Does your supply chain know how the commercial team intends to succeed in the marketplace? If not, how can it adequately support the commercial strategy?

In my experience as a commercial leader working in S&OP, I have observed that many supply chain/planning practitioners are highly motivated to grasp the commercial strategy. And that’s great because they have at their disposal several tools to support it. However, they tend to have difficulty in understanding what the commercial strategy is, often because they don’t know how to start the discussion with their colleagues in Sales and Marketing, or they’re unsure how to frame the questions which will give them the insight they need.

As somebody involved in S&OP but coming more from a commercial, not a supply chain background, I intend for this article to help professionals in supply chain, planning and S&OP better understand commercial strategy and priorities, so the S&OP process is not only balancing supply and demand, but also delivering on key company-wide objectives.

In order to meet this challenge, I suggest anybody involved in the S&OP process invest time in exploring the following three questions:

1) Where do we need to win?

I have found that this is often a better question than “What are the commercial priorities?” because the commercial reality is never one-dimensional, and it is rarely as simple as saying one business area is more important than another. Different revenue streams are often complementary. For example, it might be equally important to maximize profit on mature products in the portfolio as it is to drive new product launches, because the return from the former enables the latter.

A cohesive commercial strategy will have specific and differentiated commercial strategies for each business area. The original Boston Matrix is a simple and effective tool to help categorize and understand the dynamics involved.

In addition to this interplay of different business opportunities, the commercial strategy is also likely to have various short, medium and long-term dimensions. Understanding how these play out is also a critical enabler for the supply chain to develop proactive, commercially-aligned proposals.

This fundamental understanding of the commercial strategy is a crucial enabler for a Supply Chain team wishing to work closely with the Commercial function as it enables a much more focused and proactive partnership to drive business value. Leveraging this understanding, however, requires two further questions to be discussed, as outlined below.

2) How do we win?

The textbooks call this ‘key drivers of competitive advantage’. This is what it will take for the organization to win in its target market. Again, there are various tools which are used by marketing teams to develop their strategies in this area. One of the best known is Porter’s Generic Strategies which describes 3 generic strategies to achieve competitive advantage. In short, these are based on:

Cost Leadership: Minimizing costs relative to your competitors’.

Differentiation: Encompassing product/service characteristics, branding, distribution and promotion.

Focus: Concentrating the business in one or few market segments only.

Understanding how the Commercial team’s plan to win in each of its markets is essential as this strongly shapes the supply chain requirements of the business. For example, a premium product applying a Differentiation strategy will more often focus on product quality enhancements and service levels and would not unduly risk these in order to reduce costs. However, a more mature product in a commoditized market drives a greater requirement for continuously reducing costs.

3) How can we work together to ensure we win?

Having understood these key elements of the commercial strategy, the Supply Chain function is then able to drive targeted and relevant discussions with the Commercial team to create business value. The Supply Chain has many opportunities to influence the costs, working capital and product/service characteristics which ultimately shape the offerings made to customers.

However, many commercial stakeholders have limited experience and understanding of the supply chain. This means that when Supply Chain provides the Commercial team with initiatives to support overall business objectives, there is little understanding about how it could work. Supply chain/planning professionals should relate supply chain/planning initiatives to the commercial strategy. This allows both parties to anchor the discussion in the fundamental commercial requirements and this helps create the energy and engagement to support cross-functional partnership.

Examples of such initiatives and their associated commercial impact include:

• Supply chain segmentation
  • Adapts the supply chain configuration to align with the key business drivers (how do we win) for each key business area and hence optimize costs, service and working capital for each commercial strategy element.
• COGS reduction
  • This may be delivered by various routes including procurement, portfolio rationalization or process reconfiguration. When carried out in collaboration with the commercial team and focused on the relevant marketing strategy, these are supported and championed by the commercial team.

Using the three questions above as the basis to build better understanding of the commercial strategy and its requirements is a very practical approach to building improved collaboration between the Commercial & Supply Chain teams. Reviewing some basic standard tools (such as the Boston Matrix or Porter’s Competitive Strategy model) as outlined above can help prepare the Supply Chain team for a productive engagement with the Commercial function which drives useful insights into the commercial outlook and strategy.

These discussions are a critical enabler for driving mature S&OP discussions and decision-making which extends beyond demand and supply balancing and directly enhances a business’s competitive advantage.

The complex, cross-functional nature of S&OP and the cultural change required for effective execution mean that many organizations struggle to deploy and sustain high-maturity S&OP processes. The scale of the change involved often means that business outcomes are not realized for 1-2 years.

