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, Niels van Hove from 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: Duncan Alexander
Duncan Alexander has been a specialised consultant in the field of S&OP and IBP since 2003, preceded by many years of real-life industry experience including senior roles in sales, marketing, supply chain, finance and of course S&OP / IBP. Based in the UK he has consulted in Europe, Asia, Africa and North America. Clients include many global leaders and he has consulted in FMCG, agro-chemicals, pharmaceutical, building materials, medical devices and the apparel industries. Duncan has a first degree from Edinburgh University, an MBA from Heriot-Watt University and also qualified as a SAP Certified Consultant. He has written many articles on S&OP and IBP and presented at numerous international conferences.
S&OP, a vision for the future interview
Niels: Can you describe your first involvement in S&OP?
Duncan: My first involvement with S&OP came in the late 1990s when I was working for Scottish and Newcastle plc the U.K.’s number one brewery company and now part of the Heineken Group. I was invited to join the working group from our division that was part of a new big S&OP project the group was launching.
We started off with a company-wide education workshop with teams from each of the divisions facilitated by Chris Turner and the late Andy Coldrick some of the very earliest innovators in S&OP, who later became my partners in StrataBridge. I can remember being hugely impressed that the group chief executive was present for the entire three day workshop, someone I had never even spoken to before. Executive sponsorship at its best. It was obvious from the presentations that S&OP was just what we needed. We were a strongly functional organisation with masses of opportunity to establish a clear strategy and then execute in an aligned manner.
After the first workshop we went back to our divisions and started designing processes to pull together existing work in areas such as new product introduction, forecasting and supply planning. A few months later I was appointed to run the whole project for the group. We set up a great S&OP process supported by some really exciting SAP developments for the reporting and strategic dashboards. In 2003 I left to join StrataBridge as a consultant.
Niels: How would you describe your personal passion for S&OP?
Duncan: I’m passionate about S&OP because I’ve seen it work in several places and I absolutely know that it is the best way to run a company. I’ve heard managing directors say that it has transformed their businesses and their professional lives. I’ve also seen many attempts at S&OP that were only partially successful.
Personally, it’s also enabled me to work with many great teams of people, in many different parts of the world, in many different industries, which has been a fantastic experience. One thing for certain about being an S&OP consultant is that you’re always learning: one week I’m running workshops on forecasting techniques, the next I’m working on strategic dashboards, and the week after that on new product introduction processes. I’m never bored.
Probably the most frustrating thing about S&OP for me is that although we know how to make it work for an organisation, and know how much effort it takes to build it into the culture, many organisations view it as a project, and do not fully commit for the long run. As soon as they see some initial benefits, attention switches to the latest initiative. People see S&OP as an extra process, rather than understanding it as the way to run the business.
S&OP isn’t a project like implementing a new CRM system; it is an all-encompassing business change project that will never finish. The S&OP process will always need improvement and effort because while the concept of joined-up decision-making may be simple, in practice it is very complicated. The processes and systems tools needed for S&OP can be complicated in themselves, but the major complication is that it is all about people. People who have their own agendas, interests and ways of working; people from different functional and country cultures; people with different levels of experience; people with different attitudes to working collaboratively.
Niels: According to most maturity models, S&OP stalls or even fails. Why do you think this is?
Duncan: I’m going to list seven reasons from the many that cause S&OP processes to stall:
1) Loss of senior executive sponsorship – I have seen various businesses where the Chief Executive who was a great proponent for S&OP has left and their replacement has not got it, and so the process declines thereafter.
2) Treating it as a supply chain project – the finance community are not involved and sales and marketing get bored with being beaten up about forecast accuracy.
3) People moving jobs – unless lots of effort is put into making the S&OP change sustainable, when the initial S&OP team get promoted into other jobs either internally or externally, S&OP expertise, and the original vision for the process goes with them.
4) Focusing only on the process – a fixation with checklists, flow charts and meeting agendas.
