Normally, I would start an S&OP blog by telling you how to manage your complex supply chain, avoid increased costs/inventory or handle a diverse portfolio of products or services. But that’s not what I’ll do today. In this blog, I want to do something different. I want to show you how NOT to manage your S&OP, so you can learn from these mistakes and steer clear of them at all costs.
Recently, I gave a similar pitch at the Supply Chain Masters in Antwerp, Belgium. While I was preparing my speech for about 350 supply chain professionals, I wanted to tell them a different supply chain story from what they had probably heard multiple times before. I looked down at my shoes and an idea began to take form…
I started my presentation by talking about my brand-new Nike running shoes I recently bought to run the semi-marathon of Brussels. I went to a specialized store, and I asked the shoe salesman which pair he would advise me to buy. He had but one simple question that sounds so obvious: what is your goal? What do you want to do with them? He showed me the picture below with different types of shoes for different purposes.
Even though it sounds like the most basic question, I thought about the following: what if there was an S&OP shop in Brussels where I could just go and buy my S&OP process?
It would most likely be the same story: the S&OP salesman would ask me what my goals and strategy are. Imagine yourself doing that S&OP exercise and going into that shop. What would you have replied? Most of you probably would have said: “Well, euhm, I don’t really know; probably to gain efficiency”. I imagine the salesman would reply: “Yeah, of course, but what is your ambition and strategy”. And that’s a valid point. My S&OP process should be aligned with my ambition and strategy. But what exactly makes a good S&OP strategy?
In their book ‘The Discipline of Market Leaders’, Treacy and Wiersema define 3 types of strategy a company must focus on to be successful:
After having analyzed hundreds of companies in the US, they found the reason why some were more, or less, successful than others. The answer is simple: they had one strategy they focused on continuously. This is, according to the writers, how you become a leader in your market.
Back to the previous question on ambition and strategy: I believe that the strategy your company chooses greatly influences the S&OP process you, as supply chain leader, want to design. But be aware: there isn’t any single model that fits every situation. This is rubbish, it simply doesn’t work like that.
Let me illustrate this with an example. Apple focuses on product leadership, so they’re used to launching new products: it’s part of their DNA. Take the launch of the Apple Watch for example. No one could forecast it, and statistics wouldn’t do you any good. So, being Apple, you would need to design your S&OP process in such a way that it allows for flexibility (scale up or scale down), rather than cost. You would need to invest more into strategic inventory at your supplier side, which will, by definition, cost you more money. It’s a (calculated) risk Apple is willing to take because their S&OP process is flexible enough to cope with it.
On the other hand, if you’re an operational excellence player, you’d rather design your S&OP process in such a way that it allows for cost control instead of efficiency. You probably wouldn’t like the uncertainty of launching a ground-breaking product, because uncertainty costs money and it’s not part of your DNA to manage variability and complexity. The clear difference between these 2 types of organizations is only one of countless examples that show every company should develop a unique strategy that fits its own situation and goals.
In summary, I’d say that there is no better way to mess up my marathon than buying a regular, cheap shoe without a second thought. Likewise, there is no better way to mess up your S&OP than sticking to a standard S&OP process. Your S&OP should be closely linked to your company’s goals and strategy. Are you looking more at scalability/flexibility, customer satisfaction or cost? You cannot get them all; you need to choose where you put your money.
At Solventure, we can help you find your strategic positioning (based on Treacy & Wiersema’s framework) and design your S&OP process accordingly. A final word of advice: don’t do what 90% of your competitors will do. Change your mindset from a standard, not evolving S&OP to a flexible, strategy-driven S&OP, and you’ll have the best equipment for the road ahead.
Download our white paper about balancing the Supply Chain Triangle of Service, Cost, and cash.
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