Regardless of the disruptions that COVID created, the pandemic was a blessing in disguise for the supply chain discipline, and particularly for S&OP. 

The best way to appreciate something is to realize the impact of its absence or malfunction. COVID made us all acutely aware of the importance of all aspects of the supply chain. Schoolchildren, in their remote classes, were taught about the need to balance supply and demand, and saw first-hand what happens when it goes wrong. The toilet paper hoarding frenzy made the public aware of core supply chain concept: the bullwhip effect.

The increased awareness that COVID created represents a renaissance for the supply chain field. It is up to the professionals in this field to maintain this momentum and continuously drive supply chain advancements.

This is helping not only to bring more people to the field but also to start paving elevated career paths for them. Other than the global increased awareness of the importance of the supply chain, below are the major changes driven by COVID:

1) Ad Hoc Cross-Functional Training

The major disruptions created an unusual phenomenon of ad hoc cross functional training that exists to this day. By training, I mean genuine professional curiosity for the various functions to learn about cross-functional constraints and how everything is interrelated.

It all started with the various segments of the business catching up on the intricacies of the supply chain. For many, Supply Chain Management was limited to order entry. Suddenly, concepts like lead time, forecast accuracy, inventory allocation, and distribution requirement planning started to be understood.

Also, financial acumen increased amongst S&OP participants as expediting and transportation costs in general reached a record high. The danger of not delivering client needs became another key theme. Post COVID, we are seeing an ongoing, stronger collaboration amongst S&OP cross-functional participants in S&OP.

2) Enhanced Process Maturity

In addition to the increased supply chain awareness that COVID created, risk mitigation became a key focus. Concepts that were previously unique to vanguard S&OP processes at the highest maturity level are starting to be embraced by less mature planning organizations.

The quality of the output might not be optimal but companies nonetheless are increasingly attempting to stress test their assumptions and conduct scenario planning to better mitigate risks.

3) Broadened Internal Planning Scope

The classic hierarchy amongst the various planning horizons has flattened. The pandemic forced a realization that Master Scheduling, Material Requirement Planning, Rough-Cut Capacity Planning, and Capacity Requirement Planning necessitate a stronger symbiotic relationship with S&OP. With that, the internal scope of the planning processes has broadened.

4) Broadened External Planning Scope

Many companies realized that agile planning necessitates extending the planning scope outside the walls of the organization. This mindset can be seen in practice with enhanced collaboration with key vendors (CPFR) and by increasingly leveraging outside data sources and research.

While I hope we never have to face a pandemic like COVID-19, as an S&OP practitioner and supply chain professional I hope we don’t lose the momentum these two fields are currently enjoying so we can face any future black swan events with more grace and agility than 2020.

To learn the fundamentals and best practices of S&OP/IBP, join us in Chicago from June 12-14 for the biggest conference of its kind. With several workshop sessions, networking, and panel discussions it is where you’ll make S&OP a reality in your organization or elevate an existing process. Click here for more details.

 Many companies strive to build, enhance, and protect their culture for a variety of reasons. Through corporate culture, companies provide an experience to their internal and external stakeholders that impacts the longevity of those multi-directional relationships. These relationships carry a premium value that directly impacts the bottom line.

In this article, I will describe why and how to build a data-driven culture that serves both internal and external stakeholders with a focus on the supply chain.

What is Culture?

One of the most comprehensive definitions I have encountered was provided by Dr. Norman Doidge in his book The Brain That Changes Itself, stating that “Culture is not just produced by the brain; it is also by definition a series of experience that shape the mind…we become “cultured” through training in activities such as customs, arts, ways of interacting with people and the use of technologies and the learning of beliefs and shared philosophies and religion.”

One’s identity is difficult to contain as we evolve, experience, and learn. This makes Dr. Doidge’s definition for the concept of culture appealing. We can all be on a self-correcting path by evaluating our experiences and their resulting takeaways. Although this broadly pertains to an individual’s own domain, the corporate world has a responsibility to improve the quality of the experience that their employees can ‘life’. These experiences might slowly but surely impact their weltanschauung [world view], and directly impact how employees evaluate and respond to what is around them. This is engrained in companies that have a well-defined culture.

“The starting point is identifying the mission statement – defining the purpose of the organization and how it serves its customers.”

As more and more companies mature in their culture, that responsibility grows to have an impact both internally and externally. The starting point of, course, is identifying the mission statement – defining the purpose of the organization and how it intends to serve its customers.

Internal Impact of Corporate Culture

Similar to how people become cultured in society as a whole, employees can build, embrace and enhance the corporate culture. The more serene and positive the culture, the higher the positive impact on the bottom-line. This is mainly driven by enhanced productivity through employees’ willingness to go the extra mile and adapt their efforts to support companies in dire times.

