Research by Supply Chain Insights shows that S&OP software, also known as ‘advanced planning software’ has an impressive return on investment (ROI), with an average payback period of just 7 months. Researcher Lora Cecere investigated how far companies have got with implementing such systems and why people are hesitant to use them, despite the clear benefits. From her findings, we see a number of interesting opportunities for ensuring that your S&OP implementation will be a guaranteed success.
According to Cecere, improving your supply chain performance has a strong positive impact on your business success. You can save costs, reduce the cash requirement and free up time to focus on the most profitable product/market combinations. Meanwhile, supply chain management is becoming ever-more complex nowadays due to factors including globalization, the rapid pace of market developments, technology, the growing number of products and customers, and the increasing diversity of customer wants and needs. This presents a paradox: the more complex the supply chain becomes, the more important it is to manage it effectively through supply chain planning.
Lora Cecere conducted research into the current level of and approach to supply chain planning within organizations. All the companies that took part in her study use some kind of supply chain planning software, ranging from Excel sheets or additional planning functionalities in their ERP systems to specialized S&OP software. Well over half of the companies surveyed use more than one application for demand planning and/or supply planning. Furthermore, many companies work with multiple ERP applications, which makes integration with S&OP software more complex. Last but not least, the respondents indicated that they are generally reasonably satisfied with their demand planning but see considerable challenges in supply planning, which is more sector-specific and more difficult to implement.
Supply chain planning software first appeared on the market in the early 1990s. Cecere describes that initial period as a ‘Wild West’ environment in which a lot of – often untrustworthy – entrepreneurs were merely out to make money based on empty promises. As a result, the sector developed a bad name. ERP vendors subsequently filled the void, many of which purchased third-party planning software and sold it as extra modules within their own offerings. It initially appeared to be an ideal solution, but that soon changed. The very nature of ERP systems means that they are based on historical data, with a transactional set-up and the thus on conducting financial analysis in hindsight. Planning systems are fundamentally different: future-focused and designed to cope with uncertainties. Hence, the ERP-based ‘planning modules’ failed to provide the desired functionality in many cases.
This led to many companies turning to Excel, where they attempted to translate their market insights into demand forecasts as the basis for the supply planning – but it was a labour-intensive and error-prone process.
Today, we have moved beyond the hype to arrive at a realistic view of the situation. It is impossible to manage a complex supply chain in Excel. ERP systems are fantastic for analysing what has happened, but not suitable for forecasting and demand planning at tactical level nor are they able to link the forecasts to the supply planning. Specialized software is needed to manage a supply chain truly effectively. In her report, Cecere calls it ‘best of breed’ software, but other names include S&OP software, advanced planning systems (APS) and integrated business planning (IBP, which is often used to refer to the most advanced methods).
The most striking finding from her study is the payback period for ‘real’ S&OP software. At an average of just 7 months, the ROI is very short. In comparison, it takes an average of 13 months to earn back the investment in an ERP-based planning module, plus the solution remains sub-optimal and it takes longer to implement than S&OP software. Nevertheless, Cecere does not dismiss ERP altogether. In fact, she points out that each of the two systems serves a different purpose and that they complement – and even depend on – one another. Good S&OP software works best when it is fed by a reliable and stable ERP system.
So if it is clear that supply chain planning is necessary, S&OP software works considerably better than the alternatives and the payback period is just 7 months, why is S&OP not being used more widely? Cecere dug deeper into that too, and identified three key barriers to adoption:
The findings from the study underline the added value of S&OP software and indicate that the return on investment is achieved after an impressive 7 months. However, Lora Cecere’s report also highlights a number of key barriers to adoption. We have practical experience of these barriers and are happy to share our tips for overcoming resistance:
No two organizations are the same. So the figures mentioned in Cecere’s report are averages. If you would like to find out what the payback period of S&OP software would be for your company, we’ll be happy to help you calculate the ROI in your case. This article by my colleague Nick Verstraete provides a clear overview of what we do and why it’s so important.
Request a demo of S&OP tooling software Arkieva and discover how we can support you with your S&OP challenges. We look forward to take your organisation to the next level!