S&OP, a vision for the future. The expert interview series #5

Introduction

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.

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In this week’s interview: Jon Kirkegaard

Mr Kirkegaard is a multi-disciplined professional who has made a career long commitment to improving business performance with supply chain engineering and finance.   Mr. Kirkegaard holds a BS in manufacturing / industrial engineering and a Masters Degree in Finance.  He as three decades of success improving corporate performance optimizing process and technologies enabling people with firms such as Booz Allen and Hamilton, i2 Technologies, Coopers & Lybrand and DCRA Inc.  In 2001 Mr. Kirkegaard founded DCRA Inc a supply chain solutions firm leveraging best of targeted management consulting and supply chain technology solutions with an emphasis on S&OP.   DCRA Inc. was one the first to develop dedicated S&OP technology solutions. DCRA’s approach unlike traditional software dreamed is to develop the solutions “in the line of fire” during actual business turnaround with clients.   Mr. Kirkegaard holds global patents on supply chain planning collaboration, S&OP and a real-time version of S&OP.  The DCRA Inc. solutions have been key to assisting dozens of business’s as well as utilized in philanthropic work using supply chain engineering and advanced manufacturing to enhance economic development and USA job creation. DCRA Inc. also runs an automotive build to order re-manufacturing and parts manufacturing division that utilizes S&OP and build to order concepts.

S&OP, a vision for the future interview

Niels: Can you describe your first involvement in S&OP?

Jon: In 1990 I was leading a Booz Allen team launching a start-up division of world’s largest snack food company.   We were engaged designing / testing a new business model for this start-up division.  We quickly found the shelf stable SKUS were being planned on same system as weekly route distribution fried snacks produced daily and as such had dramatically different lead times of supply.   The result was an extreme bull whip condition amplifying manufacturing demand running plants 3 shifts over time for weeks then literally shutting down the plant for weeks. We pulled in all a colleague out of our Cleveland office “Don” (a near retirement manufacturing expert) for some additional perspective.   He looked at the current situation and quickly started documenting the information and planning flows dysfunctions.   Our analysis of data along with Don’s diagrams were magical in illustrating to decision makers that the process was broken but indeed there was a solution. His theme was create a process that constantly asks “Can you make what you sell ? Can you sell what you make ?”  – he called it S&OP. Don’s deep production skills combined with ability to communicate the science behind S&OP to business people truly inspired me.

Since this experience I have dedicated much of my efforts to communicate and build awareness of the benefits of S&OP to business decision makers. I have been fortunate to have the support of clients and associates that have assisted me in assembling methodologies, technology solutions and patents to support the S&OP process that allow us to assist clients in dramatically reducing time to benefits and technology risk.

Niels: How would you describe your personal passion for S&OP?

Jon: S&OP is essentially the best business process / methodology / solution I have seen for measuring and planning work for any manufacturing / fulfilment enterprise.  It provides leadership a company’s leadership with superb command and control of current and future resources and in particular working capital consumption. Unlike many algorithmic “black box” tools (e.g. latest is machine learning) an S&OP solution is focused on people, and because its emphasis is on enabling people not replacing them it is self-learning.  There are very important enablers such as time phased planning and dynamic lead time algorithms required to reduce the time to run proforma “simulations” but the ultimately S&OP is designed to let people make the decisions.

Most importantly S&OP respects the bottom up work force who really know and can calibrate lead time and effort.  Thus leadership provides goals and the bottom work force gets a pragmatic, scientific method to inform management of what is feasible. Once other departments learn how grounded the S&OP plan is in real production – they quickly peg their projections to the core S&OP plans  rather their inconsistent offline spreadsheets.

Ken Sharma the co-counder of i2 Technologies used to use this metaphor – “ Using ERP / accounting data to run your business is like steering a high performance sports car at 150 mph on the German Nuremberg ring steering – by only by looking in the rear view mirror. You must look forward at the horizon or you quickly crash.

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Figure 2: Steering / Operating out the front not the rear

From and information technology solution perspective S&OP is not transactional – so can be quickly and cost effectively be deployed in parallel to transaction systems without disturbing them.  This is critical as every company needs this layer of heterogeneous enterprise execution data that feeds S&OP as well as the S&OP decision layer.   Many of our clients end up with tremendous benefit from the synchronized supply chain data repository we develop that feeds S&OP.

Niels: According to most maturity models, S&OP stalls or even fails. Why do you think this is?