However, deployment of S&OP has been positively influenced by evolving change management approaches. S&OP deployments have typically adopted a linear approach to execution and successful S&OP change programs have included the following elements:

• Development of a clear and specific vision for the role of S&OP in the overall business
• A roadmap to execute the S&OP process with defined benefits expectations and milestones
• Senior leadership support and advocacy
• Cross-functional support for adoption of S&OP to drive key strategic objectives
• A development plan in which the process building blocks of S&OP are built in sequence (e.g. demand planning, supply planning, reconciliation and financial management approaches)
• Longer-term enablers of process sustainability are developed and introduced over time (e.g. aligned reward & recognition systems, role specs, cultural changes)

The Usual Linear Approach To S&OP Deployment Usually Doesn’t Work

These approaches have been effectively applied by businesses since S&OP was introduced in the mid-1980s. However, research continues to show that only 25-30% of deployments result in mature and sustained S&OP processes. One reason for this is that the traditional linear approach to transformation requires several critical enabling elements to be in place including;

• a clear and practical definition of the key benefits that engages and activates key leaders across functions
• senior leader attention and engagement to drive the discipline and standardization required for S&OP (as these are often significant changes)
• acceptance of sequential delivery of business benefits over an extended period

Many businesses find that, despite a sound deployment and change approach, these critical elements are sub-optimal or not present and this undermines the change management efforts to adopt S&OP. For this reason, organizations are now starting to explore new approaches to S&OP deployment, inspired by the growing use of agile working principles.

Agile Working In S&OP Deployment

Agile project management was developed and proven in the field of software development but is now widely used in a range of applications. Agile provides a framework, including tools, structure, culture and discipline which allows project planning and execution to be integrated and creates an incremental and flexible approach to delivering project benefits.

This way of working can meet the needs of S&OP deployment very effectively as it addresses the fundamental challenges of S&OP change programs.

Agile Means Securing Early Benefits Than Can Be Extended

S&OP is a complex process with numerous components and inter-dependencies. This can mean that creating the foundation for the process across an enterprise takes time and project teams can be distracted and overly-focused on the technical complexity of the project. However, the agile approach ensures an immediate focus on business priorities and outcomes and seeks to deliver early benefits which are then incrementally extended.

Agile working delivers early benefits which are then incrementally extended

A practical example of this might be to deploy S&OP in one business unit or region (rather than across a whole enterprise) in order to rapidly create a practical process which delivers value within 6 months. The learnings from this approach can then be readily applied to a wider deployment.

Agile Is Collaborative

Agile is also built on a collaborative approach in which technical and functional specialists work alongside prospective end-users in order to develop solutions and ways of working. In S&OP, this could mean engaging participants from the Commercial and Finance functions as well as Supply Chain specialists. This allows the deployment initiative to recognize and address the range of needs across the business from the outset. This early influence of cross-functional stakeholders is often seen in the most effective linear S&OP change management approaches but in the agile approach this is a core element of the project management framework.

Agile working creates widespread commitment and accountability

A key benefit of agile working is that the collaborative approach referred to above creates widespread commitment and accountability in the proposed deliverables of the program. This is especially helpful in S&OP where a broad range of participants is critical to the effective operation of the S&OP process.

In typical linear S&OP deployments, change management approaches attempt to engage commercial and finance leaders in the outcomes of S&OP. However, as these leaders often have little experience of S&OP it is very challenging to bring theoretical benefits to life for these cross-functional stakeholders. The agile approach however engages them practically to consider how S&OP supports their strategic objectives and how to design ways of working to realize this.

Agile Is Iterative & Adaptive

Finally, the agile approach emphasizes an iterative and adaptive approach to both the development of the solution but also the delivery of benefits. This is particularly helpful in S&OP where traditional deployments focus very heavily on creating the S&OP solution and getting this ‘over the line’ into routine operation but often focus less on the need for concerted work to sustain and enhance the process over time. Again, the most effective traditional S&OP deployments build this element into their programs, but the agile approach ensures that this ongoing, iterative mindset is present from the start.

As organizations strive to implement S&OP as a core business process alongside the wide range of pressures and demands in their daily business, new insights and approaches to S&OP deployment are increasingly valued. Over the next few years, the learnings from the application of agile working to S&OP deployment is sure to have a role to play in this.

Learn about S&OP methodology from renowned leaders at at IBF’s Business Planning, Forecasting & S&OP Best Practices Conference in Orlando from October 20-23, 2019.

