RESEARCH REPORT

FULFILLING THE VALUE OF S&OP

NOVEMBER 2012

Kevin OMarah Head of Faculty SCM World

FULFILLING THE VALUE OF S&OP

EXECUTIVE SUMMARY
In August 2012, SCM World conducted an online survey among almost 400 supply chain and operations executives worldwide. The aim of this research was to unbundle the concept of sales and operations planning (S&OP), identify where companies have made progress and how much value awaits those who extend S&OP to its full potential. Our conclusion is that S&OP is currently miles away from this but that the rewards are there, particularly for those that are able to change the dynamics between trading partners. In the survey, we attempted to look at S&OP maturity along two dimensions: its penetration inside the business (its depth); and how comprehensively it covers the supply/demand balancing problem at a value chain level (its breadth). On the depth dimension, we found that S&OP processes in supply management are slightly more advanced than in either demand management or product management, with an average maturity score of 6/10. On the breadth dimension, while internal alignment and buy-in to S&OP appears to be relatively strong, external alignment lags well behind, with a score of just 5.1/10. Information visibility the third component sits between the two. While S&OP has significantly improved day-to-day operations in most companies, fewer have been successful at engaging their trading partners, especially on the customer side, to improve the performance of the entire value chain. By a ratio of 6:1, survey respondents agree that they have absolutely made progress in deepening S&OP processes in the past five years, compared with 3:1 who say the same about broader S&OP. The benefits have come most strongly in basic areas such as supply availability and on-time delivery, and to a lesser extent in more strategic, longer-term areas such as lowering total supply chain cost or boosting revenue. A fifth of respondents say they have seen a significant improvement (50%+) in on-time delivery as a result of better S&OP, for example, compared with just 6% who say the same about revenue. Looking ahead, we asked participants to speculate on the additional value that could be achieved in these areas over the next five years. Overall, the view was that at least moderate (~20%) gains are possible, but again these are expected to come most strongly from better forecast accuracy, supply availability and on-time delivery. Around a fifth predicts significant improvements in total supply chain cost and revenue as a result of broader/ deeper S&OP. The data suggests that the biggest payback from S&OP in future is likely to come from improving external alignment with trading partners. Only 1 in 10 respondents believes that more than half of the potential value has been captured in this area so far, compared with a majority who say it is either less than 10% or none at all. Practical steps that companies wanting to improve their record here could take include: identifying and promulgating better metrics around customer or channel profitability; developing a better cost-to-serve model that is capable of quantifying the cost of flexibility; targeting a handful of their bigger, more sophisticated customers in a bid to drive better demand transparency backwards toward the supply base.

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FULFILLING THE VALUE OF S&OP

CONTENTS

EXECUTIVE SUMMARY INTRODUCTION S&OP BASICS CURRENT LEVELS OF MATURITY THE VALUE OF S&OP THE FUTURE: BUILDING ON GAINS TO MAKE A BETTER VALUE CHAIN CONCLUSIONS & RECOMMENDATIONS REFERENCES ABOUT THE RESEARCH

2 4 4 14 11 13

15 16 16

This document is the result of primary research performed by RaptureWorld Ltd. RaptureWorlds methodologies provide for objective, fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by RaptureWorld Ltd and may not be reproduced, distributed, archived or transmitted in any form or by any means without prior written consent by RaptureWorld Ltd (6443794). 2012 SCM World, a RaptureWorld Company. All rights reserved.

NOVEMBER 2012

FULFILLING THE VALUE OF S&OP

INTRODUCTION
Sales and operations planning (S&OP) has been around for decades now and most supply chain practitioners have made at least some progress toward installing it in their organisations. Despite this, many feel the extended supply chain has not improved as much as it should have. Recent incidents such as the flooding in Thailand, which exposed so many in the hi-tech industry to shortages of disk drives, illustrate how limited our ability as a value chain really is to cope with disruption. Better alignment and visibility between trading partners could have reduced the impact of this disaster by more transparently assigning inventory according to business value rather than relying on point-to-point communications to match supply and demand. The whole idea of S&OP is to consider all variables at once when looking for the best possible balance of supply and demand. Why has S&OP not evolved to the point yet where this happens not only within organisations but also between them? This research was designed to unbundle the broad concept of S&OP and identify two things: first, where progress has been made and where it has lagged; and second, how much value awaits those able to extend S&OP to its full potential.

