The Challenges of Global S&OP

What do you want to achieve? Where does your company want to be in 12, 18, 24 months? Do you know? If you don’t, move on to the next article and come back when you have an answer. Why? If you don’t know where you are headed, any road will take you there. How else will you know what success looks like?

In today’s uncertain times, a clear vision and strategy of where you need to be is the key to rally the company and propel your business forward; forward into new markets, new geographies and ahead of your competition. Success lies in the ability for your company’s stakeholders to tie goals, strategy and execution into a single, measurable plan.

Cost reduction, expansion into new geographies, and visibility across the company are common goals I hear many global companies discuss. As I work with leading companies to develop sustainable sales and operations planning (S&OP) processes, we see industry research support these benefits. According to Gartner, a “demand-driven S&OP process can improve revenue from 2% to 5%, reduce inventories by 7% to 15% and improve the success of new product launch commercialization by 20%.”¹

A majority of companies focus their S&OP efforts at the local or regional level which creates multiple, independent S&OP processes across the company. A research survey from Supply Chain Insights revealed the average company has five S&OP processes and 63% of companies have more than one.² This leaves a lot of opportunity to clean up inconsistencies across the corporate network. However, many companies struggle with how to get there, how to cross the cultural and regional differences to ensure everyone speaks the same language—the language of success.

Let’s discuss some of the challenges companies face as they roll out a global S&OP process and take a look at how one company is successfully navigating through the process.

Obstacles
One of the key challenges to a successful global S&OP process is the language barrier. This is not a reference to the differences between Chinese, Dutch, English, and Spanish. This refers to how each of your regions defines success, what an accurate forecast looks like, how service level is calculated, etc. Chances are inconsistencies exist in your business from region to region in how these basic principles are discussed, executed and measured. It is important to develop a consistent framework that brings a common set of terms and definitions to the organization. Software can help you provide a consistent framework.

If you ask each department in your business how much inventory you need, the answers will be vastly different. Accounting will provide a financial valuation with no appreciation of mix or location. Sales will say it needs “a lot” of inventory to ship every product, every day with no view of obsolescence, capital or investment required. The manufacturing team will talk about how much they can produce efficiently, which will likely translate into holding more finished goods inventory than you need. Each department is concerned with its own area and metrics, not necessarily the corporate goals, until they are translated to the language of each area of the business.

In addition, many companies have grown through acquisition that has brought on a myriad of enterprise resource planning (ERP) systems, each presenting data slightly different than the other. Global companies today can have upwards of 12 different ERPs measuring and calculating in its own way. Moving toward a single ERP system takes time (years in fact) and the expense doesn’t typically justify the endeavor.

When working with multiple systems, definitions and local customs, you need to find the right balance between rigidity and flexibility. Be standard enough to provide a consistent framework for all divisions in the company and yet flexible enough that local business drivers can be reflected.

On one side you have a rigid system that dictates exactly how business should be conducted across the entire company. This can be beneficial for the headquarters while at the same time detrimental to operations in Southeast Asia where the business environment is not conducive to the set process. On the other hand, an overly loose system will allow each region to operate independently, creating headaches and subjective interpretation for the team charged with culling the data and the executives who have to make decisions based on delayed and stale information.

Timing is another challenge. As you will see in the example below, the right cadence can help ensure success. When a goal or target is set, the first inclination is to get there quickly. Considering the challenges above, you will need to determine how and when it is best to roll out the initiative.

Case in Point: Patience
A multi-billion dollar company with operations in 170 countries identified a need to reduce inventory, improve the sales forecast and increase its visibility into future demand. The company also wanted to understand the seasonality and cyclical nature of market demand for certain products.

At first, the supply chain organization turned to spreadsheets, a practice many of you are likely very familiar with. This worked well for a single country but could not scale to consistently represent the company’s global operations. Obtaining a global view of demand, supply and inventory was a significant challenge for the team. Multiple ERP systems meant data was easy to obtain but highly static and inconsistently represented. This process left them unable to slice and dice the data at local, regional and global levels to identify trends, predict issues and take corrective action as needed. Nor were they able to develop and evaluate multiple scenarios prior to implementation.

In addition to the above challenges, the company realized it would need to implement its global S&OP process to tie these goals together and do so on a manageable timeline. This consisted of first deploying in North America, what they called their “Big Bang” implementation. Headquartered in the U.S., it made sense for the team to first test the S&OP process with those that would help deploy it around the globe.

Next, Europe, Middle East and Africa (EMEA) were incorporating best practices from the first phase and modifying the process to suit the individual countries within the region while still maintaining a consistent definition of critical data points. The third phase brought the best of the first two phases to the Asia-Pacific region. This global rollout took place over the course of four years, which allowed for refinements to be made along the way and to ensure everyone involved was comfortable with the new process.

As part of the S&OP process change, management realized they needed the right technology and skill sets. Looking within, the company saw an opportunity to help further its planners’ understanding and knowledge through company sponsored APICS training and certification. Setting individuals up for success is important if you want the initiative to generate the results sought. And a solid and consistent education created a strong foundation to build upon.

This initiative has led to a more than 10 percent inventory reduction in North America and 5 percent reduction in EMEA along with improved forecast accuracy and greater visibility. The company was also able to reduce its working capital while increasing customer service levels.

Technology Enabling People and Process
In addition to people and process, technology plays a large role in a company’s ability to manage its global S&OP process. First and foremost is the ability to create a feasible plan, one aligned with corporate capabilities, not a lofty, theoretical plan for the business. Tied to the plan is the ability to visualize progress, measure success and be alerted to potential issues before they become a problem. Developing a closed-loop business process is paramount to long-term success.

Sales and operations planning breaks down organizational silos to ensure everyone is on the same page and understands why margin, availability, service level, forecast accuracy, etc. are important and what they mean to the organization. The data presented to each department needs to be consistent and presented in a way that is meaningful to their role in the business. You can give accounting a plan in terms of volumetric numbers but that is not meaningful to them. They need to see the plan in terms of financial numbers. How much investment in inventory do we have/need? What is the carrying cost of that inventory? Work towards one plan that is viewable and understandable by all parties involved and that is analyzed from multiple perspectives.

The benefits of S&OP are well documented and have helped many companies dramatically improve operations and gain a competitive advantage in an increasingly difficult global economy. Don’t ignore the potential reward of a global S&OP process because the task seems daunting or a region doesn’t want to follow suit. Make sure everyone understands the importance of the change and how it will directly benefit them and the business.

About the author
Karin L. Bursa is a vice president at Logility, a provider of collaborative supply chain management solutions. Ms. Bursa has more than 25 years of experience in the development, support and marketing of software solutions to improve and automate enterprise-wide operations. You can follow her industry insights at www.logility.com/blog. For more information, please visit www.logility.com

Notes
1.“Toolkit: How Demand Driven is your S&OP Process” Jane Barrett, Gartner, 10 April 2012
2.“S&OP Planning Improves Supply Chain Agility” Lora Cecere, Supply Chain Insights, 22 May 2012