If good intentions in S&OP always led to success, the potential for high returns would have induced the majority of companies to master the state of single-number planning. The reality is, success stories are few and far between and, all too often, tragically short-lived. Yet, despite a long and well-documented history of failures, S&OP consistently shows up as a top-three priority for end-to-end demand/supply chain executives across a host of surveys.
At least six composite, critical success factors have proven elusive:
- Demand signal capable of driving effective, efficient anticipatory decisions: Sanjiv Sidhu, founder of i2 technologies, presented an image of a car driving slowly on a straight road and explained it is possible to drive under such conditions using only one's rear-view mirror for guidance. He next presented a sports car driving at high-speed on a windy road. The rear-view mirror was no longer sufficient. S&OP is the art of advanced operations planning. A demand signal sufficiently accurate to enable correct anticipatory decisions is mission critical to efficient S&OP. Whether that signal comes in the form of a demand forecast, point-of-sale (POS) data, or some other data analytics source, it has to be, a) accurate; b) timely (allowing time to react operationally); and c) sustainable. There are no substitutes.
- Collaboration, integration, synchronization across end-to-end demand/supply chain functions: Effective S&OP is entirely reliant upon removing the imbalances engendered by borders of any kind in the end-to-end demand/supply chain. Paradoxically, it is normally easier to remedy silos and inefficiencies across companies than to break down internal functional barriers. Collaboration, integration, and synchronization is a ticket to play in effective S&OP.
- Creation of a perpetual learning function: The philosopher essayist George Santayana said, "Those who don't remember the past are doomed to repeat it." The same could be said of company's who fail at the task of effective S&OP. End-to-end demand/supply chain failures mimic the movie, Groundhog Day, repeating the same failures month-after-month, quarter-after-quarter, year-after-year. Effective S&OP capability include the ability to incisively and insightfully dissect current period operations and correct failures in the sales and operation plan for the coming period. A learning system is an under-appreciated business capability that underwrites all successful S&OP efforts.
- Advanced data analytics capable of multi-variable, multi-equation optimization: A common critique of S&OP as a valuable business capability is that it requires the organization to believe in a calculated number. While the direction was correct, the information and analytical capabilities were never quite up to the task of getting it right. All of that should change in the world of big data and advanced data analytics capabilities. The task of enticing a cross-functional group of leaders to believe in a number approaches impossible if the number is not correct. Data analytics has to be capable of driving to the right answers in a highly-complex, multi-variable, multi-equation environment.
- Unbending dedication to Total Value Optimization (TVO): More than any other root cause of failure in historical S&OP solutions, a lack of dedication to optimizing the whole, instead of its component parts, stands out. The backbone of successful S&OP is an immovable dedication to dynamically anticipating and meeting demand through the synchronization of the buy-make-move-fulfill digital end-to-end demand/supply chain to deliver the greatest value to customers and investors at the lowest cost to profitably serve them.
- Multi-level S&OP building blocks: The key building blocks include a single-number business plan; willingness to build demand plans on unconstrained demand and then meticulously balance to refined actual supply plans; full consensus ownership by cross- business leadership (CEO, CSO, CDO, and CFO equivalents); clear decision-making hierarchies; and a disciplined, drumbeat business process dedicated to continuous learning and improvement.
Alongside these underlying factors, there are a handful of principles that underwrite effective S&OP. In the fifth, and final, part of this series, I will discuss these principles and introduce you to a pragmatic tool that will help you assess how mature your organization's S&OP is today and identify where value creation opportunities lie.
Other articles in the Sales & Operations Planning series:
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