S&OP BASICS
Alive and well, but still largely a supply chain initiative
In principle, good S&OP should be a balanced exercise of finding the right plan to match sales demand with operations supply, and ideally for the purpose of maximisng profit. Many pundits will even go so far as to say that finance or general managers should own the process as is the case at Mlnlycke Healthcare, where finance uses the output of its integrated business planning (IBP) process to generate the quarterly forecast1. The companys process, known internally as Mlnlycke Business Management is a relatively mature IBP process built over several years on top of an existing set of S&OP meetings spread throughout the companys business units. In practice, however, this isnt happening in most organisations. In two-thirds, according to our recent survey of more than 380 supply chain professionals, it is supply chain or operations that runs the process. Encouragingly, 10% say sales or marketing run the process, but only a small minority (6%) have S&OP processes run by finance or general management. One implication of this is that any extension of S&OP outside the organisation is far more likely to be backwards to suppliers than forward to customers. If true, such extra-enterprise collaboration is likely to be unbalanced and more a process of supply adjusting to swings in demand than customers collaborating to dampen volatility.

Figure 1: Who runs S&OP

Figure 2: How S&OP is organised

10 16

Finance/General Management Sales/Marketing Supply Chain/Operations Other

Decentralised

33 47 20

Centralised Somewhere in between

68

% of respondents
n=387

% of respondents
n=387

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FULFILLING THE VALUE OF S&OP

Another dimension of S&OP maturity involves whether the function is centralised or decentralised. On the one hand a decentralised process allows for relatively quick response to local needs. On the other, a centralised process permits a wider resource pool to be tapped when looking for supply/demand balancing solutions. Oneon-one interviews around this topic suggest that many of the most mature organisations do some of both, with roll-ups of different levels as a way to provide a complete view of the business both in the immediate period and over the medium term. In a recent SCM World webinar, Nikes global S&OP process owner, Mohit Loomba, offered an excellent description of how the footwear and apparel giant thinks about and manages these trade-offs to maximise profits2. Our data shows that almost half of companies are operating with a centralised approach to S&OP, but that a third is doing some of both. The following quote from one supply chain executive is typical of those businesses where multilevel S&OP is in place: We have two levels of S&OP: the operational S&OP led and managed by our supply chain team; and the executive S&OP, led by our finance manager. The scope and impact of both meetings is different.

Outside the four walls: the role of contract manufacturers

In todays global supply chain the use of contract manufacturing is fairly widespread, and in some industries like hi tech it is ubiquitous. The role of contract manufacturers can be critical in S&OP as they often represent some or all of the supply side of the equation. Among our survey base only 12% say they manufacture exclusively in house, meaning that the great majority has at least some dependence on contract manufacturers for their supply. This reliance may be intense, with close working relationships between manufacturing engineers from both the CM and the brand owner co-located at the CMs site. Apple, for instance, is known for its extremely tight operating relationship with Foxconn. In such cases, the line between in-house and outsourced can become very thin indeed. Given the data and the potentially critical role CMs may play in the supply side of businesses reliant on them, one might expect at least 40% of our respondents to engage their CMs in the S&OP process. The data corroborates this with a slight majority (52%) saying that CMs have a limited role and fully 22% saying CMs play a substantial role. This means that, for most, S&OP is already extending outside the organisation. The question is: how well is it working?

Figure 3: How companies manufacture

Exclusively in-house

Figure 4: Role played by contract manufacturers in S&OP

A substantial role A limited role None

20 10 68 10

6 12 10 16

Primarily in-house Exclusively through contract manufacturers Primarily through contract manufacturers Using an equal mixture of the two % of respondents
n=382

26

23

51

% of respondents
n=342

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FULFILLING THE VALUE OF S&OP

CURRENT LEVELS OF MATURITY

Many S&OP maturity models detail procedural elements around participation, balance, timing and information availability. These are essential to practitioners working to educate their colleagues and improve the S&OP process, which one SVP of supply chain in diversified industrial products describes as a journey. In our research, however, we attempted to look at S&OP maturity not only in terms of its penetration inside the business (in other words, its depth), but also how comprehensively it covers the supply/demand balancing problem at a value chain level (its breadth).

