root cause analysis (RCA). Most advanced S&OP offerings can for example categorize exception messages for root causes.

 

 

 

Without these practices, companies cannot identify deviations and gaps from desired outcomes in the overall plan on a regular basis. Also important is the ability to enforce the S&OP decisions directly into operational planning and execution and close the loop via embedded corporate performance management (CPM) metrics. The system has to enable management and communication of the KPIs.

 

 

 

Kinaxis: How and where do what-if capabilities fit into the S&OP process? Is it a priority capability for an effective S&OP process?
PJ: In addition to what I already said to the previous question, "the best laid plans of mice and men always go awry", i.e., hardly anything goes as planned and companies must be ready for Plan B or C scenarios. The scenario analysis and demand shaping capabilities allow companies to run scenarios for different demand and supply profiles, as well as "what-if" alternatives related to strategic, operational, and tactical events.

 

 

 

What-if analyses help manage risk and optimize decision-making. One must perform what-if analysis and scenario evaluation to understand tradeoffs when balancing supply, demand, and simultaneously meeting financial objectives. Each hypothetical scenario may be evaluated by its financial impact, and then incorporated into the monitoring of the overall business plan.

 

 

Originally posted by lsmith at http://blog.kinaxis.com/2010/11/pj-jakovljevic-sop-should-become-a-continuous-process-and-not-an-annual-or-quarterly-chore/

As a result of outsourcing and off-shoring, there are now more tiers in the supply chain, which greatly reduces the visibility of brand owners and makes them increasingly reliant on remote suppliers. With high volatility in the marketplace, it has become critical for organizations to be able to respond quickly to any sort of unplanned event or supply chain disruption—and that requires use of a supply chain risk management strategy that delivers important capabilities. Organizations need a robust set of tools that enable them to assess risks, visualize and evaluate mitigation and response scenarios, monitor situations and quickly alert appropriate personnel to unexpected events, determine appropriate actions and their consequences, and ultimately respond (quickly and profitably).

 

There is, however, a second required element for successful outsourcing. It's the human aspect, which sometimes proves to be more challenging than implementing software. In fact, various research indicates that chief among the barriers to globalization are: lack of supply chain flexibility, lack of internal competencies to manage external partners and a reliance on partners who are unable to meet flexibility requirements.

 

A recent SupplyChainBrain article reports on a new paper that goes even further, asserting that for outsourcing to truly be effective, an organization must not rely solely on contracts with suppliers. Instead, companies must also work to foster an informal supplier-buyer relationship.

 

Chwen Sheu, Paul Edgerley Chair in Business Management, professor and interim head of the department of marketing at Kansas State's College of Business Administration, studied how nearly 1,000 companies worldwide manage outsourcing, and co-authored a paper—"What makes outsourcing effective- a transaction cost analysis"—along with John Wacker from Arizona State University and C.L. Yang from Chung Hau University, Taiwan.

 

Data was collected and analyzed from 970 manufacturing firms in 17 countries, and the researchers found that most of those organizations depend on both legal contracts and an informal supplier-buyer relationship. Sheu says both methods are effective, but informal relationships with suppliers deserve more attention from management since in outsourcing, it's impossible to cover every risk and outcome contractually.

 

When an unexpected event occurs, and the contract doesn't specify how to respond, it's imperative to be able to sit down and resolve the issue with suppliers, Sheu says. This is really a trust and information sharing issue, which allows both parties to deal with unforeseen risks and uncertainties more effectively. In a truly trusted relationship both parties recognize that all decisions need to be mutually beneficial in order to achieve success. The people are the difference between a satisfactory relationship and an exceptional one, where both parties will over achieve to ensure their partner's success.

 

It's important to note that not all of a company's suppliers need to be involved in this level of collaborative discussion. Instead, it's really only necessary to closely communicate with a few, trusted suppliers. For instance, your company may purchase a number of commodity components from several suppliers. It isn't necessary—or appropriate—to closely collaborate with all of them.

 

On the other hand, you should collaborate closely with those few key suppliers that represent the majority of your spend on components, supply components used in products that represent a major portion of your company's revenue, and supply long lead-time components—especially when there is a potential for excess and/or obsolete inventory.

 

Successful outsourcing requires developing better relationships with long-term, key suppliers. When that's done, the brand manager and supplier can share business strategies, mutually evaluate risks and threats, and jointly investigate opportunities. In the end, that allows both companies to realize significant benefits.



Originally posted by cmcintosh at http://blog.kinaxis.com/2010/11/successful-outsourcing-requires-good-relationships-not-just-good-contracts-with-suppliers/

Having had some disagreement with a previous post by Kevin O'Marah of Gartner about S&OP, I was very pleased to get his weekly "First Thing Monday" in my inbox the other day. It is titled "Healthcare Needs Supply Chain … Stat!" Yes, it does. Like Kevin mentions, I too have played at being US President for a day and fiddled with the New York Times " Budget Puzzle: You Fix the Budget" game. These are tough choices and a lot more complex than the game suggests. But healthcare is one of the greatest contributors to the US budget deficit. Kevin refers to an article in The Guardian that points out that

 

 

... U.S. citizens are dramatically more likely to lack access to healthcare, but that spending per person is higher than it is in Britain by $7,538.

 

 

 

The article in The Guardian is based on a survey run by The Commonwealth Fund which shows a dramatically lower access to healthcare in the US; despite a much greater spend per person.

 

Access Cost Insurance.png

 

Intl Health Spending.jpg

While the argument that the survey by The Commonwealth Fund focused on those in the US without access to healthcare and doesn’t measure the overall satisfaction with the US healthcare system has some merit, the survey still points to an ineffective and inefficient US healthcare system.

 

 

 

Last week I attended the Gartner Healthcare Exchange in Boston. This was one of the most fulfilling and eye-opening days I have spent recently on a professional basis. As Bob Ferrari comments,

 

 

...one of the most insightful portions of the program involved a lively panel discussion that included four industry executives representing Orlando Health, Dana Faber Cancer Institute, Cook Medical, and Broadline Group. It was one of the better executive panel discussions I've observed this year.

 

 

 

Some startling statistics and observations came out of this discussion which I have not been able to verify. But I will assume that they are directionally correct, if not absolutely correct.

 

  • "Three breast implants go out by overnight Fedex, and two come back overnight Fedex."
    Who pays for this? Where is the incentive to reduce this cost? Why were three implants required in the first place? I am sure this was not emergency surgery, so why were the implants sent by overnight Fedex? You can bet your bottom dollar that the operating room was scheduled some time ahead.

 

  • "40% of nursing time isspent looking for items not on the shelf."
    "15% of product expiring on hospital shelves."
    Even if these numbers are off by a long way, and I have no reason to believe they are, these two statements side-by-side are a clear example of the wrong inventory at the wrong place at the wrong time. Even if we halve these numbers and assume the reference to nursing looking for items is related to the manner in which the materials are organized and the reference to products expiring refers only to drugs, these numbers add up to huge inefficiencies in the supply chain. While undoubtedly there are inefficiencies in grocery stores, there are examples from other industries, particularly grocery retail, that address many of these issues more effectively and more efficiently.

 

  • "Hospitals think consignment stock is not a problem. They should be charging for the storage space."
    At the very least the cost of financing the inventory, not to mention the cost of scrapping the inventory that has expired, will be passed on to the hospitals and therefore to the patients.

 

  • "Most people who take care of inventory in hospitals have no training in inventory management. They are usually nurses who have been reassigned."
    Let's face it, there is a big difference in an out-of-stock condition in your local electronics store and in a hospital pharmacy. But the nurses are already struggling to find items on the shelf, some of which has to do with inefficient stocking policies. Would you get an inventory analyst to administer a morphine drip?

 

 

 

The 2 parts of the healthcare supply chain that distorts the system the most are the distributors and the payers, not necessarily in and of themselves, but because the demand signal is so distorted by these parties. But these are easy targets and my sense is they were being used to deflect from inefficiencies throughout the healthcare supply chain from manufacturers to distributors to retail pharmacies to HMO's to hospitals to payers and whatever other actors there are in the supply chain, or, as Gartner prefers to call it, the value chain. But I left the conference wondering who represented the patient? No-one at the conference anyway. The reason this is important is that Wal-Mart's "everyday low prices" mantra is driven largely by consumers voting with their feet. Without the "voice of the customer" being loud and clear it will be left to the government to mandate change in the healthcare supply chain through legislation. Which is something no-one wants.

 

 

 

Having lived as an adult in six different countries with six different health systems, I can state categorically that while the issues of inefficiency in the healthcare supply chain are not restricted to the US, it is where the inefficiencies are most apparent. While I hesitate to suggest a change, end-to-end visibility of the demand signal has been demonstrated to have a dramatic effect on behavior throughout the supply chain. The famous MIT Beer Game, dating from the 1960's, springs to mind. So let's get started and let's use supply chain principals from other industries as guideposts.

 

 

Originally posted by tmiles at http://blog.kinaxis.com/2010/11/startling-supply-chain-stats-from-gartner-healthcare-exchange/

Welcome to the S&OP Experts Blog Series. This series features a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. Follow-up ‘question and answer’ sessions are hosted in the S&OP section of the Supply Chain Expert Community. Registered community members may submit their questions for the expert of the week.  Patrick Bower.JPG

 

 

 

Patrick Bower is Senior Director of Corporate Planning at Combe Incorporated, the makers of Just for Men, Odor Eaters,other OTC brands.Prior to this experience, Pat worked as a Practice Manager for Supply Chain Planning at a boutique supply chain consulting company, as a Director of Demand Planning, Strategy and S&OP at Snapple / Cadbury Beverages, and has extensive supply chain supply chain systems background. Bower frequently write articles on the subjects of demand planning, production planning, S&OP and speaks at conferences on S&OP and demand planning topics. He is the architect of a patent pending demand planning software tool — known as a demand curve analyzer and has provided strategic supply chain consulting and training to a number of clients including GSK, Bayer, Diageo,Pfizer, Tasty Kake, and American Girl among others.Pat can be reached at plbowerone@yahoo.com.

 

 

 

Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits?
Pat: I believe there are four reasons behind the surge in interest in S&OP.

 

 

First, I think there is broad based recognition that supply chain tools and siloed optimizations are not living up to the sales pitches and internal expectations. After all of the efforts to implement state of the art SCM software and one-off process improvements, many organizations' supply chains are still not fully integrated into the business. Something is "missing".

 

Second,there has been a professionalization of the supply chain community. Employers are looking for candidates with APICS & IBF certifications, and continuous learning is becoming as important in the supply chain world as it is in other professions. S&OP is a key element in much of that learning and is often positioned as a game changing process — enabling not just better supply chain decisions, but better business decisions.It is not a surprise to me to see the recent buzz around S&OP; but it is interesting to see how the buzz has become deafening in a very short time.Five years ago, I delivered a short 'best of the best' S&OP workshop at an IBF conference, and now, entire conferences are being been built around S&OP.

 

Third, the severe economic downturn coupled with many years of IT investment hascompanies looking to squeeze more out those investments, hence the increased focus on people and process to get better integration of, and drive more value from, the systems.

 

Fourth, and probably most important, the globalization of supply and demand has required companies to look at joint demand and shared resourcing in a different way.Simply put, as the world has become flatter and the business landscape more competitive, it has led to a more global and complex supply chain. S&OP is a process that helps create alignment in an otherwise complex environment.

