In a quotation famously, and perhaps apocryphally, attributed to Intel Corporation founder Andy Grove, he said: “For one brief moment the demand will equal supply and we will have the perfect union. Rest of the time we struggle with either too much supply or too much demand.”
Understanding and acceptance of the fundamental truth in the above quotation is perhaps the start of i-SOP – intelligent sales and operations planning. No demand forecast is perfect and no supply system is capable of meeting all the demand perfectly all the time.
The result we are seeking is to work collaboratively, in order to create an organisation capable of maximizing profitability under every demand and supply condition it could possibly encounter. That, in itself, is a lofty goal, given we don’t even know the whole range of demand and supply conditions that could possibly be encountered.
Intelligent sales and operations planning
So, what does a well-functioning i-SOP organization look like? Let us start with the end in mind. The goal we are seeking from this i-SOP process is profit maximization. It is not inventory minimization – numerous IT systems purport to do this, and many do an adequate job.
It does not cost minimization. Again numerous supply chain systems do this adequately enough. The goal is not revenue maximization either; multiple yield management systems do that adequately enough.
The end goal of a successful i-SOP process is profit maximization. To our knowledge, no IT system does this adequately enough – hence the need for an elaborate process aided by a toolkit.
S&OP combines two disparate but essential mechanisms to look at an even bigger picture. On the one hand, demand management is the art of maximizing revenue achieved out of a pool of customers and products in a given period.
The key questions asked are which customers to serve; where; with which products; at what price, and in what way are they to be charged? All these questions are fundamental and are generally thought to lie in the exclusive domain of sales departments.
Some industries, such as telecommunications and airlines, are renowned for being extremely good at what is euphemistically called ‘yield management’ but is essentially a revenue maximisation exercise.
On the other hand, supply management is the art of minimizing the total cost of fulfillment while meeting all the demands placed on the supply systems.
The key questions are where to buy, produce and store; for how long; when and how to move; and where to move to keep customers happy.
These questions are thought to lie in the exclusive domain of production and logistics departments. Cost minimization has been the most popular end goal of traditional supply chain management systems.
This ability – to simultaneously focus on maximizing end results for the customers while minimizing costs is the foundation of the emerging supply eco-systems as a result of i-SOP-based thinking.
Starting with the explicit purpose of maximizing profitability for the company as a whole, it is much easier to create a collaborative process for sales and operations planning. Technically, every supply chain professional knows that the objective function of profit maximization embodies inventory minimization, cost minimization, revenue maximization, and stock-out minimization simultaneously.
The technical problem is relatively easy enough to define using the theory of operation. However, in reality, it is much harder to create and infuse a collaborative process that achieves that purpose into an organization’s DNA. That is the aim of i-SOP.
Intelligent sales and operations planning relies just enough on tools, formulae and checklists to make it a success. The key to its success is, however, the collaborative approach built into the process from the beginning.
The leadership and participants are selected and trained for their positive, results-oriented attitude to joint problem-solving using lateral thinking. Open and honest communication is guided by the instruments and tools created especially for this purpose.
Finally, a single measure of success is used for all participants in the process. Let us briefly recap the differences between the traditional S&OP process and the intelligent S&OP process by looking at the table below.
These were discussed in detail in the previous issue of this magazine. In this article we focus on the way forward.
As Einstein pointed out, no problem can be solved at the same level of thinking at which it is experienced. Following key principles underlying i-SOP rely on raising the level of thinking to that required for the purpose of achieving S&OP’s fundamental goals.
1.Star intelligent sales and operations planning with the end in mind
The end goal of S&OP is always profit maximisation. This should sit on top of everyone’s mind from beginning to end during the process.
The S&OP leader should make it a priority to make sure that this end goal is clearly articulated and how sub-goals in areas such as delivery performance and inventory contribute to and support the end goal. This step alone will go a long way to ensure the success of this process.
2. Get the right leadership and right team for intelligent sales and operations planning
Second most important principal in creating an i-SOP system is to get the right leadership and team on board. This is easier said than done. In current circumstances, demand for good supply chain professionals far outstrips supply. Pragmatic thought leaders in this field are writing their own salary tickets.
Finding the right people is hard. Still harder is to retrain current staff. However, we believe it is possible and necessary to do both. Generally, a few strong leaders in the team are enough to create the momentum and critical mass needed to develop the right culture.
3. Intelligent sales and operations planning Fosters collaborative teamwork
Foster collaborative teamwork through open, pro-active attitudeWith the right team and leadership in place, it is important to create a collaborative team environment. The team should share the responsibility of maximising profit through dynamic decision-making to balance supply with demand.
There should be no bigger agenda than the end goal. There are many ways of achieving collaborative team work – most of them pertaining to team-building workshops. While in our experience some are better than others, we will not go into these in too much detail here because most readers will already be familiar with these methods.
4. Get the right tools for Intelligent sales and operations planning
Dynamic, light, open, collaborative, balancing tools are required to support the above three steps. i-SOP incorporates some of the most effective, yet easiest to use tools that dynamically match demand and supply in order to highlight excess and/or deficits in the facilitation of collaborative decision making. These tools are not resource or data hungry, and not clunky.
Most important, they do not take over the whole process, but are merely an aid to collaborative decision making.
5. Jump-Star Intelligent sales and operations planning with external help – at the right time
This advice will sound slightly self-serving coming from external consultants. However, after significant strategic experience in operations, supply chains and effectiveness, we have come to a strong belief that the right external help at the right time can save a lot of heartache and time.
Just like the way top golfers regularly get coached by a swing coach (who might be a much more ordinary player than the player himself ), it helps to get objective, external view points on a periodic basis.
Most internal consultants find it hard to make effective change as they themselves are too entrenched in the organisation’s culture and processes to break away from them.
The i-SOP process has been designed to parachute a highly trained professional into the organisation for two days every month to collect data, process information and make preparations for collaborative decision-making during the actual meeting.
However, this is not the only way to use external help. The leader in each case is in a good position to think and decide on what is the most appropriate time and manner in which the external help can best be utilised.
The above five steps, if carried out in proper order and spirit, will go a long way to ensure success of the sales and operations planning process. This process is at the core of every organisation, and needs to move with time.