Supply Management Has an Important Role in S&OP

In manufacturing, traditional sales and operations planning is expanding beyond simple supply/demand balancing toward integrated business decision-making.

Service firms are also realizing the benefits of holistic business planning.

Integrated business planning is neither integrated nor complete without supply management which must come to the process with an understanding of the supply risks and a strategy for capitalizing on opportunities.

An integrated plan for the business must be informed by:

  • the relative bargaining position of the firm
  • supplier viability under multiple economic scenarios
  • trends and potential ranges for commodity and other prices
  • supplier and global supply capacities
  • advances in supplied materials or supplier manufacturing technology
  • other relevant context

Supply management must also be prepared to contribute to an integrated decision set for the business with:

  • a comprehensive analysis of total cost of ownership and the business’ sensitivity to each of component
  • strategies for structuring supply agreements to mitigate risk and minimize the cash-to-cash cycle
  • approaches for substituting information for time and inventory
  • sourcing alternatives to support sales and marketing initiatives as well as manufacturing and quality requirements
  • scenarios for reducing lead time and lot size

For more on this, have a look at my related presentation.

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Thoughts from IBF Conference

I just left the IBF’s Leadership Business Planning & Forecasting Forum and the Supply Chain Planning & Forecasting:  Best Practices Conference in Orlando, Florida.  I’ll share a few of the thoughts that struck me as helpful here in the hopes that they will help you.

From a panel discussion on organizational design at the Forum, I compiled this key point (adding in my own twist):   S&OP is all about integrated decision-making, understanding inter-related tradeoffs, driving toward bottom-line metrics with cause/effect accountability.

Rick Davis from Kellogg pointed out that  “Integrated planning is less about function than about process.

Rick also emphasized managing the inputs, particularly since data and technology are moving at the “speed of mind”.  Decision-makers need to ask themselves, “Will competitors leverage information better than I will?”

A few keys to success in S&OP include the following (see Ten Sins of S&OP for what NOT to do):

1)      Scenario analysis

2)      Leadership buy-in

3)      Quality feeder processes (my point of view)

4)      Remembering that financial targets and demand plans are different

Rafal Porzucek defined supply chain agility this way:  “The speed to react with predictable costs and service delivery.”  I thought that was pretty good.

The consumer products executives felt that the effort to leverage social media for forecasting was in the data collection phase.  In a couple of years, it may be useful for generating more accurate forecasts.

Mark Kremblewski and Rafal Porzucek from P&G made a compelling case for enabling innovation through standardization – and it made great sense.

Mark also shared a profound understanding of how the key numbers of business objective, forecast and actual shipments relate to each other.

I hope some of these points stimulate your thinking as they did mine.

There were other speakers who shared some great insights.  The absence of mention here is not meant to diminish their contribution.

This week, in the theme of anticipating the future, I leave you with the words of the English novelist and playwright, John Galsworthy, who won the 1932 Nobel Prize in Literature, “If you do not think about the future, you cannot have one.

Have a wonderful weekend!

Leadership Is Not Just Telling Other People What to Do

When I was a young Marine lieutenant, I was taught that if it happened on your watch, it was your responsibility.  The fact that you didn’t know, or someone didn’t carry out your orders, was irrelevant.  Accepting that responsibility with integrity was a critical element of leadership.

In the world of corporation and bureaucracy, and even in the higher levels of the military, this notion seems all but forgotten. 

I recently talked with Dr. Jeannie Kahwajy, founder and CEO of Effective Interactions.  She reminded me that it simply is not good enough to develop the right analytical decision, to give clear direction, have a noble mission, or even to “get” people to do what you want them to do.

You must take responsibility for the end result.  To paraphrase Dr. Kahwajy, we need to take responsibility not only for what we say, but also for how others hear us.  Sound like “a bridge too far”?  According to Dr. Kahwajy, it is not too much to expect of ourselves.  Rather, it is absolutely mandatory and explicitly doable.

To take that kind of responsibility requires a level of humility that allows me to be open to the fact that I may not have 20/20, 360 degree vision at all times.

I might be missing something.  I have to be open to receive insight from others – not going through the motions open –  really open.  And that takes an understanding of my own vulnerabilities, unavoidable myopia, and limitations, together with an understanding of the truth that others can contribute to me as I can contribute to them.

Not too long ago, I wrote an article for the Journal of Enterprise Resource Management, entitled, “Don’t Manage a Supply Chain, Lead a Value Network”.  I was mostly trying to emphasize the fact that supply chains are dynamic and interconnected, and that as such, they require more insightful leadership than the more simplistic concept of a supply chain.  However, the contrast between management and leadership remains even more dramatic.

Leadership is not telling other people what to do. 

Leadership is not telling other people what to do.

(No, that’s not a typo.  It just seems like a hard concept for us to grasp.)

Leadership is humble, responsible and demonstrated through service.  An organization can cultivate leadership throughout its ranks, but it takes real leadership at the top.  I think that the fun and effectiveness quotients of that kind of an organization will blow away those without a culture (I know – way overused term) of leadership.

