S&OP - Best Way the business takes decisions

First Thing first - Sales and operations planning is an integrated business management process through which the executive/leadership team continually achieves focus, alignment and synchronization among all functions of the organization.Source - Wikipedia

There have been arguments made that successful S&OP is all about process and that tools don’t matter. Looking back at those S&OP implementations that were successful and those implementations that failed, I have discovered that a successful S&OP implementation is supported by three pillars; Process, executive commitment and effective S&OP tools.If any of these pillars are removed, the S&OP process will at best be ineffective and at worse collapse into a smoking heap of failure. Let’s take a look at each of these;

Process: Trying to run sales and operations planning without a clearly defined process is like driving in a city where no one obeys the rules of the road….you probably won’t get where you are going. If there were no process driving S&OP, then there is a very good chance that key information would not be presented, key people would not be in attendance and that critical decisions would not be made. It is important that the structure, timing and agenda of S&OP is documented, published and adhered to. If the process needs to change due to changing business requirements, those changes need to be documented and published.

Executive Commitment: It is very difficult (bordering on impossible) to implement an effective S&OP process without executive commitment. Why? First let’s ask what is the purpose of S&OP? The purpose of S&OP is to align supply and demand and the various departments contributing to that alignment. Departmental alignment can only occur if the top level department executives are involved in the key decisions…because those top executives have the decision making authority. Sales and Ops is a failure if the representative at the meeting needs to go back to their executive to get a decision.

Effective S&OP Tools: This includes the tools to analyze the data, present information and make decisions. Effective S&OP tools also include the ability to integrate the data that drives S&OP. Without effective S&OP tools, the implementation process can be very slow and frustrating because so much time and effort is spent getting to the data and building the tool. This frustration leads to failure. This is where I want to focus the rest of my post.

S&OP tools are often ignored in S&OP discussions. Most companies start down the path of using Excel for S&OP. Excel is often chosen because it’s flexible and companies aren’t quite sure what their S&OP process will be. However, with that flexibility comes a cost. In a previous life, I used Excel to build and present our S&OP plans. This is what I’ve learned;

- Excel is a blank slate…you have no guidance as to how to design an S&OP process. One company I visited didn’t do a rolling S&OP plan because they couldn’t figure out how to write the macro to roll the months (which is actually more complex than you might think!). They had 12 months of visibility at the beginning of the year and 1 month of visibility at the end of the year! Large sales and ops spreadsheets are very fragile. If someone doesn’t update it when they should, or if someone puts information where they shouldn’t, the process breaks and people are working from bad data. Excel is notorious for having multiple versions. It’s very easy for people to make copies of the excel spreadsheet to model their own version. The problem is that these different versions get out and get used as the official version.

- Complex spreadsheets (or any fully customized solution) is typically created and owned by a single person in the organization. If that person leaves the company or changes jobs, it is very difficult for a new person coming into that role to learn how the spreadsheet works. Very often, the S&OP process stumbles while that transition occurs.

- It is very difficult to accelerate processes based around Excel. In today’s fast paced world, monthly S&OP is simply not enough (more on this in a later blog post!)…Mid-cycle adjustments will become more and more necessary and those companies that cannot leverage the full S&OP framework mid-cycle will be making decisions based on incomplete data.

The last nail in the Excel coffin is scalability. As a company grows, it can be very difficult for the S&OP process to keep up. Adding new divisions often involves significant effort to re-engineer the excel workbook.

So I’ve made a case for why Excel isn’t a great tool for S&OP. What characteristics then, would be present in an effective S&OP tool?

Visibility: An effective S&OP tool integrates with, and pulls ERP data from, all areas covered by the S&OP plan. If you do an S&OP plan for the division, then the S&OP plan will provide information for all areas of that division. If you do an enterprise wide S&OP plan, then the tool needs to pull data for all areas of the enterprise. An S&OP plan that doesn’t represent all products and product families is not a complete plan and your executive team is making decisions based on incomplete data. Data should be easy to navigate. While S&OP traditionally is done at the family level, having the ability to view your S&OP plan at any level from the all-up divisional or enterprise level, down to individual end-items allows you to identify potential issues earlier in the cycle and create a far more achievable plan. The S&OP tool should present data graphically so that your team can see at a glance where trends are going and what periods are out of balance.

Real-time data: An effective S&OP tool is one that is continually refreshed with live data. The official plan stays static unless a change is agreed upon by the S&OP team; however, the S&OP tool must have access to current live data as well. This is critical for two reasons. 1) You can monitor performance to the current S&OP plan and be alerted if you are not executing your plan. And 2) The data is live and ready to go when you need to do a mid-month adjustment. Waiting to extract data and import that data into a tool like Excel can cause days, or in extreme cases, weeks of lost time.

Modeling: An effective S&OP tool models more than just supply and demand at the family level. If you adjust the supply for one family, what is the impact on key component availability? What is the impact on capacity? At a minimum, your tool needs to support Rough Cut capacity planning, or Resource Requirements planning. Ideally though, your sales and operations tool can model the entire supply chain and eliminate the approximations and guesses inherent in both Rough Cut and Resource Requirements Planning.

Simulation: An effective S&OP tool will encourage simulation to model new conditions and to model various resolutions to supply demand misalignment issues. Notice I said “encourage”. Some tools say that they offer simulation, but it can be a difficult, time consuming task to create a new scenario for simulation. You should be able to create and use a new simulation – that has all of the information from the parent scenario - immediately. It’s no good if you have to wait for hours for a database to be copied – because then no one will simulate.Collaboration: In addition to simulation, you need to be able to collaborate. The demand side needs to collaborate with the supply side. The supply planner needs to collaborate with the master scheduler, buyer, planner etc. to ensure that a viable plan has been created. Monitoring and Alerting: As already mentioned in the 2nd point, you need to be able to monitor performance to the current S&OP plan and alert team members when actual execution performance will fall below or is expected to fall below the targets set by the current plan.

What tool do you use for S&OP? If you use Excel, have you run into any of the problems I’ve described? Can you identify other essential characteristics of an S&OP tool?