Whilst S&OP was first developed and applied in the 1980s, best practice for its design, deployment sustainability is still fervently debated. A common theme in these debates is where in the organisation the process should be owned in order to maximize S&OP take-up, effectiveness and sustainability. Traditionally, S&OP was seen as a supply chain-driven process and was often owned and led from the Supply Chain function. However, there is now frequent challenge to this assumption, so where should S&OP be owned?

Before addressing that question, it is important to clarify why ownership of S&OP is so critical, and what we actually mean by ownership.

Why S&OP Ownership Is Important

S&OP is a complex planning process with significant cross-functional participation enabled by specialist technical and analytical inputs. The complex and distributed nature of the process and the need to sustain it on a monthly cycle means that strong ownership is required to maintain the array of contributions but also focus them on the key strategic priorities for the business.

It is useful to categorize 2 forms of ownership within S&OP:

1. The co-ordination and facilitation of key process inputs – these typically include significant technical expertise and include forecasting, supply planning and inventory management and require the use of advanced tools and software
2. Leadership of the process – this is a broader leadership role, ensuring collaborative working to drive the process towards optimized enterprise-level decision-making and also ensuring an ongoing, high-level organisational focus on S&OP as a core planning vehicle across the business.

In the early stages of S&OP maturity, when the focus is primarily on balancing demand and supply volumes, the primary emphasis tends to be the co-ordination of the key process inputs (such as demand forecasts and supply plans) and synthesizing proposals for action from them. The Supply Chain function routinely takes ownership of this role and this is typically very effective.

However, as S&OP maturity evolves the requirement for ownership of the process becomes more and more focused on business leadership and decision-making. It is in this role that the Supply Chain ownership becomes less appropriate as the scope of the role becomes broader and more outward-facing with the process aiming to support the execution of enterprise business strategy in its broadest sense.

The Options for S&OP Ownership

Supply Chain – Whilst many businesses delegate overall ownership of S&OP to the Supply Chain function, this is often problematic as the intent is for S&OP to be perceived and applied as an overall enterprise planning approach, not simply a Supply Chain-focused demand and supply balancing process. Supply Chain ownership tends to signal the latter and this can reduce Commercial engagement in the process and potentially limit the impact of the process in driving broader cross-functional strategic and operational alignment. Furthermore, as the decision-making driven by S&OP goes beyond the scope of the Supply Chain function (e.g. commercial trade-offs across the portfolio or regions, promotional priorities, launch scheduling etc.) this is not a natural fit.

Supply Chain ownership tends to reduce Commercial engagement in the process and potentially limits its impact

Commercial/Sales– A key advantage of Commercial ownership of the S&OP process is that this firmly demonstrates the objective of S&OP as a core business process driving tangible business outcomes such as sales, profitability and growth. Commercial ownership of the process also provides an external-facing perspective and the key drive to align S&OP decision-making with the creation of value for customers. These are fundamental objectives in S&OP and the Commercial function is uniquely placed to ensure that these are at the heart of the monthly S&OP cycle. However, planning is typically not a dominant cultural theme in the Commercial function and in practice this means that it is often overlooked as the overall S&OP owner. Notwithstanding this, Commercial ownership of S&OP offers the benefit of strong customer focus and P&L accountability which can then be applied through the process to maximise customer value and business outcomes by driving cross-functional collaboration.

From a capability perspective and in terms of cultural fit, Finance is well-suited to take on the overall ownership of S&OP

Finance – Finance have a key responsibility in the business to provide stewardship and focus on the fundamentals of business performance including sales, profit and growth. In many businesses, the Finance function also take ownership for core planning processes (including of course financial planning or budgeting). In this role, Finance routinely works cross-functionally to gather and align business plans and financial data in order to support senior management decision-making. These elements are also critical in S&OP. The Finance function are therefore well-positioned, both from a capability perspective and in terms of cultural fit, to take on the overall ownership of S&OP. As S&OP maturity evolves they are then also able to directly manage the integration of S&OP and financial planning and ultimately the extension to full Integrated Business Planning (IBP).

I Would Choose..

As a result of these considerations (and my experiences in S&OP/IBP deployment), my preference would be for Commercial ownership, especially for a mature S&OP/IBP process. Whilst this is the ideal scenario, for some companies it is not the right cultural fit. Recognizing the strong connection between S&OP and financial planning (especially when developed to full Integrated Business Planning or IBP), ownership of S&OP by Finance can also work well.

