Sales and Operations Planning
An S&OP Must
By Patrick Bower
As I go through life, I see naturally recurring cycles. Ideas, concepts, music tastes and even foods fall in and out of favor. (I’m still waiting for disco to make a comeback so I can bust out my hustle.) Similarly, every four or five years, the conversation about supply chain and sales and operations planning (S&OP) metrics circles around, creating a brief flurry of activity. Someone will write a book about why metrics matter, trade magazines will publish articles about balanced scorecards, and the conversation and interest reach a peak. Almost like the cycle of cicadas, there is a lot of chirping for a moment, then the interest seems to end as quickly as it arrived. I suspect the buzz about metrics is short-lived because the paradigm rarely changes.
Just so there is no misunderstanding, I support metrics. Frankly, I believe the more metrics, the better. For decades, I have witnessed the positive correlations among measurement, organizational change and operational improvement. Yet substantive discussion about the importance of metrics to the S&OP process often gets lost in intellectual debates about naming conventions or never-ending attempts to expand the process model.
If forced to cite the typical S&OP metrics, forecast error, production performance, and inventory value or turns percolate to the top of my head. These all are meaningful measures — unless your company doesn’t produce anything, store inventory or have visibility to the end customer. However, after all my years managing S&OP processes, my key learning is that metrics should not conform to some arbitrary standard. They need to be tailored to fit the needs of the organization.
That said, there is one measure that I believe you absolutely must have.
Recently, at an ASCM conference in Chicago, someone asked, “If you had to use only one S&OP metric, which would you choose?”
To me this is akin to picking a favorite child; you love them all, but for different reasons. Yet my answer was surprisingly simple, “The customer’s measure of my organization’s performance.”
I went on to explain: “Our largest customer is Walmart, which gauges our performance based on an on-time-in-full (OTIF) metric. I love this measure. The ‘in full’ portion is a reflection of our ability to plan, while ‘on time’ is a reflection of our ability to execute.
“I will add that many organizations stop measuring their performance at the time of shipment. That is, they measure if they shipped a product OTIF, yet this does not account for all the logistics involved in actually completing the delivery of an order to a customer’s receiving dock. This is why I believe the best measure of total supply chain performance is perfectly captured in Walmart’s OTIF measure. And it is our primary S&OP measure at Combe.”
“But what about all your other customers?” was the response.
A fair question, to which I answered, “We are egalitarian in our fulfillment process; all customers are treated equally. More importantly, we use the exact same standard operating procedures for all our accounts, so Walmart’s measure is a representative analog for everyone else.”
THE CUSTOMER IS PARAMOUNT
I always have a slight pang of regret after delivering such a strong opinion, sort of like buyer’s remorse. My mind immediately beings to race. Was I correct? But, looking back at my conference encounter, I believe my initial answer was spot on. If we do not perform to customer expectations, they will drop us as a vendor or delist some of our products, and the organization will begin a slow spiral downward.
Of course, no S&OP process pivots on a solitary measure. Still, it might be beneficial to look through the lens of your customers and select or enhance metrics for each S&OP review meeting that will enable or contribute to the best results in a customer-based measure. Maybe go as far as presenting them during each review meeting as a reminder to focus on the importance of your customers’ interests throughout the entire S&OP process.