Are you a Starbucks customer? If so, the coffee chain is analyzing your purchases to create a personalized experience for you – and to get you to spend more money. To do this, they have created what they call the digital flywheel program which analyses 900 million weekly transactions, taking into account customer purchases, store locations, meteorological data, inventory data, and more. The coffee giant is leveraging this approach to predict and drive sales.

I don’t like the term AI, but they are using next level stuff here to micro target you with personalized offers based on your preferences and to get you to engage more closely with the brand. Starbucks has cracked the code here when it comes to integrating data analytics and planning.

They are successful not only because of the data and technology they have; they’re successful because of their people and their processes. I talked to Brian Nagy, Senior Demand Planning Manager at Starbucks, who is driving next level planning at the coffee chain and is at the forefront of their analytics and planning efforts. We talked about AI, demand sensing, demand shaping, and how they overcome the same planning challenges we all face. Here are the highlights of that conversation.

How COVID has caused fundamental shifts in consumer behavior

“One of the things we are looking at is the impact of COVID in terms of demographic change. We’ve seen massive population shifts in the last 3 three years – there’s been a mass movement of people leaving places like New York and moving to Florida and people from California moving to Texas. We’re trying to get ahead of that and make sure that our footprint’s there and getting ahead of our competitors. Having that information about demographic shifts is hugely powerful.”

On scenario planning for strategic planning/budgeting

We prioritize end-to-end capabilities and being able to assess all those outcomes, what we would call either strategic planning or budgeting. Companies tend to do this manually once a year, looking holistically at their business figuring out what their strategic direction looks like. We’re doing it with a lot of directional input and projecting trends forward. Those trends may or may not make sense but we need to know what is actually driving those plans. So being able to integrate some of this information like pricing scenarios and internal and external data to look at risks and opportunities is important.

“If you have a revenue or margin target you can input that and theoretically find the different paths of getting there within your mix, pricing, and customer base, and with regional approaches and different promotional strategies. It’s that capability to really dial in on how to optimize the business and get everyone understanding the risks and opportunities. That’s what S&OP and IBP is all about so it’s really just about getting a tool to get us there.

On the planning tools of the future

“What comes to my mind is an 80s stereo with a thousand different knobs. We want most of this to be AI and machine learning facilitated and with the capability to play with those dials and levers, whether it’s demographic data, different pricing alternatives, external data. We want to look at different things that can impact your business whether that be marketing strategies, promotional strategies, what you bring to the table from an innovation standpoint and being able to run those scenarios seamlessly and quickly.

“Obviously, this all starts with the demand plan but then it needs to go the whole way through the stream of the supply chain so we can think about things like warehousing strategies, ocean freight availability and costs etc. to the point where you have really robust contingencies in place.

“We’ve seen ocean freights just go through the roof with COVID – in a case like that what kind of scenarios have you thought about as a business? We need these things in place to steer a different direction if required. Planning tools should help facilitate those types of things just by asking “What if we go this route? What if we produce domestically versus importing?” That’s really the value of integrating a true end-to-end type capability; being able to assess the entire way through and make decisions as a group.”

On Starbucks overcoming the continuous challenges of planning

“I have been a manager for eight years now and the same principles always seem to work as far as having really robust exception management, having the right tools to understand the business, and getting the right data. 

“Sometimes you gotta be scrappy and pull it together but being clever and thinking of different ways to problem solve is important. Getting away from shipment data is something that’s been necessary because shipment history for most businesses over the last three years has been relatively worthless as an input. So just trying to come up with creative ways, looking more at POS data so we can get real-time signals of where customers are going where they’re headed.

“But largely it’s the same principles of forecasting that have always worked: the right exceptions, having the right training, and getting the team up to speed and just having Demand Planners know what to do and when they need to do it. Then the rest kind of takes care of itself.

 “The only other thing I’d say is being more vocal in the business and calling these trends out as we’re seeing them. I’ve seen demand planning emerge in a lot of different business settings since COVID. It’s been an unfortunate event for the world obviously but I think we’ve seen a lot of benefit on the demand planning side as more business leaders have recognized the value of it and are more willing to listen to what we have to say.”

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Post-COVID, brand royalty has dissolved, meaning that companies must work harder to retain them and that requires personalized experiences. If you’re not talking directly to the consumer the way they want to be interacted with and on the right platforms, you may lose them. Underlying this is predictive analytics for demand sensing and demand shaping which on the one hand helps us understand behaviours and on the other allows us to micro target customers in ways that get them in store and maximize spend.

