10 Key Challenges to S&OP Excellence


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10 Key Challenges to S&OP Excellence

  1. 1. 10 Key Challenges to S&OP Excellence<br />3 December 2010<br />Stephen Crane<br />
  2. 2. S&OP Improvement Plan<br />Challenge # 1: Alignment to business strategy<br />The operating strategy, what drives value in the value chain should be the foundation for S&OP decisions <br />Just as business strategy needs to be defined and articulated for successful sales and operations planning, supply chains need to be continually redesigned and aligned to the business strategy to drive the optimal response. Focus on cycles, balance, and complexity: <br />Cycles - Pushing one cycle too hard can throw another out of balance. The goal is to orchestrate the three cycles - demand, supply, and product—in concert and translate the rhythms of supply and demand variability to make conscious tradeoffs based on what is ultimately of value to the customer and company. <br />Balance - As demand shaping (price, promotion, sales incentives, new product launch, marketing programs) increases, demand error will also rise, driving a need to increase supply chain agility. <br />Complexity - Good complexity differentiates you from your competitor and adds value. Bad complexity adds costs without value. Leaders bake complexity analysis into the analysis of go-to-market strategies. <br />Balance in these cycles drives supply chain excellence.<br />
  3. 3. S&OP Improvement Plan<br />Challenge # 2: Business ownership for the S&OP process<br />The process must be owned and driven by the business.<br />Challenge # 3: Aligning reward systems<br />Sales and operations planning is about cross-functional alignment and coming to agreement on a plan that is best for the company overall. All members of the S&OP team need to share accountability for the same metrics. The right metrics and understanding the tradeoffs that are being made is foundational to sales and operations planning. People are measured in silos, but in the S&OP process they are expected to make decisions that are potentially detrimental to their individual performance goals. Individual performance goals have become a huge barrier to S&OP excellence. <br />Challenge # 4: S&OP Metrics<br />There are five key metrics to drive S&OP success: forecast accuracy, a measure of inventory, revenue, profitability, and customer service. Establish standardized S&OP metrics as well as plant site specific metrics linked to S&OP.<br />
  4. 4. S&OP Improvement Plan<br />Challenge # 5: Overcoming the fear of change<br />It is a primary barrier to almost every business initiative including S&OP. Change is always resisted because people are afraid to venture into the unknown even if what they have is not good. The only way to help people get over fear is give them a vision that is worth striving for and taking a risk for. The natural instinct of people is to preserve the status quo because people who have the power and the influence want to maintain it. The vision of what can be different is needed to overcome fear and the power of the status quo.<br />Challenge # 6: Making good decisions<br />To drive decision processes, establish governance models for making decisions. Align final authority to profit center responsibility. To help you define your S&OP process, ask these questions: <br />What business model best defines your business? Centralized, decentralized, or center-led will determine the governance model required and the role of centers of excellence in supporting the process.<br /><ul><li>Are your profit centers aligned with business strategy?
