Think of S&OP as your supply chain Golf swing Golf Coach
Money Making Insight
One of my mentors in my early Booz Allen days defined S&OP simply constantly asking these two questions – “Can we make what we sell” and “can we sell what we make”. In our Booz Allen consulting practice it was designing how this was done and how often that defined a supply chain solution – period. Thus supply chain in the early days was S&OP. Unfortunately, over the past decade the term “supply chain” has lost this demand and supply balancing focus and now “the market” literally labels everything a supply chain solution. Sadly most of these solutions have little to contribute to true supply chain goals and often serve to confuse participants, destroy project momentum and delay value or worse destroy value.
One simple change that would benefit most all projects – is to consciously substitute the name S&OP or S&OP / Supply Chain instead of the term supply chain to describe their initiatives. This simple name can have profound effects in focusing efforts and screening and prorating the efforts and avoiding distractions as S&OP has a very narrow meaning and is difficult to corrupt or fake.
Think of S&OP as your Supply Chain Golf swing Golf Coach
To use a sports analogy the process of S&OP is like a well balanced, smooth, in tempo, balanced golf swing. The term supply chain used without the S&OP qualifier is easily corrupted and allow leaders to say all sport swings are the. A company maybe fought hard to get their ERP system in place (think of it as a baseball swing) and say it is “close enough” to an S&OP swing (golf) why change . Both swings have something to do with “that inventory stuff” – close enough, no need to change. The problem is ERP (baseball swing) is based on historical backward GAAP accounting transaction control of money focus NOT a goal of efficient use of working capital. Conversely, S&OP a forward planning effort about this balance and had no part of accounting controls but is all about business control.
It is well established that overall improvements in ROA and working capital across industries in the past 20 years have largely been flat – DESPITE all the significant expenditures on all these “baseball” like software and consulting products. . The emphasis is then exacerbated by constant barrage of quick fix products titled supply chain. This is analogous to a rookie golfer believing new equipment (titanium drivers, long putters, new age golf balls) are the answer to a scratch golf score vs. basic swing mechanics.
So take a simple test ask your supply chain team are you constantly looking for “Amazon” type opportunities to bypass huge costs and unnecessary handling by flowing product direct from suppliers to customers ? Or does the team feel constrained like Radio Shack still believing that improvements but be confined to the rigid ERP system and a dated physical flow through fixed location to flows transactions. Even worse the has your team abdicated improvement to waiting for the ERP software product to introduce a new release of the tool to wait for improvements.
If you are part of the 5 to 10% that already uses S&OP for advantage we would love to hear from you of what now need next to expand, scale and improve your S&OP program. However if you find your organization has bounded improvements expectations you might find building awareness to a better way through S&OP is a critical next step.
Build Awareness of S&OP – Golf vs. Baseball
• Can your team quickly spot the difference between Amazon and Radio Shack’s practices long before it shows up in accounting results. That is can they quickly spot Golf (S&OP vs. Baseball (modifying ERP tranasaction accounting basis)
• Do functional supply chain education / improvement us an S&OP value message to define financial results of all efforts. Reduction of cycle time, handling, quicker cashflow, agile adjustments, less working capital etc.
• Be aware unless the S&OP solution is built on the first principles of flow of real inventory, master production schedules, time phase lead time it is not S&OP. It is likely just a rebranded accounting control tool trying to jump on the S&OP sales bus at your expense. Will fail and will delay your results by years if you select it.
• Constant reconciliation / translation of the S&OP plan back to the GAAP / ERP financial controls is key to acceptance. Use tools that understand this and better yet personal that speak both S&OP and finance fluently and diplomatically.
• Are you aware of the difference between accuracy of the supply chain vs. precision. Being precise to 3 places to the right of the decimal of an inventory store that really should not exist in an accurate supply chain is foolish and is common.
• Be aware aligning global transportation lead time information to S&OP goals can have immediate and very large financial returns. These returns can happen long before you deploy complicated new systems and in many cases pay for an entire S&OP effort.
• Are you aware that your firm already does S&OP and you likely don’t need any outsider to teach you S&OP. You may need help in building awareness and educating how S&OP is a different game and how to perform the process consistently, rapidly and with trust. But this is not a new game but refinement of your game. Just as a professional golfer constantly gets feedback on swing mechanics.
• Awareness of lead time management using algorithms is the basic tenant of S&OP. is critical to success. Do you have this and do you know how to synchronize to your demand signals ? Do you realize this is not MRP but uses the time phased netting within MRP through out the supply chain.
• Very few are aware an outsourced operation is planned and managed in S&OP much differently then a vertically integrated operations within ERP transaction control. Unlike operations you own there are no transactions but rather more a request and promise that must be modeled, measured and managed. This is impossible to do in an accounting ERP model.
• Are you aware an S&OP tools are available to simulate this Golf game vs. Baseball and show the benefits. Also are you aware most planning software is designed to be used once the change has been solidified. This is the easy part – using the S&OP model to create awareness education is the real opportunity as once business leaders see the value it WILL happen.
• Do you realize the S&OP philosophy can create value long before tools and new processes are deployed enterprise wide. A good business S&OP leader will Look for financial wins using the S&OP mindset in current operations . Examples like drop shipping product to customers direct from suppliers bypassing warehouses and balance sheets, having suppliers hold key components vs. finished good until order is placed, and offering customer discounts for longer lead time orders. This proves the value prop and then shifts the S&OP discussion to how to smoothly do over and over with a repeatable process.
• Lastly are you aware S&OP can be strategically applied for financial return faster and with higher returns for small and medium firms vs. large business as is no longer to be big to have access to the best tools and talent. One way to invision this is a small firm wit a website can out “Amazon” Amazon today as can play the arbitrage must faster and with more expertise and interest to the buyer.
The Future ?
Those who are or become aware and modify their behavior to play the right ( S&OP) – will continue to outperform those who do not especially in dynamic up and down markets. Careful analysis of almost every industry category reveals these leaders already use some form of alternative supply chain S&OP to create advantage .
The question how many in the 90% of the bell curve will begin to become aware of that they don’t know they don’t know ?
Over the past decade or longer DCRA Inc. has seen this lack of awareness as the fundamental need and has developed knowledgebases to help build this awareness. We see
We developed an S&OP knowledgebase and access to low cost but complete S&OP tools as a way to help build this awareness. If you agree with us as to this fundamental need write us at info@dcrasolutions on your to drive awareness and we will do our best to add to http://www.sopbook.com .
Mr, Kirkegaard is President of a Texas corporation DCRA Inc. which holds patents on build to order supply chain capabilities involving Sales and Operations Planning (S&OP and real time S&OP). DCRA Inc. works daily to deploy these concepts to improve profitability and business competitive advantage for clients and in its own automotive re-manufacturing operations. Mr Kirkegaard can be reached at firstname.lastname@example.org