I would maintain however that the Supply Chain function retains a strong leadership role with particular focus on the range of technical processes underpinning S&OP including forecasting, demand planning and supply planning. In this approach, the Commercial or Finance function would take the overall ownership of the core business process to drive optimal enterprise decision-making but in doing so, work in close partnership with the Supply Chain as expert providers and enablers of the technical S&OP processes.

Learn more about building truly collaborative S&OP at IBF’s Business Planning, Forecasting & S&OP Conference in Orlando from October 20-23, 2019. Hear our keynote, the CEO of WD-40, share his thoughts on the fields of forecasting, analytics and planning, and how they are more important than ever to succeed in today’s business environment. Learn more here.

There’s a huge amount of information on the deployment of S&OP – at the last count there were around 40 million hits on a combined search of S&OP and IBP. Despite all this information and the many years of cross-industry experience of applying S&OP since it was developed in the mid-1980s, the success rate of deployments is still disappointingly low at just 25-30%.

Whilst some of the failures of S&OP deployment become apparent in the first months of execution, it is often the case that engagement and support for the process diminishes over time. Its value is gradually eroded to the point where it is no longer a key process in the organization.

There are two common drivers for this:

• S&OP is fundamentally a cross-functional process, and most organizations are not set up to enable and sustain ongoing cross-functional collaboration
• Important elements such as process design, systems and data provision are frequently not underpinned by critical softer enablers (such as reward and recognition, empowerment or other cultural factors)

Throughout my career as a commercial leader, IBP leader and General Manager, I have often experienced the challenges in building and sustaining cross-functional capability. As a result, I developed a generic framework to set out the key enablers for this capability which are often missing from deployment programmes. This is summarised in Figure 1 below.

When applied specifically to the challenge of S&OP deployment, this framework highlights three enablers that typically receive inadequate attention:

• Development
• Empowerment
• Continuous Improvement

1. Development

S&OP deployments often focus on the specific technical or functional capabilities to execute the process (and normally with an emphasis on Supply Chain roles such as Demand or Supply Planners).  However, in order to provide strategic enterprise support for S&OP, several other aspects of Development are essential:

• Cross-functional leadership – Building and leading cross-functional teams requires a set of specific knowledge, skills and behaviours are often neglected in traditionally organized businesses. This wide range of capabilities is built upon a fundamental understanding of the culture, perspective and goals of the various functions involved. However, it extends beyond this to include building high-performing enterprise teams and leadership capabilities to help functional specialists achieve company-wide goals.
• Tailored support across functions – Equipping every participant in the S&OP process to fulfil their role is of critical importance. In particular, the experience of participants in the first few cycles of a new process fundamentally affects the probability of the process being sustainable.  Early problems rapidly lead to disengagement and create a poor reputation for the new process from which it is extremely difficult to recover.  Just as significantly, creating the infrastructure to induct and develop new entrants to the process over time is central to ongoing sustainability.  It is therefore crucial to invest in engaging approaches to capability building across the various functions involved. Supply Chain roles tend to be relatively well-supported but the roles of, for example, product managers, sales teams and finance analysts must also be considered.
• Development Paths – Most organizations tend to develop leaders along functional lines late. This creates a serious gap in the leadership capability for sustainable S&OP where enterprise leadership is critical at every step in the process cycle. In order to address this, a development and succession planning approach is needed which recognises this need. This approach should develop cross-functional leadership skills at various levels in the organisation structure and across the Supply  Chain, Commercial and Finance functions.

2. Empowerment

The most effective and efficient S&OP processes are those which are executed with a clear central principle of empowerment. This drives decision-making to the lowest level in the process and escalates issues for executive level decision-making only by exception. This maximises the pace of the process and drives essential team working behaviours at all levels in order to make enterprise-optimised decisions. It also ensures that where key scenarios or decisions need to be discussed by the senior team, they are able to devote quality time to these rather than being overrun by minutiae which could effectively be managed at lower levels.

This requires two fundamental enablers:

• Information sharing – In order to be fully empowered, an S&OP team needs to share information in a consistent way across the team, with standard definitions, metrics and analyses. This ensures that a scenario is consistently viewed by all team members. Individual teams or functions tend to develop their own approaches to reporting but agreeing a single common approach is the first step to making aligned enterprise decisions. It is also important that the team is very clear on the goals and performance measures for the business so that they can be confident that their proposals and decision-making align with these business goals.
• Clear boundaries – It is also critical that S&OP or IBP participants are clear on their specific role, and that of their colleagues, in the process. In its most fundamental form, this includes a transparent description of where each decision should be taken and, where necessary, any thresholds or conditions that apply.  For example, a process might define that a local manufacturing site can make decisions on local inventory within certain limits but beyond those limits an approval may be required at the next S&OP or IBP step. Emphasizing the importance of boundaries in the context of empowerment may seem contradictory but research into high-performing empowered organisations reflects the criticality of this approach. It is of course equally important that these boundaries are respected. This can be a challenge for senior leaders who now are required to participate in a monthly cross-functional process to drive decision making when they may have had the freedom to make wholly independent judgements in the previous environment based on their functional seniority.