 

 

 

As for the benefit stream from S&OP .... The benefit stream tends to be situational and really depends on a company's "as-is" state. However, generally speaking, a relatively mature S&OP process will often have the following hard benefits: forecasts are almost always more accurate; most companies reduce inventory if only due to the focus on demand planning and inventory metrics;fill rates often improve with right-sized inventory;schedule cuts and other forms of supply side volatility decrease with improved demand planning and inventory management.

 

 

 

There are many softer benefits including a better understanding of the supply and demand balance; improved communication between organizational silos;more profit focused decisions, and in the best S&OP implementations – there is a unity in focus — otherwise known as alignment.

 

 

 

Kinaxis: Do you think the definition of S&OP is clear in the marketplace? If not, is that a problem? How do you define S&OP?
Pat: There is certainly a fair amount of confusion in the market place about S&OP, with different approaches cutting across nearly every aspect of the process definition. Some experts see S&OP as a detail planning process, while others take a more strategic view. Most believe S&OP should be a monthly process, while there are folks that suggest S&OP should evolve to a process with a weekly frequency. There are many small, and not so small, differences in the naming and number of process steps involved in S&OP, and in the graphical representation of the process itself. If one attends a conference on S&OP — you might find presentations with four, five and nine step S&OP models, and graphical representations of the S&OP process that are linear, circular or stacked / layered models.I am personally partial to the Oliver Wight five step model, but recognize that even that particular process model has limitations and can be insufficient or over kill depending on the needs of the organization.

 

 

 

In the last ten years or so — seemingly every consulting organization, software company, and research analyst has attempted to redefine S&OP in some unique or different way. Most of these differences are pure marketing.In many cases, it is differentiation without real difference.As an example, several years ago I was asked by my then employer to define a "reality-based S&OP" process model.I argued that by definition S&OP should be reality based.I simply did not want to create a white paper that would only add more confusion in the market place.Marketing is not a bad thing — if it creates clarity, drives new thinking or highlights real differences.However, with much of what I read and observe – I simply do not see much in the way of difference.My biggest concern is that misguided marketing might create confusion.

 

 

 

I personally think there is a huge void in the S&OP community. I believe it would be very valuable if all of the "experts" in S&OP came together to form a non-proprietary or "open source" S&OP process model that is available to be shared.This "open source" S&OP model would come complete with maturity models, graphical representations, metric examples, checklists for implementation and so on. Imagine a SCOR like model for S&OP. It would be a living and breathing entity — but also provide some consistency in messaging and process design.Consulting and software companies can still play within this open-source approach claiming expertise in product categories (like semiconductors, CPG etc), in global integration, systems integration, and in education etc.

 

 

 

My definition of S&OP is pretty simple.

 

 

S&OP is a periodic, forward looking, multi-step process to understand, define and align demand, supply, products, metrics, profitability and strategy.

 

 

 

The good thing about a simple definition is that it is flexible and open to interpretation.

 

 

 

Kinaxis: How important is a maturity model for S&OP? Do companies have to be at the most advanced stage of S&OP to claim to be doing S&OP?
Pat: I believe a generalized maturity model can give worthwhile directional guidance to an S&OP diagnostic assessment and/or implementation.If used in context, these maturity models provide guideposts or mile markers during the course of an implementation that tie back to the overall project plan.However, it is important to recognize that these maturity models and the resultant assessments can be flawed.These maturity models often see every problem as having the same set of answers.I liken it to three different patients going to a doctor with a pain;one has a pain in the knee, the second has a bothersome back, and the last has an achy hip — yet each time the doctor suggests knee surgery. Only one patient in three will walk away satisfied. To the extent a maturity model and assessment are focused on the real problems facing an organization, and not on a rigid process definition – I believe maturity models can be useful tools.

 

 

 

I have been on both sides of four common problems with these process maturity models;

 

  • First, most of these models are incomplete as they do not often assess "technology usage and expertise" — often a constraint in S&OP process implementations.
  • Second, most maturity models do not examine the ability of an organization to absorb or manage change – another obstacle to a successful S&OP implementation.Clearly, there are some organizations that need to "go slower" than a typical 90-120 day process implementation agenda.
  • The third point I have already alluded to – many of these models assume a cookie cutter "one size fits all" approach where all organizations benefit from similar processes equally - a flawed assumption.
  • Finally, most of these maturity models do not assess the need for a given process element, i.e. Do I really need every S&OP process step? Or, what is the level of maturity that is right for my business?

 

 

 

As an example, I worked with a company that introduced only 2-3 new products per year, and had little in the way of production constraints — did this company need a robust product portfolio meeting and a supply and demand balancing tool set? Of course not. Would they be less mature from an S&OP perspective if we excluded unnecessary process steps? In my mind, no.Some assessment models, would consider this company very immature on the S&OP maturity continuum. In a different example, I also worked with a company that had a 15% annual sku innovation turnover, and globally shared production constraints. Clearly, the second company needed a robust portfolio management and multiple business unit RCCP / Supply and Demand balancing process. All of this begs the question of whether the S&OP process should look the same at every company. Would each have the same maturity level if so assessed?

 

 

 

In short, I have found that rigidity in S&OP process construct is not the best approach — so maturity models are, to me, nothing more than helpful guides.

 

 

 

I do not believe you have to be at a high level of maturity to be "doing S&OP". S&OP is a journey, not a destination — so you can be doing S&OP structurally (holding meetings etc.), while at the same time be at a relatively immature level from a process efficacy perspective. As companies change, expand, compress, and change systems and people — the S&OP process will evolve.Some S&OP processes improve, some regress during these transitions. I prefer to look at the S&OP process as another business resource that occasionally needs to be re-visited and re-worked as the needs and structure of the business changes. Honestly, what business today looks similar to five years ago?

 

 

 

Kinaxis: Many are advocating the evolution of S&OP to Integrated Business Planning? Are you a proponent of IBP? Tying the financial plan/measures directly into the process is a key component of IBP, what else distinguishes IBP from S&OP?
Pat: I believe S&OP and IBP to be one in the same. S&OP, properly implemented is integrated business planning – and financial plan integration and measures should always be part of a best practice S&OP process.

 

 

 

I have read a number of articles on IBP, and in most cases these articles appear to be pointing out issues associated with a "lower —tech" form of S&OP (i.e. lack of plan iteration capabilities, dynamic what-ifs, exception management, data integration, system integration etc.) As a long time proponent and implementer of a higher- tech form of S&OP — IBP is another one of those differentiations without difference to me.

 

 

 

How did we get to this point? For many years, S&OP process consulting firms were telling prospective clients that they did not need any special tools or software (beyond Excel) to implement S&OP. The reality is that it is next to impossible to "sustain" S&OP without using or integrating SCM or Business Intelligence tools. You can certainly start with Excel, but it will not be a sustainable platform for S&OP. I have always disagreed with this low tech approach and always focused my attention on implementing S&OP processes with a high degree of system integration. Of course, these S&OP implementations took longer, but the underlying system integration led to added discipline and usability. By integrating technology – it was not a burden for the participants to "do S&OP" and took away one excuse along the process adoption curve.

 

 

 

Of course, there was a practical reason for these consulting firms to focus on solely a process implementation. A process only implementation is shorter and thereby cheaper for the client; did not require a diversity of system expertise at the consulting company; the project had fewer points of potential failure, and eventually the client would find their own way to integrate systems. Process consulting companies got away with this — because no one called them on it.

 

 

 

A best in class S&OP process implementation needs integration of people, process AND technology.

 

 

 

Kinaxis: Organizational thinking is often inherently bound by the dimensions of the "box" it is currently in because people don't question working assumptions strongly enough. Do you believe "process inertia" is a barrier to advancing S&OP processes?
Pat: While I would not call it process inertia, I agree that many existing S&OP processes are held back from further improvement because the working assumptions underneath most of the plans are often inadequately examined or challenged.

 

 

 

I often wondered why there was a lack of examination — to me it would seem obvious to put a plan through its paces. On reflection, I believe that the lack of examination comes from the organization's culture and/or basic human behavior. As an example, I have found that the behaviors of "Going along to get along" and "Not wanting to be the negative one" — will often prevent the much needed detailed challenges to S&OP plans. If you think about it – who wants to tell the President of a company that his operating budget is unrealistic? Or tell the supply chain VP that the inventory plan is not pragmatic given the fill requirements? Negative people are not successful in most corporations — I can understand the apprehension to challenge a plan too aggressively.

 

 

 

Unfortunately, and particularly with demand plans, an unchallenged plan is usually biased and unrealistically aspirational. And as we all know, a poorly crafted demand plan impacts all other downstream planning. As a consultant, I would often find myself teaching people how to actively challenge a plan without being disagreeable — by actually modeling an 'active challenge' inside of the demand planning process.

 

 

 

Of course, the easiest way to challenge a plan without being disagreeable is to bring facts to a discussion. Trends, shipments, deletions, metrics, POS, etc. all provide data points that can be used to question a plan. It is also helpful if participants are able to create a trusting environment where a plan can be actively challenged and such challenge is viewed as a positive. Trust comes from agreement around the intent of a challenging process, and acceptance that all plans can be challenged. I believe if one empowers a group to question a plan in detail, without bias or bad intent, and use data, trends, etc. to discuss plans — that you can overcome the process inertia mentioned in the question.

 

 

 

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Pat: As I've mentioned before — there are many consulting companies that believe S&OP can be implemented without an investment in SCM technology or worse yet, with Excel as the cornerstone technology.I strongly disagree.

 

 

 

To be done well, especially in organizations with any size or complexity, S&OP requires both vertical and horizontal data integration. Totaling up from the bottom, and aggregating left to right is a data intensive process not easily solved using Excel. My "best practice" version of S&OP requires integrated applications.

 

 

 

As part of any maturity assessment there should be a skills and utility assessment on the current SCM tool base.Often times there are system changes that would greatly enable an S&OP process implementation that are neither expensive to implement nor hard to train, if the capabilities of the people and the technology are assessed.

 

 

 

Kinaxis: Is it possible to have an effective S&OP process that only looks at the aggregate or "volume" level? How important it is to consider the operational feasibility of the S&OP plan?
Pat: This is an important question.With the improvements in supply chain computing platforms, I believe we are close to a transition point with S&OP. In my thinking, best practice S&OP should utilize a summary plan built up from rational and feasible lower level plans. Many people treat S&OP as a top down process — and certainly traditional thinking on S&OP was much more top down and monolithic. Yet in common practice, and using best of breed tools, the 'hard work' in demand planning, supply balancing, and portfolio management can easily being rolled up into summary plans and presented to the senior management team for approval. These rational and feasible rolled up plans (or alternatives of plans) are presented during the Pre-S&OP process for potential escalation to the Executive level meeting — but they are mostly vetted and evaluated prior to presentation.

 

 

 

In my mind, the concept of traditional S&OP aggregation levels has become passe. First, demand has become fractionalized with products specific to channels, markets, geographies. It is hard to find a "product family" in the traditional sense. Second, computing platforms now easily enable slicing and dicing of data so that planning can happen at a "suffix level' and still be rolled up into any product aggregation that makes sense from a presentation perspective.

 

 

 

The differences between traditional monthly S&OP planning and day to day supply chain planning are blurring. It is now easy to plan deep into the horizon using the same modeling tool and constraints used in day to day planning tools. S&OP 'applications' that use the best of breed systems integration, can use same constraints as any other planning horizon — but apply them to future demand buckets — most often looking out 18 months or more beyond the frozen planning horizon for imbalances.

 

 

 

In the "olden" days plans were rolled into product family aggregations for simplistic modeling of the supply and demand balance. Today, there are planning platforms capable of long range, iterative and dynamic planning. Thank God for progress.

