Monday 17 April 2017 08:55:54

S&OP as an Organizational Decision-making Process

Mohit Dubey, Senior Director, Product Marketing, E2open
Mohit Dubey, Senior Director, Product Marketing, E2open

"S&OP is dead," the caller said. This unsettled me – “Are lead-times dead, too?” I wondered. I had to find out.

Work is changing – from the tools and technologies we’re using, to the products and services our companies are creating, and even who we’re competing with – it’s different now. In the excitement, it is easy to overestimate the role any one technology or trend might play in the future, and lose sight of the reasons some of today’s concepts became dominant in the first place.

"We’re hearing a lot of talk about concurrent planning,” the caller offered by way of explanation, hanging up. I began steadying myself to start parsing concepts for hidden meanings.

Before there was concurrent, there was the notion of getting results fast. Of course, improvements in processing power through better cloud hardware, in-memory computing, higher datacenter bandwidth, and the like, are available to all software vendors to take advantage of. What also gets results fast is the solving of simpler problems – getting to any result, rather than getting to a better result. If your supply chain is simple, this approach will work. If you need to work through constraints, maybe you need to look elsewhere. But, it’s OK to have this choice. What’s confusing is to make the leap from planning faster (a technical capability) to concurrent planning (a candidate for a new organizational process).

Concurrent: Adjective – existing, happening, or done at the same time. But, what exactly is happening at the same time?

One suggestion is that many people working independently on a complex problem at the same time, choosing any part of the problem or any resolution approach that interests them, might arrive at a meaningful allocation of constrained corporate resources. Another suggestion is that all kinds of decisions that might’ve been made earlier in the process flow – such as demand management or negotiating long-term contracts with 3PLs and contract manufacturers – should be made at the same time as that fast supply planning. It’s being said that, "The underlying principles, objectives and value propositions of S&OP will remain supply chain priorities, but the sequential, time bound nature of the process will be replaced with democratised, dynamic decision-making." 1

Many thoughts came rushing into my mind, at the same time. What was the last decision that was made democratically in my own company? Something’s not right here. Are companies really making decisions through internal crowd-sourcing? Is there a way to crosscheck these notions?

If supply chain is the source of competitive advantage for the modern corporation, surely verifiable ideas of how organizations make decisions are relevant for supply chain departments. McKinsey looked at the use of decision-making best practices by companies. The three most common ones were: making decisions based on a) a balanced mix of financial and strategic targets, b) long and short-term considerations and c) an evaluation approach tailored to the type of decision at hand.2

In supply chain terms, a) and b) come about as organizations move up the S&OP maturity curve,3 but c) is interesting – ‘the type of decision at hand’ suggests a systematic decision-making process rather than everything being up in the air at all times. 

S&OP as an Organizational Decision-making processMcKinsey found that the use of best practices was more prevalent in companies that reported successful outcomes (see chart, derived from McKinsey survey results).The three best practices with the greatest divergence between companies reporting satisfactory and unsatisfactory outcomes were:

  1. Realistic assessment of our company's execution capabilities
  2. Thorough, objective review of business case
  3. Decision-making based on a robust fact base

In supply chain context this suggests plans that are tied to execution, aligned with strategic goals, and data-driven.

We can see from McKinsey’s findings that structured processes are the means of converging upon decisions that lead to better outcomes – even as greater computing power is being put to use in improving data acquisition and cleansing, real-time and historical analytics, and rapidly solving complex problems such as demand sensing and constraint-based, demand-driven supply planning.

So, are advances in computing technologies killing structured decision-making or making it stronger?

Booz & Company (not describing S&OP specifically!) have said it better than I could have – “Strategic planning is a multilayered, multi-frequency process that must be engineered for efficiency. Combining a top-down and bottom-up approach is key to minimizing cycle time. In your planning processes, emphasize strategic discussions, align everyone on key business initiatives, and set targets before you undertake detailed planning. This top-down alignment and direction sets clear boundary conditions for developing detailed business plans. It also minimizes the number of iterations that are required to align plans between local businesses and the corporate center.” 4

That, and some deep breathing, settled my mind. While googling, I also found a framework for incorporating new ideas into my existing worldview. 
 

1 https://blog.kinaxis.com/2017/03/concurrency-embracing-death-sop-scor-supply-chain-paradigms/
2 http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/flaws-in-strategic-decision-making-mckinsey-global-survey-results
3https://www.gartner.com/doc/2587021 
4https://www.strategy-business.com/article/00058