3. Continuous Improvement

The real value achieved by S&OP is delivered though the ongoing optimization and alignment of enterprise decisions over time. When set up with the relevant support infrastructure, S&OP also becomes more efficient over time. However, many deployment programmes understandably focus on getting a new process up and running and pay relatively little attention to the critical foundation to sustain and improve the process, thus undermining its ability to deliver value year after year.

A number of specific tactics are useful to secure continuous improvement in S&OP:

• Network of champions – Whilst building a network of change agents or champions is sometimes used as an initial change management approach, it is also a very effective means to maintain energy and focus on a newly-deployed process. Selecting this group of champions based on their ability to lead, communicate and influence, not functional skills alone, is critical. Investing to maintain this network and develop its members provides the means to keep S&OP on the agenda across geographies and functions.  This network can be used to identify improvement opportunities and work alongside the relevant expert groups (e.g. IT for systems issues) to continuously build capability and performance in the process.
• Clear ownership of S&OP process standards – In an organisation of any size, it does not take long before a region, manufacturing site or commercial team decide to tweak the standard process. In this context, it is critical that there is both defined ownership of process standards and also a transparent change control process. This ensures that proposals for improvement are not just ignored, but are systematically reviewed and incorporated where suitable into a standard corporate process.
• Audits/Healthchecks – Audits or ‘healthchecks’ are also useful tools to combine the upsides of process innovation and learning (and at the same time mitigate the potential negative effects of lack of process adherence). However, it is essential to set up the audit objectives carefully and transparently (and with full senior leader support) to ensure a focus on continuous improvement and avoid an excessive bias towards simply checking and monitoring adherence.

I recently led the successful deployment of global S&OP in a top 10 pharmaceutical company. It covered all business units and regions in this $40 billion turnover organisation and lasted 3 years. During that time we learned a lot – and boy, there are some things I wish I’d known at the start.

1. Most Expert Advisers Cannot Engage Commercial Leaders in S&OP

I took on the leadership of the project with a background of 20 years’ experience as a senior commercial leader, not an S&OP expert. I was therefore relying on the subject matter experts to help me energize and engage my commercial colleagues (and others outside the supply chain) in S&OP.

However, when asking the simple question ‘why should a General Manager support and lead S&OP?’ I found that most experts would either;

(a)   list all the supply chain parameters that would be improved (forecast accuracy, plant utilization or OEE, adherence to plan etc) – most of which the GM had never heard of, much less cared about day-to-day, or;

(b)   list a series of very high level statements on improving revenue, margin and growth without explaining how S&OP could shift company performance on such major fundamentals.

This immediately creates a credibility gap and the critical engagement of commercial stakeholders can be lost at the first interaction. The learning for me was clear – S&OP process is an enterprise-wide process and the deployment team must have the genuine capability to connect and engage cross-functionally with credibility.

2. It Doesn’t Need to be Perfect

There is no shortage of advice on process design for S&OP. The basic concepts were established over 30 years ago and a Google search on ‘sales and operations planning’ yields 25 million results. Creating and documenting the S&OP process is relatively straightforward but process descriptions tend to be very detailed, and I found that there was often a desire to deploy the detailed process across all business units and regions as rapidly as possible.

This leads to excessive expectation and at the same time overstretched both the deployment and business-as-usual teams engaged in the process. This, in turn, meant that initial expectations were at risk of not being fulfilled and at a time when engagement and sustainability was still fragile.

The learning here is that the process does not need to be perfect and all-encompassing from day 1. The chances of success can be greatly improved by;

1. Identifying key business areas in which to start deployment (and these could be specific brands, a business unit or a geography) and focusing attention and quick wins only on these
2. Focusing on specific aspects of the overall S&OP process to address first (e.g. starting with the demand forecasting and review process)

3. It Takes Longer To Embed & Stabilize S&OP Than You Expect

The initial plan was to train and coach the key stakeholders (e.g. General Managers, Demand Planners, Supply Planners, and Financial Controllers etc.) in the new process over a period of 3 monthly cycles. Following ‘classroom’ training on the process, hands-on coaching and practical support was tailored to the role and level of each key participant. The degree of coaching was gradually reduced over time so that ownership, backed by the key capabilities to deliver it, was built up in each individual.

