Why is S&OP So Hard

Posted on January 21, 2016


This blob post written in response to Lora Cecera question on new Beetfusion supply chain blog  2016



As always find your views on what is needed refereshing and bold vs. others.. keep it up !

As you know DCRA Inc. our firm was very early to develop and deploy REAL S&OP 2001 or so, with weekly planning cycles and using S&OP to manage unplanned events.These S&OP centric solution were deployed not as some tool (never called S&OP)  but as an embedded enable behind pure business turn around effort.   This led us to develop essentially a real time capability we call Order Comit.  This solution uses S&OP relationships to find ability to commit the order, the incremental order.

We have watched with great interest see firms try to make a “software” or cloud business focussed just on S&OP or some derivative of “planning”.   Although admirable – and there are some custoemers who know they need to extend S&OP with a tool we do not think this is the right approach and all said a very very small market.  Very few business leaders will ever think they need S&OP and all your ERP vendor friends would be telling they already have it…but as you know they absolutely don’t and ERP is in direct conflic to S&OP 🙂

So cannot position S&OP as a thing … you have to position for competitive advantge …  the need to be better, have better results (like your chart above) but really focus on basics business finance measure of working capital, ROA, cashflow, cash to cash cycles and yes customer servce….  S&OP then is embedded in a process of culture change and analytical rigor of new culture.

What we think is root need for S&OP is just plain and simple failed GAAP and IFRS accounting (accountant) focus is a disaster measurement system to run a busienss.   Managing EPS games,  and not accounting fo real upstream working capital comitments and definately not managing profit in volatility.  Additioanlly, ANY backwards looking traditional accounting measures averages over time… and the average can be ok but in today world of short product life cycles and volatile demand you could look good on the “average” over the time but be loosing boat loads of cash due to volatility.  Imagine managing demand and supply in a  continual sign wave of demand… that is much of business today !  It is not 1950 with a steady flow from lower left to upper right over time.

Another way to look at it is ERP has given power to the accountants who only know precision not accuracy.  They burden the business and SEC / GAAP accounting with precision of control but in most case is totally “in accurate” or real flows of money, inventory, customer satisfaction.  Only is only accurate when measured backwards over 5 or 10 years.   Ever run a manaufacutring business (we do) and that is not how it works… you are looking 6 months to 6 years ahead not backwards !!

So the answer is simple but is quite different the what is in market today.   Outside of your analyst coverage have to say rest of analysts just either have not idea of real solution or just write around what some software firm pushes on them.

1.  So we all need an all out full court press on business schools, finance schools, real business consulting, Wall Street analysts a simple package of real uncorruptable measurements grounded in real physical flow of inventory, inventory commited to be produced MPS, and cashflow.    Measurments that screen out the manipulation plain and simple

2. Tools to simulate this measurement approach (S&OP used as an analysis tool) change management tool to simply show firms HOW GOOD they could be and how they can control the pace, projects, programs, impact but that there is a HUGE need in order to stay in busines or prosper.   By the way same tool can then be deployed to scale and operate in this manner

– this process should be supported a analysis of the competitive advantage of top players in everyy SIC code and what you will find is top 5% of firms today in almost every SIC code do have programs, management tools, measurements that do this and have real business competitive advantage from it.  They may not call it S&OP, or they may but have a strong culture to manage first then report GAAP second.  They by no means have it all figured out but are just a bit better then their GAAP / ERP accounting oriented competitors and can turn up the screws at anytime based on competitive pressures

– the tools that do this simulation should be darn near free so every MBA student, every engineering first principles focused supply chain student, every clear thinking renagade in a corporation can grap one and show analytically without a shadow of doubt the need / opportunity.   Today, tools are priced through the roof or convoluted with some ERP package in violent conflict of interest with this apporach.   We have done this to a small extents at sopbook.com making these available almost free and architected ansynchrounsly using a spreadsheet at user interface (not a spreadsheet) !  It is our small token of effort but needs much more mind share and funds around theme

3. Lastly if technology is really going to help it is going to have to be a breakthrough that makes the concept “easy” like Google to use.   Imagine if you could type in any part number or planning bill or assembly and get public private availability, lead time, coordination of need.    It amazes me how in past 10 years there has been a flood of consumer tools for finding the right music, using our phone, searching for consumerism but almost zero of this effort applied to flows of inventory and production which is maybe lifeblook of 60 to 70 percent of global GNP.    When we patented our view of this tool a few years back we thought there would be a flood of this thinking…   Still amazed mindset still controlled by silos of technology stacks now silos of clouds that don’t really talk.

Money made by the traditional software approach that radically conflicts with solving this problem is embarrasing.  Almost all technology executives and their VC Wall Street backers ONLY think about controlling a synchronous world they make money on (a cloud, a software stack, etc.).    They don’t understand and most of all don’t  like the loosely coupled flow of information between companies and customers… this needs to change in the supply chain solution world.   These IT centric leaders constantly try to get the people to conform to IT or amazing blather on how some algorithm is smarter then people (nuts).  I would make the case there has NEVER been a real supply chain solution that works unless it is focuse on saving people time in making decision not replacing people with algorithms.

So tecnology leaders who think multi-enterprise, non intrusive compatible with any tech, rapid deployment, map the flow of inventory across boundies need to be put in leadership rolls but it will take business leaders know what to look for to make this happen.

To summarize the reason S&OP is so hard is 95% of firms, business executive DON”T know what they don’t know.   They think because Fred purchased inventory software in 1972 and updated with some GAAP accounting driven ERP tool in 92 they solved this problem long ago.    What they have done is sealed in their future like Radio Shack.

This is compounded that even though there are now a few S&OP solutions vs. in 2001 when we launched our 99% of these are controlled by some IT centric management trying to create a business model for S&OP technology in same way “Farmville” or how Microsoft Office makes money.  This is a looser from the beginning.   S&OP technology needs to be able to be deployed, publicly, privately, in a could out of a cloud, customer to a user decision but most of all needs to be fed by millions of loose connected links of relationships and data… not the ellusion it all is going in one CLOUD 🙂

Our experience with dozens of clients is once we go throught this education / simulation process we call Total Order Fulfillment ™ the light always come on with top brass and it is a completely changed culture.    It is truly a top down bottom up WIN across the board and creates enourmous good for all levels both financially and in terms of job satisfaction and customer satisfaction.   However, this process take an amazing amount of effort, energy and the ability to speak dozens of business languages (role based, fiancial, or operational, IT or real IT etc.)

So there you go… that is why S&OP is so hard !

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