Depth of S&OP into supply, demand and product management

To get at the first dimension, we broke S&OP down according to how deeply the process engages each of three essential management domains of the business: supply, demand and product. Our survey asked respondents to place themselves on a 10-point maturity scale for each of these areas and provided example definitions of what it looks like to be high, low or in the middle of the scale. Each of the three is portrayed below. As usual with such self-graded scaling questions, it is common for respondents to gravitate to the upper midrange, and indeed our data does cluster around 6 and 7. The variation visible in responses is typically reflected in proportionally higher scores for 8 and 9 and lower scores for 2 and 3 when greater overall maturity is present in the population, and the reverse for immaturity. The critical understanding is that respondents were provided with a qualitative definition of how the scale reflects differences in detailed operational activities as one moves up the maturity scale (see Figure 5). When all 387 responses are charted together on a single graphic, the first thing that emerges is a reasonably even spread across all three domains, meaning that most respondents feel the depth of their S&OP processes are similar in supply management, demand management and product management. One implication is that S&OP generally takes account of all its degrees of freedom when trying to balance supply and demand. This result is surprising, primarily in the degree to which practitioners believe that they have penetrated and begun to influence product management and demand management. It suggests that there is understanding and acceptance of a model that is capable not only of scrambling to ship orders, but also of making business trade-offs beyond just supply chain. Examples of such depth include well-known hi-tech manufacturers like Lenovo and Cisco Systems, both of which have substantial control over their product bill of materials alternatives when looking for supply/ demand balancing solutions, or Nike, whose demand-shaping efforts help to move inventory in-period as business units work to make targets for the quarter.

Figure 5: S&OP maturity in supply, demand and product management

70 60
Number of respondents

Supply management Demand management Product management

50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10
n=387

Maturity scale (10 = highest)

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FULFILLING THE VALUE OF S&OP

Figure 6: S&OP maturity level definitions depth dimensions

SUPPLY MANAGEMENT
1 2 3 4 5 6 7 8 9 10

Only looks at single Dimension (plant, unit) production plan for supply. Does not look to next tier for in bound material availability. Has only standard unit cost information.

Looks at all plants with common products and any FG in 3rd party plants. Can do re-planning of internal plants. Looks to next tier for inbound materials and planned deliveries. Has some elements of delivered cost information including standard transport rates and unit productions costs.

Looks at all capacity, internal and 3rd part, with visibility to all inventory (RM, WIP, FG) regardless of location or stage of production. Has complete n-Tier supply capacity and cost visability. Has complete total-landed cost visibility for all supply commits to customer.

DEMAND MANAGEMENT
1 2 3 4 5 6 7 8 9 10

Only looks at sales plan figures for revenue. Does not consider downstream demand drivers at all.

Able to represent demand forecasts in productions terms across common supply resources. Able to use market intelligence as input for demand forecast refinement. Can consider promotions or other demand shaping tools. Can develop demand plans in the medium term to enable reservations on capacity or other resources. Able to systematically prioritise demand according to executive decisions on which customers need precedence.

Captures total demand picture across direct and channel sales. Able to shape demand with various levers. Uses known demand drivers from sales and marketing to consider and orchestrate various demand scenarios. Able to plan across near, medium and long term demand for all product families. Can lock in customers for long term demand. Can use price sensitivity and/or customer assurance offers to prioritise demand for strategic business.

Uses historical sales:units conversion to feed supply plan.

Builds on a first-come, first-served assumption with manual special expedite orders as override.

PRODUCT MANAGEMENT
1 2 3 4 5 6 7 8 9 10

Only able to consider the as-is product bill of materials (BOM) in planning production. No visibility to future product pipeline.

Can use product BOM information to proactively manage alternatives for components or production procedures. Planned new products are known and implications for tooling, materials and conversion are included in planning decisions. Able to offer some postponement options based on product platforms with assembly close to customer.