Additionally, higher employee retention rates have a direct correlation with minimizing additional costs. Based on stats shared by recruitment site www.indeed.com, hiring a new employee for most companies ranges between $4,000 and $20,000 – excluding salary and benefits.

Just some of the many external costs include advertising and marketing expenses, background checks and eligibility to work expenses, drug testing expenses, employee referral payments, and relocation costs. There are, however, additional costs that are harder to identify such as the time existing employees spend training the new hire and as a I see it, a “calibration” cost that is associated with transitioning a specific duty to a new employee while minimizing the risk of errors as part of the learning curve.

External Impact of Corporate Culture

When a positive culture is established, it is visible to the external stakeholders through employees’ interactions as well as the company’s overall reputation. The market positioning from the direct interaction between the clients and employees can be a competitive advantage that no one else can replicate.

The quality of service that the customer facing teams provide is a direct reflection of the quality of service the support teams behind the scene present as well. Culture is at the heart of all interactions.

While culture can positivity maximize the top line through repeat business from satisfied customers and converting new opportunities thanks to a positive reputation in the marketplace, it can also enhance the bottom line through cost reduction resulting from employee retention.

Key Characteristics of a Data-Driven Culture

There are few major characteristics of data driven cultures:

Objectivity

When internal teams are aligned on the importance of the data, it helps foster a safety zone in which to openly debate different points of view. This helps gain alignment without necessarily having to reach full consensus. This is where decision makers must look beyond their own interests while accepting that the best, data driven decisions win. Amongst many other things, objectivity means:

1.) Making decisions with the quality of the final product or service in mind beyond what is easy or convenient. The best opportunity I had to witness this approach was in the CDMO industry (Contract Drug Manufacturing Organization) and in the medical devices industry. The quality and availability of an end product that would help save a patient’s life – whether it was a drug or emergency medical device – would override any other consideration.

2.) Making decisions while accounting for both the current state of the P&L and the impact on future profitability. The best opportunity I had to witness this approach in action was in a global leading performance fabric company that is family owned. Critical decisions in that organization are never made without accounting for the potential long term impact on the future generations of the family.

Trust and Humility

Trust is a prerequisite to humility. The best way to build trust is through aligning on facts, and the best way to align on facts is through data. Where there is a healthy culture, employees across the hierarchy of the organization welcome constructive debate, have the humility to seek advice and feedback, and admit mistakes.

The major advantage that data driven cultures have lies in the ability to self-correct and apply lessons learned in transformation and agility journeys. This creates a unique competitive advantage. When major change-driving decisions are made and announced with transparency, and supported by data and facts, even the most difficult decisions such as reorganizations can be supported by employees across all levels. For that to happen, the foundation of a data-driven culture needs to be established so that such transparency can be accompanied with wisdom and compassion. It is worth noting that wisdom and compassion in a healthy culture is not limited to the top down, but also from the bottom up.

The Importance Of Data Integrity

The best way to appreciate something is to realize the impact of its absence or malfunction. Poor-quality data therefore can help a company embrace a data driven culture. When there is poor data within an organization, employees always welcome data integrity enhancements.

“The best way to appreciate something is to realize the impact of its absence or malfunction.”

Accounting for the fact that there is a hierarchy of planning based on horizon, investing in data integrity should be a strategic endeavor. The reasoning behind that is simple: the longer the decision horizon, the bigger the magnitude of the negative impact that using bad data has on an organization.

Once the negative impact of using bad data is comprehended, fixing the data becomes a strategic target that gets sponsored by the senior executive team.

How Processes Can Help Build a Data Driven Culture

Once data integrity is achieved, if it is not leveraged to its fullest extent, opportunities can be missed. The philosophical question posed by Dr. George Berkeley, an Anglican Bishop and philosopher in the 1600s, comes to mind: “If a tree falls in a forest and no one is around to hear it, does it make a sound?”

To ensure that organizations benefit from available data, robust processes should be implemented. S&OP/IBP is definitely a process that leverages data to its fullest extent, bridging the gap between execution and strategy with a direct impact on the bottom line. This is done in a a variety of ways. Some of the advantages consist of proactively providing visibility to constraints through the means of scenario planning and in ensuring cross-functional alignment on the integrated forecast.

“To ensure that organizations benefit from available data, robust processes should be implemented.”

An AMR Research study indicates that more than 50% of companies that implement S&OP experience increased sales revenue, along with other benefits that impact the P&L.

In addition to nurturing the data and giving it a home in the form of a process, to get the desired results across the different decision-making horizon the process itself needs to be well defined and established. The key components in ensuring the process progresses in its maturity journey include having the right champions, participants, and cadence.

