S&OP Selection Day debunks persistent myths

The fact that Sales & Operations Planning, or S&OP for short, is more popular than ever was underlined during Supply Chain Media’s S&OP Selection Day which took place in November. The venue in Utrecht was packed with supply chain professionals who were keen to learn how to establish a robust business planning process in these turbulent times. They heard useful advice from various international speakers and were alerted to persistent misconceptions. Keynote speaker Jonathon Karelse debunked the three major myths surrounding S&OP.

By Harm Beerens

These are challenging times for companies’ supply chains. Long and unreliable lead times, volatile demand, inflation, wars, geopolitical tensions, the aftermath of the pandemic, staff shortages – every conceivable logistics disruption seems to be happening at the same time. So how can you keep your demand plan, your inventory plan and your production plan aligned so that you can still achieve your strategic/financial goals? How can you implement an effective S&OP process when faced with so many obstacles? And what software do you need? That’s what the S&OP Selection Day was about.

“We have been writing about S&OP for 15 years and have seen impressive progress every year,” stated Supply Chain Media’s trendwatcher, Martijn Lofvers, in his word of welcome. “In the early days it was mainly about forecasting, then conflicting KPIs, then scenario planning and the move to Integrated Business Planning. Then data science started to emerge, and we showed how it could be used to make better decisions. Next came artificial intelligence and machine learning, and last year it was about concurrent planning, planning towers and the link between Sales & Operations Execution and financial goals. S&OP software has become increasingly sophisticated over all these years, yet companies are still struggling to deploy it successfully in today’s unprecedented market chaos.”

Three S&OP myths

This was followed by Jonathon Karelse’s keynote about why S&OP often fails and how to prevent it. According to the Canadian supply chain expert and management consultant, who released the book ‘Histories of the Future’ earlier this year, S&OP doesn’t always live up to the high expectations due to three myths. The first is that stakeholders must always reach consensus during an S&OP meeting. That doesn’t make sense, according to Karelse: “This leads to group thinking, which has been responsible for the majority of bad decisions in human history. You need people who dare to go against the flow, especially at a time when you can’t fall back on existing planning scenarios. Rather than striving for consensus, create constructive conflicts and ensure diversity within planning teams.”

Another common mistake is what Karelse referred to as ‘the myth of accuracy’; companies obsess about the quality of their sales forecasts and overestimate the impact. “Improving forecast reliability seems to be a goal in itself for many companies, yet it often makes very little contribution to the financial KPIs.” He explained that he struggles to understand why companies put so much effort into selecting a forecasting package because, according to him, they are all based on the same algorithms. “Moreover, artificial intelligence doesn’t add nearly as much as people think. I won’t deny that machine learning can be used to make much better forecasts than statistical forecasting techniques in specific cases, but in many other cases the existing techniques are good enough.”

Leading indicators of future demand

Which forecasting method works best depends very much on your position within the chain, stated keynote speaker Bram Desmet. As a professor at Vlerick Business School, the CEO of software company Solventure and an author of books on strategy-driven supply chains, he knows his stuff. He demonstrated how ‘Tier n’ suppliers, i.e. companies at the beginning of the chain, are now virtually unable to use traditional forecasting techniques because they are based on historical sales data. Due to uncertainty, disruptions and lock-in effects, they give a completely distorted picture of actual demand. Desmet: “With so many disruptions occurring at once, all the companies in the chain are panicking. They start overstocking and overreacting to changes in demand, which creates new bullwhip effects.”

He presented details of a project for chemical company Solvay Speciality Polymers, a supplier to the automotive industry. The company was no longer able to make a reliable forecast using internal data only, because there was a huge discrepancy between what OEMs and their suppliers were ordering and the number of cars being sold by dealers at the end of the chain. “So we looked for external indicators that had predictive value. Every industry has sector-related data that is openly available. In the automotive industry, for example, you can find out the total number of cars sold and the new car inventory in the dealer channel. Our research showed that this external data would help Solvay to arrive at a much better forecast than the company’s traditional forecasting method.”

S&OP exposes underlying problems

The final speaker of the day was Alberto Lupano from Reckitt, the British multinational known for brands such as Strepsils, Durex and Calgon. As vice president of supply chain services and transformation, Lupano has led an extensive and complex S&OP implementation. This has given him first-hand experience of many of the topics covered in Utrecht, including what Karelse had earlier in the day called “the myth of supply chain magic”. In other words, S&OP is not a miraculous solution to all existing supply chain problems; it merely exposes these problems. Commenting on this, Lupano said: “S&OP is like the roof on a house. It’s no use at all unless you get the foundations and the rest of the house right first. In our case, that meant having a complete end-to-end planning system which connected all the processes together. But we also spent a lot of time on basic things like master data and processes. There’s no point in starting with S&OP unless you have all those things in place.”

First determine your S&OP maturity

In between keynotes, several S&OP software vendors and consulting firms also spoke at the S&OP Selection Day, providing a comprehensive overview of what is currently available on the market and the differences between different systems. “In your selection process, don’t only look at the technology and functionality an S&OP platform offers, but also who will be implementing it,” Martijn Lofvers stated in his closing remarks. “Does the vendor have consultants available in your countries, and do they have sufficient expertise? What strikes me is that companies still issue a Request For Proposal containing a lengthy questionnaire and then base their decision on slick PowerPoint presentations, when they should really be asking vendors for references.” His advice: “Talk to other companies in your industry who have also implemented such software, because ultimately that’s how you will learn the most.”

Missed the S&OP Selection Day 2022?

Missed the event? Watch the recording here!