Total product family visibility available for planning purposes. All variants and/or substitutes are know with cost information attached. All current and future product plans are available to planners who can systematically phase out old product and launch new product with minimal obsolete inventory. Able to manage product platforms strategically with key customers and suppliers and to employ product complexity reductions for lower costs/ more aglity.

Can only plan for finished goods SKUs.

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FULFILLING THE VALUE OF S&OP

Upon closer investigation it is evident that supply management is generally more mature in terms of its S&OP depth than demand or product management. The overall average maturity score for supply management, for instance, is 6.0, while those for demand management and product management are somewhat lower (5.9 and 5.8 respectively). At the extreme, supply management was far more frequently scored as a 9 than product or demand management. Some of the best examples of deep S&OP penetration into supply management come from the automotive sector, where tight synchronisation with tier 1 supplier operations assures unit-level sequenced deliveries of major components such as seats to assembly plants, as described by Yves Caracatzinis, VP of Global Supply Chain at Renault3. Breadth of S&OPs internal and external alignment, and information visibility The other key dimension we wanted to understand was how broadly S&OP has reached across the wider value chain. This breadth dimension was broken down into three areas representing how well aligned the business is internally around S&OP, how well aligned it is externally with trading partners, and how visible information is across all concerned parties. Using the same maturity scale approach described above, we asked survey participants to rank their current maturity across these three breadth dimensions. These maturity scales are shown in Figure 7. When the responses are charted together, we see a substantially different story in terms of maturity on the breadth dimensions than on the depth dimensions. It is clear that S&OP internal alignment is strong, while external alignment
Figure 7: S&OP maturity level definitions breadth dimensions

INTERNAL ALIGNMENT
1 2 3 4 5 6 7 8 9 10

Localised groups of S&OP practitioners driving process from supply side to ease production planning.

Senior functional leaders from both sales and operations accept and embrace S&OP discipline as appropriate venue for business decision making in the short to medium time horizon. Functional leaders educate each other on the cost and/or revenue implications of compromises made when plan and reality diverge. Finance sponsors S&OP and validates data inputs as well as plan outputs.

Senior business leaders (CEO sometimes) sponsor S&OP process with functional leaders committed as peers to optimize market opportunities. Senior leaders use the process to direct activities across functions with a goal of creating and shaping demand and reducing costs. Finance looks to S&OP as an appropriate venue for due diligence on essential capital investment decisions.

Operations staff reactively uses S&OP principles to explain sales driven cost overruns. Finance sees only a cost control initiative.

EXTERNAL ALIGNMENT
1 None. 2 3 4 5 6 7 8 9 10

A handful of key trading partners are engaged in some degree of co-planning in either a pilot or otherwise limited scope relationship. Trading partners are conscious of bullwhip effects but rely largely on sales rep-to-buyer relationships to communicate into the S&OP process. Clear understanding of the role your operations play in the business success of your customers. Some appreciation of the impact your operations have on the cost and quality of your suppliers business.

Selected important customers and the majority of the Tier 1 supply base are actively engaged in regular collaborative planning. Trading partners align dedicated operational planning personnel with your planning personnel to synchronize information and decision making. There is an established picture of how your business fits in the wider value chain. Key trading partners accept the definition of this value chain and share value created willingly.

Surprises are common to both the upside and the downside.

Little or no concept of the business as part of a wider value chain. Very internally focused.

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FULFILLING THE VALUE OF S&OP

INFORMATION VISIBILITY
1 2 3 4 5 6 7 8 9 10

Disconnected spreadsheets and local information are manually manipulated to create production plans. There is regular disagreement between plan and actual, sales and production, shipments and revenue. Local systems provide minimal access beyond local owners.

A common supply-demand planning system exists and is fed with data pulled from various enterprise systems. Orders and shipments are regularly and reliably reconciled against a common S&OP process and one-number plan. The common S&OP process acts as a single point of visibility for all players (internal and external), but is not a perpetual instantiation of any particular information system.

A complete picture of both demand and supply with ready conversion across units of measure, time, BU and any other relevant nomenclature. The information system supporting S&OP is seen as the single version of the truth and acts as the basis for the business Annual Operating Plan. The S&OP information system is cloudbased or otherwise open access and maintains a permanent live record of all supply-demand balancing data.

