S&OP

Why It Matters

by Lora Cecere on October 1, 2013 · 2 comments

As I work with companies, I often contrast the strategies, approaches and outcomes within a peer group. Over the last five years, I have helped two companies, Sonoco Products and Owens Illinois (OI) with their selection of technologies to improve Sales and Operations (S&OP) planning. Both companies provide packaging materials to the food manufacturing industry. Owens Illinois provides glass products and Sonoco Products provides flexible packaging. Here I contrast their results.

Six years ago, Owens Illinois’ primary question was IT standardization versus the choice of best-of-breed vendor. The decision was a political tug of war. Warring factions undermined progress on business process. IT and the business teams were not aligned. They were unclear on their supply chain strategy and the role of supply chain planning. Complexity reigned in the business and they were unsure how to manage it.

Figure 1.

Sonoco Products, on the other hand, had a clear objective to maximize asset utilization while improving customer service for strategic customers. Their goal was to visualize excess capacity and make it available to enable their sales teams to offer upstream opportunities to their clients. It was their way of “shaping demand.”

As a supplier three to four levels back in the supply chain, life as a packaging provider is tough. Demand is volatile, price is competitive and complexity reigns. Food manufacturers, over the course of the last decade, have pushed costs and waste backwards in the supply chain. Products have proliferated by 37% over the last five years and packaging suppliers are being asked to provide more and more innovation to help the food manufacturers bring new products to the market.

Figure 2.

The companies are similar in size. Sonoco Products is a $4.5 billion company, located in the southern portion of the United States. Their journey to be more market driven with a strong focus on Sales and Operations Planning (S&OP) is now seven years old. Owens Illinois (OI), a $6.3 billion company, manufactures glass containers with headquarters in the Midwest. OI has been more focused on transactional efficiency, procurement and IT standardization.

As I write my new book, Metrics That Matter, I am studying the patterns of corporate performance based on choices in supply chain program execution. A company that is effectively working a supply chain strategy will have a nice, neat pattern at the intersection of operating margin and inventory turns. A company that is not balanced will tend to have a pattern that oscillates with no real trend towards improvement.

Figure 3.

 

Contrast the patterns of the two companies in figure 2. Owens Illinois oscillates with little predictability. While Sonoco Products is losing margin (in large part due to a tough market), they are making improvements in inventory turns. The pattern is much more reliable and they are executing a growth strategy.

So, what can we learn?

A Marathon, Not a Sprint. The story of supply chain excellence cannot be told in  one year snapshots. It cannot be accurately represented by studying two years, or even three. It requires a study of the patterns over a five to ten year period. Supply chain leaders deliver reliability and resiliency in the results.

Conscious Choice.  The journey is about conscious choice and leadership. It cannot be about singular metrics. Instead, it is about managing the trade-offs and improving supply chain potential. The supply chain needs to be managed as a complex system to drive continuous improvement against the supply chain strategy.

The Focus Needs to Be End-to-End. I am teaching a number of workshops this month with well-intended clients that have defined supply chain as a limited function of distribution, manufacturing and procurement. They will make limited progress unless they can redefine their initiatives to cross over and define their go-to-market strategies.

S&OP Matters. Sales and Operations planning done right (focus on the management of the supply chain to maximize opportunity and mitigate risk end-to-end) improves organizational alignment and agility, and improves operational resiliency.

Don’t Waste Your Time on the Wrong Battles. The discussion of which system is less important than moving forward with a system. The supply chain as a complex system cannot be effectively modeled on a spreadsheet. The political arguments of IT standardization often result in one function winning the battle while the company loses the war.

What do you think? Do you have a story to share on the implementation of supply chain strategy? I would love to hear it.

Time to Take Out the Pen

by Lora Cecere on August 20, 2013 · 0 comments

When you get asked the same question over, and over again, it is time to take out the pen and write a blog post. Here it goes….

Last week, when I was sharing the recent results of the Supply Chain Insights Sales and Operations Planning study with survey respondents and attendees to our public training, one question kept coming up. It was “How do the change management issues differ by level of S&OP maturity?” Here I answer this question.

Figure 1.

There are usually four distinct change management stages as shown in figure 1. When companies are early in their infancy in managing an S&OP process, the biggest barrier is typically the role of finance and the integration of the S&OP process to the financial budget. For many organizations, this is a tough obstacle. I have seen financial guys kicked off of the S&OP team. It takes time and education for companies to align. The budget is developed as a planning tool at the first of the fiscal year. It is a guide, but should never be used to constrain the S&OP plan. Instead, the goal becomes maximizing opportunity while mitigating risk. In this process, budget assumptions are aligned to market actuals.

The second barrier is moving from a focus on matching demand and supply (managing volume) to maximizing profitability. The change management issue is that the technologies do not do this well. And, calculating profitability in today’s complicated business environments is not so easy. Only 23% of companies feel that they have systems and processes that enable the translation of volume to profitability analysis. At this stage of the process, which is often called Integrated Business Planning (IBP), companies will usually build something on their own to augment the traditional functionality of Advanced Planning Systems (APS).

As they get more fluent in profitability analysis there will be a thirst for visualization and “what-if ” analysis. Only 11% of companies self-assess as having the ability to complete “what-if” analysis well. Most systems are just too inflexible.

Probably the greatest challenge of all lies in the transformation from inside-out to outside-in to become market driven. This usually requires the reimplementation of technologies and processes and the building of demand and supply networks to connect with market data. I find this stage the most exciting and enjoy helping companies to rethink their processes through the training.

Let me know your thoughts. Did I miss anything?