Last month, I had the honour of joining Matt Spooner, Thought Leader at Kinaxis, for his ‘Big Ideas in Supply Chain’ podcast, during which we discussed what organizations can do to improve their S&OP decision-making processes by using new technology, working collaboratively, and balancing service, cost, and cash. In this blog, I’ll give an overview of the most important topics we tackled and our conclusions on the (continued) importance of S&OP in the supply chain process.
S&OP is a crucial and essential process within the supply chain – but only if companies are willing to upgrade their existing S&OP capabilities so it can really start to shine. Up until now, it’s perfectly fair to say that S&OP has failed to deliver on its promises for the last 30 years. When I came into Supply Chain some 20 years ago, S&OP processes were at that time already explained to be seemingly simple, but over the last two decades, I saw my share of companies struggling with the same supply chain diseases, keeping them from getting the real benefits of good S&OP processes.
The lack of buy-in from C-level, no contribution from Sales or Finance in the forecasting process, struggles with aligning operational and financial forecasts,… All these issues prevented companies over the years from coming to one, central set of S&OP data. On top of that, other fundamentals like good master data, which is absolutely basic, still form big challenges. And because of this, non-supply chain people often become disillusioned by all the undelivered dreams that the supply chain community promised them over the years.
Apart from the lacking S&OP basics, there’s also a big data issue. A typical S&OP cycle can take four weeks or more – by the time this information makes it to the decision-making process, the data is already too old to use. To remedy this, using new technology like AI, as opposed to outdated applications like Excel, and removing siloed work can make a significant difference. In general, the more manual the processes, the slower they will be. But that does not mean they can’t be updated.
And the systems to do good S&OP are available and can significantly shorten the supply chain cycles, but supply chain teams often lack credibility in the executive team to drive the other departments to participate in cross-functional processes to get the most out of their top-notch S&OP systems (if they are in place). Unfortunately, the silo-mentality between teams remains quite dominant, even though S&OP processes could be the way to break the walls between those silos if the supply chain team had more C-suite support.
On the one hand, I do believe S&OP has failed in its promises, but on the other hand, I think it is more than ever a crucial process for companies to balance their Supply Chain Triangle between service, cost and cash. For me, we’ve proven to ourselves that the supply chains we’ve built pre-covid have not been able to deal with the post-covid volatility. So, instead of doubting whether S&OP is bad, companies need to upgrade their logistics maturity level to be able to cope with the frequent changes in their supply chains.
In my opinion, the ideal standard level that all companies should operate under is maturity level 5, which means organizations are connected to key customers, key suppliers, and can make value-based decisions. I frequently challenge executive teams on this to tell me how they will drive their supply chain in these volatile times if they’re not connected to key customers and suppliers. Only when you make big investments in upgrading your supply chain capabilities will you be able to deal with the increased supply chain volatility. And if you need proof, you only need to look back at the money we threw away during the covid-period due to service damages, wrong inventory buying and frequent expediting of orders.
In S&OP discussions that I have with companies, it often becomes clear that Finance has its own planning processes (Financial Planning & Analysis, or FP&A), which run separately from Operational Planning processes. And this is unacceptable for me, especially when you consider the increased acceleration and deceleration in supply chains since covid. If you don’t understand their financial impact on your business, it simply becomes poor management. It gets even worse when you account for the fact that the tooling is already available to load financial data from a bill of material, as they are in the same ERP. Planning tools can then easily, based on standard or more advanced costs, show what the financial impact is of a planning decision.
The reason why we’re not making the connection between Supply Chain and Finance planning processes is because Finance doesn’t trust Supply Chain enough to rely on their supply chain process. And this might’ve been acceptable as a practice 10 or 15 years ago, but it’s certainly no longer acceptable today. Now, Supply Chain needs to show leadership and start this discussion in the executive team, which will take a lot of education. Of course, the fact that S&OP hasn’t done that well in the past decades will mean that it’ll take a lot of convincing to get the C-suite on board.
If I could call on the help of Cupid to make Finance and Supply Chain fall in love and work together, I would. But, this partnership has to come from a mutual understanding. Only by combining the operational knowledge of Supply Chain with the stature of Finance in the organization, that’s when we could really have an impact on the executive team and the business as a whole.
S&OP is more essential than ever when it comes to balancing service, cash, and cost – but for it to be successful we need to keep updating our S&OP processes. For me, S&OP is about the rough balancing of a supply chain over the longer horizon, so monthly meetings can certainly be enough to discuss longer-term decisions, but that doesn’t take away from the fact that it’s a continuous process. S&OP should be reviewed weekly using real-time data so latencies can be removed, and forecasting can be conducted with robust analysis.
In that respect, I’m in big favour of changing the role of Supply Chain in organizations. Today, the role of Supply Chain is semi-operational, with S&OP as our best take at influencing the executive team. If we want to balance the Supply Chain Triangle in companies, we need someone in the middle of the triangle between service, cost and cash, and that should be Supply Chain. And my advice to Supply Chain is: let go of logistics and customer service – these are only operational functions –, keep S&OP and claim financial planning to start integrating the two. And while you’re at it, also claim strategic planning so – in an ideal world – the Chief Supply Chain Officer can become the Chief Planning Officer.
This does not mean the Chief Supply Chain Officer will start defining the strategy of the company – this will still be primarily up to Sales –, but Supply Chain can start challenging strategic decisions from this reinforced position. Better challenging will then eventually lead to better alignment across the three corners of the triangle. And what’s more, I would also give Supply Chain the veto right to stop bad decisions if they would topple the balance in the Supply Chain Triangle. If we do that, I’m sure we’ll design our supply chains in a much smarter way, we will run them in a much smarter way, and instead of staying reactive firefighters, supply chain people will become more proactive business managers with a higher financial impact.
Want to take your S&OP to the next level? Solventure can support you in getting everyone around the table, assist you with the data and tools you need and supply you with the arguments to convince your colleagues of the need to optimize your S&OP and keep it up-to-speed in an increasingly volatile supply chain environment.
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