Originally published in Forbes
In his third Forbes article, Maine Pointe CEO Steve Bowen discusses some of the biggest C-suite challenges, the potential payoff of a successful S&OP plan, and some of the most common points of failure.
One of the biggest challenges faced by the C-suite is achieving an end-to-end demand/supply chain that is fully collaborative, with supply commitments properly balanced against demand. Sales and operations planning (S&OP) initiatives often plateau without any measurable payoff, and the result can be a stagnant culture resistant to change. Despite the challenges, S&OP continues to be a top priority among supply chain executives, and the potential for sustainable and measurable payoff is great.
One of the most common points of failure in an S&OP initiative is relegating S&OP to a tactical focus rather than being an integral part of strategic management. This incorrect view of supply chain’s mission being cost-savings only naturally leads to cost-savings fatigue and fails to enable the engine of change. A strategic view, which sees the mission as one of driving lasting value for all parties in the supply chain, will be more sustainable and deliver advantages far beyond the basic benefit of cost savings. Many of the challenges the C-suite faces are therefore cultural and stem from a lack of alignment of the various functional pieces into an integrated whole.
S&OP And The Next Level Of Business Integration
Every business model asks four fundamental questions: what to sell, whom to sell to, how to operate and how to earn a return for investors. There are five ways that implementing a strategic S&OP initiative gets right to the heart of answering these key questions and driving better and more value-oriented results:
1. Leverage purchase orders so they do more than carry simple product attributes. S&OP uses this information to drive the right product, place, time, quantity, cost and business performance.
2. Use S&OP to anticipate changes, react to them and position the company to respond appropriately. S&OP enables demand-fulfillment responsiveness. Supply chain is constantly changing. Upstream (the supply), manufacturing capacity or disruptions from new tariffs or trade restrictions require nimble responses. Downstream (demand) is similarly subject to unexpected change.
3. Take a long view. S&OP allows executives to see the entire picture, from the supplier’s suppliers to the customer’s customers.
4. S&OP is the prime integration layer of Total Value Optimization (TVO), a methodology for dynamically anticipating and meeting demand by synchronizing the buy-make-move-fulfill supply chain to deliver the greatest value to customers and other stakeholders at the lowest cost.
5. S&OP provides support, stability and meaningful benefits by moving from simple tactical collaboration to single-number business planning and a lasting competitive advantage.
The integration and cross-functional collaboration resulting from S&OP provide a strong competitive differentiation. Stand-alone S&OP on the other hand, yields only short-lived and tactically isolated results. The better and longer-lasting benefits happen when executive leadership pursues a common set of goals, rather than each pursuing an isolated functional goal such as sales revenue, cost per unit purchased or cost-per-mile transportation costs.
Effective S&OP implementation is driven by a few basic underlying principles. Despite high-profile failures, success is possible with the right supply chain strategy. Here are a few actionable success factors for integration:
Identify Demand Signals Capable Of Driving Effective, Efficient Anticipatory Decisions
An imbalance between demand and supply may be causing financial disruption and creating the need for too much working capital. An imbalance with too little inventory relative to demand could damage customer trust, and correcting that imbalance will capture revenue that would otherwise be lost. S&OP is about advanced operations planning and finding demand signals that enable the right anticipatory decisions.
Collaborate, Integrate and Synchronize Across End-To-End Demand/Supply Chain Functions
Remove silos and synchronize S&OP across operations, procurement and logistics. Inefficiencies are borders that may exist in the end-to-end supply chain. Correct this point of failure with cross-functional collaboration and a big-picture view, rather than a stand-alone approach. S&OP will never work if implemented in isolation, if functional areas of the enterprise have different goals or if all areas do not have an equal say at the decision-making table. With a primary focus on removing those imbalances and artificial borders or silos, it is possible to achieve a greater level of productive collaboration and integration, resulting in more effective S&OP with lasting benefits.
Create A Perpetual Learning Function
Perpetual learning is also critical to success. Look at each current period’s operations, and correct failures and shortcomings in the S&OP plan to enable a better period next time. A learning system that continues to evolve and adapt to each quarter’s realities can provide actionable insights for better success on a continuing basis.
Leverage Advanced Data Analytics Capable Of Multi-Variable, Multi-Equation Optimization
Large amounts of data are often accumulated, but making use of the data is often challenging in an environment that is likely to be very complex with multiple variables. Take the next step to leverage big data and analytics to drive the right answers.
Reinforce Unbending Dedication To Total Value Optimization (TVO)
The biggest success factor is a commitment to optimizing the whole supply chain, from the supplier’s supplier to the customer’s customer, rather than addressing component parts individually. Implement the end-to-end supply chain approach of TVO, and make it the backbone of successful S&OP.
Build S&OP Into Corporate Culture With Multilevel S&OP Building Blocks
Build on the company culture, and firmly ingrain S&OP into the company’s leadership. Go beyond using S&OP for the tactical aspects of the company’s operation, and use it as a strategic part of the company’s success. A more effective and holistic S&OP process goes straight to the heart of improved business performance, unifying the entire end-to-end supply chain, from the supplier’s supplier to the customer’s customer.