 

 

 

Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be?
Pat:

 

  1. Focus on reality based planning. One of the biggest failure points in S&OP - and misuse of resources including inventory and capacity — is the lack of reality based plans.
  2. Work the demand data. Leverage as much market, consumer, macroeconomic, POS and other data sources to drive to the best possible estimate of demand – thereby improving all downstream planning. While this is intuitive to many — it is also lost on many.
  3. Integrate, Integrate, Integrate — many S&OP processes fail under the burden of providing data to the process. Find ways to draw S&OP data simply and easily. Engage your IT group in supporting S&OP.

 

 

 

Kinaxis: What role does exception management play, or should play, in S&OP?
Pat: Many of the underlying planning processes within S&OP (such as demand planning) benefit from the use of exception processing to manage through the veritable boatloads of data. Sorting out the significant from within the pile of trivial when you are dealing with tens of thousands of items can be a challenge. Exception processing allows S&OP participants to focus attention on the items that are falling outside the bounds, i.e. which forecasted items are biased, have high error, excess inventory, have production attainment issues, and / or have low yields? The same exception process can apply to resources, i.e. which production units or cells are over or under loaded, or which warehouse is bursting at the seams? I believe exception management can also be used to test planning efficacy by answering questions such as: Which new product introduction is behind its intended timeline or volume plan? Or – where are we to original budget?

 

 

 

S&OP process meetings cannot (and should not) discuss every item — they should discuss items with problems in need of resolution. Exception management helps determine the challenges in the plan.

 

 

 

Kinaxis: How and where do what-if capabilities fit into the S&OP process? Is it a priority capability for an effective S&OP process?
Pat: What-if capabilities are incredibly important within the S&OP process.Yet, is it a process requirement? No.Could what-if capabilities make an S&OP process significantly more effective? Yes.I think what-if capabilities built around an "organizational" model would help not just the S&OP process, but most planning processes.

 

 

 

I have been in demand consensus meetings where I heard about an opportunity that Wal-Mart might buy a bunch of product and distribute to each store in the US. If this happened to you, how would you assess your company's ability to handle this extra demand? Or whether or not you could source it domestically? Would you be able to quickly determine any additional warehouse requirements? Demand opportunities and supply constraints are everyday occurrences in today's competitive landscape — and being able to react quickly with credible data is an advantage, whether used for S&OP or not. These relatively simple examples speak volumes to the need for simulation tools.I have been implementing these tools for 15 years in support of S&OP processes.

 

 

 

Effective "what-if tools" need three elements;

 

  1. they must model the business realistically — offering results that are acceptable and executable — a true simulation of the operational environment;
  2. the tool must be flexible — allowing for slicing and dicing, and multiple scenarios at the same time; and finally
  3. it must be fast – churning on a problem for hours does not enable what-ifs. What if's are rarely managed in a serial fashion — the desire is often to test 3-4 approaches at once. Speed is important.

 

 

 

Where are these tool best used in the S&OP process? Everywhere. New distribution or customer opportunities can be dollarized and bottom lined in demand consensus or Pre-S&OP. Capacity issues can be modeled and alternative plans and cost assessed in the Supply and Demand balancing process. Regardless of the scenario, I have always suggested that what-ifs are brought to the Pre-S&OP process, where they are vetted for recommendation to the Executive S&OP meeting.

 

 

Originally posted by lsmith at http://blog.kinaxis.com/2010/11/patrick-bower-i-believe-we-are-close-to-a-transition-point-with-sop/

I've been thinking a lot about an article I read recently. While it focused on procurement, I believe it also correctly points out the flaws in many companies' supply chain processes—and S&OP specifically.

 

The article, which ran on Supply Chain Digest's Website, explained that the rising cost of raw materials and other input costs are a significant and growing concern for corporate financial performance. One reason why, is that it's increasingly difficult for companies to simply raise their prices as a means to cope with those growing costs.

 

The real obstacle, however, is that a lack of robust, integrated processes to deal with this price volatility often results in companies leaving profit dollars on the table, said Patricio Ibáñez, an associate principal at McKinsey & Company, in a recent article in Inside Supply Management magazine.

 

Traditional approaches to raw materials management often leave decisions in the hands of a single function at each step in the value chain, Ibáñez says. For example, product development makes decisions early in the cycle, procurement makes their decisions later, manufacturing decisions come after that, and so on. The net result is a host of problems, especially in a lack of alignment between contracts signed with suppliers and those with customers.

 

As is often the case with supply chain issues, the key to successfully addressing the situation is to improve cross-functional collaboration. So when contracts come up for renegotiation, for example, collaboration among the finance, procurement and sales functions is particularly critical, Ibáñez says. Additionally, procurement should review supply contracts and, together with experts from finance, propose modifications that will protect the company against raw materials price spikes while simultaneously maximizing gains when prices fall.

 

That requirement for improving cross-functional collaboration, however, is what reminded me of S&OP processes—and the barriers to their success.

 

To be sure, technology is a vital component of S&OP. Indeed, given the global nature of today's supply chains, the ability to overcome both time and geographic barriers necessitates the use of IT. Furthermore, the level of cross-functional and cross-organizational process synchronization, collaboration and frequency that is required to achieve S&OP maturity simply cannot be achieved by simply using Excel spreadsheets.

 

Technology, however, is really more of an enabler. The real challenge–whether your company is trying to improve procurement capabilities to reduce margin volatility or improve S&OP processes to boost top line revenue–is change management. Lora Cecere, of Altimeter Group wrote a post the other month, where she stated that "The largest problem with S&OP is change management. Companies that tackle change management FIRST accelerate results. Their S&OP processes mature 3X faster." There is, after all, considerable difference between S&OP and mature S&OP, and advancing toward mature S&OP clearly requires changing mindsets and aligning goals.

 

The reality is that at many companies, there simply isn't much collaboration occurring in S&OP meetings. That's because everyone's objectives are different. Consider, for instance, that remembering their commissions are built on revenue, sales and marketing want all orders to ship immediately. And manufacturing people, who concentrate on production output, want high inventory levels. At the same time, the finance team, which is interested in maintaining low levels of working capital, is driven to keep inventory levels down. Consequently, collaboration is difficult, at best, because there is no way to reach consensus. It simply isn't possible when all the players have different personal and departmental goals. Again I turn to a post Lora Cecere wrote, she made the analogy of someone training for a decathlon...

 

"In a Decathlon, there are ten events. The winner is judged by total performance, not by a single score in a single event. Because the athlete must do well in the four runs and six field events, he has little opportunity to perfect any one event. A decathlete trying to improve performance in one specific event is likely to deteriorate in another, because the physical demands of the various events are conflicting. His training is necessarily different as he strives to improve all techniques, gain strength without losing speed, and acquire the stamina to perform through a competition that lasts anywhere from 4 to 12 hours per day. In short, he trains to raise performance making trade-offs with the end in mind.”

 

The goal, which, admittedly, is easier said than done, is to create an overarching set of end-to-end supply chain metrics that align with operating strategy. When there is executive sponsorship, organizational goals are properly aligned and players clearly understand the interdependencies of functions, they can collaboratively work to make the right tradeoffs (such as balancing cost and inventory against service levels) to win the race.



Originally posted by bmay at http://blog.kinaxis.com/2010/11/is-everyone-on-the-same-page/

If you've been following the story of Boeing's 787 Dreamliner development, or even if you only read about it here, you already know that the program is quite problematic for Boeing—to say the least.

 

 

 

Boeing outsourced design and manufacturing to slash development costs for the 787 Dreamliner, which features all-new technology. One crucial problem has been that some of the suppliers have delivered parts that were not up to spec or failed critical testing, which further postpones the already delayed delivery of the aircraft.

 

 

 

A story that ra nthe other week on The Wall Street Journal's Digital Network (WSJDN), reports that while Boeing's customers remain flexible while they wait for the 787 aircraft, the company's investors are still awaiting details of financial penalties that the company may face after a nearly three-year delay in its first delivery. Reparations, the story reports, are likely to involve a mix of cash penalties and nonfinancial "credits" such as subsidized freighter conversions or guaranteed future delivery slots. And a more recent report in the Seattle Times indicates that Boeing management is telling Wall Street that the two dozen 787 Dreamliners already rolled out onto Paine Field are “in various stages of final assembly” and their delivery “will take longer than expected, particularly those with the Rolls-Royce engine.”

 

 

 

That's all interesting enough, but there's something else that caught my attention. An Associated Press (AP) story reported that Boeing says it has now stopped receiving deliveries of big pieces of the 787 jetliner at its Everett, Wash., plant from a supplier in Italy. According to the story, the two-week pause is meant to give the supplier, Alenia, time to fix gaps in horizontal stabilizers it makes.

 

 

 

This is the third time this year that Boeing has suspended shipments of 787 parts because of problems with components. It's important to note, however, that Boeing has also asked other suppliers to slow their deliveries while Alenia gets back up to speed.

 

 

 

What's intriguing about this latest development isn't Boeing's woes, but rather the ramifications for other members of the supply chain. Since Boeing asked other suppliers to slow their deliveries, those companies may now need to revise their own production accordingly—and also perhaps ask their suppliers to temporarily slow delivery of parts or components as well.

 

 

 

I have to wonder if these other companies are now slowing or stopping production, or simply continuing on as originally planned? The answer, I suppose, will hinge to a certain extent on two key factors. The first is what they produce, and the second factor is whether they manage their supply chain using Excel spreadsheets, an ERP solution's SCM suite or a comprehensive supply chain management application that enables them to effectively coordinate internal and outsourced operations. That type of comprehensive application makes it possible to create a supply chain plan, actively monitor performance to that plan and immediately coordinate a response when the plan is at risk.

 

 

 

Again, depending on what they produce and the length of their lead times, this may also be an ideal opportunity to use what-if? simulation technology. That will allow, for example, simulating the outcome of potential reactions to their customer's request. Those simulations can then be quickly analyzed to determine which response—if any—best matches the operational and financial objectives. This type of simulation should be based on current MRP and MPS data from throughout the extended supply chain to ensure accuracy. Furthermore, including internal and external participants will ensure complete stakeholder input on the simulations and end-decisions.

 

 

 

What do you think? Are you involved in this situation? If so, how have you and your company been effected?

 

 

Originally posted by cthomas at http://blog.kinaxis.com/2010/11/using-what-if-when-production-has-been-grounded/

The advent of the latest recession and slow recovery has led many companies to realize the benefits, nay, the necessity, of integrating demand and supply planning across the enterprise. The benefits of increased response to demand fluctuations, reduced inventory without adverse effects on service levels, and the resulting increased profit margins, are too good to pass up.

 

This has driven the growth in ERP and other planning systems in the last decade, with the goal of a fully integrated system from top to bottom, allowing maximum responsiveness with minimum slack. Many companies have come to realize, however, that most enterprise systems are either not actually integrated, have weak links, or lack some required functionality. This has led to numerous systems being implemented across the enterprise, with varying levels of integration between each one, ranging from none to very tight integration.

 

The implementation of these various systems has been driven by the needs of the various business units, which often have very different requirements and priorities. This in turn has led to a disconnect in common data terminology and usage across the enterprise, as each area of the business focuses on the data required to meet their immediate needs in their own terms. When the time comes that an enterprise solution is to be implemented across several different business units or functional areas, it is then discovered that the definition of the same piece of data differs from unit to unit or area to area. This leads to the necessity of building exception handling rules and look-up tables in order have the data flow through the enterprise with consistent meaning. This can greatly add to the project's cost and time to implement, and is usually an unexpected complicationof the project. It also significantly increases the amount of effort required to support the solution.