5) Not investing in systems to support the process – while you can get going on S&OP with PowerPoint and Excel, you need proper applications to embed the process, make it sustainable, and allow you to focus on decisions, not the process mechanics.
6) Failure to clear the path of obstacles to the cultural change needed – if you don’t change measurement systems, KPIs and ensure incentives support collaborative behavior rather than functional silos, the old order will eventually reassert itself.
7) Letting the finance community have a competing financial forecasting process.
Niels: What do you believe can be done about that?
Duncan: I think it’s mostly down to ensuring through coaching and education that senior management understand the process and what it takes to make the change. Once the whole leadership team understands the benefits to the business then the process can survive changes in Chief Executives or loss of critical S&OP supporters. Once you’ve established the right process it certainly makes sense to invest in supporting systems applications to allow the process to be built into the culture and make it easy to run. Then I would make sure that the process is not owned by supply chain – put ownership with finance, or sales, or marketing. Then I think you need to remove existing financial forecasting processes and downgrade the budget process to replace it with the new rolling financial forecasting process (also known as S&OP).
Niels: What else significant is missing in the current state of S&OP?
Duncan: There is nothing missing in the concept of a good S&OP process. It’s related to strategy, it drives decisions, it involves all functions, it’s the process some businesses use to run their business. What’s missing is that most businesses only have a part of this. They have supply chain based S&OP, or no financial involvement in S&OP, or S&OP without new product development, or a short-term planning process, or it’s not related to strategy.
Niels: What do think are some of the fallacies about S&OP?
Duncan: The number one fallacy is ‘one size fits all’. Yes the concept of joined up decision-making fits all, but the practicalities must be tailored to the needs of each organisation. Trying to copy the checklist of someone else’s best practice is not the answer. The second fallacy is that people believe it is a supply chain process. The third fallacy is that people think it’s a systems project. The fourth fallacy is that it’s all about one number. It’s not, it’s about an integrated set of numbers with risks and opportunities and supporting assumptions. The fifth and perhaps most pervasive fallacy is that ‘we do all that already’. The answer is that you may think you do, but generally the parts are not well connected.
Niels: How would you describe your future vision for S&OP?
Duncan: My vision for S&OP is that it is taught in business schools as the way to run a business, not a small part of a supply chain module. In my S&OP world the process is intimately connected with the finance community and rolling financial forecasting has replaced the budgeting process as the main control process in the business. We probably got rid of the S&OP name too because it has lot’s of historical baggage, and replaced it with something like rolling decision-making or business planning. Finally the systems applications to support it are as user-friendly as the apps on your iPhone.
Niels: What needs to be done to reach that vision?
Duncan: The key thing for me is for every S&OP practitioner to reach out to the financial community whether at conferences or when working on S&OP with clients in business and ensure that finance help build and run the S&OP process. It’s not a supply chain process; it’s a business process. I have virtually given up going to S&OP conferences because it’s the same people talking about the same things. S&OP experts should be presenting at finance conferences and executive leadership conferences, not supply chain conferences.
Niels: what is the best approach to implement S&OP?
Duncan: We should approach it from what we in StrataBridge call the right to left direction. Start in the future with the strategic direction, work with the board leadership team – educate them on what S&OP is and what it will take to get there. Then work with them on the design of the optimisation or integrated reconciliation step to ensure it gives them what they want. Only then work back into the supporting steps e.g. supply planning, demand planning and product and portfolio planning. If you start from left to right with one of these three earlier steps, you’re likely to stay within the step, or at best, end up with a tactical planning process of little interest to senior management.
Niels: What is your message for S&OP practitioners, who are struggling to make progress, or who are looking for guidance?
Duncan: Firstly I would caution against retreating into the comfort zone of say just focusing on improving the demand forecasting step, thinking you can leave the wider process till later. You have to work on the whole process. Secondly you need to create your own version of S&OP not copy someone else’s best practice. Thirdly and critically, it’s about executive leadership – you need to manage your stakeholders and get them on board with what you’re trying to do and how S&OP can help them achieve their objectives.
Niels: thanks for your insights Duncan.