Upon examination, the data shows a clear lead for internal alignment maturity with an overall average of 5.9 against only 5.1 for external alignment and 5.6 for information visibility. At the extremes, too, internal alignment is twice as likely to be scored a 9 or 10 than is external alignment and half as likely to be scored a 1 or 2. Also telling is the fact that internal alignment had a mode of 8 meaning that the most common response was well up the maturity scale. It is evident that most supply chain organisations have persuaded the various functions within the business that S&OP can make a real difference in everything from customer satisfaction to cost control. The example of Mlnlycke Healthcare described above corroborates this more evolved level of internal alignment. It is also clear that most have made substantial progress in reconciling different data streams from various systems, as is seen in the case of data storage specialist Citrix, which merges supply system data from Baan and SAP with demand forecast information consolidated in Hyperion4. On the other hand, comments from many supply chain executives point to a breakdown externally. One SVP of supply chain in consumer electronics, for instance, characterised external alignment as very immature. This executive went on to describe a dynamic of hidden demand information, gaming of inventory requirements, and unnecessary volatility. Further up the chain, an executive in the components industry talked about the poor appreciation of customers for long lead time production processes. Such views are common, especially in the hi-

Figure 8: S&OP maturity in internal and external alignment, and information visibility

80 70
Number of respondents

Internal alignment External alignment Information visibility

60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10
n=387

Maturity scale (10 = highest)

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FULFILLING THE VALUE OF S&OP

tech sector, pointing to a systemic breakdown that many businesses feel in their working capital budgets and in big write-offs of excess and obsolete inventory.The implications of this research are that internal buy-in is there but that true collaboration with external trading partners is often not. Considering that three-quarters of our respondents say their contract manufacturers play at least a limited role in their S&OP process, it is clear that many have made steps toward better external alignment. One wonders, however, whether this engagement is too one-sided, with a supply-only relationship hampering performance of the overall value chain. The solid normal distribution of answers on information visibility suggests that the problem is not a matter of tools, but instead a lack of balanced business relationships in both the upstream and downstream directions. Progress is being made We did ask whether respondents felt that progress had been made over the past five years in either deepening or broadening their S&OP processes. The responses show substantial confidence that both have improved, but it is clear that more saw gains along the depth dimensions than the breadth dimensions. By a ratio of almost 6:1 respondents felt they had absolutely made progress toward deeper S&OP processes, but only just over 3:1 could say the same of broader S&OP. Again, the research points to some real progress on the journey, as so many seem to call it, but a significant drag on improvement at the critical handoff between the customers buying organisation and the suppliers salespeople.

THE VALUE OF S&OP

Having gained an understanding of S&OPs penetration into the functions of the business, as well as its reach across the value chain, we wanted to link improvement in the process to business metrics that create value for customers and/or shareholders. We asked first whether the movement towards better S&OP had impacted any of six key operating metrics. What we found in aggregate was solid confidence that gains have been made in some of the lower level, more clearly causal metrics such as on-time delivery and supply availability, but less certainty about impacts on top-level things such as revenue and total supply chain cost. Nearly half of all respondents, for instance, felt that better S&OP had absolutely improved on-time delivery and supply availability (see Figure 10).

Figure 9: Successful move to deeper and broader S&OP processes over the past five years

Supply, demand and project management

Internal and external alignment, information visibility

11
Absolutely Probably Not really

15 51 34
% of respondents
n=386

27 62

10

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FULFILLING THE VALUE OF S&OP