 

The question becomes, what is the best way to deal with this situation in order to reduce cost and timeline impacts? Following are some suggestions that might help mitigate these issues:

  1. Perform an audit as part of the preliminary planning phase. While this will not do much to fix existing data issues, it will highlight gaps in the 'data chain' across the enterprise that will need to be bridged. Key data fields should be identified and their exact meaning to each functional group in the organization should be spelled out. This will quickly identify areas where cross reference tables or extra business logic is required.
  2. Centralize the administration of business rules and data schema, especially as they apply to enterprise-wide initiatives. While ERP systems generally 'hang together' because of their module interdependence, the business apps that reside above this transactional layer tend to be more isolated. When an enterprise-wide application is implemented to replace and integrate these business functions, the gaps become readily apparent. The most successful method I have seen used is to drive all data definitions from the transactional ERP layer, or the layer where the best cross functional integration occurs, and build a common base on top of this.
  3. Plan and implement every business process as an enterprise-wide initiative. This will ensure that data and business rules are defined at the enterprise level, not at individual, possibly differing functional units. However, in order to do this, it is much easier if you are using a tool that supports enterprise level business processes. This includes the ability to tie disparate data sources together, large multi-user scalability, and is flexible enough to be configured to meet the varying requirements of all the functional units involved.

 

While I have not covered all the different techniques that can be applied to help mitigate this very prevalent issue, I hope I have given people an idea of where to start in tackling this significant implementation problem. If anyone has other ideas or techniques they have seen or used, I am sure everyone in the community would be very interested in hearing them.



Originally posted by mbuckley at http://blog.kinaxis.com/2010/11/3-tips-for-mitigating-master-data-issues-in-integrated-demand-and-supply-planning/

Welcome to the S&OP Experts Blog Series. This series features a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. Follow-up ‘question and answer’ sessions are hosted in the S&OP section of the Supply Chain Expert Community. Registered community members may submit their questions for the expert of the week.

 

Atul Chandra Pandey is Industry Head – Enterprise Application Integration and Services, for Infosys Technologies. Atul has more than 14 years of IT experience. He is responsible for sales and engagement for Enterprise Application Integration (EAI) and services such as supply chain, customer care and Master Data Management (MDM) for manufacturing and the banking capital markets industry. He is also involved in program management, process consulting, IT outsourcing, implementation and sustenance services, project management and delivery, and business analysis across leading package and technology services. On the Infosys Supply Chain Management Blog, Atul blogs on business strategy, solutions-driven sales and engagement, EAI, Business to Business (B2B), Supply Chain Management (SCM), customer care and relationship management.

 

Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits?
Atul: Sales & Operations Planning (S&OP) has been in existence for decades — both as a discipline and a decision-making imperative. Owing to the highly impactful core processes it is concerned with and the business growth it can drive, it is one of the most talked about topics in the supply chain space. Despite it capturing so much attention, there has been wide variance across sectors on the promised potential of S&OP and its realized benefits.

 

The recent economic downturn has brought to the fore the criticality of leveraging a strong S&OP process for an organizational advantage. While the focus has been to contain cost and ensure survival, I have also observed organizations looking to find new revenue generation opportunities while keeping costs / inventories low.

 

In my view, some of the other key factors which have either influenced or contributed to the heightened focus on strengthening S&OP are ever-shrinking product lifecycles across industry segments (consider the example of consumer electronics which has become similar to fashion industry with new product launch every quarter), diversifying supplier base and increasing outsourcing leading to increased supply dependence and associated risks. The former poses significant challenges in determining the right demand level whereas the latter factor causes constraints in meeting demand through the supply channel — especially when the same source also supplies a critical component to your competitors.

 

Another key disruptive force is the exponential rise of social media (sites such as Facebook and Twitter) which has enabled customers to share product experience with ease, thereby significantly influencing pre-purchase behavior. With customer requirements increasing and the loyalty lifecycle shortening, I believe organizations must create predictable and profitable sales and operations plans in the face of amazingly varied demands.

 

The surge in activities around S&OP is therefore driven by the need to have robust and agile mechanisms to manage and shape volatile demand signals and address increased supply and supplier spread and enhanced financial risks and constraints.

 

Kinaxis: Do you think the definition of S&OP is clear in the marketplace? If not, is that a problem? How do you define S&OP?
Atul: While there is an industry-wide convergence on the broad understanding of the term, I think the answer to the question will vary depending on the level of the person to whom you are speaking. The biggest disconnect is in the area and horizon of focus — by this I am referring to the big picture or the mid- to long-term perspective versus daily organizational activities and immediate concerns.

 

There is an increasing tendency to link S&OP with a continuous review of demand and supply plans on a weekly or daily basis. Such an exercise entails rapid what-ifs at individual product / SKU levels taking into consideration demand, supply and financial constraints (cost, revenue, margin, etc.) to generate new execution plans (allocations, order fulfillment plans, receiving, shipping, etc.). This is not S&OP. Instead, this view deals with 'perpetual master planning and scheduling'.

 

Promoting this view as S&OP is a problem since it places too much emphasis on execution and the immediate term and does not provide space to plan for the mid- to long-term. It completely overlooks the directional / strategic planning view which is critical to S&OP.

 

Imagine a ship in the ocean. While the engine room crew ensures that the ship keeps sailing, it's the captain who sets the vessel's direction and course. Similarly, S&OP must primarily focus on setting the direction and tone of the business as an executive-driven process / function. The focus should be on the mid- to long-term horizon (3-15 months for most industries). The aggregate plan (also termed the volume plan — family level) needs to be the driver for the detailed plan (mix — how much, which SKU). Finally, the operations plan must be constrained by financial plans (cost, margin, revenue, and cash flow).

 

In terms of definition, I tend to agree most with Tom Wallace and Bob Stahl's view on S&OP. In their book 'Sales & Operations Planning — The Executive Guide', S&OP is described as "a set of decision-making processes with three main objectives: 1) To balance demand and supply, 2) To align volume and mix, and 3) To integrate operational plans with financial plans."

 

Having said that, the focus on detailed daily / weekly plans is also important and these must link to the executive S&OP for directional changes which drive the next cycle of short-term execution plans, thus closing the feedback loop. S&OP therefore provides the connection between the big picture or the strategic plan and the day-to-day plan and operations.

 

Kinaxis: How important is a maturity model for S&OP? Do companies have to be at the most advanced stage of S&OP to claim to be doing S&OP?
Atul: With its ability to enhance performance and competitiveness through effective and agile responses to market demands, S&OP has become an organizational prerequisite. It is nearly impossible to imagine a business without a sales, inventory and financial plan. However, to ensure that your S&OP consistently scores a bulls-eye in fine-tuning customer demand to meet supply resources over an extended time period, it is necessary to formally recognize and institutionalize it as a formal executive-led process. The commitment of senior executives is vital as S&OP is an ongoing journey of aligning strategic business goals and direction with the right operational levers. This works best only if there is a formal organization focus coming from the top. Once established, the S&OP process necessitates establishing process interventions at different levels to drive operational improvements and tighter performance measurements and controls.

 

It is important to have a maturity model for S&OP. One of the key differentiating factors separating companies which are advanced on S&OP from the ones which are not is the lead time to determine changes to direction and actually making it happen. Companies having advanced S&OP capabilities can detect changes within days (and not weeks) of the monthly S&OP and can steer directional changes in execution plans just as quickly. S&OP maturity is a combination of multiple capabilities — the ability to generate rapid aggregate-level plan, what-ifs at the aggregate level (including financial plans and budgets), integration into operational plans, and workflow management to collaborate with partners for execution.

 

Kinaxis: Many are advocating the evolution of S&OP to Integrated Business Planning? Are you a proponent of IBP? Tying the financial plan/measures directly into the process is a key component of IBP, what else distinguishes IBP from S&OP?
Atul: While IBP is a key enabler for S&OP, it cannot be a substitute. This is primarily because of three reasons:

  1. Constraint-Oriented Reasoning (COR) — which is the heart of IBP — helps identify appropriate decision levers rapidly by solving a large number of mathematical equations representing varied business aspects. However, the output needs to be comprehensible to senior executives and they may choose to exercise a different set of levers based on their understanding of the competitive priorities of the business.
  2. Ownership and control of the operational processes that need to be improved or changed must rest with the people managing the respective functions to close the gaps and loop feedback into next planning cycle.
  3. Data quality of inputs for IBP needs to be very high if it is to be effective in making the right recommendations.

 

Therefore, in my view, IBP cannot be a substitute for an executive-led process such as S&OP. In the latter, people play a critical role — either taking decisions or acting on decisions — at every stage.

 

However, IBP does have its strong points. It is a great enabler in reducing the business simulation and analysis lead time which can make a discernable difference in the effectiveness of S&OP. I have seen that the typical S&OP process in many organizations takes 2-3 weeks to complete. Getting data is highly time-consuming and a less than optimum amount of time is spent on analysis. With IBP, even with limited analysis time, executives can rapidly simulate multiple business scenarios and understand the ramifications quickly, thus actioning the implementation of changes with more confidence. Another advantage of IBP lies in the ease of communicating the changes to the next level and building consensus on decisions taken at executive level as the impact of high-level decisions on local functions (marketing, finance, production) is visible to all.

 

Kinaxis: Organizational thinking is often inherently bound by the dimensions of the "box" it is currently in because people don't question working assumptions strongly enough. Do you believe "process inertia" is a barrier to advancing S&OP processes?
Atul: My answer to this question would be a 'Yes' and a 'No'. While process inertia is indeed a barrier to making advancements in respective individual functions, S&OP is not about managing the functions in silos. The focus and direction needs to be set from the top.

 

In my view, the biggest impediment to S&OP effectiveness and success stems from a gap in communication between the senior executive level and the levels below. Information on setting and acting on new goals and the reasoning behind changes for better process performance needs to be transmitted smoothly to the lower organizational levels. While people want to change, these required alterations will not happen at lower levels unless the right incentives are in place.

 

Take Apple for example. It has managed to deliver unimaginable business growth (from $4-5b a few yrs back to ~$30b last year) year on year without significantly ramping up headcount. This means the company has revamped most of the core functions significantly with the same workforce — a scenario that is hard to imagine without senior executive-level drive.

 

Hence, while process inertia hampers S&OP advancement, the real deciding factor is an organization's 'change propensity' as process inertia is not generated by itself. It has to do with an organization's culture for embracing change and this starts at the top.

 

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Atul: It's like asking "Can we communicate without email or internet?" or "Can we go to Boston from San Francisco without catching a flight or driving a car". Of course you can reach Boston on foot — but only if you are not faced with a time constraint. If your goal is to reach Boston in a day, a flight is your only option and if you can stretch your time in hand to a week, you can drive.

 

Technology is a great enabler and offers speed and agility in meeting goals. This is especially true when you need to embrace a lot of change in a short time span. So, while it is possible to carry out business functions without technology, it is naïve to think that an organization can ignore the tremendous power of technology today. Even hard-core lean manufacturing leaders such as Toyota embrace technology to drive business and operational excellence.

 

In the context of S&OP, technology has a pivotal role to play in several areas. These include cutting down on data acquisition time and connecting facts (sales, operations, finance) to generate high-level business scenarios. Moreover, technology in S&OP helps perform rapid simulations to show executives quickly what the impact of a decision lever (cut cost, reduce capacity, postpone product launch, shorten product family, etc) will be on business goals (profitability, revenue growth, market share, etc.). In turn, this enables the executive push decisions out to the lower levels for execution through workflow-based assignments, enabling decision enforcement through exception management.