In some cases, this worked perfectly, in other cases further cycles of support were necessary (for example 5-6 months, rather than the planned 3 months). However, the quality and stability of each individual S&OP activity (e.g. a Demand Review Meeting, or DRM) was greatly enhanced by this extended support. This had a disproportionately important impact as the shortfalls of a sub-optimal DRM, for example, had a knock-on effect through the rest of the monthly S&OP cycle and could quickly affect confidence and commitment to change.

4. Eliminating Duplicate Processes Is As Important as Deploying The New S&OP Process

The natural focus on most S&OP deployment initiatives is to create and execute the new S&OP process. However, the impact of allowing duplicative processes to continue operating in parallel to S&OP is not always recognized (e.g. a business unit performance or financial review or elements of the corporate financial planning and forecasting processes).  In my recent deployment, there were many pre-existing local or function-specific processes to fill the gaps that existed before S&OP was adopted. These were often locally developed, and were changed whenever a new leader took over a business area or team as their own personal preferences were adopted in their teams.

In the early stages of deploying the new S&OP process it was critical to deliver incremental value, but also to secure and sustain the engagement to maintain the new standard process. Where the goals and outputs of the new S&OP process were duplicated in other processes, then leaders started to make choices on which process they would favor and support. The lack of commitment to the corporate standard and losing management focus became clearer as the deployment progressed.

I learnt it is critical to establish the corporate governance of the new process in the initial stages of deployment and to ensure that there is sufficient senior management commitment to eliminate parallel processes.

5. Senior Leaders Need Help, but May Not Ask For It

Most S&OP deployment programmes readily recognise the importance of senior leader engagement.  However, engaging and working with senior leaders is often not well targeted to achieve an impactful and sustained contribution from them. Furthermore, these individuals may not recognize the support they need to lead and sponsor the process effectively. My experience was that, as a programme team, we initially invested time in 1:1 meetings with senior stakeholders to explain the overall flow of the S&OP process, its benefits and the key inputs required from them in the monthly cycle (e.g. sign off of a demand forecast).

These leaders frequently did not have the personal experience to support the process in the same way they would in their own functional area. This was especially true for commercial leaders who had not been involved in S&OP before. Supporting these people by providing tips and tools on how to execute the leadership role was very well-received – even if not explicitly requested in the first place.

My specific learning in this topic is that there are several areas of support that senior leaders found useful;

• A cheat sheet to ask what process metrics and behaviors he/she should ask about when on a visit to a business unit
• Contracting with the leader to observe and provide feedback on the execution of their S&OP meetings
• Having access to peer support networks, for example by connecting a GM to a peer in another region where the team have made positive progress and the leader has established good practice in their process leadership

Conclusion

The successful deployment and sustainability of S&OP is undoubtedly a tough cross-functional challenge. I believe that combining the learnings above with the widely available information on S&OP process design will give you a head start for a successful deployment – good luck!

So you’ve been tasked with implementing or improving S&OP or IBP. Where do you start? What does the Commercial function really need from S&OP? What must Demand Planners and Forecasters do to drive value across the whole business? Luckily for anyone implementing S&OP or IBP, the critical success factors (CSFs) are well codified. Here is a quick-start guide on how to implement S&OP.

Process: A robust S&OP process description which is deployed with discipline and consistency.

Systems: Providing effective and well-integrated systems to facilitate execution of a regular monthly planning cycle.

People: Building capability across the enterprise functions and creating the organizational structures and teams to leverage this capability.

Mindsets & Behaviours: Creating alignment on the goals of the S&OP process and sustaining the engagement of all the various cross-functional stakeholders to drive an impactful enterprise process.

Lesson 1: Demand Planners And Forecasters Need To Be More Than Back Office Number Crunchers

Discussion on the role of demand forecasters and planners in delivering these CSFs is almost always limited to the first three themes. These key positions are often perceived as technical specialist, back-office roles. It is clearly correct that demand forecasters have a key role in providing process expertise, leveraging the value of IT systems and bringing individual analytical capability to the S&OP process. However, they have the potential to have a much broader impact on enterprise S&OP/IBP.