Supply Chain/Operations is the Leader in Building a Data-Driven Culture

Amongst the main planning nodes that are part of a good S&OP/IBP process, Demand Planning & Forecasting represents the key node that helps shape the identity of this unique process. Although this function can fall under any part of the organization, it is well suited to being housed within supply chain. This doesn’t mean at all that S&OP/IBP is strictly a supply chain process. As the very name of Integrated Business Planning (IBP) indicates, it is a business process necessitating the integration of all the major business plans within the organization. However, the process is best suited to this segment of the business due to the lack of bias towards the demand signals that have a concrete impact on the rest of the organization.

A survey conducted by the Institute of Business Forecasting and Planning (IBF) indicated that 50% of the surveyed organizations house the Forecasting and Planning function under Supply Chain (Operations, Logistics, Procurement).

As such, to establish a data-driven culture from the ground up, once data integrity concerns are addressed, the right process needs to be established to derive the best results from the data.

“If we want objectivity, trust, and humility at the core of a data-driven culture, what environment should we provide employees to nurture it?”

One question we should all ask ourselves as leaders is that if we want objectivity, trust, and humility at the core of a data-driven culture, what environment should we provide employees to nurture it? This is where we must be clear on how to maintain positive human interaction in serving the people entrusted to our care.

To get up to speed with the fundamentals of S&OP and IBP, join IBF for our 2- or 3-day Boot Camp in Miami, from Feb 6-8. You’ll receive training in best practices from leading experts, designed to make these processes a reality in your organization. Super Early Bird Pricing is open now. Details and registration.

IBF research indicates that 20% of you are just starting an S&OP process, 35% of you have a basic process in place, 30% of you have an established process, while just 15% of you are at the Vanguard best-in-class level.

That leaves a lot of scope to improve S&OP and a lot of money left on the table. Let’s take a look at what separates a Vanguard S&OP company from the rest, and how you can get there.

Basic S&OP vs Vanguard S&OP

Not all S&OP is equal. For a Vanguard process, we have 3 core elements. The first is the process itself; the second is the organizational placement of the process; and the third is the tools and data and how they are used.

Defined Process: Vanguard companies have a very well-defined cross-functional process that people adhere to every single month. They tend to look 18-plus months ahead which many companies are missing as they think that they have S&OP in place when in fact it’s something different, something shorter term.

That’s unfortunately where a lot of the confusion between S&OE (Sales and Operations Execution) or and S&OP comes into play. While S&OE focuses on the execution changes of short-term schedules and resolving immediate issues on hand, the focus of a mature S&OP process is to proactively identify what constraints the business might face in the future through What-If Modeling to help resolve the constraints ahead of time.

Organizational Placement: Vanguard companies tend to define S&OP as a business process with visible sponsorship from the Senior Leadership Team. As a process with a defined RACI matrix (Responsible, Accountable, Consulted, Informed) the executive ownership and involvement in S&OP helps reinforce the importance of the timeliness and quality of the deliverables that each function needs to contribute.

Data & Tools: Regardless of the nature of the business (service or manufacturing) and the type of demand (MTO or MTS), it is crucial to have a well-structured Demand Planning function in place to initiate the unconstrained forecast. The first step is to have a robust statistical forecast supplemented by  documented assumptions gathered from the demand reviews with the customer-facing teams. For that to happen, data accessibility and integrity are two crucial components.

Once the forecast is constrained and the consensus is reached through S&OP, the forecast output needs to be loaded to the ERP system to ensure end-to-end supply chain transparency by having the consensus demand signals drive production and purchasing decisions.

Of note, beyond classic demand planning, demand sensing and shaping have proved to be more welcomed after the uncertainty created by COVID.

Vanguard Companies Have a Bias Towards Decision Making

Remember that S&OP is not a reporting forum; it’s a decision-making platform that aims to proactively identify and solve business problems across a range of functions. It’s the job of the S&OP Champion to facilitate this so there is one person coordinating all of that effort throughout the month.

“S&OP is a decision making platform that aims to proactively identify and solve business problems”

But at the same time, S&OP is a core team that is built around the different participating functions. You need representation from Finance, Supply Planning and the customer-facing teams (Business Development, Marketing or Sales). It is common practice that the Demand Planner tends to be the champion of the whole process and leads this team of cross-functional participants.

Those are the key contributors but – most importantly – we need to assign Director or VP level Executive Authorizers (EAs) from the participating functions to discuss issues and approve or adjust the output at the end of each S&OP step.

This practice encourages consensus at every step and avoids having to address misalignments at the very last step of S&OP making it a self-correcting process where executives are engaged throughout the journey.

The fifth step often referred to as the Executive S&OP Meeting is a forum to brief the General Manager (C-Suite level Executive or head of Business Unit). At this point only the GM should be asking questions and driving decisions that the S&OP team didn’t align on.

“A team environment is necessary for a ‘safety zone’ where we can always question the status quo”

Ensuring S&OP is a decision-making platform, not a reporting forum, also requires giving it its rightful place in the organization where it’s recognized as a process that bridges the gap between strategic planning and operational execution. Building a common culture and team environment is necessary for a ‘safety zone’ where we can always question the status quo and have healthy debates to drive the best decisions for the company.

