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.

Figure 1 – Comparison of three levels of S&OP

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
S&OP.

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.

Market-savvy S&OP, the advanced form of S&OP which delivers competitive advantage, requires a new organizational culture for success. A collaborative team working at market is required.

Playing Telephone
Remember the old party game where people stand in a circle and whisper a message from one to another around the circle. The last person in the circle tells the message out loud. It is always garbled and silly. Then the originator states the real message. ALL LAUGH..

Not so funny in reality….. In several recent engagements with medical device manufacturers and a hard line manufacturer, I have been reminded of the typical salesman only approach to customer inter-faces. A majority of companies do not allow managers from outside the sales team or perhaps sales and sometimes marketing to actually work directly with customers.

Having only one small, parochial group of people interfacing with the customer, the full meaning of customer requirements and customer feedback remains unknown. The message which comes back is garbled and silly.

Information from the customer is most often highly distorted. It is only natural for a sales person to be optimistic and to bury any bad news coming from the customer. But worse, some of the most important parts of the customer communication are most likely not even understood by the sales person who would have very limited understanding of new product technologies under consideration, supply chain alternatives and capabilities and the overall competitive situation.

Conversely, the people inside the company in Operations, Supply Chain, Finance and other key functional areas most often do not understand the issues facing the sales person or the customer.

It is the Economy
In today’s economy, the customer and the competitive situation are simply much too complex for one sales person or even one sales person and a product specialist to fully grasp and understand.

In today’s On-Demand economy, customer values must become the basis for defining competitive advantage. Developing the strategy or competitive advantage for a company will be the subject of another blog. Today, I am focusing on how to gather market intelligence.

Economic Realities
In today’s selling environment, market segments are specialized not simple demographic divisions but all new customer value defined segments. Today, a provider must enable complexity not try to rationalize SKU’s. Increasingly, demand patterns are becoming more random and change is coming faster.

The traditional separation of functions and restrictions on customer-facing activities must now change.

Collaborative Teams at Market
Market intelligence can most effectively be gathered by cross-functional teams working in the field in support of the sales people.

These teams should have the following characteristics;

• Strong support orientation, not take charge people; the sales person is responsible for the relationship.
• One person from each of the key functional areas; marketing, R&D, supply chain, manufacturing, finance and product development and of course sales.
• Savvy people, hopefully some are market savvy. Shy clerical types will not work.
• Schooled in market-savvy S&OP
• Familiar with the customer relationship
• Knowledgeable of the competitive situation
• Open minded, almost to a fault

The team should meet together before any field work is started to develop some skills and tools;

1. The mandate to listen 85% and talk less than 5% of the time, silence is a virtue at 10%.

2. They must learn how to ask “open ended” questions.

3. And, they need an interview guide. The interview guide will document, the following;

• The content of the maximum two minute introduction
• What questions will be asked; the 5 Why’s approach should be clearly understood and used
• What specific probes into the customer’s value definition will be pursued; what is dear to him, how does he treat their customers and how does he generate cash
• The recommended structure of the desired future meetings; quarterly, with whom….

Being Market-savvy is one of the most important keys to having successful sales and operations planning S&OP. Market-savvy is what comes from actually collaborating with your customers and having cross-functional teams working in the market. Market-savvy is operating “at” the market in planning not two or three steps removed from the market, inside your own operations. Market-savvy is asking, “What can we do for you?” and not “How much can we ship you?”

Three Types of Planning

The types are described here. To be sure, planning is the essence of what is being done in S&OP. There are three basic planning processes to choose from.

• Presumptive Planning
• Predictive Planning
• Pre-determined Planning

Many people still use presumptive planning, that is to assume the business will be about the same and just continue on. People who depend on IT solutions to do the majority of the work are practicing presumptive planning.

A little more advanced is the predictive planning done by demand planners using a variety of statistical forecasting tools and some collaborative information exchanges internally with sales and marketing. The recent work on Demand-driven forecasting is an example of predictive planning. In predictive planning, the statistical outputs tend to show modest increases but very conservative ones due to the modulating nature of statistics, no bold strokes. The process relies primarily on history.

Two Steps Removed

Both presumptive and predictive planning are done using a manufacturing company’s data of shipments, some POS data may be thrown in for added historical perspective. Both are far from the market. Presumptive planning ignores the market. Predictive planning is two steps removed from the market. That is: our Inventory is one step and the retailer’s inventory is the second step. Both inventories and the decision making of logistics managers and the decisions of customer inventory managers will dramatically alter the actual demand seen at manufacturing.

Pre-determined planning is the market-savvy approach. In pre-determined planning we go into the market to discover what is happening with consumers, competitors and customers. In pre-determined planning, when alternatives must be chosen or gaps in knowledge filled in, the experience of seasoned executives and cross-functional teams is relied upon.

Presumptive planning is like whistling along, head in the clouds and actually walking off a cliff.

