In the last 30 years S&OP improved performance in many businesses. However, S&OP has not yet substantially delivered on its ultimate promise of enterprise wide resource management, rolling financial forecasting and strategy deployment. Whatever maturity model or consultancy support companies use, S&OP seems to get stuck. Worse, overall S&OP development and progress seems to have stalled. It sometimes seems like S&OP is stuck in a time warp, where the same old things as 30 years ago are being discussed. On top of this we can see examples of marketing driven service providers that very doubtfully brand their product S&OP, or make up new names for existing S&OP processes. The S&OP Pulse Check 2015 suggests S&OP practitioners are left behind in confusion:
- 62% of respondents think there is not enough innovation in S&OP systems
- 64% think there is not enough coordinated innovation in S&OP processes
- 68% think behaviours are not addressed enough in S&OP implementations
- 71% think we need more industry standards around S&OP
Where to go from here for S&OP?
To get some answers for S&OP practitioners, Supply Chain Trend interviewed a group of S&OP leaders. These leaders all have 20+ years S&OP experience and published books, whitepapers and articles in renowned magazines. A group, eligible to comment on the current state of S&OP. A group, that has shown passion to improve S&OP and a willingness to provide ideas for the future. Supply Chain Trend will publish a weekly Q&A with these S&OP leaders.
In this week’s interview: Niels van Hove
Niels has 20 years of experience in supply chain and business planning and is accredited in coaching skills to help individuals and companies achieve behaviours that improve wellbeing and performance. He is the author of the blog Supply Chain Trend and the self excellence guide Building Mental Toughness. He is founding Director of Truebridges Consulting and MentalToughness.online
S&OP, a vision for the future interview
Can you describe your first involvement in S&OP?
Niels: My first involvement in S&OP was in 2000 as consultant at Accenture. For three years, I worked on a European roll-out of a common operating model for Sara Lee. This operating model included order to cash, make to demand, purchase to pay, finance and planning processes. I was planning consultant implementing demand planning, supply planning and production planning across 10 Sara Lee business units. A European S&OP model was also part of this implementation. Across countries, we implemented common planning processes, reporting and KPIs. Cross country S&OP conversation than decided on what to produce in European manufacturing centers of excellence in support of country demand.
How would you describe your personal passion for S&OP?
Niels: Although being aligned around a common goal and working across functions is logically more effective for a company, I’ve always been intrigued with how difficult it is for a group of people to communicate, work together and align around a common goal. Earlier in my career, when I was working a lot across countries, I thought it was because of language barriers and cultural differences. Over the years, I’ve concluded that finding alignment and working integrated is a mindset and a personal preference.
Some people have a natural preference to find alignment and work together. Some have a willingness to learn it, but struggle to overcome personal fears and defense mechanisms that come with working with visible goals, openly across functions. Some have a willingness and can learn it, and some individuals will never show an interest to be aligned and integrated.
S&OP is an operating model that ought to align a company strategy, and its first year the budget, from the highest to the lowest echelon. It aligns and clarifies corporate goals and then plans and executes these goals across functions. A perfectly aligned strategy and perfect integrated working is impossible with all complexities and different personal preferences. This impossibility of perfectly aligned and integrated working intrigues me, challenges me and drives my passion for S&OP.
According to most maturity models, S&OP stalls or even fails. Why do you think this is?
Niels: It is often said ‘lack of executive ownership’ and I agree with that. But the question we have to answer is; why is that? I think there are two sides to this.
Firstly, because S&OP is not used to its full extend and is not seen by executives as a strategic capability. After 30 years, S&OP is still supply chain biased. This supply chain bias is reflected in many maturity models, which are riddled with supply chain language. S&OP projects hardly ever start as a strategic enabler. In the worst case, somebody just thought it was a good idea, but often it starts from a burning platform of high waste, low customer service or high working capital. Somebody in supply chain will lead the S&OP initiative. Once the issues and measurements show improvement and better control with some integrated planning and execution, the executive interest outside supply chain changes to the next burning platform. Commitment to the process drops as the initial goal of improving the burning platform is met and a larger S&OP goal is never set.
The second reason is behavioural driven and more complicated. Let’s assume there is a clear long term S&OP goal, which executives sign up to. S&OP is accepted as the end to end operating model to steer the business to its vision. Still, there will always be a group of S&OP stakeholders, most likely including executives, who will display fear of losing status or control due to an upcoming S&OP implementation. Their thinking and behaving will be influenced by their need to protect themselves against basic S&OP principles. Principles like open communications, transparent data usage, public information sharing make them nervous. They fear the cross functional visibility in their KPI’s, progress of projects and functional performance. These individuals might prefer a command and control leadership style and fear to lose control in an S&OP environment. They might have a lack of self-worth or confidence and have a fear of failure in public meetings. As line manager and as a behavioural coach, I’ve seen these type of behaviours in the highest echelons. Without a critical mass of S&OP stakeholders that are comfortable with these required S&OP behaviours, there is only so much S&OP can establish. And I don’t think we can just assume emotional and behavioural competence in every organization that implements S&OP.
