Over the past four decades, manufacturing, distribution, and some service companies have invested management time and attention, consulting dollars and technology expense to properly balance supply commitments and realized demand. At the same time, they have been seeking effective ways to optimize trade-offs between working capital (inventory), operating expense, and providing consistent quality customer service. The results have been spotty at best. Measurable, lasting success has proved broadly, and somewhat surprisingly, elusive. Even now, it is still an exception to find a sustainable end-to-end demand/supply chain operating in a cross-functional, integrated and collaborative manner. Yet, in spite of a long and 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.
If S&OP is so important, why do so many initiatives fail?
If this was a simple endeavor, good organizations would have mastered it long ago; the fact of the matter is, they haven't. In reality, most sales and operations planning efforts are rewarded with frustration. All too often, well-intentioned initiatives are chartered, staffed and supported with investment but quickly plateau and wane without measurable payoff. Daily frustration is common, negatively impacting the health of the organization's culture.
Even when the supply side of the organization operates in an aligned fashion, true demand-supply financial integration is extremely rare. A recent benchmark study by the Global Supply Chain Institute (GSCI), "Advanced Demand/Supply Integration (DSI) Best Practices", found the real challenges with achieving demand-supply integration (DSI) performance, a support function of S&OP, are cultural and stem from an inability to align the various functional pieces into an integrated and collaborative whole.
Common symptoms of failure
- Demand/supply imbalances: Too much inventory creates requirements for working capital, causing additional financial demands. Too little, or the wrong inventory impacts customer delivery performance, damages customer trust and financial results in the form of lost revenue.
- End to end demand/supply chain sub-optimization: When S&OP decisions are made in functional isolation, the predictable result is sub-optimization of the company's end to end demand/supply chain. Manufacturing costs are sub-optimal and logistics and inventory carrying costs skyrocket.
- Data-deficient end-to-end demand/supply chain operations: Too often bottom-line financial results point a finger at problems in the end-to-end demand/supply chain, but organizations lack the data insights to unravel the problem. Companies learn to live with what they won't rise above and data deficiencies, as well as the resulting blame game, become an accepted way of doing business.
- Functional silos, cost savings fatigue: When everyone recognizes a cross-functional problem but no one is capable of leading a cross-functional solution, organizational distress is the inevitable result. This dysfunction, combined with cost-savings fatigue, disables the engines of change quickly elevating into a strategic, C-level problem.
- Relegation of S&OP to tactical control of the business: By definition, the supply management functions (manufacturing, procurement, logistics) are tactically focused. Even when they operate together in perfect unison they do not - and cannot - impact the strategic management of the business without additional integration with the demand functions (sales & marketing), financial management, and executive leadership. As an integrated process, S&OP must go beyond only short-term, tactical and responsive issues to focus on planning for the future and alignment with the organization's strategic plans.
- Data-deficient end-to-end demand/supply chain operations: Too often bottom-line financial results point a finger at problems in the end-to-end demand/supply chain, but organizations lack the data insights to unravel the problem. Companies learn to live with what they won't rise above and data deficiencies, as well as the resulting blame game, become an accepted way of doing business.
We've diagnosed the symptoms, but what about the cure? In my next blog I will discuss the crucial role effective S&OP plays in business enablement and ask, 'Why is S&OP so important?'
Other articles in the Sales & Operations Planning series:
- Part two: Why is S&OP so important?
- Part three: Four essential toolsets that drive success
- Part four: Six critical success factors for S&OP implementation
- Part five: The principles that underwrite success
Click here to read our Sales & Operations Planning perspectives paper
About Us
Maine Pointe is a global supply chain and operations consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in EBITDA, cash and growth across their procurement, logistics and operations. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the buy-make-move-fulfill supply chain to deliver the greatest value to customers and investors at the lowest cost to business. We call this Total Value Optimization (TVO)™.
Maine Pointe's engagements are results-driven and deliver between 4:1-8:1 ROI. We are so confident in our work and our processes that we provide a unique 100% guarantee of engagement fees based on annualized savings. www.mainepointe.com