 

Hence, without technology support, implementing actions identified by the executive S&OP level is simply not possible in a short timeframe (and time is a factor which is getting increasingly constrained for most organizations). Given this reality, I believe the role and importance of technology in S&OP will only increase.

 

Kinaxis: Is it possible to have an effective S&OP process that only looks at the aggregate or "volume" level? How important it is to consider the operational feasibility of the S&OP plan?
Atul: It is not possible since an effective S&OP must be a closed loop process. While executives need to focus on the aggregate / volume level (and not too get bogged down with the details), the actions coming out of the executive S&OP level need to be rationalized at lower levels where the focus is more on execution. The need here is to look at numbers at the mix level (specific SKUs, quantities), weekly / daily level plan and actual numbers. Actions at this level determine how the goals set at the top are realized, which then need to be fed back into the next executive-level S&OP cycle.

 

The key is to effectively integrate the granular lower-level picture with the one at the higher level. Appropriate aggregation needs to be carried out while passing information up the chain and disaggregation needs to take place while passing information down.

 

Kinaxis: There is indeed a great deal of cross-functional cooperation and collaboration that is required for managing S&OP — how are companies enabling this, and are they doing it successfully?
Atul: Based on what I have seen so far, this is clearly an area of marked attention and much more needs to be done. While there has been progress in document collaboration — thanks to MS SharePoint — and proliferation of business intelligence dashboards for executives, the actual collaboration is still an E2 (Email, Excel) process. Moreover, a lot more time is spent on merely getting the data as opposed to the time and effort expended on analysis and decision making.

 

Most organizations have yet to embark on the journey for:

  • Workflow-driven S&OP collaboration for data gathering
  • System-suggested rules-based simulation during executive cycles, and
  • Workflow-driven enforcement of S&OP decisions filtered through daily / weekly exception management at lower levels

 

From a technology perspective, a combination of rapid analysis and planning tools, collaboration infrastructure and business process management tools with comprehensive workflow and rules capabilities will go a long way in enabling S&OP collaboration.

 

Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be?
Atul: At the top of my list would be:

  1. Establish S&OP as a formal organization process with named senior executive responsible for this function
  2. Strengthen / improve rapid simulation and analysis capabilities and integration between big picture items and lower level details, and
  3. Enhance collaboration infrastructure including workflow- and rules-based management

 

Kinaxis: What role does exception management play, or should play, in S&OP?�
Atul: Exception management has a key role to play at the executive and lower levels. At the executive level, it helps identify the right level of business parameters by filtering the outliers for a given set of business goals. Once goals are determined at the aggregate level, it is important to focus on achieving these goals at lower levels i.e., allocation plans may be set at the family level, but they must be managed at downstream SKU levels as actual orders are placed. Exception management helps identify the situations where these goals are violated, thus requiring human intervention. It is therefore an enabling mechanism to ensure a tighter feedback loop downstream.

 

Kinaxis: How and where do what-if capabilities fit into the S&OP process? Is it a priority capability for an effective S&OP process?
Atul: As described in some of the responses, what-if capability is critical to shortening the lead time on analysis and improves decision-making quality during executive S&OP meetings. It also directly adds to the maturity of the S&OP process as much of the time during the S&OP cycle is spent on data acquisition. There is always so much to analyze and by the time an S&OP meeting is due, the pressure to take decisions quickly is acute. A strong what-if simulation capability not only helps ease this pressure, but also assists in presenting the right levers for optimal business results. What-if simulations are also helpful downstream to analyze potential fluctuations on a daily / short-term basis and take corrective actions to ensure that operations at the lower level are consistent with the higher-level S&OP goals.



Originally posted by lsmith at http://blog.kinaxis.com/2010/11/atul-chandra-pandey-sop-must-be-a-closed-loop-process-volume-to-mix-executive-to-execution/

Does your car have Internet access? Regardless of your answer, there's a high probability that your next new car will indeed feature Internet access.

 

Research from electronics research firm iSuppli shows that at the end of 2009, roughly 860,000 global consumers had Internet access in their cars. However, by 2016, that number is predicted to jump to 55 million consumers.

 

Obviously, use of IT in automobiles is not just limited to Internet access. Today's so-called "luxury car" now has more than 100 million lines of software code running everything from navigation systems to braking systems. While I certainly don't long for the days when a car with "lots of options" meant power windows, A/C and an AM/FM stereo, I'm sure that I can't be alone in thinking that the increasing complexity of today's autos is somewhat bothersome from a "that-feature-is-just-something-else-that-can-go-wrong" perspective.

 

Because the truth is, things do go wrong. While accounts vary, there can be as many as 20 to 30 defects per thousand lines of software code, so, given the sheer level of code used in autos, software glitches are inevitable. Unfortunately, that means there is either a need for a recall or a voluntary fix. Consumers aren't the only ones affected, either. Whatever automakers call it, these fixes cost them millions of dollars.

 

Consider, for instance, Toyota Motor Corp.'s recall of approximately 148,000 Prius and Lexus models to update the software in the vehicles' antilock brake systems (ABS). Toyota also recalled 9,400 Lexus GX 460 SUVs to update their stability-control software.

 

Toyota isn't the only automaker that has recently experienced software issues. Earlier this year, Ford Motor Co. introduced a "customer satisfaction program," to reprogram the software in some 2010-model Ford Fusion hybrids and Mercury Milan hybrids. And last summer, Honda Motor Co. told owners of approximately 90,000 Civic hybrids that it would fix a software glitch that can cause vehicle batteries to deteriorate and fail prematurely.

 

I don't envision consumers—no matter how much they detest sitting around an auto dealer's waiting room—demanding fewer options. If anything, their demands will surely increase. Automakers will respond, and, consequently, cars of the near future will incorporate more software and become more complex.

 

So the issue becomes this: What can the automotive supply chain do to lessen the extent and cost of software-related recalls or voluntary fixes? For example, the Professional Engineers of Ontario constantly reviews its certification processes for "Engineering works that affect public safety". Certainly, software for key automotive systems should fall in that category.

 

Jeff Papows, who believes the automotive industry has only begun to incorporate IT in automobiles, examines the situation is his book, Glitch: The Hidden Impact of Faulty Software. In the book, Papows–who was president and CEO of Lotus Development Corp.—discusses the importance of robust IT governance to minimize weaknesses in the way companies build, buy and manage software.

 

IT governance includes a set of processes, policies and best practices that are used to ensure the best possible "glitch-free" software code is used, Papows says. He even goes so far as to say that the government should mandate a specified level of IT governance at organizations that produce products—such as automotive braking systems–that can directly affect a consumer's quality of life.

 

I question whether new government mandates really are the answer, but if lives are at stake and millions of dollars are spent on recalls and voluntary fixes of software glitches, this certainly is a challenge that needs to be addressed. What's more, research firm Frost & Sullivan predicts that lines of code used in a luxury car will rapidly grow from 100 million to 200 million or 300 million in a few years, so unless something is done, the situation will certainly worsen.

 

Either way, this certainly is a situation worth watching.



Originally posted by dklett at http://blog.kinaxis.com/2010/11/forget-about-a-fifth-grader-are-you-smarter-than-your-car/

There is a great new RaptureWorld online webinar next week whereby Flextronics CIO, Dave Smoley, will discuss the technology capabilities that are required to be a partner in their customers' planning processes and pro-active in responding to their changing needs, thus avoiding the organizational chaos and business risks of being on the tail-end of a bullwhip.

 

 

 

Wednesday, November 17, 2010 at 11:00hrs New York (16:00hrs London, 17:00hrs Paris)

 

 

 

with presenters:

-  Dr. Hau Lee, Thoma Professor of Operations Information and Technology, Stanford Graduate School of Business

David Smoley, Senior Vice President and Chief Information Officer, Flextronics International

John Sicard, EVP Marketing, Development and Service Operations, Kinaxis

 

 

 

Register today!

 

 

 

Here is a little more about the session…

 

 

 

Translating business drivers into technology requirements: How to support today's S&OP and SCM landscape

 

 

 

As a leading EMS provider, Flextronics is no stranger to supply chain pressures. Short product life cycles, demand volatility, supply shortages — all of which must be managed within a supply chain that crosses organizations, geography and time zones. As a result, there is a tremendous need for supply chain agility. One of the most fruitful ways to improve agility is to reduce decision latency throughout the multiple layers of the supply chain and throughout the various stages of the S&OP process. From a technology perspective, this has created an urgent demand for:

 

-  Visibility — across data sources, systems, and organizations

-  Collaboration — between functions and trading partners, often across three tiers of the supply chain

-  Identification & Alerting — easy and early identification of people who are impacted or can provide insight into decisions

-  ERP agnostic analytics — for rapid evaluation of decision alternatives across partners using different systems within the multi-tier supply chain

 

 

Originally posted by lsmith at http://blog.kinaxis.com/2010/11/translating-business-drivers-into-technology-requirements-how-to-support-todays-sop-and-scm-landscape/

Seldom do we get the opportunity to compare two opposing views in as timely a fashion as the opportunity provided by the First Thing Monday blog by Kevin O'Marah (Group Vice President of Supply Chain Research for Gartner) titled "Sales and Operations Planning: Where's the technology?" (free subscription required) and the blog I posted last week titled "S&OP needs to evolve: Here's how," in which I make reference to work by Andrew McAfee from MIT's Sloan School of Management. I believe our goals are very similar, but our perspectives on how to get there are vastly different.

 

 

 

Let's start with the similarities as a way of building a bridge. Kevin writes that:

 

 

Good S&OP does a lot more than just reconcile mismatching supply and demand. It allows the business to make conscious trade-offs between customers, financial plans and physical reality.

 

 

 

We are in absolute agreement. S&OP must mature from being a unit based activity localized in operations to a business-driven activity crossing many functions in the organization, particularly Finance, Marketing, Sales, Engineering, and Operations. In addition I want to pick up on Kevin's use of the term "physical reality," which to me connotes the idea of "feasibility." According to the Free Online Dictionary, "feasible" is defined as

 

adj.

 

  • Capable of being accomplished or brought about; possible: a feasible plan.
  • Used or dealt with successfully; suitable: feasible new sources of energy.
  • Logical; likely: a feasible explanation.

 

 

 

In other words, a feasible plan is risk adjusted to include constraints, which in turn implies a level of depth to the analysis of options/scenarios that goes beyond high level "volume" planning because constraints come in many forms particularly financial, plant capacity, and component supply availability. In other words, physical reality. And only by testing plans against constraints can one determine if they are "Capable of being accomplished or brought about; possible."

 

 

 

Where we disagree is when Kevin makes the statement that:

 

 

Perhaps this is why the best often do it with nothing more sophisticated than a rigorous process and a raft of spreadsheets.

 

 

 

Wow. Really? Maybe in very early stages of S&OP maturity. I agree about the rigorous process. But a spreadsheet-based approach does not offer proactive analysis, cannot integrate across the business, suffers from poor data integrity and consequently delivers weak reporting. All of this happens alongside the customary issue that spreadsheets, especially a raft of spreadsheets, are notoriously difficult to maintain. How does one have a rigorous process in today's multi-tier, multi-national, multi-enterprise, outsourced supply chain without at least rudimentary technology support beyond "a raft of spreadsheets"? How does one capture and consolidate assumptions made about business drivers and market conditions? Beyond very high level and possibly trivial statements, that is. How does one test alternative risk strategies? Or timing of new product introductions? I'm referring here to feasible plans, not "finger in the air" wishes.

