Whew! September has been busy. In the past two weeks, I flew 35,000 air miles and spoke at six events. As I sit in my seat in 3C on the way to San Franciso, it is a time to reflect. Of all the people that I met this month, three comments are rolling around in my mind:
Like a Tube of Toothpaste: Squeezed at Both Ends
I was interviewing a good friend for my book last week <who wants to remain nameless>, and she summed it up well. She said, “Today, my supply chain is like a tube of tooth paste. We are being squeezed at both ends. In fact, until we got our supply chain under control, we were selling product for less than we could make it.”
My Point of View (POV): The pain is high, and the supply chain processes are not adequate. Today, sourcing is connected through Master Requirements Planning (MRP) , and this is not sufficient.
I’ve Been Played
When I moderated a panel at the Institute of Business Forecasting (IBF) on Advanced Sales and Operations Planning, it gave me a wonderful opportunity to meet Pat Bower, Senior Director of Corporate Planning at Combe International. During the panel discussion, Pat made a comment that the change of name of S&OP to IBP stands for “I have been played.” His point was clear. He believes that S&OP has always included financials, and that the change of name, only confuses planning. In his view, the push of the name IBP by technology vendors only serves the vendors’ best interest and is detrimental to supply chain management excellence.
My POV: I laughed. Pat, unknowingly, is just as vocal and opinionated on S&OP as I am! I love it when I get someone like Pat on my panels. It livens things up!
We cannot even Afford the Pencils
Commodity price pressure is the new normal. For some, the situation is dire. It was summed up well by one panelist when he said, “Today, we are getting squeezed at both ends. We are arguing about who is going to pay for the pencils.” His point was that when commodity pressures are high and costs cannot be passed on in the channel, then there is a scramble to save costs. The discussion on paying for pencils is symbolic of the degree of the issue. The list is long: dairy, wheat, corn, cotton, nickel, oil. In the last six months, there are few earnings call that do not feature it as an issue.
My POV: As margins get thin, supply chain management and trading partner collaboration increases in importance. Companies with great margins are never good at supply chain management. As depicted in figure 1, we are in an unprecedented period of commodity volatility. Yet, when I asked audiences at the two S&OP events to hold up their hand if they extend S&OP to their supplier base, I got a response of less than 3% of the audience. 
Time for Market-Driven Supply Chains?
Each of these comments, support my research on the evolution of market-driven value networks. A market-driven value network is one that senses and responds buy-side to sell-side market bi-directionally with near-zero latency. Let’s see how a supply chain feeling like a tube of tooth paste could apply these concepts:
Stage 1: Deliver a Feasible Plan. The origins of S&OP were focused on the goal of developing a feasible plan. Early evolution of the Advanced Planning System (APS) market enabled organizations to develop a forecast, visualize operational requirements and align metrics. The introduction of constraint-based theory in the 1990s and the evolution of constraint-based manufacturing planning enhanced this capability. Note: These models are very industry-specific. A conglomerate composed of process, discrete and apparel manufacturing processes may find that they need multiple modeling systems. Sadly, many have found that the building of a one-size fits all model by the ERP expansionists has delivered generic models that do not fit any company very well.
Stage 2: Match Demand with Supply. As organizations mature, teams want a solution that can model trade-offs. These trade-offs are complex. They balance customer service, asset strategies and inventory plans to best match demand with supply. To meet this requirement, APS vendors introduced what-if modeling environments. Planning became deeper and more iterative. These processes were augmented by inventory management specialist capabilities to evaluate multi-tier inventory analysis.
Stage 3: Drive the Most Profitable Response. Often in the market, this stage is commonly dubbed “Integrated Business Planning” (IBP). At this step in process evolution, it is critical to have a clear supply chain strategy and well-defined definition of supply chain excellence. For most, this is a stumbling block. The secret to success at this stage is to redesign the technology architecture built in stages 1&2. To accomplish this modeling, the demand and supply hierarchies must be decoupled to enable volume/mix what-if trade-offs iteratively between process steps. The output can then be improved through the use of financial modeling technologies (Acorn Systems, Jonova, and Riverlogic).
The understanding of this stage of S&OP requires the addition of two new capabilities to the supply chain: demand translation and supply orchestration. The process of modeling demand volume/mix trade-offs between demand and supply is termed demand translation. In supply orchestration, trade-offs are made in commodity markets to determine the most effective formulation or platform design to use in scheduling manufacturing. Sourcing is closely coupled with manufacturing to run optimal formulations. Companies working in this stage are Kimberly Clark, Newell Rubbermaid, and Sunoco Paper.
Stage 4: Build Demand-Driven Supply Chain Capabilities. At this stage of process refinement, the process is designed from the outside-in. The first step at this stage is sensing market conditions based on demand signals and then shaping demand using technologies like price optimization, trade promotion planning, new product launch plan alignment and social/digital/mobile convergence. Demand sensing reduces the latency of the demand signal by 70-80% to understand/see true channel demand while demand shaping combines the techniques of price, promotion, sales and marketing incentives and new product launch to increase demand lift. Examples of companies working at this stage of S&OP are Procter & Gamble, DuPont, and Samsung.
Stage 5: Orchestrate through Market-Driven Value Networks. The horizontal processes in stages 3 and 4 are foundational for Market-Driven Value Networks. This approach helps companies to sense and shape demand and supply bi-directionally between sell and buy-side markets. This process of bi-directional trade-offs between demand and a commodity market is termed demand orchestration. This capability allows companies to win in this new world of changing opportunities and constraints. It is especially relevant with the tightening of commodity markets. Cisco Systems, Intel and Del Monte have the most evolved S&OP processes for stage 5 of the S&OP process .
At the recent S&OP IE event in Boston on Setpember 14th, I shared insights on these concepts. (The presentation materials can be accessed on slide share at http://www.slideshare.net/loracecere/sop-ie-event-january-2011.) While I will never be David Letterman, I shared my Top 10 list. …the Top 10 questions that I get on S&OP with the audience.
Wrap-up
This week, I am finishing up a research paper on market-driven supply chain platforms for S&OP. This research evaluates current technologies against the need to have a S&OP process to balance the supply chain horizontally market to market. Let me know if you would like an advanced copy to read.
Next week, I return to my research on big-data supply chains. The next post will share three case studies demonstrating the power and the requirements of the Big Data Supply Chain. Until then….
