Basic S&OP (Sales and Operations Planning) processes have been in existence since the 1960s. Recently, however, many companies have discovered that changes to their organisation and an increasingly global operating environment have rendered legacy S&OP processes obsolete.
Companies have grown through mergers and acquisitions, product complexities have increased, and supply chains have become more protracted.
To meet these challenges, global organisations have often structured themselves using operating models based on a geographically dispersed set of local sales companies with functional reporting lines into regional or global centers of excellence, delivering not only their products but supply chain, marketing, brand and technical support services.
To remain competitive, leading organisations must now reinvigorate their S&OP processes in a way that recognises these changes.
The challenge in doing so lies in creating an effective design that supports a multi-continent, multi-executive, distributed business environment with all of its inherent cultural and regional dynamics.
The difficulty in meeting this challenge is borne out by recent Capgemini research that shows that while 75 per cent of companies today have a regularly occurring S&OP process in place, only a third have an S&OP process that can be classified as global.
The fundamental steps that comprise a textbook S&OP system remain the same in global businesses but they now have to span the distributed nature of each function.
The justification for running the process is easily lost on functions that are separated by thousands of miles—it is, therefore, critical that each step adds value to the managers that undertake it.
Three Standard Models
When designing a global S&OP model, the business must take into consideration current and future challenges, strategic drivers, which entities are to be connected, and what decisions need to be made.
When these needs are developed into design principles for both processes and entities, a unique global S&OP model can be created.
The model can then be enriched with detailed processes, technology and organization design. This detailed design must take into consideration the availability of people and technology. Though each global S&OP model will be unique, there is a trend towards commonality with one of three standard models.
Global Distributed Model. This construct is typically seen, for example, in businesses with local factories supplying heavy bulk items to co-located sales businesses.
Of the three global models it is the one that is most similar to the legacy non-global designs. In this model most S&OP activities such as demand planning, factory loading and executive decision making reside at the local level but two key processes, procurement and ensuring strategic alignment, are handled at a global level.
Consequently, key characteristics of this model include control devolved to a local level, global procurement of critical materials and visibility for managing material shortages
Regional or Category Model. In this model, the span from local to global is high and regional or product category levels are used to break this span.
Demand and supply operate in silos and products are not truly global. Reconciliation is at the published account reporting level, such as North America or Europe.
This model is often supported by a planning service center.
Global Model. This model is seen in businesses with truly global products, made in multiple locations or single locations.
In many cases the product line may be supplemented with local specialities with varying sourcing routes to suit local market demands (for example, wine and spirits manufacturers).
This model supports global sourcing from a single factory. Demand can be consolidated and managed regionally or globally and consequently regional and global service centers for planning are often incorporated.
Reconciliation is developed geographically—depending on the sourcing model.This produces a big-picture view, and drives top-down and bottom-up alignment to strategy.
Challenges to implementation Any initiative to implement a global S&OP model has to address five major challenges:
1. Stakeholders across the business need to be engaged and educated to understand the objectives, the principles, the decision rights and the benefits locally and globally.
The tension of taking 'pain' locally for the greater good of the business must be mitigated by ensuring the S&OP activities in any single entity bring recognized additional benefits to that entity in addition to the whole.
Key questions to ask here include: Who attends input meetings, who is in the decision forums, and what technology is being used?
2. All plans must be aligned to “one number” across the various functions in order to truly drive holistic business value. For example, if the sales plan is not recognised as cash revenue it is unlikely to match the financial plan and last minute sales and marketing activities will be required to plug the gap.
If this was not planned by supply chain and they fail to react, it is likely to lead to a vicious circle of failure and additional cost. Alternatively, if all plans are continually aligned; all parties will understand the deviations and risks and can jointly and proactively manage to the plan.
Actions have reactions in business as well as in physics.
3. A global S&OP model must have clear accountabilities and decision forums. In the complex global structures of major companies, multiple geographical layers often exist in demand and supply that do not necessarily correlate with one another.
This frequently makes identification of the true decision makers difficult. It is therefore crucial to define in detail in the design who does what and who signs off on what.
4. Business objectives must be aligned. If a country manager's KPIs are linked to the market's profitability and volume, the manager will focus on delivering against those objectives, regardless of the impact on other parts of the business.
The same applies to the production director who may be focused on “cost per case” and “asset utilization,” leading to longer runs and higher stocks. Effective S&OP solutions have to align to KPIs that drive the best result for the overall corporation.
5. The S&OP process needs to maintain a medium to long-term focus. The temptation in moments of crisis is to micro-manage the here and now and worry about the future later, which often means never.
For global S&OP to be effective, it must break out of the cycle of creating crises that soak up management time. Moving the conversation into the future drives managers to evaluate “best for business” solutions, and thus do less “firefighting” on a daily basis.
Finally, it is important to understand why a global S&OP model is beneficial for today's businesses. Creating sound global S&OP is not wholly about the avoidance of uncertainty, as global supply chains can never be made immune from the impacts of phenomena beyond their control.
However, a robust global S&OP process recognizes imperfections and regularly re-optimizes plans across the entire supply chain.
A fundamentally sound global S&OP process will allow the organisation to make decisions that maximise value to the overall business.
It will optimise the network of factories and stock holdings. And, it will keep everyone informed of pinch points, demand sensitivities, allocations, costs, strategy and what is needed to win.
The textbook S&OP model is at the core of all designs, but it must be adapted to suit the specific requirements of each organization.
Modern global S&OP models are essential to give business the cash release and competitive edge required to succeed in today's challenging environment.
About the authors
Neil Lewis (neil.lewis@capgemini.com) is the S&OP practice lead for Capgemini UK. Jonathan MacLean (jonathan.maclean@capgemini.com) is a managing consultant at the firm.
This article first appeared in Supply Chain Management Review
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