Market-savvy S&OP or as Lora Cecere likes to call it Market-driven S&OP, is the answer to most of the performance issues in today’s supply chain management processes.
The key problem is the vast majority of S&OP processes in use today do not differentiate the goals and the metrics of S&OP by customer group. A “one size fits all” standard is in use. There is no differentiation even though in fact customers are never all the same. As a result, performance metrics in use are not of primary relevance to most customers and are not adopted by the sales people. Don’t think so; just ask any sales person if having less inventory is something which will help sell more product, think the customer cares.
By having a “one size fits all” supply chain approach (or strategy or tactic you pick), the largest force inside a manufacturing company is de facto eliminated from being a source of strategic advantage. Sadly, major opportunities are more likely to be missed than capitalized upon using this simplistic approach in S&OP.
At the recent IE Group’s S&OP summit in Boston we focused some attention to the performance issues in S&OP. How effective is your S&OP in creating market impact? In our workshop, we took a not so scientific survey of the participants; the issues they identified were;
- No participation in S&OP by the commercial management, sales and marketing (little market impact)
- Market share is not even an S&OP metric
- No impact on the business strategy from S&OP
- Little financial involvement in S&OP
- Supply Chain is on an island measuring internally defined metrics
What is different about Market-savvy S&OP?
In my view there are three levels of S&OP maturity present in the US and in Europe. The most commonly found S&OP process is operations driven. Second, in recent years some people have focused on forecasting, Point of Sale (POS), and Demand Planning; this is Demand-driven S&OP. Third, the most successful companies have focused on the market in market-savvy S&OP.
The three are compared in Figure 1. Basically, the difference is where the management attention is focused or not.
In operational-driven S&OP the management process is geared to develop a Master Schedule and to optimize inventory and cost. It is no wonder that senior management and commercial management take a pass on the S&OP meetings, there is no win for
them in participating.
In demand-driven S&OP the focus moves toward the customer with point-of-sale (POS) in some cases and Demand-planning software. The management process is geared to making the right thing, through-put maximization. Much discussion by the S&OP
traditionalists is had around doing the right things, right.
In Market-savvy S&OP the management process is geared to strategy implementation. The metrics have to do with competitive advantage realization and satisfying customer values as defined by the customer.
Market-savvy S&OP is the highest form, having the most profound impact on performance
Market-savvy S&OP engages senior management because it discusses issue of keen interest to them, strategy implementation and creating competitive advantage.
Market-savvy S&OP will have profound impact on the market because it operates “AT Market” not behind the market like the other two.
Market-savvy S&OP has no difficulty differentiating by customer type because in it uses customer-defined metrics for measuring performance. Scary……….
Market-savvy S&OP is performed by market segment
The most critical defining principles of market-savvy S&OP design also describe why performance issues are solved in Market-savvy
Principle #1 – market-in
Principle #2 – segment level
First the market-savvy S&OP process is designed to ASK the customers what makes them successful and then strives to deliver those things, we call this value delivery.
Value Chains are often discussed in S&OP circles but are not well understood. Simply put, the Value Chain is the linkages of materials, suppliers, manufacturing, distribution, and products to customer values. Value Chains deliver value not products. They optimize value delivery not inventory or through-put. In doing so, they create competitive advantage.
Performance bottom line
Market-savvy S&OP delivers performance by creating and aintaining competitive advantage. Ask any sales person if having a competitive advantage sells more product. Ask a customer if delivering the values he holds most dear is important to him. I think the answers are obvious.
There are actually seven principles to guide the design of Market-savvy S&OP. The other five will be discussed in future blogs. If you want to read more about these two principles, I can send you copies of chapters of my book as they are edited over the next few months, just ask.