Guest Contributor, Eric Wilson, an experienced Supply Chain Executive, discusses the current state of Sales and Operations Planning looking at the possible missing link.
Almost three decades ago Sales and Operational Planning (S&OP) became the innovation in manufacturing and supply chain. When S&OP came about in 1987 as a concept, we did not yet have the internet much less the “internet of things.” Printouts at the time were from dot matrix printers, and we could not even conceive of 3D printing. It’s amazing we could even have S&OP meetings with the initial release of PowerPoint three years later in 1990.
We now have had thirty years to improve on it, tweak it, and make it flawless. There are thousands of articles written now on this subject, and millions of dollars of consultant fees spent every year to implement new S&OP launches and to perfect the ones that are already in place. There are experts in this trade and almost a whole field developed around this practice and people making their livelihood from the concept.
Truth be told, despite all of this most companies are falling short in their efforts to derive full value from their S&OP process and very few “get it right.” Worse yet, with so much invested and so many professionals expounding its benefits, few are willing to admit that:
The Emperor may not have any clothes, and the process is not producing the results is was touted to do.
Is the S&OP Process Improvement an Illusion?
What we see now may be an illusion of progress masked by new terms and executives believing what they want to believe. There is a phenomenon with anything that the more people speak about something, the more you perceive you know about it (trust me, it works great in politics as well). I believe we are at that point where the terms S&OP or Integrated Business Planning (IBP) have been commoditized in nature. Everyone throws out the terms and spins it with few knowing much about it or if it does what it says.
What we do know, repeated research shows over two-thirds are not gaining business value from their process. While there are exceptions, the vast majority of companies despite exhausting efforts cannot demonstrate measurable improvements in their company’s performance and have not progressed to the utopia they were told they would find.
Possibly the most incriminating report came from the Institute of Business Forecasting (IBF) Global survey (2014). In this study, Dr. Chaman Jain researched 664 North American companies looking at common key performance indicators and comparing them between the 71% of the companies who said they had an established S&OP and the total pool of all companies researched. When looking at days of inventory surprisingly there were not only non-improvements, but the 471 companies with an S&OP process did worse (39 DOS with S&OP compared to 37 DOS all companies). But I’m sure the forecasting process improved, and they were able to get better inputs – forecast accuracy at lag 1 measure MAPE 27% with compared to 27% all companies.
But what matters is the customer.
And even though inventory was slightly higher the companies had the right stock in the right place – measuring back orders as a percent of sales and looking at service stock outs with or without S&OP presented no measurable change as well.[Read: Is Your S&OP Meeting Mostly About The Past And The Present?]
The Typical S&OP Problem: When all fails – Blame the Patient
So, what is the response from the experts and vast amounts of articles being composed about the apparent failings of traditional S&OP? The consistent theme from consultants and even from the larger research-oriented firms is to blame the patient. That, of course, the Emperor has clothes you just are unable to see them because you have not implemented it right, don’t have executive support, not aligned to strategy, or there is no clarity of your goal. While I admit, these may all be true symptoms; the knee-jerk reaction is if there is a problem with your S&OP to blame the patient. The logic here is you have a cure that you claim is 100% successful but only works 30% of the time and when the majority of the time it doesn’t work it is the patient’s fault for not digesting the medicine the right way. With almost every research qualitative and quantitative showing two-thirds to three-fourth of companies with S&OP still struggling after thirty years of continuous improvements at what point do we look objectively at the process as part of the problem.
Let me be the first to say that the Emperor may not be naked but I’m not sure those clothes fit everyone and he may need to put more on.[Read: Analytics and S&OP: What is Analytics, and how to spot Buzzwords]
Understanding the Larger S&OP Problem
The potential larger problem: If S&OP and the millions of dollars and thousands of articles did the minimal to keep up with business needs today a more appropriate question may be not if it added value but will it be able to keep up with what is coming. It is no doubt whether we change or not that everything else will continue to evolve around us, including business. All the challenges we face today will be amplified in the future, and we will surely have new people with newer skill sets, new technology and capabilities, and ideally new processes.
Cycles will get shorter, big data will be bigger, and collaboration and value may take on a whole new meaning in the enterprises of the future. Although many companies are recognizing the need to become more responsive and flexible, most S&OP processes are not designed to cope well with ambiguity. The leaders in the future will be the ones that can more efficiently see, interpret, and act. This is what executives will be looking for, a better way of insights into their business and information that helps enable them to make better and faster decisions. If S&OP is having difficulty keeping up with business today, how can it keep pace with the business of tomorrow?
This post was written by a guest contributing author. Views expressed represent the author’s view on a subject. Want to become a contributing guest author to the Arkieva Supply Chain Link Blog? Email firstname.lastname@example.org for more information.