Predictive Planning is relying on historical statistics with limited ability to use market intelligence.

Pre-determined Planning is gathering current market knowledge and planning from insight, market-savvy.

Pre-determined planning relies upon knowledge of what consumers and customers tendencies are. Pre-determined planning knows what competitors are doing. Pre-determined planning requires the entire planning team be involved in field inquiries and key customer meetings.

It’s called Pre-determined because the team knows when consumer choices are being made against current competitor status. Test stores, test markets, selected POS data and sampling customer attitudes are all part of pre-determined planning.

Many companies want to increase market share and generate free cash flow.   Senior management is tasked by the Board of Directors to produce growth and cash.   The issue is how are these goals achieved in the normal flow of business management?

The answer is to have a set of collaborative business processes operating in a customer-centric culture.  In the graphic, we identify three processes or actually groups of processes which together form the on-going business planning method required to achieve the goals.   The processes are not independent but inter-dependant and very closely aligned.

A Bike without a Chain

Some would set IBP aside as a separate, senior management process which deals with strategy, with the idea that only the really smart people do IBP.   In reality, IBP without S&OP is like having a fancy racing bike without a chain.   Looks good but goes nowhere.

Further, some people perhaps most think S&OP can be supported by ERP with its detailed SKU level MRP logic driving the inventory and capacity utilization decisions and timing.   This is like having the fancy racing bike with a chain but rocks rather than tires for wheels.   Old technology matched with modern process.

Implementation requires discipline

The formula for continuous improvement in business performance is Vision – Behavior – Process.

• IBP provides the refresh in Vision and senior management alignment
• Behavior is changed through management by analytics leading to organizational alignment
• Process completes the implementation; Market-savvy S&OP and Rate-based Planning.

IBP includes Value Segmentation of the markets, value proposition modeling  and cross-functional Go-To-Market strategies which should be refreshed annually and reviewed quarterly to keep the research inputs updated and to make sure the strategies are being implemented properly.

S&OP, in a market-savvy form, deals with a monthly process of cross-functional collaboration and external collaboration with customers.  S&OP is the process which works to achieve market share growth.  In market-savvy S&OP, customer defined and measured metrics are added to the internal measures of performance.    Growth is earned.

Rate-based Planning is the demand-pull, weekly process with daily updates used to manage capacity to the S&OP planned level. RBP deploys inventory to Demand and keeps the assets balanced, a major factor in generating CASH.

Market-savvy S&OP is much, much more than just Volume and Mix planning with supply to demand balancing.   It operates in a customer-centric culture and relies upon forecasts at the market, forecasts of consumer take-away.

rburrows@opgmail.com

As more advanced S&OP processes are implemented a more and more profound business impact is realized.

Returning from the IE Group conference on S&OP Innovation, I thought some clarification on the progress of S&OP over the past 50 years was necessary.    The conference was very productive from the view of meeting and interacting with people keenly interested in S&OP.    One disturbing note was the lack of understanding of the advancing and advanced S&OP practices, including Integrated Business Planning (IBP).   The conference started by telling us that S&OP is still about Volume and Mix with demand being the forecasted variable and supply the only element planned.   Our work has found in the leading firms IBP/S&OP is very much more.

In advanced IBP/S&OP processes, Demand is planned and Supply is the forecasted variable.    Volume and Mix are considerations but far more important considerations are cash flow generation, market share capture and performance to customer defined and customer measured metrics.    To gain the advanced benefits, IBP/S&OP must be highly collaborative and draw on the strengths of the commercial, financial and operational aspects of the enterprise to be competitive and find innovative ways to create advantage.

S&OP has been around for at least 50 years as a manufacturing oriented process.   In the 60’s at Warner & Swasey, then the most profitable company in the USA, we implemented S&OP to manage the order backlog and capacity in the machine tool business.   This was before APICS and at the time Oliver Wight was starting his work at Stanley.  The traditional form of S&OP and the process all the well known educators still teach is a just this basic manufacturing oriented process. 

I think of S&OP as having progressed along four levels of increasing impact on the performance of the business.   Level I or II are primarily operational, impacting the business in a very limited way.    Level III and IV are significantly more strategic, impacting the business in profound ways, some calls this Integrated Business Planning (IBP).

The major benefits of IBP/S&OP are not realized until at least a level III or IV process is implemented.   The chart nearby depicts the difference between the levels.   Level III or IV  is essential in manufacturing as well as in service businesses and any other business where you find customers and supply, in other words in all businesses including Hospitals, Airlines, Service Centers, Insurance and Banking to name a few.   S&OP in the broader application is sometimes called Integrated Business Planning, IBP.

In future articles, I will expand the defining points of Advanced S&OP.   

On-Point Group offers educational tools on Advanced S&OP.   If you would like to receive our 30 introductory course on implementation of advanced S&OP or IBP, please send your request to; rburrows@opgmail.com.