S&OP: A Tough Nut to Crack
Sales and Operations Planning (S&OP) is over thirty years old. I have been studying it as a researcher for fifteen years. With the rise of the global multi-national, S&OP increased in importance as a way to align and drive organizational balance. In parallel, as shown in the attached infographic, challenges to do it well increased.
A Tough Nut to Crack: A problem that is very difficult to solve. [Cambridge Dictionary]
Companies struggle to do it well. The lack of skilled resources is an issue, but executive understanding is a more pressing and fundamental issue. Too few companies understand that the supply chain as a complex system with finite and non-linear relationships between the metrics. Companies also struggle to get to data. The average company has three-to-five Enterprise Resource Planning (ERP) systems and two-to-three Advanced Planning Systems (APS), data access is an ongoing challenge.
While many companies have implemented solutions for demand and supply planning, the ability to visualize executive decisions and to evaluate alternative, or what-if scenarios, is an issue for 76% of companies. Today, companies do not have one S&OP solution. Instead, they average four processes with many companies having more than ten discrete processes.
S&OP improves organizational alignment and drives agility. Improvements happen faster when there is organizational balance between commercial and operations teams, and the process reports to a profit-center manager. Roughly one in two companies are out of balance, and the organizational functional gaps are the largest between commercial and operational teams. Last month, I interviewed Fran O’Sullivan, General Manager of IBM. Fran believes that the gap between sales and operations closes faster when organizations create “T-shape managers.” Fran defines a T-shaped manager as a person that has excelled within a function, but also has cross-functional experience. Fran believes that there is no substitute for cross-functional experience. I agree.
This organizational and functional barrier is tough to overcome. It is even worse when the organization lacks an executive team that understands how to drive cross-functional process improvement.
A second and a fundamental issue is the lack of technology to model the supply chain.
The use of technologies to model a feasible plan is not as common as most people would like to believe. Many organizations still rely on spreadsheets with no understanding that a complex supply chain cannot be adequately modeled using a spreadsheet.
So, in a nutshell, S&OP takes time and a focused effort to perfect. It happens over many years. Start by actively tackling the issues. While it cannot be a technology project, companies cannot achieve S&OP maturity without technology modeling.
What do you think? We would love to hear from you. The Infographic is based on insights from four years of research studies. Have we missed anything?
Our journey to better understand S&OP continues. This month, we will publish our 2015 Handbook on S&OP Technologies in our monthly newsletter. In addition, we are continuing to study effective S&OP processes through our quantitative studies. We want to understand the differences between an effective and a non-effective processes. We would love to get your input. If you answer our S&OP survey, we will share the aggregate results with you and your team.