A confident and robust forecasting capability can have a very significant effect on one of the most challenging requirements for great S&OP/IBP – strong cross-functional engagement.  A key reason for failing to deliver this engagement is the perception (most often in the commercial function) that S&OP is an administrative, back-office process to manage the supply chain. Forecasters and planners have an important role to play in changing both the perception and reality of this situation through their interaction with other functions and the breadth of their contribution.

When operating at the top of their game, the forecaster needs to be able to challenge their commercial counterparts.

The 4 Things Demand Planners And Forecasters Must Deliver

As a commercial leader I experienced a very similar context with market research and business analysis teams and their relationship with marketing and sales teams. They were frequently seen as ‘number-crunchers’ providing data in response to a specific question or need but lacking the broader business insight. This reduced their potential to add value to business decision-making, resulting in sub-optimal decisions. In order to address this, I developed a simple description of the expectations of market researchers and analysts and I present this below, along with a brief explanation tailored to the case of demand forecasters and planners in S&OP/IBP:

Figure 1 – Four Levels of Delivery for the Demand Forecaster/Planner

The 4 requirements of Demand Planners and Forecasters are underpinned by technical knowledge but any number crunching must facilitate proactive discussion and decision making.

Level 1: Accuracy

This is the foundation for the forecasters’ contribution. Basic confidence and credibility is built upon regular, reliable provision of accurate data. This is sometimes seen as the limit of what forecasters can or should do.

Level 2: Insight

Once accurate and reliable data is provided, a key role for the planner is to turn the data into insight. This requires a good understanding of the business context, its key drivers and how the data fits with these. A forecaster that provides compelling context and narrative in addition to the data will engage cross-functional partners much more readily.

Level 3: Proactivity

A key next progression for the forecaster or planner is to proactively apply their insight and business awareness in order to ask ‘what if’ questions and be prepared to address these. By thinking through what the likely commercial reaction will be to provision of some core data, it is likely that the forecaster can pre-empt these questions through further analysis. Driving a discussion with the commercial team armed with this preparation positions the forecaster as a key partner, not a reactive back-office number-cruncher.

Level 4: Challenge

Perhaps the most difficult step in this model beyond Proactivity is to bring challenge to cross-functional partners in the S&OP process. This is, however, a critical capability in order to build credibility and genuine partnership. When operating at the top of their game, the forecaster needs to be able to challenge their commercial counterparts (who are often at more senior grade levels in the business). This applies most often to the process of agreeing a consensus forecast in the demand review stage of S&OP.

The 4 Capabilities Demand Planners & Forecasters Need

So what does this mean for the capability requirement for demand forecasters and planners?  In order to meet the expectations outlined above, there are four key areas of development:

1. Functional Expertise

The foundational technical skills for a forecaster or planner include analytical and numerical skills, statistical techniques and systems knowledge, and the judgement to select the most appropriate of these to overcome problems in supply chain and the broader organization. This is, of course, a critical foundation but broadening capability beyond this functional expertise is critical in order to pursue the higher levels of business value (see levels 2-4 shown in Figure 1).

Without the understanding of business context, the output generated by the forecaster can only ever be provided as data.

2. Business Understanding

This is the awareness and understanding of the business strategy and how this translates to the specific goals of not only supply chain, but also those of the commercial (Sales and Marketing) function. This understanding then enables the forecaster to interpret data and analysis in terms of its business significance. This is the starting point for creating Insight (Level 1) – without the understanding of business context, the output generated by the forecaster can only ever be provided as data. Higher levels of capability in business understanding allow the forecaster to add more and more value to the enterprise process, culminating in the ability to proactively explore other relevant areas of analysis or to challenge cross-functional stakeholders in their interpretation and application of forecasting and planning inputs.

3. Mindset & Leadership Behaviours

These are the mindset and behaviours needed to leverage the functional expertise and business understanding outlined above. From a mindset perspective, this includes having a strong conviction in the value of the supply chain in driving business success and the need to work as an equal partner with cross-functional stakeholders to realise this. Proactively acting on a positive mindset in these areas is much more likely to lead to enhanced cross-functional working than waiting to be invited to influence decisions in forecasting and planning. On leadership behaviours, key elements are skills in challenging and influencing and also in ‘storytelling’ (creating compelling narratives with clear recommendations). These higher-level mindsets and behaviours are essential for Level 4 delivery outlined in Figure 1. They allow the forecaster to greatly leverage the more traditional functional skills and to be seen as an invaluable enterprise resource in the development and execution of company strategy.