These survey numbers are borne out in practice at retailer OfficeMax, where S&OP efforts translated into a 60% reduction in daily out-of-stocks, a 40% reduction in owned inventory, clearly measurable cost savings in transport and logistics, and a 67% elimination of forecast error5. In another case an SVP of supply chain in the medical devices industry was able to clearly quantify more than $1 billion of inventory savings achieved while maintaining a 95% service level. Total supply chain cost, on the other hand, is seen as having absolutely improved by just over a third of respondents, while nearly half could only say that this metric has probably improved. The numbers for revenue are even worse, with just over a quarter claiming absolute certainty that this metric has been positively impacted nearly the same share who say it has not really improved. Forecast accuracy and inventory turns two metrics that are among the most regularly scrutinised and well understood have both improved as a result of deeper and/or broader S&OP processes, according to our survey respondents. These two scored lowest against the probably improved criteria, indicating less ambiguity around these metrics. The implications of this data suggest that S&OP has indeed worked, but primarily to improve operational handoffs within the business. Better on-time delivery, for instance, is more a matter of meeting promises on day-to-day operations, while supply availability, its corollary, reflects cleaner communication about stock levels in the as-is business. More strategic, longer-term impacts such as total supply chain cost and revenue, which reflect better orchestration of supply/demand balancing, have been harder to get at. It is possible that these results reflect the lower levels of maturity seen above for breadth of S&OP, especially where that means engagement with the customer side instead of just the supply side. To put some rough order of magnitude against gains on these metrics, we asked respondents to assess their degree of improvement on each since S&OP initiatives began. What we see in aggregate confirms the top-level data shown in Figure 10 namely, that basic and relatively narrow metrics have generally seen at least moderate (~20%) improvement, while higher- level and more sweeping metrics have seen marginal (<10%) improvement. The best overall gains were seen in on-time delivery, where the average improvement is 20% and the largest proportion of respondents by far say the impact has been significant. Also scoring well is supply availability, which showed an average gain of 19%.

Figure 10: Improvements as a result of deeper/broader S&OP processes Supply availability 47 On-time delivery 46 Forecast accuracy 44 13 Inventory turns 42 14 18 Total supply chain cost 38 14 Revenue 27 20 51 27 47 32 22
n=383

Figure 11: Improvement from S&OP processes to date On-time delivery 20 Supply availability 15 Forecast accuracy 45 12 Inventory turns 11 41 37 47 46

45 41 38 41 33

8 12 19 17 15 27

40 49

33 29 33

7 7 10 11 8 11
n=387

27

% of respondents Absolutely Probably Not really

% of respondents

Total supply chain cost 9 35 11 Revenue 37 6 9 6

Significant improvement (50%+) Moderate improvement (~20%)

Marginal improvement (<10%) No improvement

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THE FUTURE : BUILDING ON GAINS TO MAKE A BETTER VALUE CHAIN

S&OP is a fundamental process for making supply chains work. The results of our survey suggest that this is well understood and that S&OP has significantly improved day-to-day operations fairly deeply in most companies. It is also clear that while supply chain professionals are still doing most of the driving, the rest of the business is happily on the bus. Where we seem to be lagging is in reaching outside the four walls of the company to engage our trading partners, especially on the customer side, to improve the performance of the whole value chain. In practical terms, this means that customers who dictate their needs for inventory placement, capacity commitments, delivery windows or price are ruining it for everyone. Meaningful gains in on-time delivery lose some of their punch if they dont translate somehow into more revenue, at lower total cost. Looking ahead then, we asked our respondents to speculate on how much improvement they believe is possible against each of the six metrics discussed above. What we found was that they expect the past to predict the future. Participants were most bullish on gains in areas where they have already done well, including supply availability and on-time delivery. In each case the aggregate view was that efforts over the next five years should yield at least moderate (20%) improvements. Interestingly, there is also a belief that meaningful gains will be made on forecast accuracy, with more respondents saying they expect a 50%+ jump over the next five years in this area than on any other metric. This may be wishful thinking, but it implies some hope that customer-side engagement will improve. Where our respondents are more conservative is again in terms of impacting profit directly either with top-line improvements or total cost savings. These bigger goals obviously demand a more holistic approach to balancing supply and demand, including probably broader participation in S&OP processes, especially with customers. The biggest bang for buck should come from the area that has seen the least exploration to date namely, customers willing to moderate their demands in return for less friction and waste in the value chain as a whole. Obviously, the customer will need and deserve compensation for such reasonable behaviour. A second, and complementary, report based on this research explores an approach that may offer such compensation and, in the process, create a marketplace for flexibility that works with the incentive realities of sales organisations on the one hand and purchasing departments on the other6.

