Part 2: Thoughts from Kinexions – A new way to think about S&OP

In my last post, I presented some problems with traditional S&OP systems.  I then pondered what if you could...

• Create a new demand plan (or several) and instantly see how this new plan would impact your supply chain down to the smallest component?
• Drive your supply plan from any forecast stream (Sales, statistical, marketing, customer, pessimistic, optimistic) or combination of streams?
• Change which forecast drove your supply chain and evaluate the impacts?
• Visualize these plans against the same key corporate metrics you use to run your business?
• Compare various plans against each other AND against your annual targets?
• See a problem at the sales and operations level, and were able to drill down until you found the problem, no matter how far down the supply chain the problem exists?

Sounds pretty good right?  Let’s see what it takes to get this kind of functionality:

1. You need a system that allows you to create “what-if” scenarios instantly, and provides the ability to collaborate with these scenarios.
2. You need to have both collaborative demand planning and complete supply planning in the same tool.  The supply planning tool needs to accurately emulate the planning done by your ERP system.
3. You need to be able to drive the supply planning system from the demand plan.
4. Further, you need to be able to configure which forecast stream (or combination of streams) forms the demand plan (and therefore drives the supply planning process). This combined with #1 will allow you to evaluate and compare different demand planning scenarios.
5. You need excellent reporting tools that allow you to understand supply issues, their cause, and potential resolutions.
6. You need excellent reporting tools that allow you to present the recommended S&OP plan, the issues, and alternative resolutions to the executive team.

What does this do for your S&OP process?

Two things:

1. Your S&OP planning process will be faster - supply planning and demand planning are in the same tool, collaboration is enabled between supply planner and demand planner, and resources allow you to quickly identify and resolve issues.
2. Your S&OP plan will be more accurate - powerful collaborative forecasting tools are combined with the ability to understand at a detailed component level how a given demand plan impacts supply.

So, why are speed and accuracy so important?  I think accuracy is self-explanatory, but what about speed? We do S&OP on a monthly cadence, so why should I worry if my S&OP process takes several weeks? There are two key drivers for faster S&OP processes:

1. Timeliness of data - remember that the first step in any S&OP process is data gathering.  If your S&OP process takes three weeks, then the data you are basing your decisions on is at least three weeks old! I talked to one company that had a six week S&OP process to support a monthly cycle. I don't know how they came to any useful decisions with that data.
2. Ability to respond - Imagine the following scenario: You just finished your S&OP process and have an approved plan. You come in Monday morning to discover that one of your key suppliers has had a major problem and has cut production in half and this has impacted items across multiple product lines. The response is going to require coordination across sales, marketing, procurement, and manufacturing. Sounds like an S&OP level problem right?  If it takes you three weeks to pull the plan together, you may as well not bother...decisions will be made on little or no data because they need to be.  If, however, you can pull a plan together in days or hours, you can base your response on current, accurate data.

When I presented my workshops at the Kinexions user conference, I polled the room asking how many participants had an active S&OP process at their companies. In each case, the vast majority of participants had an active S&OP process. Those that didn't were planning on implementing one soon. What this means is that S&OP itself is no longer a differentiator. To step above the competition requires that S&OP be a more agile, responsive tool. Traditional S&OP systems simply are not capable of being this tool because the supply plan and demand plan are not connected, they don’t allow easy simulation and they don’t allow you go drill from the high level to the detailed in a single tool. It's time for a new way of looking at S&OP. What do you think? Comment back and let us know.

Additional Resources

• S&OP frequently asked questions