Jon: S&OP efforts stall, fails or never begin simply because it is in most companies an S&OP effort is akin to a Salmon swimming upstream.

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Figure 3. Swimming up stream of the ERP culture

Most large company cultures and resources are dominated by accountants with increasingly onerous requirements for reporting of rearward looking GAAP accounting measurements.  The accountants are so busy making a better candle they do not see the electric light let alone an LED light J.   Accountants are not trained to plan business but rather  track history.  However, if you illustrate S&OP it to them in the right way – they generally become great advocates as they spend a lot of time cleaning up mistakes from lack of planning. In my client work, speeches, marketing work it is clear from dialogs with real business leaders that 90% of business leaders just don’t know what they don’t know. Many just get into a routine of constantly increasing precision of what they can control and understand ( IFRS / GAAP accounting and ERP systems that enforce these rules)  but in miss accurate measurement of flow of production / inventories.

So the insider who tries to introduce S&OP in many organizations starts with a deeply rooted bias that there is not a need.   They truly are the Salmon swimming against the current.  They face leaders and managers entrenched in the status quote and the belief current systems have it all figured out.   Saying things like “we have had an inventory system since 1972, our ERP system does that – right”  Or even we purchased that expensive APS supply chain planning in 1999 that’s the same thing right ? In our experience this bias can generally be overcome with quantitative analysis including a bit of a simulation of S&OP measurements. Done correctly they see how and S&OP process is different and it amplifies the effectiveness and usefulness of those tools they already have.

The second major failure point, often seen is lack of planning to achieve quick business benefits.  If quick wins are not layered early in the plan and the pace of change does not match the culture of the business and leaderships goals the S&OP effort is often derailed.  To the decision maker it becomes a distraction to running the business rather an early warning radar to increase business profitability and scale. .

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Figure 4: Value delivered vs. complexity and time to deploy

In my career I have had been lucky to have access to many high performance S&OP enabled companies. In my experience and analysis these leaders have an S&OP like operations that gives them a competitive edge especially in times of uncertainty, volatility and growth.

Niels: What do you believe can be done about that?

Jon: Quite simply help your firm realize how big the S&OP opportunity is and seek help in the assessment of the business benefits. We put more energy into this introductory awareness, communication, quantitative analysis effort then even we do for deployment. You have to get the numbers right and you have to translate the S&OP lead-time, inventory, planning bill of materials design implications and sourcing to dozens of different languages used in the roles / departments of a company.

Our experience is the benefits of S&OP must be explained to decision makers in the classic business terms (not production planning / or even supply chain terms). We tend to use a time phased S&OP simulation of before and after then translate results to compare  working capital, inventory, P&L performance , legal liabilities before and after an S&OP process. One technique we have used often in last decade is to find a product or line of products a client could add to their product mix where they can collect sales before purchase the fulfilment product. This tends to illustrate how profits are created from balancing lead time of supply with lead time of demand. For example, if you can add product to your catalog you can sell without having to inventory you end up with a nearly infinite profit that boosts overall inventory turns metrics.

What is not understood by the technology industry supporting S&OP is that using technology to make the case, prove the point, simulate the before and after is maybe the REAL “technology product” opportunity around S&OP.  Simply stated is to use technology to tell the story of the opportunity is not being realized today to decision makers.

The only S&OP technology products offered today are large company targeted expensive planning tools that are really only useful once the move to an S&OP process is established. In essence once your organization gets the sailboat out of the harbor, the sails pulled up in the open ocean, and finds the wind the vendors for the S&OP tools show up. They are there to say wait “ you cannot sail very far or long without them” and without paying them. This may or may not be correct as there are key uses of technology (eg to enable time phased planning) but would it not have been useful to have tools with skin the game helping convince your decision makers ?

Imagine an easy to use S&OP simulation technology that could simulate the flow of working capital, lead times, and customer service levels before and after use of S&OP.  It would have the same robust engine you use to operate but with a slick video game like interface that would give all including executive ability to run data scenarios before and after. We do this with our solutions today but always interested in making the ease of use better, faster and easier to reach more of those without S&OP exposure.

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Figure 5: User Interface Simulation Examples

Niels: What else significant is missing in the current state of S&OP?

