• Neil James

Driving Profitable Collaboration for Growth – Demand Driven S&OP


In my previous posts, I have discussed the challenges in deploying an effective S&OP/IBP process which are experienced by organisations across all sectors. These challenges mean that S&OP/IBP rarely delivers the enterprise benefits that were envisioned for the process when it was first conceived and codified by Dick Ling in the 1980s.

Perhaps the most common, and significant, challenge to the execution of an impactful enterprise S&OP/IBP process is the lack of cross-functional collaboration to support optimised enterprise-level decision making. Ultimately, this impacts the organisation’s ability to chart a course for profitable growth as recent studies [1] have shown that world-class differentiation is achieved not by the creation of world-class functional performance but by strong cross-functional performance.

With this in mind, the Demand Driven S&OP approach (as outlined in my previous article) offers the potential for significant improvement;

1. Business-focused S&OP

Demand Driven S&OP enables the organisation to shift the focus of S&OP to the management and leadership of the business rather than the management of the supply chain. It achieves this in two ways;

  • The planning foundation for Demand Driven S&OP (see previous article-link) manages baseline demand (and its variability) very effectively with minimal additional manual intervention, through the use of strategic buffers. This planning approach is monitored and tuned continuously but much of this can be managed with an empowered operational team with appropriate decision rights. Only exceptional events typically require escalation to S&OP/Integrated Reconciliation meetings. As originally conceived in S&OP, this means that the balance of these meetings is much more aligned to discussing and managing external market and customer issues rather than short-term operational firefighting (as typically seen today in many businesses)

  • The Demand Driven S&OP approach uses a concept of Relevant Ranges (meaning the timescale under consideration - operational, tactical or strategic). Segmenting the issues into these relevant ranges in this way allows topics to be directed to the most relevant decision-making forum in the S&OP architecture. This also allows the appropriate scheduling of these discussions, for example with strategic topics addressed quarterly by the senior executive team, whereas current financial year tactical topics would be discussed on a monthly basis at the appropriate leadership level. This ensures that every topic receives timely attention at the right level of seniority to drive the overall business.

These features of Demand Driven S&OP help confirm that the clear purpose of the S&OP process is to manage the business holistically (not just the supply chain). This incorporates a spectrum of requirements from operational to strategic but always ensuring that decisions are taken at the optimal level with the appropriate participants and decision-makers for that level.

2. Collaborative Scenario Planning

Effective creation and leadership of growth strategies in an external environment characterised by VUCA [2] factors is heavily dependent on the organisation’s ability to master scenario planning. The original concept of S&OP was intended to support this key requirement. However, in practice the complexity of supply chain configuration and planning and its disconnect from the commercial function often prevents effective integrated scenario planning. In particular, the ability to readily model the supply chain capability to cope with scenarios such as new product launch strategies, competitor entry, regulatory change or new technology is limited. This is due to the often complex and detailed approach typically used in supply chain planning (for example, resulting from the application of traditional MRP and related techniques).

However, the Demand Driven approach which uses a far simpler planning and execution philosophy based on strategic buffers lends itself to a much more straightforward modelling approach. This can be readily used to carry out what-if scenarios on various commercial plans and the support required from the supply chain to deploy them.

Once the supply chain configuration has been set up in the Demand Driven operating model, with the configuration of strategic buffers established, this baseline can be modified quickly in software tools available now. This allows analysis to model the effect of new commercial strategies on the supply chain and importantly this also allows the key financial outcomes of deploying these strategies to be analysed. This incorporates not only the revenue impacts on driving market share but also the costs and working capital requirements of evolving supply chain capability in support of these strategies.

This ability to readily model the cross-functional impacts of new scenarios (effectively in real-time) is a significant enabler for genuine cross-functional collaboration to exploring and deciding strategic options. Importantly, this strategic element of Demand Driven S&OP is then easily translated and set-up for tactical execution in the Demand Driven operating model as the configuration and parameters used in the scenario planning are exactly those used in the tactical management of the business.

In this way, Demand Driven S&OP provides an important tool for driving meaningful and actionable scenario planning which engages the key cross-functional stakeholders in a way that cannot be practically achieved with traditional S&OP methods.

3. Cross-Functional Transparency & Understanding

As described in (1) and (2) above, Demand Driven S&OP facilitates a more business-focused and participative process. In addition to this, a key outcome of the approach is improved transparency and understanding across functions, especially the commercial and supply chain functions.

The Demand Driven model creates a simpler, high-level description of supply chain capability and how this is configured to deliver market demand than is typically seen in traditional supply chain planning/MRP set-up. This provides much more transparency and clear understanding for commercial and finance colleagues (ie non-supply chain specialists) and enables them to understand the challenges, sensitivities and influences on the supply chain. Understanding and visualising flow of products through the series of buffers and ultimately on their way to customers is much easier than making sense of a supply chain centred on key nodes each with their own detailed and complex plans.

The financial implications of decisions on the deployment and management of strategic buffers is also more intuitive for non- supply chain experts. This is critical as this understanding begins to facilitate a more effective and informed cross-functional discussion rather than the ‘at arms-length’ transactional approach commonly found in traditional S&OP that often results in tension and lack of trust between cross-functional partners.

The Demand Driven approach also enables the supply chain teams to develop a deeper understanding of the commercial model, and its outlook and challenges. This is achieved in two ways;

  • The more business-focused set-up of Demand Driven S&OP means that more time and attention is allocated to describing, understanding and managing the market environment through the S&OP cycle. This means that supply chain teams are more exposed to these issues than in a S&OP process more focused on operational firefighting (as is too often the case).

  • The activity of facilitating genuine discussion on the core business topics and building a track record of successful cross-functional decision-making and problem-solving also starts to build trust and openness between the functional teams. This develops a deeper level of collaboration and the ‘arms-length’/transactional interaction between the commercial and supply chain functions is gradually eliminated as trust and relationships are built. This is a powerful enabler for the core partnership that is required for an effective enterprise S&OP process.

Summary

The Demand Driven approach is being increasingly explored and adopted for its advantages over traditional supply chain planning methods (eg MRP). However, in addition to offering the potential for improvement as a specialist supply chain planning approach, it promises a number of benefits to the wider purpose of S&OP by facilitating step-changes in cross-functional collaboration. This collaboration is a critical success factor for sustainable growth in an increasingly volatile and complex environment and for this reason Demand Driven S&OP should be explored not only for its technical planning benefits but for its contribution to enterprise collaboration to drive growth.

[1] Strategy That Works (2016), Leinwand & Mainardi

[2] VUCA: Volatility, Uncertainty, Complexity, Ambiguity

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