THE ROLE OF TECHNOLOGY IN S&OP

S&OP¹ is a joint decision-making process, which aims to balance demand and supply by integrating sales, operations and financial plans, and aligning them with the company's strategic objectives. It is said by some authors and theorists on the subject that S&OP is 80% process and people, and 20% technology. We agree with the ratio, but it can often give the impression that IT is just the last step, that final push towards a “perfect” S&OP. In fact, the right and well-used tools are an essential component of the entire trajectory of evolution, from the confusion of isolated and conflicting plans, to a culture of planning that is orchestrated and aligned with a single number and a single objective: that of the company.

But how exactly do these tools enable and drive this process, and what should we look for when evaluating market solutions? Our objective is to list here the main aspects in which S&OP software can help manage the plan alignment process, and help the reader in the difficult task of choosing the right solution for his business.

Figure 1 – Research: what are the main challenges of the S&OP process?
Source: Demand Planning and S&OP Survey ( ILOS 2009) – 92 companies

DATA PROCESS AND STORAGE

It may seem like an obvious first need, but the large number of companies that still use electronic spreadsheets says the opposite. A typical large industry has to deal with a mountain of data to plan: hundreds of SKUs, dozens of distribution centers and factories, thousands of raw materials – in addition to analyzing historical data for years and planning several months ahead. That's not to mention relevant external data that can be brought into the process, such as inventory positions at distributors or retail sales. The number of individual pieces of data to be considered or generated easily runs into the millions.

Figure 2 – Percentage of companies using ERP and/or Microsoft Office suite to support S&OP.
Source: Demand Planning and S&OP Survey (ILOS 2009) – 92 companies; AMR Research

To navigate this ocean of data, it is important that the solution adopted has the ability to aggregate and disaggregate information to facilitate analysis. It is also interesting that this information can not only be viewed but also treated at different levels. The breakdown of a production line can affect an entire family of products, or a truck drivers' strike can restrict the flow capacity of an entire state. The user will not want to manually reflect these effects on the volume of each SKU, and in each location.

In addition to transactional data, there is still a considerable amount of qualitative information to be stored, structured and analyzed. This information is usually scattered in emails, documents, spreadsheets, phone calls, or in an employee's head. Assumptions such as the expected performance of a marketing action, changes in the market, and even the opinions of participants must be recorded, and have their individual impacts on the plan recorded and monitored.

Electronic spreadsheets, due to their flexibility and familiarity, can be a good way to put the process on its feet. But they quickly become obsolete, making the need for more robust tools evident.

CONSOLIDATION OF PLANS

We may not have production capacity to meet the entire demand for a month, or we may not have enough trucks to deliver a promotion scheduled for the last week. Companies with isolated plans in silos would typically only see these problems in the rear view mirror, but those with an S&OP process try to anticipate these discrepancies and combine solutions to resolve them. The various functional plans, such as sales and production, must allow for comparison with each other so that any capacity or availability conflicts can be verified.

The problem appears when we try to compare plans that speak of different units (boxes, pallets, dollars), in different time units (days, weeks, months), and in different geographic aggregations (regions, DCs, factories). Tools can help with unit conversions and data aggregation, allowing adjustments in dollars made to a category by Marketing to be seen in boxes by SKU in Production. Or that an estimated increase in sales for the month of a regional is reflected in additional pallets to be transported to a DC in each weekly transfer. Each function must also have customized modules, which make available and collect planning information in the format that is most practical and intuitive for them, thus preventing the process from losing adherence because it is seen as just another internal bureaucracy.

With all the plans on a single base, the planning team can more easily detect potential conflicts and propose solutions. Using the examples at the beginning of the section, the need to build a buffer stock, or to contract extra freight to meet a delivery peak, could have been detected months before, avoiding product shortages or emergency costs. By centralizing data storage and analysis, and connecting plans across the system, we still guarantee a very important pillar of S&OP: a single number is being used for planning – the official company number.

SCENARIO ANALYSIS

But not all conflicts have only one viable solution. We could opt for an extra production shift instead of building more stock, or for changing the promotion to the beginning of the month and taking advantage of the idleness of the fleet in this period. Each solution will have different impacts on different functions, and often the difficulty of quantifying and even seeing these impacts can lead to a wrong decision. The technology adopted should have an alert-by-exception system that notifies you when a restriction is breached by a change in plans. It should also be able to help quantify the costs and benefits of each solution to support the decision-making process.