Jon: In general there is much disinformation from sources who over complicate S&OP, have tried to sell it as a complete “turnkey” software application or software application in the cloud the past few years.   Many others have tried to define S&OP to meet some software product they currently product ( OLAP, decision analytic, communication software etc.). To date all of these efforts have failed as S&OP is almost impossible to fake but they steal your valuable time and money from addressing the real root cause.   There are also consultants who would leave you to believe S&OP is akin to a secret process that you know nothing about and you must subscribe to a 2 year project to educate yourself and team

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Figure 6: S&OP software shell game

I believe in a much more pragmatic view of S&OP and have been or record stating numerous times that EVERY company does S&OP it but the problem is it takes too long to actually net demand and supply.    When there are long planning times and lack of science in the process everyone up and down the supply chain begins to override “the plan”.  Essentially they make up their own plans forever not reconcilable back to the official plan. Disjoint plans and plans built on non synchronized data leads to more inventory and unhappy customers. When you simply add in judicious use of production planning technology with information technology with the goal of compressing the cycle time benefits are large (See Figure 7 Speed of Decision form a biplane instrument cluster to a F35 Strike Fighter)

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Figure 7: Speed of Decision

Targeted consulting can be helpful, but increasingly I see this interest in broadening the definition of S&OP and renaming to IBP (Integrated Business Planning). To me this just opens up scope creep and more manipulation and distracting from the hard hitting impact S&OP absolutely provides. We have always treated S&OP as an integrated planning enabler but make sure the foundational time phased material planning is there first before expanding scope.   If the foundation is deployed we find it then sells itself and others begin to use for the basis of “Integrated Planning”.  The risk of broadening at the outset is the whole effort ends up being some sort of 2016 version of an Executive Information Dashboard from the 1980’s.

I also believe it is much better if these S&OP enablers are less of a “turnkey” application but more a series of technologies best deployed behind the scenes.  When possible try to leverage current look and feel and process but make it much faster, easier to use and more accurate.    Think of it in terms of that autobahn car metaphor.  Instead of going out and buying a brand new German sports car that has a completely different interface that takes the driver months to learn you take your familiar Steve McQueen  60’s Corvette and install a new 2016 high performance drive train and suspension, brakes (See Figure 8 replacing the drive line but leaving User Interface largely the same ).  You get the benefits faster, more seamlessly and without the push back from the current workforce.

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Figure 8: replacing the drive line but leaving User Interface largely the same

Niels: What do think are some of the fallacies about S&OP?

Jon: The biggest fallacy is that S&OP is only a supply chain solution and thus it is not taught in leading MBA / Finance and undergraduate business courses and thus college educated managers don’t even have a reference.  S&OP is a business operating philosophy based largely on the flow of inventory derived from production planning science that looks forward using science. It aligns nearly perfectly with modern day EVA (economic value add financial theory) but unlike finance that generally is repurposing historical accounting data S&OP looks forward. Since S&OP is based on flow of material and is built bottom up it is nearly impossible to corrupt and / or manipulate which greatly adds to its trust factor.

My feeling is universities should partner their business finance programs / talent with their quantitative, engineering algorithmic, supply chain talent in various classroom exercises and senior year Capston type projects.  In the “real” world it is these partnerships that develop the skills and as Niels says “mental toughness”  skills to successfully be the Salmon swimming upstream.

It is a lot for one person master both the quantitative finance business  and communication skills along with the analytical S&OP modelling engineering’s skills.   I think a university that would make this a priority would quickly lead the ranks of supply chain educators !

Lastly business leaders need to understand S&OP is NOT a binary accomplishment. It is very much a long term journey.  My experience is the 5% of firms that “get it” and greatly benefit form S&OP understand they have barely cracked the opportunity and are the ones most aggressively looking to improve.  I think the way Amazon sells other suppliers inventory is a simplistic finished good distribution example of S&OP. However, it is the small firms that begin to sell a future manufactured product with a predictable lead time tailored to a need that I think will have the biggest upside and we believe is the secret to high expertise content products answer to “out Amazon” Amazon !

Niels: How would you describe your future vision for S&OP?

Jon: The gap of financial performance for the S&OP haves and have not will widen as volatility in all industries is increasing and those with S&OP can respond profitably.   In fact over past decade we have seen the S&OP leaders inducing volatility in their industry (e.g. rapid new product introduction) to flush out competitors.

Here are a few bullet point of pretty safe predictions.  I am quite certain all of this will happen but it is the of when it takes hold impossible to predict.

