In all my years working in supply chain consultancy, I’ve come to one main conclusion. We need to come to terms with the fact that the current way of doing S&OP (or IBP) is broken. And I’m not so sure we can fix it either.

In this blog, I’ll discuss exactly how I’ve come to this conclusion, which design flaws are keeping us from efficiently aligning all of our business planning processes, and what our options are to move forward.

The Challenge of Current S&OP

I'd like to start by saying that text-book S&OP isn’t the word from God. It’s not some almighty, unflawed, dogma that we should follow blindly. When you take a closer look, it has many inherent challenges:

• First of all, you have the lack of buy-in from other functions, be it Sales, Portfolio Management, Finance or sponsorship by the P&L owner;
• Secondly, the ineffectiveness of S&OP due to inaccurate (or biased) forecasts and data, a short-term (1 month) planning focus instead of long-term (3-18 months) and the absence of sustainability data in decision-making;
• And thirdly, the scattering of data in various S&OP tools, caused by the lack of proper planning tools, the use of multiple planning systems and the eternal struggle of companies with their master data.
  

I recently attended an AI conference in Berlin where a lot of focus went to creating proper data lakes. These give AI systems the data-fuel they need to function properly and give your company an edge in optimizing your business processes even further. But when I look at the general state of company master data and S&OP as a whole, I think we’re dealing more with data swamps than data lakes. That’s why it’s more opportune, in my opinion, to first get our basic planning data and processes figured out before we start looking at AI as our S&OP messiah.

The Basic Design Flaws of S&OP

Since the dawn of S&OP in the 80s, its basic design hasn’t changed one bit. S&OP, or advanced planning, tools still work the same way they did 30 to 40 years ago, even as the world has moved on and global markets have become increasingly more dynamic, or more volatile if you’re taking a more negative stance. So what are exactly these basic design flaws I’m talking about? Let’s take a look:

1. The need to align S&OP process with financial forecast: 
   This is, in my view, a flawed process which has been dogmatically practiced without any critical thinking on its efficiency. Not only does this alignment double the planning efforts as you split them up in the Supply Chain and Finance teams; it also requires those teams to compare their own forecasts with each other and align them one way or another – even when their core assumptions and level of planning detail widely differ. 
   
   And this even has repercussions for Sales, who often have to submit two different forecasts to Supply Chain and Finance. Both manipulated positively and negatively to suit the needs of these departments – and both removed from reality in the process.
   
   
2. The demand for consensus:
   This is the holy grail of classic S&OP thinking. According to this rule, Sales, Finance and Supply Chain need to have a consensus on planning and forecasting. But, in my opinion, this way of thinking completely ignores other motivations in planning, or the way certain departments look at possible planning risks. Sales, for instance, is often more positive in its forecasting, whereas Finance tends to be more conservative (‘better to underpromise than to overdeliver!’). And Supply Chain wants to be as correct as possible, which makes a healthy compromise of these three positions almost impossible.
   
   Another way to tackle these diverging views on risk and planning is to organize a debate wherein the different views on risk are discussed alongside the opportunities a more risky forecast might bring. Only when you bring everyone around the table can you make real, long-term decisions on which risks are worth taking, and which opportunities are too far-fetched.
   
   
3. Text-book demand planning is frustrating Sales
   A frequent design flaw of S&OP I come across at my customers is the effort Sales needs to do to enrich a statistical forecast with extra sales input so Supply Chain can move forward with their capacity and materials planning. But is this a logical process? 
   
   The way I look at it, this way of working is only increasing the frustrations of Sales with the general forecasting process. Even if they put in the effort to get the forecast as close to the short-term reality as possible, it doesn’t guarantee they will have the capacity or material they need for their customers. This might be due to transport or supplier issues, but it doesn’t take away the fact that Sales will be held responsible by customers if they can’t deliver what was promised.
   
   In another world, Supply Chain could help Sales out with their forecasting, and together they could make an overview of Sales targets and how to achieve them as a team. This exercise could then help the sales plan take shape, while increasing the buy-in from Sales into S&OP that is so clearly lacking in the current S&OP approach.
   
   

We Need a New Planning Approach

If we want to improve S&OP, we will basically need to reorganize the house. Currently, companies often work in functional siloes, where Sales is drive by sales data, Operations is driven by efficiency and Finance is driven by cash flow. 

1. The starting point is a true and native integration of financial planning and supply chain planning, as I mention in my book ‘The Strategy-driven Supply chain’. Up to 80% of these planning processes already overlap, and – even though Finance and Supply Chain may not like it – it’s a necessary step with the current volatility on both the demand and supply side of the supply chain. It's basically irresponsible to not have proper financial information in supply chain planning, or have proper supply chain information in financial planning.
   Once we have integrated those two we need to think through how we will connect Supply Chain and Finance planning with Sales and get their buy-in. The key thing here will be to start from the Sales needs mentioned above, share long-term planning data, and keep everyone aligned. 
   
   
2. Then we should also connect with key customers and key suppliers to create a collaborative forecasting process in which you have visibility on their inventory levels, historical consumption and sales plan. In essence, we need to stop guessing what our biggest customers will buy in the future. We should upgrade these relations and frequently get around the table with them to discuss their needs for the upcoming months. 
   
   Likewise in the case of important suppliers. Get together with them to give each other guarantees to reserve capacities and commit to buying certain raw materials on the long-term. This will ensure you can specify as late as possible which SKU you need them to produce for you, so you can cope with the increased market volatility.
   
   
3. And when we have these connections in place, we need to consider how to include sustainability and social metrics in our core decision-making of our planning processes.
   
   On top of the intricate connections between siloes and external supply chain stakeholders, companies now also have to incorporate environmental and social standards into their S&OP ecosystem. 
   
   Regarding sustainability, companies not only have to keep track of their own emissions, for instance, but they also have to follow-up on the emissions at their suppliers and customers. And from a social point of view, we also want to put our supply chain in the right social context, and make sure our suppliers are behaving in a socially-responsible way – which might be a big concern in the fashion industry or in retail as a whole.
   

Integrated Value Planning’, or S&OP 2.0 as the Game Changer

The vision I mapped out above for the future of business planning processes I’ve called ‘Integrated Value Planning’ (IVP). From my experience it offers a better response to the planning challenges of today’s volatile markets, and offers a better outlook as it:

• secures the buy-in of Sales and Finance – something Supply Chain has been struggling with for ages, 
• helps to make forecasting more accurate by assisting Sales better and moving away from the forced planning consensus, 
• puts the focus on the quality of master data as a crucial requirement to take next steps with AI,
• and offers a general overview of planning needs and requirements, and risk & opportunity assessment, so we can better integrate different planning systems.

So, not a total tabula rasa, but a rethinking of S&OP as it was, and how business planning processes can work together better in the future.