Another interesting feature is versioning. The executive committee may want to evaluate alternatives before choosing a planning scenario, and the ability to store different versions of each plan, retrieve them quickly, and compare them against each other is essential for decision making. Here again, the ability to aggregate and disaggregate the data is of great value: changes can be local, at the operational level, but the executive committee must be able to assess global impacts, at the tactical and strategic level.

COLLABORATION

If we had to choose just one word to define the key to success for any S&OP process, it would be this: collaboration. Group spirit is essential to break down functional barriers and point the whole company in the same direction. This is, in most cases, the major hurdle to be overcome. But if this is fundamentally a cultural shift, in people's minds, why bring it up in an article about technology?

A large part of the recent changes in Internet paradigms, encapsulated in the banner “Web 2.0”, comes from the emergence of social networks. We are not just talking about Twitter and Facebook, but the concept of connectivity and collaboration between many people on the network, also represented by initiatives such as wikis, or crowd funding movements. If Wikipedia is managing to organize the knowledge of millions of people on the most diverse subjects, without any type of pre-selection of who can opine or edit articles, imagine the potential for generating knowledge from the best minds in your company focused on the process. Tools that allow users to collaborate, opine and comment on plans and figures in a simple and structured way significantly reduce the risk of miscommunication and increase the accuracy of plans, allowing everyone who has something to say to do so. This creates a feeling of “owner of the number” in the team.

The use of interfaces similar to those that internet users are used to in their personal lives (such as Facebook and Gmail) also helps to bring people into the process. We must always remember that the leader of the S&OP process has the very difficult role of coordinating teams with which he often has no direct hierarchical connection. If he still has to convince participants to use unfamiliar and unfriendly tools, the challenge of harvesting these collaborations may prove to be too great.

There is still an important part of having all the collaboration in a single central tool: the post-mortem analysis. These collaborations are inseparable parts of the plans and must be analyzed together with quantitative indicators when judging what went right and what went wrong in the month that has just passed. With this structured and centralized information, the planning team can easily seek specific comments about the production plan of a SKU, or the decision to increase the storage capacity of a DC, and understand what the assumptions were at the time that the plans were built, and whether they were carried out.

The structured qualitative information and ease of use also help alleviate the effects of the loss of key employees and train new entrants, a very common problem in the hot market we are currently experiencing, with a shortage of qualified labor.

CONTINUOUS IMPROVEMENT

Every logistics and supply chain professional has heard the mantra “we can only improve what we can measure”. In S&OP processes in particular, in addition to supporting continuous improvement, indicators help support discussions with facts and data, minimizing subjective decisions that may raise suspicions of favoritism or harassment. Discussions based on indicators tend to end faster and generate more precise and pragmatic action plans.

As each company measures its operation differently, and with varied sources of information, it is unlikely that a market tool will bring ready the calculations of all the indicators involved in the process, especially the more operational ones. Including the calculation of all these indicators can require costly customizations. However, the solution adopted must be prepared to measure indicators with the information available. Examples of this are sales forecast accuracy indicators, or planning adherence indicators, such as the percentage of achievement of the production plan.

The ability to drill these indicators down to the most detailed level is also important. Knowing that the sales plan had a 40% error only tells us that we are wrong, but a list of the biggest mistakes, by product and DC, tells us where the operation was most impacted, and where to act so that it does not happen again.

In addition to disaggregating planning indicators, another interesting methodology for analyzing plan deviations is the Indicator Tree. It makes it possible to establish cause and effect relationships between indicators, speeding up the search for the root cause of problems. We may discover that a deviation in the production plan was fundamentally due to the low efficiency of a specific line, or that the low inventory levels of a DC occurred not due to a lack of materials at the factory, but due to supply problems caused by low fleet occupancy. of transfer. The system can help by collecting (if not calculating) these indicators from the different operational areas, and visually structuring the analysis, highlighting the indicators that are below the target. In Figure 3 there is an example of how strategic indicators can be supported by more operational indicators.

Figure 3 – Pyramid of indicators.
Source: Gartner

Finally, there is also the monitoring of action plans generated in the process, often based on the analysis of indicators. These tasks with a deadline and person in charge must have their progress monitored by the S&OP team, and the system can help by centralizing these plans, sending emails to those responsible reminding the deadlines, and alerting the S&OP leader when there are delays, or when some action is completed.

