S&OP - The big fat supply chain wedding
Fairy tale stories are abundant with boy-meet-girl-and-they-live-happily-ever-after type of stories. But as we grew up, we realize that real world is nothing like a fairy tale and that there are a lot of shocking twists and surprising turns that alter this narrative. Supply chain management is no different. All supply chain textbooks speak of this amazing fairy tale where planning and execution go hand in hand. But real world execution throws so many bouncers that no amount of planning can effectively handle them all. Sales and Operations Planning is one such area of the supply chain where you see this conundrum manifest itself in myriad ways.
Sales and Operations Planning and its logical successor – the Integrated Business Planning aims to balance demand and supply. This is a very simplistic definition and it is understood that there is more to S&OP, but the raison d'être for the existence of these concepts is balancing demand and supply. Demand can be easily represented as the fair one from Venus, while supply is easily from Mars. Balancing the two is a tightrope walk and it takes quite a bit of effort for this marriage to succeed.
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Demand embodies all qualities of a maiden fair. It fluctuates widely and is near unpredictable (albeit to a degree of accuracy). But it drives the entire company’s supply chain network and is the most pampered aspect of the supply chain. Supply, on the other hand, is pretty predictable and does quite a bit of hard work to satisfy the demand. When companies plan strategically, they set goals over a long term and measure if their supply is capable of serving the demand to achieve these goals. The attempt to institutionalize this process gave rise to S&OP and IBP. When the representatives of demand and supply meet, sparks fly. A lot of to and fro happens, but at the end, the question is popped – whether supply can meet the demand and the answer becomes yes. Champagne is uncorked and celebrations happen. The entire S&OP process is a big fat supply chain wedding which repeats every month. Keeping the marriage alive and kicking is a different story and is the topic for subsequent articles but for now let’s see how the wedding can be pulled off successfully.
A wedding symbolizes that two souls become one and this analogy is not lost on S&OP as well. S&OP meetings must ensure that the entire business works towards one agenda and has one set of numbers to rely on. Every silo in the company works for its own individual benefit, to meet its KPIs. The sales team, for example, may work towards beating its own forecasts and hence may understate its forecasts. The production team may work towards improving utilization resulting in excess inventory. A top-down approach with a single set of numbers will help eliminate most of these issues. Arriving at this single set of numbers requires a lot of interaction with all the verticals and horizontals of the business and every aspect of the business needs to feel adequately represented. That is the job of an effective leader. If global supply chain managers are asked to list the critical success factors in effective S&OP processes, you can see that Leadership is one of the most common in all those lists. He is the pastor, wedding planner, and marriage counselor – all combined into one.
The one place where weddings and S&OP don’t match is that weddings happen once or twice in a man’s life. But an S&OP process, once instituted is repeated every month. The vows are exchanged in a wedding and these vows are held till death parts the couple. But an S&OP process requires revisiting the minutes of the past S&OP meeting and altering the numbers (to reflect the changes in the market dynamics) as need be. A wedding can be a grand success or an utter failure, but what happens AFTER the wedding – the marriage, defines how life is lived. A marriage requires constant revision and remembrance of vows, a flexibility to handle upside and downside scenarios, the analogies are never ending. But what is more important is the emotional and human connect that underlies every interaction. Perhaps real world Sales and Operations Planning can take a leaf out of this and embrace the importance of humanizing this highly data-driven process. And this is where the leadership provided by the S&OP manager becomes more pronounced and critical to the success of successful S&OP.
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