  • We see it very likely that the using the software to simulate the benefits will explode as a change agent vs. 99% of today’s’ S&OP technology offerings are more run and S&OP process once established. Using S&OP algorithms with advanced user interfaces and real time analytics to illustrate pictorial the opportunity will happen.
  • In many respects S&OP can be leveraged by smaller business or start-ups much more rapidly and effectively then large business. We see business using S&OP to outmaneuver low price scale distribution sites like Amazon. A smaller business can use S&OP partnered with ecommerce to fulfill tailored to be built manufactured solutions and products at low cost to clients.  An example might help… say a service with product that aligns all the custom materials a consumer needs to remodel a kitchen or modify / customize a classic car.
  • We show all of our clients the business advantage of using S&OP enabled lead time based pricing. Not all clients are ready for – but they should be ! We feel this is the single biggest opportunity on the web today. We predict this concept will explode at some point as the understanding of the basic science of time phased based production planning becomes inculcated into business practice.  If you don’t believe this think about how airline reservations work providing deep discounts for airline travel that can be committed and planned for out in the time horizon. How many consumer or industrial items are needed tomorrow… what if you could get substantial discounts for production that predictably arrives out week or months from the order date ?
  • We have created and patented a real time S&OP that deploys the logic at very much the time of execution. Allowing all roles to view availability, lead time, sourcing of inventory to meet the unplanned order and commit incremental orders profitability over and above plan is every CEO’s dream.  Once awareness of basic S&OP concepts become more understood by average business professions we believe these types of applications will be demand top down and bottom up in most every business. Sort of like a “Google” for material !
  • Process engineering / industrial engineering / manufacturing engineering and / or maybe computer engineering programs will partner and work with strong finance oriented Wharton MBA type programs to offer a turnkey S&OP leadership degree(s). These program will produce MBA finance business leaders with the vision and analytical engineering types who can guide the process and systems to support the leadership. It will happen and the schools who provide early will gain significant attention.  Maybe it will be called forward looking material based finance and taught in graduate finance programs… don’t know but has to happen.
  • I believe use of S&OP to design supply chains for global trade advantage will happen sooner vs. later. By leveraging an S&OP enabler programs that lever supply chain strategy to accelerate national policy will be a reality. For example we did significant work with the State of Texas recommending postponed manufacturing hubs in various industries to stimulate job creation and enhance global competitiveness.

Niels: What needs to be done to reach that vision?

Jon: All S&OP / Supply chain / enterprise app initiatives should be held to very strict IRR / ROA / ROI investment return standards. Companies should shut down functional point solutions sold the name of “supply chain” until they have and S&OP strategy in place. There should be no selection of technologies looking for a problem to solve.   There should be rather strict measurement of how and how long it takes for solutions and process changes to improve the S&OP results. An S&OP strategy in place is one of the best tools to triage and prioritize which point solutions really help. For example don’t build a bigger warehouse and new warehouse management systems if you can create more of a drop shop program of product from suppliers direct to customers.

I truly believe If executives and decision makers would hold their efforts to these high capital budgeting standards – S&OP would explode in deployments. In essence corporate decision makers let hundreds of symptom problem solving products get approved leaving them no time or resources to address root cause solutions like S&OP.

Niels: Are there not good software / cloud solutions for S&OP

Jon: Our observations of software for S&OP solutions was formed in the late ninety’s and early 2000’s.    All we saw were supply chain technology offerings with expensive modules that required big $ and time to deploy and really did not help with the process.  We lobbied all the analyst we knew (AMR, Gartner, Aberdeen, etc. and others to start covering S&OP as a category and they did.     Our goal was and is to use a blend of production planning technology, information technology and consulting to create an S&OP solution with the goal of enabling the planners and decision makers to make faster decisions – not replace them.

Over the past decade an S&OP category has been formed which is good but unfortunately has seen to much of slapping a new label on an old product. When we deployed our S&OP solution at a division of Siemens in early 2000’s it had tremendous financial success. The financial success attracted various Siemens business interest in learning about the solutions and desire to use. Siemens IT had a mandate of only using SAP technology and essentially got a commitment from SAP to deliver a similar S&OP functionality in 2004.  Last count I think I saw SAP on maybe a 4th iteration of what they call S&OP … of which not sure any of it is really S&OP.  It appears each version was some abstraction of a module or a technology buried in SAP ERP. From what I can tell this past decade this story is repeated over and over in various companies as no one wanted to be the Salmon fighting the current and take risk.

