Analysing EFT’s First S&OP Survey: Part 3, Is It All Worth It?
This is the final article in a three-part article series analysing the first S&OP survey carried out by eft and Hughenden Consulting.
The survey polled 131 global supply chain executives, mostly from large manufacturers, around three sets of questions:
(1.) How are companies faring on the S&OP journey?;
(2.) Are we all doing the same thing once we get going?; and
(3.) Is it all really worth it?
In this article series, we are examining people’s responses to these sets of questions in more detail.
My last article analysed the major inconsistencies we found in the survey questions related to how companies are living the S&OP process. I referred to Gartner’s “Five-Stage Sales and Operations Planning Maturity Model for Supply Chain Leaders” and found that most of survey respondents appeared to be stuck at level 2, “Anticipate”. These companies mainly use S&OP to achieve short-term, operationally focused and ‘siloed’ objectives.
In this article, I will analyse the final set of survey questions that challenge us to consider whether S&OP is really worth the effort. I often hear industry professionals talking very positively about S&OP’s benefits, but in very generic terms. We wanted to find out what specific benefits companies had achieved and how long they took to pay off. Finally, we wanted to explore the relative importance that people play in achieving breakthroughs to S&OP success as compared to processes and systems.
1 Grabbing the higher-hanging fruit
Encouragingly, more than 60 percent of companies surveyed said that they had achieved one or more specific benefits from their S&OP initiatives.
Of these, 70 percent saw tangible benefits in less than a year and the remaining 30 percent, within two years. This is fantastic news!
The most frequently reported benefits came from service level increases and reductions to inventory and working capital. Though fundamentally important, ‘low-hanging’ benefits are typically used to justify S&OP initiatives and often achieved in less than 12 months. I would strongly urge companies to reach above these for the higher-hanging fruit.
Aiming higher involves moving beyond ‘operational’ S&OP by integrating business functions and planning in longer horizons of 18-24 months. When people ask: “why bother?” I channel my old mentor and author of ‘The Goal,’ the late Dr Eli Goldratt. He would have answered: “to reach your company’s goal of making more money!”
It might sound flippant, but I’m being completely serious. The reason we always engage the finance director when moving into more advanced stages of S&OP maturity is that we need to be sure that the planning process is helping us to make more money. How do you know your plan is a good one if you don’t know how much money it is making for the business? One of the reasons we plan with a longer horizon is to help us identify the contingencies that could threaten profitability.
Two other high-ranking and inter-related benefits that play an important part in more advanced S&OP initiatives were “better decision-making” and “improved communication”. Completely intangible, but although these don’t show up directly on the company P&L, they are at least as important to business performance.
1.1 Breaking down silos
Another piece of good news is that a full 64 percent believed that S&OP had been responsible for either partly or fully discouraging silo behaviours in their companies. Although a further 31 percent said that S&OP had ‘Not Yet,’ had an impact here, these respondents seem to be optimistic that this will change at some point in the future. So, S&OP is widely felt to be the way to break down silos!
I do hope that companies are setting their sights high enough here. Many of the companies I’ve worked with over the years inadvertently put S&OP itself in a silo, leaving out important functions like procurement or marketing. Companies that recruit a Head of S&OP sometimes unintentionally create this silo by positioning S&OP as a ‘department’ rather than a holistic business transformation, driven and championed by top management.
1.2 S&OP by any other name…
A small minority (eight percent) of companies said that they had not seen any benefits at all from S&OP, and even fewer (two percent) said they did not expect to achieve any. This does not surprise me. In my experience, S&OP success depends on unwavering leadership with a resolve to drive it forward with discipline. Companies lacking these are not likely to foster the kind of cultural changes required.
Some executives resist sponsoring S&OP initiatives because they have been burnt in the past by failed efforts. In a surprising number of companies, we see executives rebranding S&OP to SIOP, Advanced S&OP, IBP, IBM – as if this would somehow make a difference!
2 Breakthroughs depend on people!
If we wanted to paraphrase President Clinton, we might have named this article series, “It’s the people, stupid!” When we asked companies what delivered breakthroughs in S&OP success, more than 60 percent cited people-related factors such as culture, board commitment and commercial buy-in.
Skills development is another people-related factor requiring attention. Only three percent of survey respondents said that new recruits are ‘very likely’ to have past S&OP experience. [hw1] Companies that put people development on the back burner during the recent economic downturn should revisit their policies if they want to make breakthroughs in S&OP.
A quarter of the survey respondents said that process design led to S&OP breakthroughs but only a scant 3.5 percent credited software. There is an important message to companies that believe rolling out new S&OP software will be a magic bullet. Software is definitely an enabler but the clear message from the survey is that if you don’t get people engaged (which probably costs less), you aren’t likely to get breakthroughs.
3 Was it worth it then?
Having spent the last three weeks reflecting deeply on the results of this survey, I am more convinced than ever that S&OP is indeed worth the effort. Even those companies at the beginning of their journeys are starting to see material financial paybacks and less tangible, but equally important benefits stemming from better collaboration and communication.
The message that came through loudest and most clearly from the survey is that S&OP success depends on strong executive leadership and sponsorship (by the way, this does not happen by magic!). On this front, I am inspired not only by encouraging responses in the survey but also the changes we’re seeing first-hand in our own client engagements. One CEO I’ve been working with recently wants to introduce S&OP in his organisation as the primary mechanism to cultivate joined-up thinking and a new style of management. I have absolutely no doubt that his company will succeed and enjoy many material benefits as a result.
Because S&OP is a collaborative way of doing business, it depends on people at all levels to refine skills like negotiation, persuasion, diplomacy, conflict resolution and yes, leadership. So I’d like to close this analysis with one final thought: When it comes to S&OP success, it takes soft skills to yield ‘hard’ outcomes!
I hope you have enjoyed reading this analysis of our first S&OP survey as much as I have enjoyed writing it. As ever, I welcome your comments, feedback and S&OP stories!