 

 

 

But don't take my word for it. Read the article titled "Sales and Operations Planning Maturity: What Does It Take to Get and Stay There?" published on November 1, 2010 by Jane Barrett and Micheal Uskert of Gartner (paid subscription required). In the article, they make the 3 statements below (my highlights) about the role of technology in moving from stage 2 to through stage 3 maturity in their 4-stage S&OP maturity model.

 

  1. While technology alone will not be the key to maturing the S&OP process, it plays a critical role. To get from Stage 2 to Stage 3 requires good, clean, credible planning and metrics data and a “single version of the truth.” So there is a need for underlying technology and systems to support this. Typical Stage 2 tools are statistical forecasting, supply chain planning and inventory optimization. Foundational elements are data quality, master data management (MDM) and the necessary integration.
  2. As the culture matures toward Stage 3 and there is more transparency and business owner participation, the process must be supported by the ability to make decisions faster through timely information, and more efficiently through exception and alert-based workflows. Typically, technology is required for this. In Stage 3, the dialogue shifts to what-if and scenario analysis, and to advance these capabilities and get into Stage 4 requires analytics and modeling tools . The term “rapid planning,” as well as the tools to support it, is emerging as a requirement to get through Stage 3.
  3. Two companies we spoke to said that they focused on the process, not the technology, and now the lack of technology is holding them back from getting beyond early Stage 3. But what got them into Stage 3 was all about change management and the critical cultural shift.

 

 

 

From the description of the key capabilities above I doubt that Jane and Michael had spreadsheets in mind when writing this article. And I think a raft of spreadsheets exacerbates rather than alleviates the problem.

 

 

Originally posted by tmiles at http://blog.kinaxis.com/2010/11/sop-wheres-the-technology-right-here/

Welcome to the S&OP Experts Blog Series. This series features a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. Follow-up ‘question and answer’ sessions are hosted in the S&OP section of the Supply Chain Expert Community. Registered community members may submit their questions for the expert of the week.

 

 

 

Nari Viswanathan is Vice President and Principal Analyst for the Aberdeen Group’s Supply Chain Management Practice. Nari is a well recognized industry expert with extensive experience across industry analysis, market research, product management/marketing, consulting, solution design/development and presales. Nari Viswanathan counsels enterprises on their supply chain planning strategies in areas such as Integrated Business Planning, Sales and Operations Planning, Demand Management, Inventory Management, Network Design, and customer/ supplier collaboration with specific emphasis on financial performance.

 

 

 

Kinaxis: What do you believe is behind the surge of activity around S&OP? What are the anticipated benefits?
Nari: The surge of activity around S&OP is purely driven by the economy related challenges that companies are facing. A recent Aberdeen study highlights the results of over 196 companies participating in a survey on S&OP related initiatives. Fifty-nine percent (59%) of respondents indicate that improving top line revenue in 2010 (versus 45% of respondents in the July 2009 Sales and Operations Planning: Integrate with Finance and Improve Revenue report) is the top pressure driving attention and resources toward S&OP initiatives. The other key pressures that companies are facing with respect to S&OP processes include the need to reduce supply chain operating costs (53%) and the management of increasing demand volatility (49%), which creates the need for balancing these mutually exclusive business pressures. All of these pressures are competing against each other amidst an increased complexity of supply chain processes and the global nature of these supply chains.

 

 

 

Kinaxis: Do you think the definition of S&OP is clear in the marketplace? If not, is that a problem? How do you define S&OP?
Nari: The traditional definition of S&OP is too supply chain focused. Here is a definition that is commonly adopted within the industry (from Wikipedia): The Sales and Operations Plan is a managerial tool used for manufacturing planning and control. Its fundamental objective is to reconcile sales forecasts with production plans in terms of volume. To do so, the S&OP has to coordinate planning efforts among the various departments involved in the process.

 

 

 

Aberdeen's view point on this is as follows. Traditional sales and operations planning (S&OP) processes and supporting technologies are no longer sufficient in today's high-pressured business environment. Sales and Operations Planning has evolved to become Integrated Business Planning.

 

 

 

It is a truly cross-functional, multi-dimensional process that includes all elements of demand, supply and financial analysis in relation to the business goals and strategy. ( Source: Technology Strategies for Integrated Business Planning, June 2006)

 

 

 

Kinaxis: Many are advocating the evolution of S&OP to Integrated Business Planning? Are you a proponent of IBP? Tying the financial plan/measures directly into the process is a key component of IBP, what else distinguishes IBP from S&OP?
Nari: The only reason why we advocate the Integrated Business Planning concept is not to create a new category or Three Letter Acronym. It is done to elevate the process from a supply chain process to more of a Business Planning process. There are tangible differences between IBP and S&OP as shown in Table 1.

 

http://blog.kinaxis.com/wp-content/uploads/2010/11/Table1-SOP-v-IBP21.png

 

 

 

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Nari: Aberdeen research finds that S&OP process maturity today definitely requires technology investments. Best-in-Class companies are now leveraging technology as a differentiator as shown in Figure 1. In addition to the traditional areas associated with inventory planning, demand and supply planning, Best-in-Class companies are also getting differentiation with the areas around executive reporting.

 

 

 

We still see rampant usage of spreadsheets across all the categories – 84% of overall respondents indicate that they are using spreadsheets to support the enablement of the S&OP process. Fifty-two percent (52%) of respondents indicate the usage of integrated ERP modules. Twenty-one percent (21%) of these respondents indicate the use of best of breed solutions whereas 31% still utilize custom legacy systems. Thirty-eight percent (38%) of respondents utilize business intelligence solutions. The variety of technology adoption approaches is due to the fundamentally inter-disciplinary and customized nature of the S&OP process for each organization. For a detailed discussion of how S&OP technologies have evolved and how Integrated Business Planning is the next frontier of S&OP please refer to the December 2008 benchmark report Making Integrated Business Planning Pay Off: Bridging Supply, Demand, and Finance .

 

 

 

http://blog.kinaxis.com/wp-content/uploads/2010/11/Figure1-Tech-Adoption-SOP.png

 

 

Kinaxis: There is indeed a great deal of cross-functional cooperation and collaboration that is required for managing S&OP — how are companies enabling this, and are they doing it successfully?
Nari: Indeed there is a significant amount of cross-functional cooperation and collaboration that is required for managing S&OP. Here are some of the findings regarding organizational approaches that companies are adopting:

 

  • Best-in-Class companies are 1.5-times as likely as all others to have customers involved in the S&OP process
  • For large organizations, Best-in-Class companies are 1.5-times as likely as all others to have a VP of supply chain (and above) as the top ranking supply chain executive (rather than having a head of manufacturing or procurement be the top ranking supply chain executive)
  • Best-in-Class companies are 2.5-times as likely as all others to have sales be the organization most responsible for driving or leading the S&OP process
  • Best-in-Class companies are 2.5-times as likely than all others to have marketing be the organization most responsible for driving or leading the S&OP process

 

 

 

The key takeway of these is that S&OP is no longer a supply chain driven process — it is purely a business level process. The sales and marketing organization(s), with their responsibility for revenue generation and business expansion opportunities, also plays a key role. Where revenue growth and expansion opportunities are scarce, senior management is looking to sales and marketing to enhance margins and prevent share erosion, at the very least. These objectives are tied both to extended supply chain costs/efficiencies and new product infusion.

 

 

 

To assist, product development is being asked to accelerate speed to market and improve reliability through the product development cycle to increase the percentage of sales from new products.

 

 

 

Conventional Sales and Operations Planning (S&OP) processes have failed to integrate these broader lifeblood issues of the sales, R&D/Product Management, marketing and financial business leaders into the process. The next step in the evolution of S&OP, what has come to be known as Integrated Business Planning (IBP), elevates S&OP from a purely operational process to a strategic one. IBP merges the operational and financial plans into one seamless business planning and tactical execution-directing process.

 

 

 

Two examples of the broader scope of the process are as follows:

 

 

 

Product Management: an important requirement of the process is the integrating the results from portfolio & product life cycle management into a Product Review process.

 

 

 

Sales and Marketing: the analysis and refinement of marketing plans, sales account management tactics like pricing can be used as gap-closing actions during the Demand review process.

 

 

 

( Source: Sales and Operations Planning: Integrate with Finance and Improve Revenue , July 2009, S&OP Process is a Strategic Driver for Improving Business Performance , December 2008)

 

 

Originally posted by lsmith at http://blog.kinaxis.com/2010/11/nari-viswanathansop-is-no-longer-a-supply-chain-driven-process-it-is-purely-a-business-level-process/

One of the presentations at this year’s Kinexions (our annual user conference) struck me as being valuable for any company that has deployed software and wants to get full value from it.

 

 

 

The presentation was put on by Ron Stappert, Senior Director of Supply Chain and Devin Taylor, Senior Director of Advanced Planning from Jabil. Jabil is one of the largest contract manufacturers in the world with 85,000 employees in 55 sites around the world.

 

 

 

Jabil bought RapidResponse in 2000 and has 4,300 named users that have accessed RapidResponse in the last 12 months. They have roughly 250 users accessing the system at any one time. For supply chain software, these numbers are impressive. The question is, how did Jabil do it?

 

 

 

Ron and Devin identified 3 key factors:

 

 

 

Users get what they need - A user friendly environment; the ability to easily customize views backed with powerful analytics means that users can immediately use the software to get the answers they need. All Jabil users have the ability to author resources – that is, the ability to create or modify the views that they use. Most users simply add a column, others however, create complex resources from scratch.

 

 

 

Tools match the process - The tools that were deployed match the processes used. This helps to ensure that the users can learn the new tools as they learn the process.

 

 

 

User training and functionality - Users are trained and encouraged to modify their views to simplify their tasks. Further, users are allowed to experiment and are given support if they have questions or are confused. Jabil has “subject matter experts” within each group who provide support within that group.

 

 

 

Two of these factors have a dependency on the software that you are using. If your system requires 3 weeks of consulting to add a field or change a report, I’m afraid user adoption is going to suffer. Your software just isn’t agile enough to keep up with today’s changing business processes. Flexibility and ease of use must be key items on your software selection matrix.

 

 

 

Jabil’s training philosophy is interesting as well. Devin showed how they created a simple data environment that can quickly be loaded and used to demonstrate key aspects of the software and resources in the context of the problems that users would face day to day. The scenario started with a simple problem and complexity is added as the new user starts to learn.

 

 

 

Ron and Devin outlined some basic suggestions to improve user adoption;

 

 

 

Develop internal expertise - This is the subject matter expert (SME) that I mentioned earlier. Ron and Devin went one step further and recommended that if possible, the SME should be retained when workforce reductions occur. As we have seen, workforce reductions are often followed by workforce increases and SMEs are very useful to train new employees.

 

 

 

Leverage training resources by the vendor – Kinaxis and many other software vendors offer free training in the form of streaming videos that your users can leverage to learn.

 

 

 

Read the manual - (or as Devin put it....R.T.F.M – Read The Functional Manual). This is all about getting new users to help themselves. Get them used to going to the manual first. This means that you will have less work supporting them, and they can get the answers they need when you aren’t available.

 

 

 

Look at your systems. Is user adoption where you want it? Do you find users going back to the tried and true (like Excel) to do their jobs? Maybe you need to take a closer look at how your users are trained and the support you give them. Perhaps there is some potential that you can unleash to drive user adoption to the levels you need.