Figure 12: Expected improvements from S&OP processes in next five years Forecast accuracy 29 Supply availability 28 On-time delivery 27 Inventory turns 23 Total supply chain cost 21 Revenue 19
% of respondents

47

22

27 1

Significant improvement (50%+) Moderate improvement (~20%) Marginal improvement (<10%) No improvement

47 44

24

28

52

22 27

50

48

31

2
n=380

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Payback depends more on better external alignment than anything else The final set of questions we asked was around how much value remains to be harvested with deeper and broader S&OP. Using the maturity scale definitions we offered earlier in each of three areas along the dimensions of depth and breadth, we asked respondents to speculate as to how much of the total potential value had already been captured. In terms of going deeper into the business, it appears that supply management has already given up much of what it can to the cause. Almost 75% of respondents believe they have already captured at least 20% of the potential gains out there, with a quarter claiming that over 50% of the benefits are already in the bank. Demand management, in contrast, is seen by only 19% of respondents to have been tapped to the tune of at least 50%. Most think they are just at the beginning of this journey. One supply chain executive we interviewed, for instance, described his business as being about a third of the way through it and speculated that lead times could probably be cut by another 30-35% while removing an additional 25% of inventory from the chain. In this case, an institutionally mature S&OP process has delivered benefit, but promises more payback in the future. Finally, on the breadth dimension we studied the same issue with the same approach. The data confirms much of what has been argued so far namely, that most of the big payback from better S&OP lies in improving external alignment. The highest degree of certainty that weve taken most of the value off the table already sits with internal alignment. Just over a third of respondents say they have already identified and captured over 50% of the potential value of S&OP associated with better internal alignment. In stark contrast, our respondents see almost the exact opposite situation with their companies external alignment. In fact, more people believe they have seen none of the potential value yet than say they have achieved 50% or better. In the case of the third breadth element, information visibility, it appears that respondents believe there may still be some business case justification for additional investment here, but that they are by no means operating in the dark. The following quote from a supply chain VP in electronics typifies the hope that better external alignment can dramatically improve the value chain: In my mind, he says, were not even part way there its a huge gap.

Figure 13: Value captured so far depth dimensions Supply management 29 12 46 Demand management 19 42 Product management 18 15
% of respondents A lot (50%+) Some (~20%) A bit (<10%) None

Figure 14: Value captured so far breadth dimensions Internal alignment

47 41

22

35 12 46 Information visibility

43 41 42 28

20

50 41 35

27

4 17 27

26 42 External alignment 18 10
% of respondents A lot (50%+) Some (~20%)

27

33 9

41 42 11

17 27
n=377

40

37

n=377

A bit (<10%) None

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CONCLUSIONS & RECOMMENDATIONS

The net message here is that S&OP, while well understood and fully operational in most businesses, is miles from fulfilling its potential. Part of the opportunity that remains lies in pursuing deeper penetration of S&OP principles in areas of the business outside of supply management. By far the biggest payback, however, seems to await those who can master external alignment as part of broadening their S&OP processes. In practice, this means persuading customers to engage in S&OP with an open and flexible mindset looking for higher-level business impacts such as more sales and better margins. Our research data suggests that the rewards are there and even (for the most part) the information tools needed to do the job. It may be simply a case of changing the dynamics between trading partners. Organisations looking to improve their S&OP processes should: Maintain a commitment to documented and formalised processes around supply and demand planning, as well as a reconciliation process for identifying and making the right business decisions on unavoidable trade-offs. This includes engagement of business owners (general management) at regular intervals to make the tough decisions within the process framework. It also means dedicating at least some full-time process owners to define, promote and navigate adoption of the process as it embeds in the business. Identify and promulgate meaningful metrics that approximate profit impacts of trade-off decisions made in the S&OP process. Forecast accuracy, perfect order and the like are useful diagnostics, but not enough to convince business owners that consistency in decision-making around trade-offs can affect profits. Consider setting baselines around customer or channel profitability as a way to monitor progress toward better supply/ demand balancing. Work toward a better cost-to-serve model that is capable of quantifying the cost of flexibility. Much of S&OP has focused on improving forecasts, which is difficult in the face of institutional resistance in the sales organization on one side and purchasing people on the other. Good cost to serve modelling will help differentiate truly valuable flexibility from bluster and may help both sides get more value from the trading partner relationship. This also may help break the deterministic optimization habit that most supply planning is based on, leading to more agility in the supply chain. Seek out the handful of bigger, more sophisticated customers that are probably already engaged in operations-to-operations collaboration at levels above sales and purchasing. These few accounts generally their supply base. This could lay the groundwork for better external alignment, which appears to offer so much benefit to all parties. have the resources and business case to justify investing in better demand transparency backwards toward