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Thus the metaphor I see in most of current supposed S&OP solutions is like the image of façade of a western town in the movie Blazing Saddles (see exhibit 9.1) It demos well, makes a good story to sell some licenses or month feeds but then it never gets used for anything operational.  Most users go back to offline spreadsheets and emails to actually develop their feasible S&OP plan.

We believe this again comes down to S&OP is NOT a software product or a CLOUD offering – but a process, a mindset with some science.  Properly designed and deployed it is YOUR business process that makes your business unique with a bit of “production” science enablers.  It is not a process described in a  1960’s production planning handbook.

So, like the internal Salmon swimming upstream, the correct approach to most rapidly, effectively and financial cost effectiveness is not a pure consulting, a pure software model, a shared cloud in the sky mode.  The real S&OP provider model must be as solution model that brings all this together to achieve the business goal.   This model is just not “popular” on Wall Street and thus further delays and confuses bringing a scaled S&OP solution to the market.

 

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Figure 9. Façade of Wester Town for Movie Blazing Saddles like the cute  S&OP fascade on exiting functionality

So don’t go looking for S&OP as a turnkey “software or cloud” IT product.  Take time to understand the enablers and your unique company process.  Engineer the enablers to quickly benefit your companies uniqueness not try to force your company into “the same” process others use.   Lace in the enhancing technology but do it with as little disruption to current operations as possible.

Contrary to the IT hype I also believe there is a case to be made, that as strategic and core the S&OP process is to a business,  that a the company should preserve the option to run whatever technologies you do select on dedicated servers.  In general S&OP enablers are not complex technologies but need tremendous tailoring to YOUR process.  You don’t want your strategic business goals to be constrained or lost because the enhancement you need is number 172 on the priority list in with IT arm of an American company.  Furthermore with an analyst holding up your request as is trying to make your requirement generic so it can be used by others.  This process works ok for accounting software or maybe even CRM but for you core money making business planning process ?  My experience is it does not even come close to meeting expectations.

Niels: What is your message for S&OP practitioners, who are struggling to make progress, or who are looking for guidance?

Jon: Prove to your organization the value of S&OP with a quantitative model / simulation such as our Total Order Fulfilment model and then listen carefully to the response.  Or hire a firm such as ours to inexpensively assist in defining and presenting this value.

The use of outsiders can be important to give you time to listen to the feedback. Present the results of value creation, customer satisfaction, employee enablement to the decision makers top down and bottom up.  Explain that the S&OP rollout / value equation is like a volume control on you stereo you can turn it as low or high as organization desires (See Figure 10). Work carefully to set the “volume” in harmony with organizations leadership’s stamina for change.  Decide on this approach and provide a timeline to enable the value.

If there is indecision by the leadership that there is a need or opportunity for improvement then you likely have a bigger issue then S&OP.   Clearly understand that leaders who been groomed in accounting manipulation and politics probably are happy with the status quo and likely will not embrace S&OP.   Unfortunately if you find yourself in this situation you might look for a different business to deploy your skills – as you are truly are the Salmon swimming upstream that has hit a likely insurmountable obstacle.

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Figure 10: Hitting constraints in deploying S&OP

However, if your leadership says “I get it” but insists on a deliberate approach – that is OK.  Leadership that both understands the opportunity and works to balance culture acceptance is the most effective.

Lastly, If you really understand S&OP and the opportunity it presents consider starting a business.  It is my observation that small business can use S&OP philosophies and targeted market arbitrage to jump start value add distribution assembly and/ or full manufacturing / virtual manufacturing  operations !


Niels: Thanks Jon for your contribution to Supply Chain Trend.

Jon: Niels, a pleasure to share a bit of our perspective with your readers.  We want to work with you and literally all groups who seek to expand awareness of S&OP.  We feel it is truly one of those initiatives that is a win win for all involved. We can be contacted at info@dcrasolutions.com or learn a bit more at www.sopbook.com or at www.DCRAsolutions.com

 

4 thoughts on “S&OP, a vision for the future. The expert interview series #5

  1. Niels, thanks for sharing our story ! We are exited to help illustrate, educate and deploy S&OP for business leaders of any business size and nearly any industry. As we say indirectly in the interiview it is our observation that leverage of an S&OP philosophy, process and tools is single biggest opportunity for most any business.
    Cheers

    Jon
    http://www.sopbook.com
    info@dcrasolutions.com

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