This is the second in a three-part article series analysing the first S&OP survey carried out by eft and Hughenden Consulting.
The survey polled 131 global supply chain executives, mostly from large manufacturers, around three sets of questions:
(1.) How are companies faring on the S&OP journey?;
(2.) Are we all doing the same thing once we get going?; and
(3.) Is it all really worth it?
In this article series, we are examining people’s responses to these sets of questions in more detail.
My first article analysed the many contradictions we found in the survey questions related to ‘how we’re faring on the journey’ – how people define S&OP, how to approach it, what counts as success and how engaged their top executives are in the process. Looking at the results superficially one could be very encouraged by the number of companies using S&OP, but digging a little deeper, it was clear to see that good execution was very limited - in the majority of cases to just a single monthly meeting.
Therefore it should come as no surprise that there are major inconsistencies in how companies are living the S&OP process. The headline finding is that only one in five companies is actually ‘living S&OP’ by using it as the core decision making process for their business. Of the other four, many are stuck at ‘Anticipate’ level 2 of Gartner’s “Five-Stage Sales and Operations Planning Maturity Model for Supply Chain Leaders” – definitely worth a read. For these companies, S&OP is mostly short-term, operationally focused and achieving only ‘siloed’ objectives.
1 Management’s involvement in S&OP
Slightly better news is that 60 percent of respondents claimed that their top management had a good understanding of S&OP. Interestingly, the exact same percentage of people said that they included Finance in the process. It’s only a theory, but I can’t help wondering based on my experience with S&OP change initiatives, that a large percentage of those equate participation of finance with top management.
Engaging the FD alone is not the same as having a fully engaged top management team. With this scenario the risk is that companies reduce S&OP to a cost saving exercise in response to a dip in profitability and then resume business as usual when profits return. At the time of writing, I am fortunate enough to be working with a client that is starting to realise the benefits of having the full top management team engaged with S&OP. It provides huge opportunities to optimise across the business including accelerating new product introduction, opening up new markets and streamlining factories. This means the full C-team should have a stake in the process and be active sponsors.
2 Business areas involved in S&OP
The survey revealed a few more surprises when it came to the different business areas involved with S&OP.
Only 60 percent said that marketing was involved with S&OP. This is likely to be happening because the role and quality of marketing varies considerably across organisations. However to achieve the best from S&OP, this gap needs to be addressed because marketing can contribute valuable intelligence to the demand plan, consequently improving forecast accuracy.
However the real shocker for me was discovering that only 75 percent of those surveyed said that logistics was involved! I find it incredible that any company practicing S&OP would not bring logistics into it since it is such a basic part of supply chain. Then I reflected on the fact that supply chain itself has come to mean different things to different people. Many clients I have worked with view supply chain as ‘trucks and sheds’. Others see supply chain as completely separate from logistics. I suspect that those companies that don’t include logistics in S&OP fall into the latter category.
3 Leading by example
Human nature being what it is, I was far less surprised to learn that four out of five survey respondents reported that their company’s S&OP efforts lacked a degree of discipline. In the first set of survey questions I analysed, 70 percent of respondents reduced S&OP to a monthly meeting. This lack of discipline manifests itself as people not turning up for meetings, yet another reason why it’s so important to have truly engaged leadership. Leading by example is the only way to instil the discipline and genuine commitment that is necessary to build an S&OP culture in a sustainable way.
And speaking of staying committed to the process, when we asked whether any formal decisions were taken outside the S&OP process, only six percent said ‘never’.
So not only is there a lack of discipline in most organisations, but despite CEOs and top management having a significant understanding of S&OP, it appears they are not really enforcing it as the way to do business. They talk the talk, but do they walk the walk?
Decisions taken outside the S&OP process are not likely to have a positive impact on the business as a whole. Logistics might decide to optimise their fleet of trucks, but this decision may have a negative impact on manufacturing. Equally, those that operate in silos don’t consider the overall impact their decisions have on working capital and general business health. For these reasons I urge businesses to set their sights much higher than Stage 2 of Gartner’s ‘Maturity Model’ to Stage 5, ‘Orchestrate’.
I won’t lie and say getting to Stage 5 is easy. The ‘Orchestrate’ level usually involves significant culture change and the sometimes messy business of getting people to do things much differently. Just today in a client workshop I asked people what they thought the key ingredient was to make functional silos work together? In a word: trust! It’s entirely about people. To create an environment of open collaboration, senior management has to encourage an atmosphere of trust and also be strong enough to listen to things they might not want to hear.
I want to finish on an intriguing little fact. Not everyone said that Supply Chain was involved in the S&OP process. I sincerely hope this was down to misunderstanding the question, rather than a glaring oversight by a small minority!
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Today, 2 in 5 companies believe their S&OP process is effective. Only 1 in 5 companies has a balanced process, and most companies struggle to get to data. Only 1/3 report that they are able to execute the S&OP plan. Most companies lack the ability to manage data and develop a feasible plan. For most, the technologies are not able to deliver role-based views or determine the most profitable plan.