Parsing holds key to better S&OP: for many global companies, a single Sales & Operations Planning process across the enterprise is no longer optimum. What's needed instead are multiple processes tailored to individual business units and regions.
Research supports this view of S&OP. In 2006, a medical devices manufacturer asked MIT to research how S&OP processes could be effectively applied across its global business units (BUs). At the time the company was running two S&OP processes--one for each of its two BUs, which were focused on different products. It wanted to know whether two was best, whether one might be better, or should the S&OP processes be parsed even further. The research questions became the topic of a Master's thesis by Christopher M. Honstain, titled Sales and Operations Planning in a Global Business.
A number of practitioners and industry experts from consulting and software firms were interviewed. In addition, the researchers examined the S&OP practices of three specific companies: a consumer-product goods (CPG) company, a pharmaceutical company, and a petro-chemical company.
The CPG company had some best practices in global S&OP. It conducted over 90 monthly S&OP processes around the world and divided the process along BU, product group, and geographical dimensions. The company clustered business entities to best represent "pure" profit-and-loss (P&L) centers in which demand-supply planning decisions could be made assuming a unique set of supplying plants for each demand cluster. For each business unit there was a BU-based process owner. In addition, there was a corporate-wide process owner responsible for coordinating efforts, as well as providing rough process guidelines, self-assessment tools, and assistance in assessing the performance of each process. The finance organization consolidated and harmonized the S&OP plans to provide corporate executives with a consolidated enterprise-wide plan.
Other research we conducted confirmed the need to parse S&OP processes, focusing on supply-demand characteristics. Demand characteristics include geography, channels, and product demand patterns; supply characteristics include sourcing, production, and distribution resources.
The research also underscored the need to consolidate parsed plans in order to "harmonize" them whenever there is limited worldwide supply, and to ensure they are aligned to meet corporate goals and objectives. (Harmonizing in this context involves making sure that plans are consistent, non-conflicting, and supportive.) The processes should follow a common set of rough guidelines and have a consistent set of process performance objectives. Otherwise, plans would not be "apples-to-apples", making consolidation difficult or impossible.
A problem uncovered during the research was the disconnect that often existed between marketing and finance organizations. This was manifested in the frequent misalignment of financial versus S&OP plans. To correct this, finance organizations need to get more involved in the processes, so that S&OP plans can be more precisely translated into financial terms.
Recommended Parsing Criteria
A global S&OP process ought to be parsed into multiple processes so that each represents a pure P&L center (at least to the extent possible). Honstain in his thesis offers this observation: "Within the supply chain, the characteristics of the manufacturing sites are the deciding factors for the number of S&OP processes. The specific characteristics that are important are the number of plants within each region, whether the plant is dedicated to the region or it is shared between the regions, and whether or not the plant is centrally controlled or decentralized."
"Regions" are business units or marketing/sales territories, typically defined as North America, South America, EMEA (Europe, Middle East, and Africa), and Asia. Criteria on how to parse a global S&OP process vary depending on four supply-based scenarios:
1. Single Worldwide Source: This is the simplest scenario in which one--and only one--plant supplies product on a global basis to all regions. Under this scenario, one S&OP process suffices and there is little reason to break it up.
2. Multiple Regional Source: Under this scenario, multiple plants around the world supply product. However, only one plant is dedicated to supply product to each region. A plant may supply multiple regions, but no other plant serves them. Parsing the S&OP is recommended under this scenario. Each S&OP process would be defined to include all regions that have common product supply. The demand forecasts for these regions would be consolidated, thereby establishing a pure P&L center for each S&OP process.
3. Dedicated Regional Source: Under this scenario, multiple plants throughout the world supply product. However, each plant is dedicated to supply product to one and only one region; that is, plants do not supply multiple regions. Under this scenario, each region would conduct its own independent S&OP process as a pure P&L center.
4. Multiple Shared Sourcing: This scenario is complex, yet it is the most prevalent. There are multiple plants throughout the world that supply product and each region can be served by one or more plants. This is the most complex scenario because supply is shared among regions. Centralized management is required to ensure that global enterprise goals and objectives are met when there is contention among regions for constrained product supply. Each region with a supply source should run its own S&OP process under this scenario. Regions that don't have a supply source in them should be grouped into regions that do. The outputs from the individual processes would become the inputs to an executive-level S&OP process that consolidates them to develop the enterprise-wide global plan.
Consolidated View Needed
Since most global companies are comprised of some combination of the four supply scenarios described above, consolidating and harmonizing multiple S&OP plans at an executive level is critical for obtaining a global picture of the future. As part of this, companies need to accurately translate their unit-based (i.e., non-monetized) plans into financial plans so as to align S&OP plans with enterprise-wide goals and objectives.
Whenever I've discussed parsing a global S&OP process, I've talked about the cautionary Humpty Dumpty nursery rhyme. When he fell off the wall, "all the King's horses, and all the King's men, couldn't put Humpty together again." In S&OP, you can use the criteria discussed above to parse your global S&OP process. But if you don't parse correctly, like Humpty Dumpty, it is not an easy task to put the S&OP plans back together again. So be careful!
Dr. Lapide is a lecturer at the University of Massachusetts' Boston Campus and is an MIT Research Affiliate. He welcomes comments on his columns at email@example.com.
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|Publication:||Supply Chain Management Review|
|Date:||Mar 1, 2012|
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