We can all be leaders.  More than that, we have an obligation to be leaders.

Dr. Kahwajy tells us that leadership and effective interaction are a science and you can be taught how to do it every time.  Her work and services are worth a look.

Let me apologize on the record for failing to properly articulate her ideas and their value.

Leadership is essential to integrated decision-making (think S&OP).  Integrated decision-making is about considering all the relevant tradeoffs and eliminating blind spots to any tradeoffs or risks.  Integrated decision-making requires integrated decision thinking and quality analytics.  Effective analytics, require the analyst to be a leader as well.  See related thoughts here and here.

For this weekend, I leave you with these words from Peter Drucker, “No institution can possibly survive if it needs geniuses or supermen to manage it.  It must be organized in such a way as to be able to get along under a leadership composed of average human beings.” (http://www.leadershipnow.com)

Have a wonderful weekend!

A Few Random Thoughts

This week, I was privileged to attend the INFORMS Analytics Conference in Huntington Beach, California and the IEG S&OP Conference in San Francisco.  I heard some insightful points and thought I would list a couple here (with appropriate attribution) along with a few thoughts of my own.  I hope that at least one strikes a chord with you.

If you use a heuristic to solve a problem with 100% complete and clean data, using a data model that exactly represents reality at any given moment, you still have an inexact answer.  But since such data and data models are rare (or nonexistent), even a pure optimization is still inexact and, in effect, a heuristic solution requiring both art and science on the part of the analyst. (Colin Kessinger, End-to-End Analytics)

If the purpose of Sales and Operations Planning is to make the best integrated decisions for running your business, then you will have a firm, published schedule and people will schedule other meetings (even customer meetings) around it. (Bob Ratay, SAP),

Key capabilities in an S&OP decision-making process are business agility, versatility, and elasticity.  (Olaf Gelhausen, Infineon)

S&OP is about a range, not “one-number” – one plan with a range and distribution of probabilities, but not one number. (Olaf Gelhausen, Infineon)

The best business decisions, even very qualitative ones such as those in the fashion industry are built on a foundation of rigorous data analysis and decision modeling, providing the qualitative decision-maker the largest head-start possible by reducing the “solution space” and delivering insight into the most sensitive tradeoffs.

Working with people is the hardest part of any business challenge – by comparison, the mathematics are relatively easy.

In business planning, longer term investment decisions require detailed scenario analysis.  Near term execution decisions require existential insight into the cash flow changes and their causes.  One might call the latter, “analytical awareness”.

Once sources have been qualified, sourcing decisions among sources (both near and far, “in” and “out”) should be cost-optimized and dynamic (Olaf Gelhausen, Infineon).

Thanks for dropping by Supply Chain ActionPlease feel free leave your random thoughts as a comment below or send them to me, and I’ll try to include them in an upcoming post.

Until next week, always choose life, light and love and don’t forget to laugh along the way.

Have a wonderful weekend!

Uncovering Unprofitable Decisions

Last week, I expanded on the concept of a profitability profile, the first point of three that I highlighted here.   This week, as promised, I want to expend a few words on analyzing decision processes that are hurting profitability because they could be improved. 

Execution is important in business, but knowing what to execute is even more fundamental and critical, at all levels from strategic to tactical.

You can make better business decisions (some of them are called planning – demand planning, supply planning, capacity planning, transportation planning) in less time if you embed the decision points in a process and support the process with necessary analytics (see “Finding the Value in Your Value Network“).

Decision processes need to be integrated because many of them are interdependent.  If made in isolation, reduced profit is almost guaranteed.  This has driven a continuing interest in Sales and Operations Planning, the goal of which is to include the relevant data, perspectives and analytics so that key decisions about running the business are coordinated and optimal for the business as a whole.  Sometimes, this process is called Integrated Business Planning or Integrated Business Management, or perhaps other titles.  The important thing is not the moniker, but the fundamentals of getting the process right for your business. 

Business decisions that frequently lead to reduced profit can include pricing, new product development, supply chain network design, demand planning, capacity planning, inventory planning, production scheduling, and others.  One big reason these decision processes can fail is that they are not sufficiently linked, leaving blind spots that keep relevant tradeoffs from being considered.

Finally, just because you have spent lots of money licensing, implementing and supporting software applications that were supposed to address specific decisions or even decision processes, doesn’t mean you are any better off.  (You already know this!)  There are lots of reasons, including the following:

  1. The software didn’t fit the business challenge
  2. The data model doesn’t effectively abstract reality
  3. Your master data is inadequately maintained
  4. The planner or analyst doesn’t have sufficient experience or skill to deal with data model deficiencies and master data defects
  5. The software application doesn’t allow the skilled planner or analyst to interact with it so that they can compensate for data model deficiencies and master data defects
  6. The parameters of the software application aren’t correctly set
  7. The software application leaves out important tradeoffs
  8. And the list can go on . . .