 

 

Originally posted by jwesterveld at http://blog.kinaxis.com/2010/11/getting-the-most-out-of-your-enterprise-system-its-all-about-user-adoption/

A few weeks ago I wrote a blog titled " S&OP needs to evolve — I'm frustrated with traditional thinking!" in which I questioned a description of S&OP that is as much as 30 years old. Just to reiterate, I agree that much of the difficulty of implementing S&OP is the organizational change management to adopt a new process. What I am questioning is what that new process should be.

 

Henry Ford is quoted as having said

 

If I had asked my customers what they wanted, they would have said faster horses.

 

Some people actually use that as an argument against user research: don't listen too closely to your customers. But Ford was successful because his product addressed people's underlying needs based upon their expressed wants. And that is what research is all about. I am not pretending to know everything that customers and prospects need, but there are some customers and prospects that are expressing wants that cannot be satisfied by traditional descriptions of S&OP. But I'd like to go beyond wants and needs to find solutions to the problems that our customers don't know they have. Andrew McAfee, research scientist at the Center for Digital Business in the MIT Sloan School of Management recently expressed this sentiment very well in the video below. (Click on the image to go to the video.)

https://blog.kinaxis.com/wp-content/uploads/2010/11/MIT-150x150.png

 

Another Henry Ford quote that I love is

 

Coming together is a beginning; keeping together is progress; working together is success.

 

I love this quote because it captures a central concept of S&OP maturity and emphasizes collaboration as a central theme. But the discussion of collaboration leads directly to the frustration I expressed in my earlier blog. At one level, there is no doubt that collaboration is about process and people first. But the rapid uptake of social media has clearly demonstrated that technology has a role to play in promoting collaboration between people that are widely dispersed (and likely do not know each other), which is a common enough phenomenon in today's outsourced and off-shored supply chains. The role of technology goes beyond bringing people together – it must also facilitate capturing their assumptions, inputs and opinions, which are of course so important in evaluating what went right and what did not.

 

And lastly, as much as the concepts for exchanging information have progressed from pen and paper, to FAX, to email, to social media, somust the concepts about capturing and evaluating data changes and projected consequences. Theymust progress from double entry accounting concepts, to spreadsheets, to shared information that is accessible immediately, including changes that are made by others in the supply chain. Alerts need to be sent out to inform people of their need to participate in a scenario, and a collaborative environment needs to be provided in which they share, evaluate, and approve changes. This is what working together is all about.



Originally posted by tmiles at http://blog.kinaxis.com/2010/11/sop-needs-to-evolve-heres-how/

Kinexions 2010 is now complete — and what a success it was. The general presentations in particular were very valuable and well received. Without a doubt the central theme to the customer presentations at Kinexions was how companies are using RapidResponse to manage increasing demand volatility, largely driven by product proliferation and market expansion. These in turn lead to supply chain complexity, not only on the demand side, but also on the supply side because of outsourcing.

 

Karl Braitberg of Cisco gave a very compelling presentation titled "The New Reality – Managing Planning Complexity to Support Business Growth" in which he stated that "complexity is a choice". However Karl also differentiated between "structural" and "environmental" drivers, where "structural" drivers are those under the control of an organization and therefore a matter of choice that should be an outcome of the company's strategy. The "environmental" drivers on the other hand impact all companies, and are not possible to predict or manage.

 

However, my opinion is that the magnitude of the impact of "environmental" drivers is largely governed by the "structural" decisions made by a company. For example, the companies that responded most quickly to the downturn in late 2008 were those that had the most effective demand management capabilities and lean supply chains, the first to detect the demand drop-off early and the second to reduce inventories quickly to avoid excess and obsolete. Cisco's results over the past 2 years indicate very clearly that Cisco is one of those companies that has adopted processes and systems in order to detect and respond to change very rapidly.

 

As evidence of measures that indicate the increased industry-wide volatility, Karl included demand variability (increasing) and forecast accuracy (increasingly difficult) or supply reliability (decreasing) and suppliers lead times (increasing) – this is the new industry reality. Karl offered the advice to "Recognize the New Reality, and begin managing it" through simplification, new metrics, segmentation, and collaboration. Of these actions I would like to focus on collaboration, an often used but little understood term, which Karl defines as:

  • Creating a tight coupling across the extended value chain (all nodes)
  • Being mutually effective
  • Balancing S&OP, CPFR, S/D across multiple tiers
  • Although often missed, considering technology and process as essentials

 

Karl states that collaboration

  • Increases the level of trust across the chain
  • Improves the speed of information flow and decision making
  • Allows for new levels of creativity needed to solve dynamic and complex problems

 

Next up was Rick Beg g of Research in Motion (RIM), the makers of the Blackberry, who provided some very compelling historical evidence of how RIM's growth has driven complexity both in terms of the increase in volume and products:

  • FY01-08: 25M units shipped
  • FY09: 27m units shipped, 6 new products introduced
  • FY10: 36m units shipped, 6 new products introduced

 

This growth has led to a supply chain characterized by the following metrics

  • 8 Billion components purchased/quarter
  • 11 qualified manufacturing sites in 3 continents
  • Over 9,900 Order lines in quarter, (1128 SKU's)
  • 500+ partners in 170 countries
  • 1000+ ECNs released per quarter
  • 500+ new PRDs released per quarter

 

Wow, that is some change. To manage this complexity RIM has deployed processes and systems principally to increase the accuracy of their commits to customer orders while reducing order fulfillment lead time and stock-outs.

 

While from a different industry and not a household name, Mark Utter from semiconductor manufacturer Qualcomm displayed charts that clearly continued on the theme of increasing volume, increasing complexity, ongoing demand volatility, and a growing customer base. Mark illustrated the increasing complexity of the semiconductor supply chain in which order lead times are 0 to 6 weeks, while supply lead times are from 12 to 16 weeks necessitating broad adoption of postponement strategies. Because of the time it takes to bring new manufacturing capacity on-line, Qualcomm plans as far out as 5 years, working very closely with their outsourced semiconductor foundries. To manage this complexity Qualcomm deployed RapidResponse a number of years ago because plans can be generated faster with more flexibility, and the results can be understood easily, mostly through RapidResponse's unmatched scenario planning capabilities, having earlier deployed a 'black-box' optimization engine . Qualcomm has achieved high customer service levels as measured by delivery to commit date (reliability) and delivery to request (flexibility), while reducing forward days-on-hand inventory by over 30% during the last 6 quarters.

 

In keeping with the theme of increased complexity driving increased volatility, Rayne Waller and Elisabeth Kaszas of Amgen , one of the largest biopharmaceutical companies, described how external drivers such as healthcare reform, the impact of 'biosimilars', mergers and acquisitions, and increased scrutiny of regulatory compliance coupled with some internal initiatives are driving complexity throughout their network including international expansion, market segmentation, risk mitigation, network optimization, contract filling, and alliances. Managing this complexity requires a coordinated end-to-end response. Amgen found that only RapidResponse has the capability to represent demand sensitivity, supply assumptions, product transitions, and time-phased parameters for processes, goods receipt times, and exception dating. All of which greatly increased Amgen's ability to perform risk-based supply planning, inventory management, network capacity utilization, and waste management.

 

While the first two speakers, Cisco and RIM, are brand owners who largely outsource all their production, next up was Devin Taylor and Ron Stappert of Jabil , one of the biggest electronics contract manufacturers. Founded in 1966, Jabil has experienced extremely fast growth to reach revenues in excess of $13B while selling into a very diverse customer base consisting of 9 industry segments from automotive, to medical, to mobility. Both the increase in revenue and the industry segments served leads to tremendous supply chain complexity. Jabil has a very large deployment of RapidResponse with more than 4000 named users and over 200 concurrent users . Clearly, with such a big user community, many were interested to understand how Jabil has achieved such wide user adoption. Some of this is due to core capabilities of RapidResponse, particularly that users are able to get what data they want in the manner they want and when they want. Jabil has added to this by configuring their own workbooks to ensure that the user experience matches the process. At the same time Jabil has placed a lot of emphasis on training and the identification of subject matter experts in each site. One of the benefits achieved through the use of RapidResponse is that an order commit process that used to take over 3 very long days with a low level of precision is now completed in less than a day with a much greater level of confidence .

 

In keeping with the diversified industries supported by RapidResponse, next up was Sergio Gallardo and Lisa Block of Raytheon Missile Systems , a $5B subsidiary of Raytheon. The business drivers that drove them to RapidResponse we increased demand volatility, aggressive order delivery expectations, manual simulation and analysis that was taking weeks, and increasing work stoppages from line shortages in order to minimize non-cancelable/non-returnable inventory levels, easily identify parts at risk of late delivery, and avoid missing contractual deliveries. Their reasons for selecting RapidResponse over the functionality provided by the incumbent ERP vendor were RapidResponse's simulation capabilities, easy to use line-of-balance reporting (which is a key requirement in the aerospace and defense industry), and that the look-and-feel is based upon Excel. The amazing things is that on one program alone a saving of over $4.5M in residual inventory and carrying costs was identified in weeks of going live . This is across one program!

 

In summary, we heard from a very diverse set of companies from OEM's that outsource nearly all manufacturing with gross margins in excess of 50%, to contract manufacturers with gross margin less than 10%, to pharmaceutical companies with gross margin in excess of 80%, to a missile manufacturers with gross margin around 30%. All these companies use RapidResponse with a single data model, and single set of analytics, and a single UI to model a multitude of different business processes across both demand and supply, at both aggregate levels and at detailed levels. Above all these companies use RapidResponse to manage the complexity, uncertainty, and supply chain risks that results from operating a global company serving many markets and market segments. All first tried to solve these business issues with their incumbent ERP before turning to RapidResponse.



Originally posted by lsmith at http://blog.kinaxis.com/2010/11/what-did-our-customers-have-to-say-kinexions-2010-presentation-overviews/

Welcome to the S&OP Experts Blog Series. This series features a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. Follow-up ‘question and answer’ sessions are hosted in the S&OP section of the Supply Chain Expert Community. Registered community members may submit their questions for the expert of the week. https://blog.kinaxis.com/wp-content/uploads/2010/11/ColeenCocoCrum-201x300.png

 

Colleen "Coco" Crum, a managing principal with Oliver Wight Americas, is considered a thought leader and innovator in demand management and sales and operations planning. As a consultant and educator with Oliver Wight Americas since 1995, she has assisted companies across the manufacturing spectrum, including agricultural chemicals, consumer goods, electronics, entertainment, telecommunications, pharmaceutical, biotechnology, steel, and aerospace and defense industries. In doing so, she has contributed to advancing the methodology of how to successfully integrate demand and supply processes both inside a business enterprise as well as throughout the supply chain. Colleen “Coco” Crum’s full bio can be found here.

 

Kinaxis: What do you believe is behind the surge of activity around S&OP?
Coco: As my co-author, George Palmatier, and I state in our book, " Demand Management Best Practices," the pace for adopting business processes is slow. The earliest implementation of S&OP occurred in the early 1980s. We should know, as Oliver Wight pioneered S&OP at that time and continues to bring innovations to clients. As a result, today S&OP is transitioning into Integrated Business Planning (IBP). As you will read later, the benefits are dramatically higher for companies that do S&OP/IBP well versus those who do not.

 

Widespread use of sales and operations planning did not occur until the mid-1990s. In our experience, it takes a minimum of ten years for fundamental changes in business practices to become widely adopted. It takes another five to ten years for these changes to become a routine way of doing business for the majority of companies.

