By Juha Martikainen | Director, Chainalytics|
In part one, “How a Better Executive S&OP Maturity Model Ensures Better Business Results,” of this two-part blog series, we discussed how the Chainalytics four-step maturity model (Figure 1 below) supports better results for your supply chain. This second installment will concentrate on the data and supporting IT tools related to each of the four maturity steps.
But be forewarned: Reaching high executive S&OP process maturity requires gradual “organizational learning.” It takes time, as does choosing, adopting and adapting to the optimal IT tools and data needed to execute your four-step process to match your firm’s needs.
Figure 1. Chainalytics S&OP Maturity Model
In fact, the requirements for IT tool capabilities and data increase at the same pace your executive S&OP process matures. Why is that?
- Most companies in the early stages of executive S&OP use aggregate data for planning. The more aggregated the data, the more compromises the business must make in planning accuracy. Evolving S&OP process maturity normally requires more detailed data, thus creating additional requirements for the supporting IT tool.
- Chainalytics’ executive S&OP maturity model focuses on scenario planning, profit optimization and network design considerations–advanced capabilities that require specific tool features and data elements not even needed in lower process maturity levels.
Visualizing plans and metrics, collaborating to ensure one set of numbers
To confidently navigate the four steps, it’s important to choose a flexible approach and IT tool that enables collaboration to ensure one set of numbers and will:
- Support your firm as it reaches higher levels of maturity
- Enable you to add more detailed data when needed
- Provide simple planning views that are essential to ensuring quick executive S&OP adoption, so you can get up to speed (you don’t want to overburden users with too many bells and whistles and complicated logics when you are just starting your S&OP journey)
Companies begin their executive S&OP journey with different data requirements. To achieve one set of numbers across your organization, your IT tool will need to support different types of data in each step of the S&OP maturity model:
Step 1. Cross-Functional Planning This initial step in the S&OP maturity model requires defining planning hierarchies and levels for customer, product and time dimensions, as well as utilizing quantity-based data for demand and supply planning. This step is best supported by a tool that enables flexible changes and is quick to deploy and iterate. Typically even Excel is sufficient and will do the trick. However, you will need to make some compromises as to how much detailed data you can comfortably manage in a spreadsheet.
Step 2. Scenario Planning Considering scenarios and balancing demand and supply require more sophisticated IT tools for managing planning master data (e.g. planning bill of material, sales prices and capacities) and aligning and integrating the solution with your ERP system. Normally this step is the right place to consider a proper S&OP planning tool that is able to manage large data volumes and has advanced planning capabilities, like creation of statistical forecasts and capacity-constrained S&OP plans and support for assessing multiple scenarios. Such tools also provide the aggregation and disaggregation capabilities necessary to consider detailed SKU-level data, yet allow users to manipulate and see data on a higher level.
Step 3. Profit Optimization Building on the data in Steps 1 and 2, this step also incorporates projected cost development data over the planning horizon (e.g., key materials and labor costs) and requires a tool that enables integrating financials into S&OP. Tools employed in this step should also have advanced analytics and reporting capabilities to truly support understanding how planning decisions could impact future gross profit and EBITDA development. Such capabilities enable you to create proper profit-optimized plans.
Step 4. Profit Optimization with Network Design Modeling The final step incorporates network scenario planning as part of the regular S&OP. Building on the data in Steps 1, 2 and 3, this step also incorporates information (e.g. transport lane costs for potential new lanes, distribution center or warehouse opening/closing or rental costs, etc.) and both fixed and variable facility costs. This step enables you to do profit optimization over the entire network as part of the S&OP process and requires sophisticated supply chain design and optimization software.
As you can see, effective executive S&OP takes planning and forethought to ensure your best results. But it’s time and energy well invested for outcomes that break down data, operational and departmental silos to ensure your best results.
Chainalytics’ Director Juha Martikainen has 15 years of experience in optimizing clients’ S&OP processes in various industries.