CONNECTION BETWEEN THE OPERATIONAL AND THE STRATEGIC

S&OP is, by definition, a tactical planning process that aims to link the day-to-day operation with the company's strategic guidelines. Short- and medium-term plans must be aligned with long-term ones, and the impacts of changes in the following month must be able to be reflected in the year's budget targets. When evaluating a solution for your process, you should consider its ability to budget for the impact of changes made to plans.

MEETING SUPPORT

Part of the work of the team responsible for the process is to structure the information and present it in a comprehensible way to all process participants. Automatic management reports, with tables and graphs, are useful to avoid the laborious construction of presentations, and reduce the need to extract data from the system to spreadsheets.

Let's take a standard process that has three main meetings: a preview, an executive, and follow-up meetings. In the preview, the public is more managerial and is there to make decisions and generate alternatives for decisions that are beyond their control. In this meeting, aggregate tables and global graphs are important, but the ability to drill down to a more operational level may be necessary for a specific discussion. In the executive, senior management must have a summarized global vision, and the possibility of evaluating different scenarios. In the plan follow-up meetings (usually weekly), the focus should be on exception reports, which show only what is not going as planned, and on daily course corrections. The tool must be able to generate reports that adapt to the different audiences and objectives of each of the meetings in the process.

CHAIN ​​VISIBILITY

In addition to the facilities for internal visibility of the operation expressed in the previous sections, it is important that the S&OP solution is also prepared to take the step beyond the company's borders, moving towards a process known as CPFR². This process, as the name implies, consists of collaboration between the various links in the chain (suppliers, industry, distributors, retailers, customers) to reach a better overall result for the chain, which benefits everyone.

One of the most obvious results of this process is the reduction of the so-called “bullwhip effect”, which makes the demand for each link seem increasingly unstable, the further away from the end customer we move in the chain. This phenomenon, mainly caused by uncertainty about the behavior of the next link, produces high inventories, ruptures and emergency costs that could be avoided by increasing the transparency of information in the chain.

Figure 4 – The bullwhip effect

For this, the tool must be prepared to receive and approve data from several different systems, as the chance of each link running in a different ERP is great. Furthermore, when we thought about including POS data collection, we took the data processing and storage challenge to another level.

The evolution to the CPFR is an important step, but a very delicate one. If changing the internal culture of a company is already a difficult task, changing the culture of a supply chain is a herculean task. It is recommended to have a well-oiled internal process, with solid tools and a well-established culture, before venturing into collaborative supply chain planning.

NEW TENDENCIES

Throughout the article, we have already outlined some major trends that are changing the scenario of technology applied to planning, but it is worth quickly listing the three main current development fronts.

The first is “Big Data”, an expression that currently appears in one out of every five articles on technology applied to the supply chain. Designates the world of data increasingly available to companies, opening with it a world of opportunities. Promotion effects can be measured directly at points of sale; changes in demand behavior can be felt in the industry without having to go through retail and distributor first; customers can be better segmented, making the sale more accurate.

Another front already mentioned is the growth and universalization of the use of social networks. These powerful collaboration tools will certainly play an important role in the new wave of S&OP solutions. Some companies, for example, already make use of wiki platforms to consolidate knowledge and prevent the loss of people is also a loss of know-how.

And, finally, we have the so-called cloud, which basically designates the storage and processing of information on the web, outside the company's local servers. Web 2.0 brought the idea of ​​the Internet as a platform and software as a service provided through it. SaaS (Software as a Service) solutions have been successfully adopted by companies of all sizes and sectors, and significant reductions in IT infrastructure and maintenance expenses have been reported.

These movements are no longer just technological delusions and are establishing themselves as inevitable paths for corporate IT. When adopting an S&OP system, its adherence to these new waves must be evaluated if we do not want it to be left behind when the rest of the company – and the world – migrates to new paradigms.

CONCLUSION

Buying the right software is no guarantee of successful S&OP. But trying to build a good S&OP without the technology to support it is like trying to build a house with only bricks and no mortar. Of course, people and processes (the building blocks) should be the focus of most efforts. But without tools that ensure data reliability, help automate and prioritize analyses, evaluate scenarios, monitor plans and improve the process, it will be difficult to keep the house standing. At the end of the day, the big role of technology in S&OP is to take the manual work out of the way so that people can do what they know much better than machines: think!