What do you believe can be done about that?
Niels: First, S&OP must get rid of its supply chain bias. S&OP ought to be understood and positioned as an end to end operating model that implements a company’s budget and deploys the company strategy. Both in support to reach the company vision, whilst staying true to its value and purpose. All the executive functions need to be engaged with the value of S&OP, not just supply chain plus a lucky few. Executives could use S&OP to continuously clarify gaps to budget and strategy, re-allocate resources where they’re most needed and re-focus employees to execute where it’s most urgent and important. So, besides supply chain and operations, this would show value for HR, as S&OP is an employee communication vehicle. There is value for Finance as it provides rolling forecasts and there is value for strategy in strategy deployment.
Once an S&OP cycle manages budget, strategy and resource re-allocation, and engages with its employees about the outcomes, S&OP becomes the most important operating model in a company. The way the executives behave, decide and act in the S&OP meetings will become a significant cultural influence. This is additional value for a CEO, who can use S&OP to display certain mindset, values and behaviours to set an example for the company and drive a more effective company culture.
Secondly, over time, critical mass of S&OP stakeholders displaying preferred S&OP behaviours needs to be created. People can be trained to become more emotional and behavioural competent. Recruitment and induction policies have to be adapted to include behavioural checks. Reward and recognition needs to include the ‘how’ we behave here. Finally, people that can’t display the preferred behaviours should be held to account, not be promoted or let go.
What else significant is missing in the current state of S&OP?
Niels: More purposeful learning from other disciplines to see what we can incorporate in the S&OP philosophy. More integration based on real needs from business functions other than supply chain and operations. Finally, start taking addressing behaviours seriously. Between 60% and 70% of S&OP practitioner indicate that behaviours are not addressed enough in S&OP implementations. I hear a lot of talking that behaviours are the most important, I just don’t see a lot of solutions as part of an S&OP implementation. I took it upon myself to change that. That’s why I became a behavioural and performance coach and I’m accredited to use psychometric tools that measure effective mindset and behaviours.
What do you think are some of the fallacies about S&OP?
Niels: S&OP comes with a little caveat. It requires a certain mindset and behaviours for it to be effective. One fallacy is that S&OP automatically improves behaviours and company culture. That transparency and collaboration follows S&OP, like night follows day. I my opinion, this can’t be further from the truth. If a company culture is one of fear or messed up in another way, S&OP will not solve that without a significant additional cultural change effort.
But the main fallacy to me is that S&OP is thought of as the integrating operating model that’s here to stay forever. The truth is, that S&OP is still largely unknown outside the supply chain and operations functions and the manufacturing industry. S&OP is not referred to in papers on strategy execution from consultancies like McKinsey or BCG. S&OP gets hardly a mention in Financial Planning & Analysis (FP&A) when discussing rolling forecasts or Corporate Performance Management (CPM). I’ve yet to hear the first HR professional mention that S&OP is useful to support corporate communication to keep employees up to date and engaged with strategy execution and budget status. Beside a few exceptions, S&OP hardly gets attention from academic perspective. Although its inception was 30 years ago, the first academic paper on S&OP was written only in 2002. Not a lot of publications followed after that and if they did, they were from supply chain academics. S&OP doesn’t get a mention in academic papers from other disciplines like finance or strategy.
This all shows that S&OP exists in a supply chain bubble. This is both a threat but also a great opportunity for S&OP to develop to its full potential of becoming the operating model that is a strategic capability for every function in every industry.
How would you describe your future vision for S&OP?
Niels: There is proof that employees who are informed on corporate goals and strategy are more engaged. As behavioural coach, I know that there is proof that a certain mindset and behaviours that are effective for S&OP, also improve individual life satisfaction and wellbeing.
Therefore my vision is for S&OP to contribute not only to strategy execution and company performance, but also to a positive company culture, employee engagement and wellbeing. In my vision, there are two options.
My preferred option is for S&OP to grasp the opportunity, innovate and become the operating model across all functions and all industries that aligns strategy, fully integrates business planning with execution, informs and engages employees and influences business culture for the better. In my vision, a young entrepreneur that googles ‘best business operating model’ will consider S&OP for his growing business.
The other option is more dramatic and unfortunate. In ecology, the competitive exclusion principle states that two species competing for the same resource cannot coexist. The specie with only the slightest advantage over the other will dominate in the long term. Similar to this principle, S&OP has to evolve to become the unquestionable number one operating model.