  5. 5. What are the characteristics of your supply chains: efficient, agile, responsive, or more likely some of each? This means the S&OP processes must cater to this business model. Unless S&OP is aligned to the business model, it will not succeed. </li></li></ul><li>S&OP Improvement Plan<br />Challenge # 7: Which of these S&OP scenarios best describes your business, and then build the process accordingly: <br />A mechanism to do longer term forecasting that can be translated into supply planning. Almost every manufacturer has material lead times that are longer than delivery lead times, so the value of forecasting cannot be underestimated <br />A framework to align functional silos and come to consensus on demand, supply, and resource plans, and understanding the tradeoffs required to achieve these plans <br />A medium to manage capacity or supplier constraints and identify opportunities that are unprofitable and not worth pursuing <br />The ability to see the gap between the plan and the financial budget and identify where demand shaping or other levers need to be pulled to achieve the necessary financial results expected by stakeholders <br />
  6. 6. S&OP Improvement Plan<br />Challenge # 8: Governance<br />To manage the inclinations of perverse individuals, sales and operations planning requires governance and discipline in three main areas: process, data, and continuous improvement. <br />Process: Governance is required to establish a structured monthly process, meeting agenda, and, most importantly, alignment. The main barrier to effectively executing on the process and agenda is that people come to the meetings without clarity of the goal of the meeting. Establishing a common purpose lays the foundation for making good decisions, and this drives the process, agenda, and ability to come to consensus. <br />Data: Data quality and timeliness is the top challenge for many companies. Governance is a must not only for demand and supply data analysis, but also to enable the aggregation of metrics using consistent definitions to support conscious tradeoffs. These tradeoffs could be at the global, regional, and/or product line level. <br />Continuous improvement: Leaders focus continually on how to make the process better, and tailor it to the characteristics of the business. <br />
  7. 7. S&OP Improvement Plan<br />Challenge # 9: New Product Launches<br />Introducing new products also continues to be a challenge. It differs by industry, but many companies use the introduction of new products and features as their primary demand-shaping technique. This increases demand volatility.So new product introductions need to be fully integrated into S&OP across the planning horizon. The intersection of new product launch and sales and operations planning is a stumbling block for many companies.<br />
  8. 8. S&OP Improvement Plan<br />Challenge # 10: Connecting planning to execution<br />Few companies claim to successfully link S&OP output to operational or execution processes. This is not easy, and few have it right, but here are five ways to help make the connection: <br />Visibility—The S&OP plan and outcome of the executive meeting are published and communicated to the operational teams globally within days of the monthly meeting. <br />Monthly planning tied to weekly operating reviews—A small, cross-functional team monitors progress on plan assumptions and guides the organization through plan execution with weekly focused operational reviews. <br />Connection to order-to-cash processes—In the weekly operating reviews, decisions are made on allocation and available-to-promise (ATP) rules. . <br />Translation of go-to-market activities—For demand orchestrators, the connection of market potential and demand-shaping activities to commodity strategies through sales and operations planning delivers great value. <br />Sensing and eliminating waste—Sensing slow and obsolete (SLOB) inventory quickly and moving it when the inventory has maximum value is a defining characteristic. In successful organizations, there is almost an obsessive focus on SLOB. It is quickly identified, and plans are formulated in the S&OP process to maximize value by moving it quickly through the channel. <br />
  9. 9. Metrics AlignmentWhile the metrics should be the same, the targets and tradeoffs will differ<br />Demand Forecast<br />Demand Forecast<br />Perfect Order<br />Perfect Order<br />SCM Cost<br />SCM Cost<br />Quality<br />Cash-to-Cash<br />Cash-to-Cash<br />Inventory Total<br />Inventory Total<br />AR<br />AP<br />AR<br />AP<br />Supplier On-Time<br />Dir Mtl Costs<br />RM Inv<br />Purchase Costs<br />Supplier On-Time<br />Purchase Costs<br />Supplier Quality<br />Supplier Quality<br />Dir Mtl Costs<br />RM Inv<br />Responsiveness<br />Efficiency<br />Production Schedule Variance<br />Order Cycle Time<br />Order Cycle Time<br />Production Schedule Variance<br />Perfect Order Detail<br />Perfect Order Detail<br />FG Inventory<br />FG Inventory<br />Plant Utilization<br />Plant Utilization<br />Cost Detail<br />Cost Detail<br />Efficient <br />The degree to which a system can minimize total delivered cost and waste<br />Differentiate on Total Landed Cost<br />Responsive<br />The ability to respond to unforeseen changes in market demand (+/- 20%) for existing products<br />Differentiate on Availability<br />Time<br />Cost<br />Agility<br />Demand Forecast<br />Perfect Order<br />SCM Cost<br />Agile<br />The ability to adapt to changing market requirements related to commercializing new products and technologies<br />Differentiate on Adaptability<br />Cash-to-Cash<br />Inventory Total<br />AP<br />AR<br />Purchase Costs<br />Supplier On-Time<br />RM Inv<br />Supplier Quality<br />Dir Mtl Costs<br />Production Schedule Variance<br />Order Cycle Time<br />Perfect Order Detail<br />Order Cycle Time<br />Production Schedule Variance<br />FG Inventory<br />Perfect Order Detail<br />FG Inventory<br />Plant Utilization<br />Cost Detail<br />