It was a beautiful Phoenix afternoon. The temperature was a welcome relief from the east coast rain.
As I was basking in the sun, the conference coordinator at The Institute of Business Forecasting (IBF) Conference, approached me to moderate their round robin discussion on S&OP. The topic was How do I have a Reliable and Resilent Sales and Operations (S&OP) Process? As I rushed in to facilitate the workshops, I found a full table ready to tackle the topic.
There were three rounds of rapid fire discussion. Here are the insights.
Most companies say that they want to be agile, <Or reliable. Or resilient. Or flexible. Or fill in your own adjective…> However, when you ask what this word means, supply chain leaders do not know. Of the 67 supply chain practitioners that joined my table discussion, one person was confident in his definition of the the word resilient. My Point of View. These words get bandied about, but there is no working industry standard defintion for these terms. Without a definition, it is hard to make it a goal. I feel that for most people that it is a bit like US Justice Potter Stewart’s attempt to explain “hard-core” pornography, or what is obscene, by saying, “I shall not today attempt further to define the kinds of material I understand to be embraced . . . [b]ut I know it when I see it . . ..” However, I don’t think that supply chain professionals will know it when they see it, instead I think that it needs a definition.
So, to facilitate the discusion, I threw out my definitions:
- Resilient: The ability to have the same cost, quality and customer service in the face of market volatility (a given level of supply and demand variability).
- Reliable: The ability of a supply chain to deliver the right product, at the right place at the right time and at the right cost day after day.
- Responsive: Short cycles for a quicker response
The group accepted these as working definitions and we then moved on to discuss how to achieve this as a goal. <Note that the supply chain to achieve these three very different supply chain responses would look quite different.>
We then moved to discuss, what would it take to be resilient? Only one attendee had a definitive answer. The Chief Financial Officer from Jawbone stated that:
“One of the ways that he checks to see if the supply chain is resilient is to watch the rate of change of inventory in each stage of the supply chain. When they are out of sync–one stage moving faster than the other–then you will have resiliency issues. ”
One of the goals for him is to align each stage of the supply chain–contract manufacturing inventories, raw materials, inventory in transit, inventory in the enterprise, inventory in the channel–as part of his S&OP process.
The rest of the group, was not as certain; but through discussion, the more mature members of the roundtable agreed that:
- Reporting Matters. The reporting structure for S&OP should be to someone that had responsibility for both profit and loss. It needs to report to a line of business leader. Preferably the profit center manager. The S&OP process should not report to finance, sales, manufacturing, procurement or supply chain planning. The reporting structure is paramount to hitting the goal of being reslient or reliable.
- The Best Look Forward. The mature members of the group also agreed that 80% of the effort should be focused forward. A great discussion ensued about why most groups look backwards, and why they cannot look forward.
- Align on Assumptions don’t Waste your Time on Aligning on Numbers. I think that this is an important insight for most companies that I work with. A mistake companies make is getting very precise on inprecise numbers. There is an opportunity cost to the process to try to get to the gnat’s eyebrow of precision. Instead, be sure that the group aligns on assumptions.
- Metrics must be Balanced. The group agreed that there need to be 5-7 metrics that are cross-functional and support balance. My favorites are forecast accuracy, customer service, inventory, profit and revenue. And, while we can argue on how to best measure forecast accuracy or inventory, the key is that these metrics show the balance and the trade-offs of the supply chain as a complex system.
Yes, no suntan for this east coast gal on that afternoon, but it was interesting to facilitate the group and see just how large a gap there is between stating a supply chain goal and knowing what to do to achieve it.
What do you think? Are you clear on how to be resilient in your supply chain efforts?
Next week, I will be attending a SAP Supply Chain Event in Newtown Square. Will I see you there?