Vanguard Companies Break Functional Silos

Vanguard companies break functional silos, so each function is working to continuously support the interests of the company in a customer centric way, not just the respective department. Going from siloed thinking to an end-to-end value chain thinking requires continuous education about the mission of S&OP and its benefits.

“Companies that still operate within silos are leaving a lot of money on the table.”

Operating in silos is a thing of the past. Companies that still operate within silos are leaving a lot of money on the table. They can no longer afford to do that – especially with the elongated disruptions and uncertain business conditions COVID created. If we as an enterprise understand that, coming together and driving that bias towards decision making comes naturally.

Breaking silos goes beyond having a good communication stream and an ongoing collaboration between the various functions. Vanguard companies that have an international footprint focus on a global integration of the various regional S&OP processes.

I see COVID as a blessing in disguise because it highlighted how supply chains can no longer be taken for granted and reinforced the need for decision-making forums like S&OP. We need to build on this momentum.

Vanguard Companies Don’t Care What you Call it

There is confusion in our field surrounding the differences between S&OP and IBP (consultants are to blame for this redundancy). They’re the same processes with different names and what we call it doesn’t matter; as IBF research shows, there is zero correlation between what you name it and the success of the process.

“There is zero correlation between what you name it and the success of the process.”

The important thing with S&OP or IBP is integrating the various business plans that the company has to ensure that we are all operating under one set of numbers.

The biggest risk is when Planning Executives don’t want to hire the right talent and start the S&OP process with the tools they have; they often believe they need to have planning systems with specific IBP modules which is a misconception. The logic and basics of S&OP haven’t changed much over the years. Delaying implementation can be costly as operational efficiency only happens with a structured, cross-functional collaborative framework.

Vanguard Companies Don’t See S&OP as Just a Supply Chain Process

A myth that people must overcome is thinking that S&OP is strictly a supply chain process. Although it tends to be championed by demand planning, S&OP can really fall under many umbrellas within the company. It fits well under the supply chain because that’s the field that benefits the quickest as S&OP bridges the gap between strategic planning and master scheduling and material requirement planning.

“Vanguard companies  don’t believe S&OP has to be owned by a Demand Planner or Supply Planner.”

Demand forecasters often report to the supply chain and S&OP all start with a forecast, so that’s another reason Demand Planners take the lead and why S&OP often emerges from the supply chain.

Vanguard companies, however, don’t believe that S&OP has to be owned by a Demand Planner or Supply Planner; it has to be owned by the Senior Leadership Team because, at the end of the day, it is a process that supports major decision making that can impact rough rough-cut capacity planning, cash flow, capital expenditure, and many other considerations at the strategic level.

Vanguard Companies Strive for Continuous Improvement

Because of how dynamic market conditions are, what a company did yesterday might not work today and will certainly not work tomorrow, so the ability to be agile and quickly pivot when needed is necessary. The need for continuous improvement in sales and operations planning makes it a dynamic process. The steps are the same but the inputs that you are willing to incorporate in the process should be regularly questioned and the assumptions revised. That’s why assumptions documentation is a key aspect of S&OP.

“When S&OP is done right, we’re talking about 2% being added to the bottom line.”

When S&OP is done right, we’re talking about 2% being added to the bottom line of the company so we should be open to improving the process and challenging the status quo on an ongoing basis.

Continuous improvement also comes back to stakeholder engagement in the process, having people willing to improve because they have a voice and the motivation to do so. Engagement isn’t’ about ping-pong tables and bean bags; it’s about educating, empowering and trusting the core S&OP team members to do what is right while measuring outcomes and celebrating even the smallest wins. This ensures that their work is meaningful and their time is not wasted.

The Next big Thing for Vanguard S&OP Companies

In the beginning there were 5 basic steps in S&OP including a data gathering step. Most companies have moved away from allocating a full week to gathering data, however. This is a shame because if you don’t have data at your fingertips, the journey towards Vanguard S&OP will be slower.

Of course, things change over time, and nowadays instead of data gathering I support moving to more of a portfolio deep dive and analyzing your SKU rationalization.

AI is the next thing to consider in terms of how advanced technology contributes to the evolution of S&OP. Beyond the various causal factors impacting projections, real time inventory and telematics data collection and analysis can cut costs and enhance the inventory optimization efforts.

Note from the Editor: As mentioned at the start of the article, only 15% of companies are operating at the Vanguard, best-in-class level. That leaves a lot of room for improvement and a lot of money left on the table. Even if you’re one of the Vanguards, check out IBF’s self-assessment maturity model for a comparative benchmark looking at best practices across People, Process, Data and Technology, and see what specifically can be improved in your organization.