Taking S&OP to the boardroom

In
today’s globalised market, organisations’ needs are changing every day.

Even the most finely crafted
strategy is unlikely to be executed perfectly in such turbulent times. CEOs
have to stay one step ahead by keeping their ears to the ground and their eyes
on the horizon. They must be agile to identify risks and opportunities
immediately, and be ready to make decisions that ensure their business is on
the right path.

Just as traditional retailing has
been undergoing unprecedented change in the face of the online revolution, the
traditional role of supply chain managers in manufacturing is also being
transformed from the back office to the boardroom. Manufacturers looking to
compete in a tough economic environment must identify every element of the
supply chain for its potential to be a competitive asset. This now needs to be
discussed at a boardroom level and the supply chain leader of the future is the
one who not only excels in supply chain disciplines, but also has a complementary
set of ‘soft skills’ to influence peers into recognising their part in the
corporate supply chain.

A manufacturing organisation’s
ability to understand and influence decisions involving corporate revenue,
margins, and profitability is impacted by a number of factors. At most
companies, supply chain decision making remains a unit- and volume-focused
exercise. Most organisations are not fully leveraging their Sales &
Operations Planning (S&OP) process to support both profitability goals and
the supply chain agility demanded today. Instead, they are engaged in a
reactive, ‘firefighting’ approach to S&OP.  

Multi-million dollar ERP systems
are often the backbone of operations; however, they only offer rear view mirror
visibility. Usually, each department makes their own projections, risk
assessments, assumptions and gut-feel instincts about the future, often using only
spreadsheets to document their inputs, which can be time-consuming. When each
department comes with their own spreadsheet, key performance indicators and
individual priorities, the result is a series of ad hoc decisions. Consequently,
the information available is disconnected and delayed, which in turn, can
result in lost sales, excess inventory, expediting charges, capital expenses
and unpleasant customer service issues.

Matching supply with demand
accurately over time, in this new world where everything is constantly
changing, requires a more sophisticated approach: integrated business planning.
When an organisation uses an integrated business planning approach, all the
stakeholders are focused not on short-term functional priorities, but on
meeting the needs of the customers over a longer period of time. This approach
not only reconciles the needs of different stakeholders – including sales,
engineering, marketing, manufacturing, purchasing, key suppliers and finance –
but also vertically integrates every level of planning, including strategic,
tactical and operational planning processes. This results in a strategic
S&OP process that considers both overall organisational goals and
day-to-day production flexibility.

There are a number of ways that
manufacturers can make the transformation from ad hoc decision-making to
integrated business planning. Any organisational transformation needs a clearly
articulated purpose and a sustained effort to create ownership and buy-in from
employees. In a pro-agile S&OP, performance is measured in terms of both
financial results and organisational responsiveness. These reviews are the
basis for adjustments to future plans. With a clear eye toward cross-functional
KPIs, instead of narrow organisational goals, this process facilitates internal
and external collaboration.

A fine example can be seen in the
case of a global semiconductor company, Infineon Technologies AG. Headquarted
in Neubiberg, Germany, Infineon set out to re-engineer its
end-to-end planning processes and tools.  It wanted to create a single integrated,
multidimensional sales and operations planning process that can promote global
collaboration and enable the company to quickly respond to market changes.
After testing solutions from different vendors, Infineon selected JDA S&OP Since
completing the rollout, Infineon has achieved a broad range of results across every
dimension of its business – the company has reduced its planning effort by more
than 30 percent, and is able to cut the lead time for its volume rolling
forecast from four weeks to two weeks. Planning errors have decreased up to 90
percent and forecast accuracy has also improved. The most important result of
the S&OP implementation is Infineon’s new collaborative planning approach,
which enables the business to be much more agile and responsive. “Our new solution
is a kind of revolution for Infineon because, we link a lot of single processes
into one tool,” said Wolfgang Keichel, vice president, IT supply chain
management, Infineon. “Now we can combine our demand planning activities with
capacity calculations and the capacity confirmation — and at the end we have a
constrained plan.”

The journey to integrated
business planning begins in the boardroom. Senior management need to have a
clear understanding of how this process is executed and how it helps the organisation
attain strategic and tactical objectives. It’s also important to assess demand
planning and S&OP processes against best-practice leaders and to use industry
experts and benchmarking materials to identify gaps and opportunities related
to the current approach. These processes should then be mapped to best-practice
models to highlight opportunities and potential ROI to senior management to
acquire the resources for the project plan.

Companies should also evaluate
their current technology infrastructure. They should build a requirements
document that begins with the formalised business process developed through the
assessment stage of the migration path. It will be important to document the
scope of the initiative which includes the trading partners who will be
involved, the number of product families incorporated and the planning horizon
that will be utilised.

Integrated business planning can
have a significant impact on many facets of the manufacturing supply chain
performance, including strategic cost control, higher utilisation of existing
assets and increased speed to market. By improving end-to-end supply chain
visibility, integrated business planning positions manufacturers for a new
level of risk visualisation, process alignment and organisational
responsiveness when the unexpected occurs. All of these benefits add up to the
one goal that matters: consistently satisfying consumers, while operating under
very inconsistent business conditions.