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REFERENCES
1 Leveraging integrated business planning to align supply chain with corporate objectives Don Harding, head of

supply chain AsiaPac, Mlnlycke Healthcare; SCM World webinar, S&OP series, 28 August 2012.
2 S&OP: The invisible engine of profitable growth in sports footwear/apparel value chain Mohit Loomba, global

processes manager, sales & operations planning, Nike; SCM World webinar, S&OP series, 12 June 2012.
3 Ensuring production agility and realigning inventory at Renault Yves Caracatzanis, vice president, global supply

chain, Renault; SCM World webinar, 13 March 2012.

4 Re-architecting the Citrix supply chain Fred Tiso, vice president, global supply chain operations, Citrix Systems;

SCM World webinar, 22 February 2011.

5 Supply chain transformation at OfficeMax through CPF&R and S&OP integration Nikhil Sagar, vice president, retail

inventory management, OfficeMax; SCM World webinar, S&OP series, 17 April 2012.
6 See The Missing Link in S&OP: Flexibility Pricing, SCM World, December 2012 (forthcoming).

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FULFILLING THE VALUE OF S&OP

ABOUT THE RESEARCH

Invitations to complete an online survey were sent to corporate members of SCM Worlds global community and to other supply chain and operations practitioners on our database in August 2012. In total, 387 completed responses were received during the two-week survey period and the key demographics of this sample are as follows.

Industry sector: Hi-tech, food and beverages, industrial and healthcare/pharmaceutical, consumer packaged goods and logistics

chemicals firms drew the largest number of respondents. The and distribution sectors also each comprised at least 7% of the sample.
Hi-Tech Food & Beverage Industrial Chemicals 12 11 Healthcare & Pharma CPG Logistics & 12Distribution Retail Professional 13 Services Utilities & Energy 42 18 Agriculture & Mining 14 15 Software 40 Paper & Packaging Metals Fabric & Apparel Automotive Media & Telco 1
% of respondents
n=386

16 15 15 10 9 7 7 3 3 2 2 2 2 2 2 2 41 4 17 27
Europe, Middle East & Africa

Geography: Almost half of the respondents are based in the EMEA region, with a third in North and South America and just under a fifth in Asia-Pacific.

33 9

1 33

Asia & Australia North & South America Rest of the World

17

% of respondents
n=386

Company size: In terms of revenue, almost 4 out of 15 10 respondents work for companies with more than $5bn in a fifth of the sample did not disclose revenue information.
- $1bn $1bn - $5bn

16

Job level: Just over a third of respondents are at senior executive, vice president or director level, with half at manager or head of department level.

annual sales, with a quarter in firms less than $1bn. Just under

SVP/EVP/Board Level

18

25

14

7 29

VP/Director Manager/Head Other

$5bn - $10bn $10bn - $25bn

20 18 12 7

$25bn+ Undisclosed

50
% of respondents
n=387

% of respondents
n=382

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RESEARCH REPORT

FULFILLING THE VALUE OF S&OP

ABOUT SCM WORLD

SCM World, a RaptureWorld company, is the leading global community and think-tank for senior level supply chain executives. Hosting a dynamic and interactive annual programme of end-user and academic-led webinars, events and research projects for its members, SCM World is the de-facto benchmark for forward-thinking supply chain leaders and their global teams to stay current through cutting-edge content. Organisations from across multiple industry verticals use SCM World to further enhance supply chain learning and development, including the likes of HP, Nestl, Tyco, RIM, Nike, GlaxoSmithKline, Cisco, Schneider Electric, Shell, Motorola, The Dow Chemical Co, BASF, Applied Materials and many more. www.scmworld.com

Contact: Geraint John Senior Vice President, Research +44 (0) 20 7357 8321 geraint.john@scmworld.com

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