Remember that rapid execution is only as good as the plan to which you are executing, and that’s the thought for this weekend.

Thanks again for stopping by and have a wonderful weekend!

Ten Sins of S&OP (Part 3)

This is the final post in a series of three on the “Ten Sins of S&OP”.  Hopefully, these “sins”, (not necessarily in order of priority) dealing with key attributes of an effective S&OP process, will be both instructive and practical, but from the literary gimmick of what not to do.

7.  Track lots and lots of metrics for each business function.  S&OP process stakeholders must jointly be held responsible for a few shared metrics that drive profitable business and enterprise value for your company within your industry.  At a minimum, they should include revenue growth, margin growth, and inventory turns.  Metrics within each function should directly drive these.  The dangers in establishing metrics for the S&OP process are in setting too many metrics, metrics that are not clearly understood, and metrics for which there isn’t shared responsibility.

8.   Only include sales and manufacturing in the S&OP process.  Omitting key stakeholders like finance, marketing and even procurement from participating in the process can create blind spots in the business plan, the whole point of which is to avoid such blind spots by creating an integrated decision set that is informed by the identification of risks, scenarios and alternatives.

9.  Focus on detailed product mix.  The purpose of S&OP is to determine, as a company, the best way to make money in the coming quarters.  The primary focus here is on volume – volume of sales and the resulting implications for capacity, inventory, sourcing, working capital, etc.  These are “big picture” issues and therefore, primarily questions of how much you will sell, source, make, store, deliver, etc.  Where constraints in manufacturing or risks in sourcing impact decisions about what to sell in order to make the most money in future quarters, then product mix (i.e. which portion of the business to pursue to what extent) at an aggregate level becomes relevant.

10.  Don’t worry about having solid “feeder” processes.  To avoid “sin #4”, you need to have robust supporting processes that deliver quality output to the S&OP process.  While forecasting is a business requirement, you need to have a functioning demand planning process for S&OP (see Forecasting vs. Demand Planning) in order to validate and reconcile quantitative and qualitative forecasts, determine the range and confidence of future forecasts, evaluate forecast accuracy and bias, estimate the magnitude of previously unmet demand, coordinate demand shaping requirements with promotional activity, collaborate with customers, etc.   All of the work from the “feeder processes” such as demand planning and supply planning builds the foundation for delivering a complete picture upon which to base an S&OP decision set.

Thanks once more for reading Supply Chain Action.

This week’s quote is from the first sentence of chapter one of Jonathan Byrnes’ book, Islands of Profit in a Sea of Red Ink:

The most important issue facing most managers is how to make more money from their existing business without starting costly new initiatives.

I’m a little late with this post, so I hope that you are having a wonderful weekend!

The Ten Sins of S&OP (Part 2)

There are lots of “experts” telling us about “best practices” in S&OP.  Most of the pundits say the same things with varying semantic schemes, and much of what they say is useful.  I thought I’d take a slightly different approach.

Hopefully, these “sins”, dealing with key attributes of an effective S&OP process, will be both instructive and practical, but through the literary gimmick of what NOT to do.  The first three were posted last week.  Here are “sins” 4 through 6 of “The Ten Sins of S&OP”.

4.  Ignore strategic questions, alternative decision sets (plans), and the relevant tradeoffs. 

Part of having solid feeder processes leading up to the executive S&OP meeting is unearthing the potential demand and supply scenarios with which your company might have to contend in the coming quarters.  (The current quarter, more or less, should be mostly about short-term planning and execution with given assets, suppliers and visible demand.)  You must know the range of demand possibilities and what is driving them, potential needs for incremental storage or manufacturing capacity, where the risk factors are and how sensitive the revenue and profit streams will be to those factors.  This is where your business acumen comes in.  This is all about making money with other people’s (investors’) money – how can you make the most money given the range of decisions that you have to make?  What decision set will give you the most profit?

5.  Assume that the sales goal and the demand plan are the same thing.  

This should not be hard to understand.  The annual sales plan, original or revised, is a financial goal.  The demand plan should be what you think is likely to reasonably happen.  They should be in-synch (based on common assumptions and context), but there will likely be differences. At the S&OP meetings, the variances and their reasons should be clearly understood.

6.  Focus only on a single number, not a range around your demand plan. (Revised for clarity based on great feedback from multiple smart friends.)

You definitely need one consensus plan to make the most money that represents an integrated decision set that has been developed out of an understanding of common assumptions, potential market eventualities, plans for resiliency, and evaluation of all relevant, interrelated tradeoffs.  But, don’t make the mistake of not going to the trouble to calculate and understand the range and potential distribution around your plan – in that sense, it is not just “one number” that matters.  The context is equally important.

Thanks for stopping by.

As you move into the weekend ahead of another work week, I hope that you think about your S&OP process and also this anonymous quotation,

“You cannot always have happiness, but you can always give happiness.”

– and maybe that is one of the secrets to being happy anyway.

Have a wonderful weekend!

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