In a 2005 paper, Kaplan and Norton introduced the concept of the Office of Strategy Management, where budget and strategy execution are managed through an operating model. In that paper, they tried to solve the same riddle as S&OP, but with strategy as starting point rather than supply chain. If S&OP doesn’t innovate and position itself as an operating model that aligns and executes strategy, it is a matter of time before another operating model will solve the riddle, disrupt S&OP and make it redundant.
What needs to be done to reach that vision?
Niels: To grasp the opportunity, the traditionally supply chain or operations biased S&OP thought leaders, analysts, consultancies, academics, conference organizers and IT vendors, have to start reaching out to other business functions like strategy, finance and HR and disciplines like psychology and system thinking. Every S&OP practitioner has to take responsibility to put an effort in understanding how to incorporate other business functions needs. But it is the major influencers, the big brands who sell, promote and heavily market S&OP products, that have to lead in S&OP innovation and incorporate other functional knowledge and needs in a holistic S&OP model.
I see many big brand influencers discussing the same old processes and S&OP topics at every conference. I’ve not heard a lot of new things the last five years and see a lot of repackaging of old names, systems and processes. This is also the feedback I get from experienced and increasingly frustrated S&OP practitioners who are looking for something new. We have to hear more crazy ideas and see innovation to improve S&OP. Just google ‘S&OP evolution’ and you’ll see below picture indicating the evolution of S&OP stops in 2000 with supply chain collaboration (again that bias). With all the knowledge we have in the world, have we not innovated S&OP as an operating model since 2000? I find it utterly depressing that this is what an university student or an S&OP practitioner sees first, when researching the evolution of S&OP to find some inspiration. A 22 year old student or entrepreneur must think S&OP thought leaders have lived in a cave for the last 16 years.
Some ideas of my ideas on what can be done about this.
Stimulate & reward S&OP innovation
In my S&OP Pulse Check 2015, practitioners clearly indicated that they miss S&OP innovation and industry standards. Not for profit magazines like Foresight and the Journal of Business Forecasting do a good job in promoting S&OP ideas. An organization like the Institute of Business Forecasting (IBF) does a good job and gives out awards for planning excellence. Why not give a yearly global award for the most innovative or crazy S&OP idea, blog or article? The big brand influencers have to step up here and use some of their marketing funds to start innovating for the sake of S&OP and its practitioners. Maybe they can sponsor a global S&OP award, S&OP scholarships or funds for an academic S&OP chair or research.
Capture S&OP innovation
An independent group of S&OP thought leaders or one of the supply chain not for profit organizations can capture S&OP innovation. A website like S&OP-evolution.com can be set up to publish only the best S&OP content. Currently 99% of S&OP material on-line is marketing driven an not there to inspire the S&OP practitioner.
Change S&OP conferences
S&OP conferences need change too. They are very supply chain biased. How many non supply chain people do you see at S&OP conferences? There is too much of the same old same old process talk. Most conference organizers don’t really care about the content. Many conferences seem more about marketing than fulfilling the need of S&OP practitioners or inspiring them.
Integrate other functions and disciplines
S&OP is about integration so, to get out of its supply chain bubble, S&OP has to start reaching out and learn from other disciplines. Invite other disciplines like strategy to share their thoughts on how an operating model can help execute a strategy. Or how a business balanced scorecard can be used to communicate business goals, set targets or align individual roles and performance to strategy. Invite people & culture experts to explain how employee engagement can be improved by clear company focus and corporate communication. Invite a psychologist, to explain how emotional competence improves S&OP, wellbeing and performance, and how a company culture can be influenced and shaped through leading by example in S&OP meetings. These things are all in the reach of a holistic S&OP philosophy.
Appeal to new talent
Reaching out and integrate other disciplines will make S&OP a stronger, more dominant operating model. Capturing and publishing innovation can inspire a new potential S&OP talent that is Googling ‘S&OP evolution’ or ‘best operating model’. S&OP has to start appealing as the operating model to new talent. I even discussed S&OP principles with 20 year olds in an app development company. Young entrepreneurs who don’t care about supply chain have to think; ‘this S&OP thing sort of makes sense once my business starts growing’.
What is your message for S&OP practitioners, who are struggling to make progress, or who are looking for guidance?
Niels: Make sure you have an aligned overarching goal or vision on what you want to reach with S&OP. This goal needs to be challenging yet tangible and can be set 5 years in the future to support the overall company vision. Make sure you also describe ‘how’ you do things. How will employees behave, communicate, collaborate, solve issues or conduct meetings in your S&OP future?
If you don’t have this overarching goal, start with one on one conversations with every S&OP executive. Discuss with them what more they want to get out of S&OP. Find common ground across the executive’s needs. Understand and document their needs and ask for commitment and their support to start working on incorporating their needs. Ask HR to help you with this piece of S&OP stakeholder management. Without common ground and a critical mass of senior leaders to support on how to move forward, you will only make marginal progress.