 

Today, S&OP is a "hot" for the following reasons:

  1. It is becoming a standard practice and is now evolving into Integrated Business Planning for companies with mature processes. Companies that do not have at least a standard practice of S&OP, operating at a capable level, have more difficulty competing against companies that have effective S&OP/IBP processes.
  2. Software firms have started to push S&OP, as software for S&OP/IBP has been lacking. Unfortunately, only a few software firms offer dedicated S&OP/IBP software that: a) integrates all elements of S&OP/IBP and b) provides both executive graphical views as well as quantitative and qualitative information required to support a robust S&OP/IBP process.

 

Kinaxis: Do you think the definition of S&OP is clear in the marketplace? If not, is that a problem? How do you define S&OP?
Coco: The definition has become clouded. Some companies do integrated detailed planning over the short-term planning horizon without executive management involvement and call it S&OP. Some software firms, sensing that S&OP is hot, position as S&OP the use of multiple software modules for detailed planning, even calling it "real-time" S&OP.

 

Following is the widely accepted definition of S&OP/IBP:

 

A process led by senior management that evaluates and revises time-phased projections for demand, supply, new product development, strategic projects and the resulting financial plans. This is done on a monthly basis, on a planned 24-month rolling horizon. It is a decision-making process that realigns the tactical plans for all business functions in all geographies to support the company's business goals and targets.

 

A primary objective of S&OP/IBP is to reach consensus on a single operating plan, to which executives of the management team hold themselves accountable, and allocates the critical resources of people, equipment, inventory, materials, time and money to most effectively satisfy customers in a profitable way.

 

Compare the above definition, especially the words that are highlighted, with your company's S&OP/IBP process. Is your company really doing S&OP/IBP?

 

Kinaxis: How important is a maturity model for S&OP? Do companies have to be at the most advanced stage of S&OP to claim to be doing S&OP?
Coco: There are different levels of maturity for S&OP/IBP that range from:

  1. Disconnected management processes, but there is a desire to do S&OP,
  2. Foundational S&OP in which there is primarily a supply chain focus of balancing demand, supply, and inventory,
  3. Capable S&OP in which all company functional plans are aligned (product and portfolio management, demand management, supply management, and financial management). The process focuses on making decisions to keep plans aligned and agreeing on the tactics required to execute the plan (with a strong set of KPIs),
  4. Integrated Business Planning, which has a strong focus on identifying gaps between the latest projections versus the company's strategic objectives. The process is used to focus on competitive priorities.
  5. Integrated Business Management in which the process drives responsive optimization of the business in pursuit of business strategy. The process focuses on the use of alternative scenario planning to reconcile gaps between latest projections vs business plan and strategy and to perform contingency planning and risk management.

 

Results from Oliver Wight clients and studies by research firms, like Aberdeen and Ventana Research, show that companies at all levels of maturity achieve operational and financial benefits from S&OP/IBP. Companies operating S&OP/IBP at a higher levels of maturity achieve significantly greater operational and financial benefits than those companies that are not doing S&OP at all or have a Foundational process with a supply chain focus.

 

Kinaxis: Many are advocating the evolution of S&OP to Integrated Business Planning? Are you a proponent of IBP? Tying the financial plan/measures directly into the process is a key component of IBP, what else distinguishes IBP from S&OP?
Coco: Oliver Wight has pioneered the evolution of S&OP to include product management and financial management. We also are leading the transition of S&OP to IBP. Here are the characteristics of IBP, which are the chief differences from S&OP:

  1. More robust financial integration
  2. Inclusion of strategic plans, initiatives and activities
  3. More robust product and portfolio review
  4. Improved simulation, modeling, and scenarios
  5. Improved operational risk visibility and management
  6. Gap identification and improved decision making https://blog.kinaxis.com/wp-content/uploads/2010/11/SOP-and-IBP1-150x150.png
  7. Easy, effective translation of aggregate plans to detail plans, and vice versa

 

George Palmatier and I have co-authored an article on the Transition of S&OP to IBP, which can be obtained from our website — http://www.oliverwight.com.

 

Kinaxis: Organizational thinking is often inherently bound by the dimensions of the "box" it is currently in because people don't question working assumptions strongly enough. Do you believe "process inertia" is a barrier to advancing S&OP processes?
Coco: Companies certainly struggle with using assumptions effectively in the S&OP/IBP process. Planning over a 24+-month horizon requires an assumption based process.

 

In addition to developing competence in the utilization and management of assumptions, companies are hindered by software being quantitative based. Few S&OP software packages handle assumptions well – there are exceptions.

 

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Coco: One reason that companies do not evolve their processes and get stuck at the Foundational (supply chain) level is the lack of technology dedicated to supporting best practice S&OP/IBP. Spreadsheets just don't cut it. Technology to support S&OP requires:

  1. Executive management views of the business shown in graphical format so that exceptions can be quickly and readily grasped
  2. Views of product and portfolio management; aggregate demand plans and assumptions; aggregate supply plans, assumptions, and resource planning; and financial projections (revenue, margin, and inventory investment at a minimum),
  3. Graphical way of portraying gaps between the latest projections and the business goal and strategies,
  4. Documentation of assumptions, risks, and opportunities for all functional plans
  5. Quick simulations of various scenarios and contingency modeling with "side-by-side" comparisons and documentation of assumptions, risks, and opportunities
  6. Action item management.

 

Kinaxis: Is it possible to have an effective S&OP process that only looks at the aggregate or "volume" level? How important it is to consider the operational feasibility of the S&OP plan?
Coco: For more than two decades a best practice, or "Class A" behavior, for S&OP/IBP has been that all approved plans must be "doable." This means that resources must be available and approved to execute all functional plans. Resource planning (manufacturing, operations, sales, marketing, product development, and financial) is a key element of S&OP/IBP.

 

Kinaxis: There is indeed a great deal of cross-functional cooperation and collaboration that is required for managing S&OP — how are companies enabling this, and are they doing it successfully?
Coco: It starts at the executive level. The S&OP/IBP process culminates each month in a Management Business Review in which the executive team reviews the latest projections, projected gaps in achieving business and strategic objectives, as well as resource projections and other needs in order to execute the plans.

 

With strong leadership by the president, COO, or GM (also called the "person in charge"), the leadership team over time begins to think in terms of the health and welfare of the company, rather than optimizing a function at the expense of the company. This is a chief difference between Foundational S&OP and Capable S&OP/IBP.

 

Companies that achieve the greatest benefits from S&OP/IBP use the process as a collaborative executive management process for running the business — this is the essence of S&OP/IBP. Consider these results from an Aberdeen study, which provide hard evidence that it pays to do S&OP/IBP well:

https://blog.kinaxis.com/wp-content/uploads/2010/11/OliverWight1.png

 

Ask yourself:

  • What would a profit margin of 12% above the industry norm and 21% above the laggard companies mean to my company's stock performance and return to shareholders?
  • What is my company's customer retention rate? What would be the impact on sales productivity and marketing and sales costs if our customer retention rate was over 90%?


Originally posted by lsmith at http://blog.kinaxis.com/2010/11/coco-crum-the-7-differentiators-between-sop-and-ibp/

Last week Kinaxis successfully hosted Kinexions 2010- our annual user conference, which this year washeld at the Kierland resort in Scottsdale. With over 200 people in attendance, an impressive list of speakers, and three tracks of product workshops – it was certainly a full agenda….but wrapped in a very fun format. Over the course of the next few days, we will be blogging about our thoughts as we reflect on the event. In the meantime, Bob Ferrari was there and covered the event on his blog at Supply Chain Matters – check it out. The twitter feed #kinexions also provides an interesting commentary of the conference.

 

For me, I was particularly interested in Andrew Reese’s presentation. After reading his blogs and articles, I was very excited to hear Andrew, Editor of Supply and Demand Chain Executive speak at Kinexions and meet him afterword. He and his team has been the spark for more than a few of my blog posts.

 

Andrew spoke on “Sustainability and the Strategic Supply Chain”. As readers of this blog know, I have a strong opinion about our responsibility as manufacturers to the environment (See Going Green shouldn’t make you see red). Andrew’s presentation shed some new light on how supply chain practices will need to change over the next few years.

 

So, first of all, why should we care about sustainability (or green) in the supply chain? Andrew points out that there are pressures coming from a number of fronts;

 

Regulatory pressure - There are more and more rules and regulations being applied to manufacturing every year. Carbon emissions, energy footprint, chemical regulations, RoHS all are impacting the supply chain. Regulations change from region to region as well. What may be unregulated in the North America may be controlled in the EU. Adding to this complexity is that you need to look beyond your own operations. Do you sell into supply chains impacted by these regulations? Do you receive supply from suppliers impacted by these rules? If so, then you may still be impacted. The rate of change of these regulations in increasing significantly. The supply chain is going to become much more volatile as we try to come to grips with this new world.

 

Supply Chain Pressure - Large, influential corporate entities are setting their own rules as part of their efforts towards good corporate citizenship. Companies like Wal-Mart and IBM are demanding that their suppliers track and report their environmental performance. In Wal-Mart’s case, the ultimate goal is to provide information to the buying public about the relative environmental impact of their products so that Wal-Mart’s customers can make informed opinions. By the way, this is not at all new. I blogged about this almost a year and a half ago! ( Demand for green is coming. Are you ready?). This brings potentially the biggest and most unpredictable supply chain pressure…the buying public. At some point, we will hit a green inflection point where people will consider green and / or sustainability as a key part of their purchasing decision. If you are not providing a green alternative and your competition is, you may find your share of the market shrinking fast!

 

Financial Pressure - Analysts and investors are starting to look at sustainability as a leading indicator of a company’s overall efficiency and risk exposure. In his presentation, Andrew had a very telling quote; “If you’re not efficient you can’t be sustainable or, in the long term, profitable” This was from Tony Prophet SVP, HP Personal Systems Group Worldwide Supply Chain at Hewlett-Packard.

 

So how does one respond? One option is to wait for regulation, market forces, or financial analysts to force your hand. This could work but I think it is the riskiest of the approaches. Why? How long does it take for you to get a product out to market? Weeks? Months? Years? How long could you go survive If your top performing product was no longer allowed to be sold in your largest market? In many cases, regulatory changes can result in a complete redesign of your product, or the design of a new product to replace the old.

 

While acknowledging that this is a complex problem and that the target is constantly shifting, Andrew identified 5 steps towards getting a handle on the sustainable supply chain;

  1. Get an understanding of the issue – The sooner you are aware of a potential issue impacting your product, the sooner you understand how your product might be impacted, the sooner you can put together an action plan to respond.
  2. Get involved in industry group – but don’t wait for them! – Industry groups can provide a more effective voice than an individual company. However, if you are aware of a problem, don’ t wait for the industry group. The other truth about a group is that they tend to move more slowly; It may be too late before they achieve resolution.
  3. Assemble and engage the organization - Inform other parts of the organization to ensure that they are aware of the issues, then collaborate to ensure that the response has the buy-in of those involved.
  4. Assess your IT landscap e – Part of the regulations and Supply chain pressures being applied is the requirement to document carbon footprint, energy consumption and chemicals used throughout the supply chain. Most ERP packages have little if any abilities to track this. If your ERP system can accommodate this, great....if not, you need to start looking for alternatives. There are some niche software applications that can be used for this purpose.
  5. Simulate your response – Will your response work? What will be the costs? Can your suppliers support? Being able to simulate your response will give you the assurance that you are on the right track and may identify some adjustments to the plan that will assure success.

 

Whether you believe in the issues that are driving these changes or not, you must agree that green and sustainability issues are impacting our supply chains today. So now, the question is what are you going to do about it?

 

Comment back and let us know!



Originally posted by jwesterveld at http://blog.kinaxis.com/2010/11/sustainability-in-todays-strategic-supply-chain-insights-from-kinexions/

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