In anticipation of his presentation at JDA’s Innovation Forum in New York on September 16th, Supply Chain Nation recently sat down with Don McNaughton, principal at Oliver Wight and an industry expert on sales and operations planning (S&OP), having led over 30 S&OP deployments, to discuss the key issues surrounding S&OP. The theme that resonated throughout the wide-ranging discussion was that when done well, S&OP can significantly improve internal alignment, trading partner collaboration and corporate financial results. But when done poorly, it is a lot of work for little gain. Following are McNaughton’s insights on S&OP.
SCN: S&OP has been a hot topic over the past couple of years, but how many companies are really doing S&OP in an organized fashion? Does it vary by vertical industry?
McNaughton: S&OP is much more prevalent among manufacturing companies than in retail, although there is emerging interest in the retail sector where it is seen as an enabler of improved supply chain collaboration. Within the manufacturing sector, about 80 percent of companies report having a formal S&OP process, about equally split between discrete and process industries. Unfortunately, most S&OP processes generate more heat than light.
SCN:Given that is the case, what levels of maturity do you see in the marketplace for S&OP? What separates the high performers from the rest of the class?
McNaughton: At Oliver Wight we view S&OP maturity as progressing through five transitions from disconnected to integrated, as shown on the Y axis of the chart below. At the same time, companies go through a progression of stages that support the levels of S&OP maturity, as shown on the X axis. Thus, companies progress from informal processes / disconnected states of S&OP maturity to a strategic deployment / integrated state of S&OP maturity. However, most S&OP processes we encounter today are at the foundation / improved communication level.
Time to Value—An S&OP Maturity Journey
The important thing to understand is that you can’t just jump to higher levels of maturity without going through each state of maturity. Just as in constructing a building where the quality of the foundation is so critical to the strength of the building, so too each state of maturity enables the next and is critical in building an effective S&OP process. It is essential to integrate people and behaviors, and processes and technology, to provide a solid foundation on which a mature S&OP process is built.
But a solid foundation alone is usually only sufficient to reach the capable / problem-solving S&OP maturity level. To progress through the advanced / problem prevention level and ultimately to the integrated / strategic deployment level requires several additional factors. These are:
- Knowledgeable participants—that understand your company’s markets, products, customers and supply chain dynamics. The quality and level of people involved in the S&OP process will determine your ultimate success.It is people who solve the problems, not S&OP.
- Clear, defined strategic plan– If you don’t know where you are going, any road will get you there. But a strategic plan defined with sufficient granularity and clarity of direction will inform the entire S&OP process and align everyone on the same goals.
- Enabling S&OP technology – that supports effective and efficient analysis, scenario planning and decision-making. Unfortunately, many S&OP participants report spending the majority of their preparation time manipulating data rather than doing the value-added analysis and scenario planning on which the S&OP process depends for informed decision-making.
Thus, it follows that the high performers are the ones with knowledgeable participants and a clearly defined strategic direction which they use to evaluate their S&OP plans against commitments they have made in their budgeting and corporate strategic plans. They use S&OP technology to efficiently do analysis and scenario planning to address any gaps, both positive and negative, and enable timely decisions on required actions.
SCN: What have been the business advantages for those companies that do S&OP well?
McNaughton: First, it is important to keep in mind that the S&OP process itself does not resolve anything. Rather, if done well, it surfaces the key issues and provides meaningful analysis that your people, working collaboratively, will use to resolve the issues.
Put simply, those companies that do S&OP well make more money than those who don’t. They are able to effectively integrate and align functions across their enterprise and better collaborate with trading partners. As a result, they achieve benefits such as:*
- Increased forecast accuracy of 18–25 percent
- Increased sales revenue of 10–15 percent
- Increased on-time delivery of 10–50 percent
- Inventory reductions of 18–46 percent
- Safety stock reductions of 11–45 percent
- Increased productivity of 30–45 percent
* Actual results of Oliver Wight customers
The primary drivers of these results are having one game plan and set of numbers that everyone is committed to and then using the S&OP process to realign plans on a monthly basis.
SCN: Donald, thank you for your expert insights on the S&OP process and the advantages companies who do it well have achieved. In part two of this summary of our discussions we’ll cover S&OP technology in more detail, including the potential impact of cloud computing, as well as get your advice on what companies looking to begin an S&OP journey should do.
Editors note: Readers, look for part two of our discussion with Donald McNaughton on Thursday, August 29.
JDA Software Senior Vice Presidents of Manufacturing, Distribution & Retail, David Johnston and Wayne Usie, invite you to the upcoming JDA Innovation Forum’s in Chicago, New York and Santa Clara.