 It’s not just about coffee or retail either, demand sensing and shaping applies to all industries. For further information on this, there is a chapter about Starbucks’ demand sending and shaping approach in my book Predictive Analytics For Business Forecasting & Planning.

Sales and Operation Planning (S&OP) is probably the least understood aspect in Supply Chain Management. It provides the key communication links for top management to coordinate the various planning activities in a business. The main objective is to develop an overall business plan, which integrates various functional planning efforts, and if S&OP is not integrated and working to a cross-functional plan, the business can fail. Here are the 5 main ways S&OP can revolutionize your company.

S&OP Eliminates The Battle Over Ownership Of Finished Goods Inventory

S&OP is top management’s handle on the business. It provides important visibility into the critical interactions between Sales, Marketing, Production and Finance. Under S&OP, manufacturing’s job is to hit the schedule, eliminating the battle over “ownership” of finished goods inventory. If actual inventory levels do not agree with planned inventory levels, it’s not a manufacturing problem (as long as they hit the schedule). It’s either a Sales and Marketing problem (the products didn’t sell according to plan) or a problem of product mix management in the demand management activity (the wrong individual items were made).

S&OP Means Better Integration Between Different Functions

Better integration between functional areas in a business is one of the major payoffs of S&OP. Once collaboration between the top levels of the functional areas is developed, it can be translated into detailed plans that are in line with top level agreements. This results in a set of common goals, improved communication and transparent systems.

S&OP Means No More Panicked Rushing

Without a Sales and Operation plan, the expectation is that somehow the job will get done, and in fact, it does get done, but at a price. That price is organizational slack:  excess inventory, poor customer service, excess capacity, long lead times, panicked operations, and poor response to new opportunities. Detailed decisions will be made by clerical level personnel with no guiding policy except “get it out as best we can”. The annual budget cycle won’t be tied in with the detailed plans and will be inconsistent and out of date before it’s one month old. An effective S&OP process removes all of these problems.

With S&OP The Whole Company Works To One Set of Numbers

One of the benefits of S&OP is being able to run the business to one set of numbers, whereby Sales and Marketing, Production and Finance all agree on anticipated sales and the company’s ability meet those sales. This inevitability requires collaboration. Top management should lead the cultural change to make that happen as this can only come from the top. An unfortunate but frequent approach is to invest significant time in setting up S&OP but then stepping back, allowing the company to be run by separated performance measurement systems or budgets.

S&OP Allows You To Shape Demand

If demand planners are aware of likely sales, production capacity and inventory, they can figure out to increase profit margins for particular products. If they know, for example, that a particular SKU cannot be produced in sufficient quantity to meet customer demand for the next month, they can then present this information to Sales and Marketing who can promote other products. This is just one example of the powerful ability to shape demand, which can only come after demand planners collaborate with Production and Sales and Marketing.

To Achieve These 5 Benefits, Management Must Do The Following

Commit to The S&OP Process

Top Managements’ first obligation is to commit to the S&OP Process. This means a major change in the organization. The change involves establishing the framework for S&OP, getting the right team together, participating in the process and so on. The change may also imply modifications of performance measurements and reward structures to align them with the plan. As part of the commitment to the planning process, top management must force the resolution of trade-offs between functions prior to approving plans. S&OP provides a transparent basis for resolving these conflicts.

Incorporate S&OP Into Your Strategic Planning

Senior management must be directly involved in the S&OP process, which should be directly related to strategic planning. They must ensure insight gained from the S&OP process is used to drive longer-term planning, and ensure operational plans contribute to strategic goals.

Understand S&OP Is Planning, Not Scheduling

View the S&OP process as a planning process instead of scheduling process. This will seem obvious to many, but in companies without an S&OP process, you can be forgiven for viewing S&OP as simply a means to produce a certain volume by certain dates, when it is so much more. This way, the company goes beyond simply producing a defined amount, and starts thinking strategically to maximize profit. Remember that the operation plan is not a forecast, but a managerial statement of desired production output.

All Functions Must Agree On The Numbers

The operations plan should be a part of S&OP and it should be in complete agreement with the other functional plans (Sales, budget and so on) that make up the business plan. Senior management must foster this integration and collaboration. [Editor’s note: See this guide on developing the Executive S&OP Meeting to reach one number forecast]

Continuously Review The Plan

Reviews of performance against sales and operations plans are needed to prompt re-planning when necessary. Overall, the company must consider continuous improvement to be an important ingredient in further improving the S&OP process. A successful supply chain focused company views S&OP as a journey, not a destination!