4. Building Networks

These are the ability to develop and leverage both internal and external networks to add value to the forecaster’s contribution. Examples of external networks would be to gather best practice from outside the organization and to use this insight to enhance current and future practice. This can help the forecaster or planner to develop capability across all four proposed levels of delivery. Internal networks provide an excellent opportunity not only to maintain consistency on process execution but also to drive continuous improvement. This is often used to share learning and form communities of practice around particular processes or systems in use in an organisation. However, further value can be created when forecasters share learning and facilitate each others’ development in the softer, behavioural aspects of their role (how to build productive relationships with commercial colleagues, how to challenge senior staff in forecasting discussions etc.).

Bottom Line: Every Function & Process Must Support Cross-Functional Collaboration

So what does this mean for businesses wanting to leverage the contribution of forecasters and planners? As outlined above, these roles can deliver value, not only for their traditional narrow role in providing data and analysis, but more broadly in proactively providing the great insight and proactive challenge that creates a great cross-functional S&OP/IBP process. In order to tap into this great enhancement route for S&OP/IBP, development programmes are required that go beyond the traditional boundaries of technical skills.

This requires broader recognition of the enterprise value created by the highest level of professional capability in forecasting and planning. This recognition then needs to be backed with investment in the targeted development of forecasters and planners in leadership behaviours and mindsets and in the creation of internal networks, underpinned by a supportive culture and appropriate reward and  recognition structures. Organizations that invest in this capability will not only create a competitive advantage in today’s market but will also start to build the key competencies required to fully exploit the various technological enablers for forecasting being explored in supply chain digitalization.

Confronting the Harsh New Reality In S&OP and Demand Planning

Supply chain teams across all industry sectors have been forced to confront this reality and improve S&OP to reduce risk. This initially leads many companies to implement workarounds in an attempt to cope with these environmental factors. However, many organisations have taken a bolder view and are embarking on programmes to enhance their execution of existing and established supply chain management approaches (such as S&OP or IBP). Businesses are also beginning to explore emerging and innovative tools (such as leveraging Big Data, digital connectivity/the Internet of Things (IoT) and new analytics techniques).

Going Beyond Supply Chain To Enterprise-wide

It is tempting to see these initiatives as supply chain transformation programmes but the reality of the Volatility, Uncertainty, Complexity and Ambiguity (VUCA) environmental challenges, and the nature of the solutions that can address them, is that they are enterprise-wide transformation initiatives.

Attempting to run an improved version of S&OP, or develop to full Integrated Business Planning (IBP), is pointless without full cross-functional participation. Similarly, if a company cannot operate a joined-up and enterprise-optimised decision making process today with the limited data it has available, adding even more data from the world of Big Data and IoT will simply create overload rather than provide better market understanding.

 Most crucially, these changes require fundamental behavioural and mindset change across functions and at all levels.

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The Buzzword That Has Never Been More Important in S&OP: Cross-functionality

Achieving and sustaining such enterprise-wide change is challenging; these processes are highly cross-functional and have many inter-dependencies across the business that must be aligned. Deploying S&OP/IBP or exploiting new customer data requires a diverse scope of solutions spanning people, process and systems to be coordinated carefully.  Most crucially, these changes require fundamental behavioural and mindset change across functions and at all levels to secure a sustainable and effective change.  All these factors point to the criticality of excellent change management both across functions and multiple dimensions. Soft-skills, influence, leadership and collaboration are key.

Gladwell provides a clear toolbox for change and the ability to track and measure key progress measures.

Selecting a Change Management Model – ‘The Tipping Point’ By Malcom Gladwell

There are many established frameworks to codify and plan change, but which one do you select and deploy? A key consideration in this context is the challenge outlined above – achieving sustainable mindset and behavioural change through the whole enterprise.  This requires a change approach that engages individuals at all levels right from the start and provides them with the tools and the ability to drive change from their own area of activity.

A change framework worth exploring in this context is the Tipping Point change approach (based on the concepts first developed by Malcolm Gladwell in his book of the same name) and later described by Shapiro in ‘Creating Contagious Commitment’ (2003).  The great benefits of its approach are its intuitive simplicity, a clear toolbox for change and the ability to track and measure key progress measures. Addressing the many upcoming supply chain challenges increasingly requires excellent cross-functional change management – now is the time to start exploring and building this capability.

Neil spoke recently at IBF’s ‘Business Planning, Forecasting and S&OP Conference: Europe’, in Amsterdam. We look forward to welcoming you to the next conference in Amsterdam, from 14-16th November 2018. Reserve your place here.