Over the past four decades, manufacturing, distribution and some service companies have invested management time and attention, consulting dollars and technology expense to properly balance supply commitments and realized demand. At the same time, they have been seeking effective ways to optimize tradeoffs between working capital (inventory), operating expense and providing consistent quality customer service. The results have been spotty at best.
Measurable, lasting success has proved broadly, and somewhat surprisingly, elusive. Even now, it is still an exception to find a sustainable end-to-end demand/supply chain operating in a cross-functional, integrated and collaborative manner. Yet, in spite of a long and documented history of failures, sales and operations planning (S&OP) consistently shows up as a top-three priority for end-to-end demand/supply chain executives across a host of surveys.
If S&OP is so important, why do so many initiatives fail?
If this was a simple endeavor, good organizations would have mastered it long ago; the fact of the matter is, they haven’t. In reality, most sales and operations planning efforts are rewarded with frustration. All too often, well-intentioned initiatives are chartered, staffed and supported with investment but quickly plateau and wane without measurable payoff. Daily frustration is common, negatively impacting the health of the organization’s culture.
Even when the supply side of the organization operates in an aligned fashion, true demand-supply financial integration is extremely rare. A recent benchmark study by the Global Supply Chain Institute (GSCI), “Advanced Demand/Supply Integration (DSI) Best Practices” , found the real challenges with achieving demand-supply integration (DSI) performance, a support function of S&OP, are cultural and stem from an inability to align the various functional pieces into an integrated and collaborative whole.
Common Symptoms of Failure
Demand/supply imbalances: Too much inventory creates requirements for working capital, causing additional financial demands. Too little, or the wrong inventory impacts customer delivery performance, damages customer trust and financial results in the form of lost revenue.
End-to-end demand/supply chain sub-optimization: When S&OP decisions are made in functional isolation, the predictable result is sub-optimization of the company’s end to end demand/supply chain. Manufacturing costs are sub-optimal and logistics and inventory carrying costs skyrocket.
Data-deficient end-to-end demand/supply chain operations: Too often bottom-line financial results point a finger at problems in the end-to-end demand/supply chain, but organizations lack the data insights to unravel the problem. Companies learn to live with what they won’t rise above and data deficiencies, as well as the resulting blame game, become an accepted way of doing business.
Functional silos, cost savings fatigue: When everyone recognizes a cross-functional problem but no one is capable of leading a cross-functional solution, organizational distress is the inevitable result. This dysfunction, combined with cost-savings fatigue, disables the engines of change quickly elevating into a strategic, C-level problem.
Relegation of S&OP to tactical control of the business: By definition, the supply management functions (manufacturing, procurement, logistics) are tactically focused. Even when they operate together in perfect unison they do not – and cannot – impact the strategic management of the business without additional integration with the demand functions (sales & marketing), financial management, and executive leadership. As an integrated process, S&OP must go beyond only short-term, tactical and responsive issues to focus on planning for the future and alignment with the organization’s strategic plans.
Lack of an integrated, anticipatory “single number” business plan: A failure or inability to plan leaves business outcomes to an uncertain fate and creates an unpredictable business model. Without a single controlling business plan, the various functional elements are left to their own planning and goal-setting devices. An inability to predict and forecast forward-looking business performance creates a tense relationship with investors looking for predictability and control.
We’ve diagnosed the symptoms, but what is the cure? The answer lies in the ability to successfully optimize alignment, synchronization and responsiveness across the value chain. In my next article, I will look deeper into how this can be achieved and outline four essential skillsets that drive S&OP excellence.
Alfred Baumbusch is executive vice president of operations, North America at Maine Pointe, a global supply chain and operations consultancy. Reach him via email at abaumbusch@mainepointe.com.
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