S&OP's Impact on Global Supply Chain Transformation

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1 S&OP's Impact on Global Supply Chain Transformation The top three pressures driving companies to focus on supply chain transformation today are cost containment (66% of over 800 companies survey in December 2007), followed by escalating customer service demands (49% of companies), and product commoditization pressures increasing the need to improve new product introduction (44% of companies). In response to these pressures, more than 90% of companies have started to, or have already redesigned their domestic supply chains - and 80% of companies have started, or have already redesigned their international supply chains. This research brief will explore how Sales and Operations Planning (S&OP) and associated demand management practices play an important role in enabling this transformation of the global supply chain. February, 2008 Research Brief Aberdeen s Research Briefs provide a synopsis of the principal findings derived from primary research, including key performance indicators, Bestin-Class insight, and vendor insight Transformation Pressures Figure 1 shows the key pressures that are forcing companies to look towards transformation opportunities. In addition, the figure shows specific types of technologies or processes that can be leveraged to eliminate the impact of these pressures. Figure 1: Top Pressures Forcing Companies to Focus on Supply Chain Transformation Need to contain supply chain costs to remain competitive 67% Outsourcing Escalating customer service demands 48% Distributed Order Management Business grow th or acquisition/divestiture activity 45% SOA/MDM Demands to manage a more global business Product commoditization pressures increasing need to improve new product introduction 16% 40% Centralization of supply chain organizations (integration) Design for Supply Chains Regulatory compliance 13% RoHS, SOX Projects Green supply initiatives part of sustainability initiatives 10% Green supply chain netw ork design 0% 20% 40% 60% 80% Source: Aberdeen Group, December 2007

2 Page 2 Key Lessons from S&OP for Supporting Global Supply Chain Transformation Sales and operations planning principles are not new and have been around for several years now. While the fundamental concepts are very relevant to the business conditions companies are facing today, the nature of the challenge faced has expanded in scope, and the time for resolving these challenges has simultaneously collapsed. Key lessons learned around S&OP in global supply chain transformations include: Focus on people, process and technology: ERP and supply chain software implementations continue to under deliver on their promised value unless there is a holistic focus on the three dimensions of people, process and technology. Technology cannot be the sole savior for resolving these pressures. When there are different geographies and cultures involved, these challenges become amplified. Process ownership: Unless there is ownership at the highest levels of the supply chain organization for the S&OP process, we have seen time and again that the initiatives have failed. This becomes even more important in a globally integrated organization, where it is increasingly difficult to find a single point of accountability for process ownership. New product introduction: Products have to be designed to take into account the unique interests of different geographies and demographics. In addition, product lifecycles have collapsed due to changing customer preferences, resulting in increasingly shorter product lead-time requirements. One set of operational numbers: In addition to the need for operational numbers to be aligned with functional areas, there is an increasing need for these numbers to be aligned globally. The solution to these challenges for companies is really a combination of the creation of a globally integrated supply chain (process); development of competencies to manage the globally integrated supply chain (people); and finally, implementation of practical technology that supports rapid deployment of solutions for addressing local needs within a global environment. Furthermore, demand management continues to be a key area of focus for companies when they are looking to enhance their S&OP process given the demand driven nature of the process. Best-in-Class Prioritization of Processes and Technologies The following are key process, organization and technology decisions that Best-in-Class companies are taking vis-a-vis All Other companies. Best-in-Class Finished goods inventory turns per year - 28 Total logistics costs as a percent of sales - 5% Perfect order percentage (percent of orders shipped complete and on-time to the customer s requested delivery date) - 96%

3 Page 3 Closed-loop Integration of Supply Chain Planning and Execution Best-in-Class companies are 1.7-times more likely than all others to have a closed-loop integration of supply chain planning and execution. Sales and operations planning is an area where there is an opportunity to use supply chain execution data to validate the accuracy of the S&OP plans. Previous Aberdeen research finds that 59% of Best-in-Class companies do not have event management and alerting capabilities to perform more frequent and responsive S&OP processes. There is ample opportunity for Best-in-Class companies to leverage event management and alerting capabilities, as well as to respond to market conditions faster. A Centralized Supply Chain Team and Executive Position with End-to- End Supply Chain Responsibility Best-in-Class companies have made organizational strides as well, and are far ahead of their lower-performing peers in creating a centralized supply chain management organization. Creating a command center to orchestrate the complexities of running an end-to-end supply chain is clearly a best practice. Best-in-Class companies are also two-times as likely to have appointed a single executive with overall supply chain responsibility. Application Investment Areas In this study, participants were asked to list the top three application investment areas used to meet their key supply chain objective (e.g., lower cost or meet customer mandates). Companies ranked supply chain visibility and S&OP at the top two positions. The unique situation with supply chain visibility and S&OP is that these are often overlay type solutions which are provided as part of other Advanced Planning and Scheduling modules like demand management or a Trade Management System. Pure play S&OP and visibility solution providers are rare and are relatively small in comparison to the large APS and ERP solution providers. "It didn't happen overnight. We have been transforming both our company and supply chain for the last 10 years." ~ Tim Carroll, Vice President, Global Supply Chain Operations, IBM Integrated Supply Chain, from the Aberdeen Supply Chain Summit 2007 Keynote Address Case in Point: Mid-size Polymer Manufacturer faces Demand Management Challenges HallStar is a leading manufacturer of performance additives for a wide variety of plastic polymers and end-use markets. Their modifiers are used extensively in flexible PVC, ABS, PET, PBT, PVB and many other polymers. Their newest product/market is the burgeoning bio-plastics area, where they have developed specialized modifiers to improve the processing of a variety of bio-resins, including PLA and starch-based polymers with their HALLGREEN line of renewable esters. A significant portion of Hallstar's business is being done off-shore with suppliers all over the world. They are continuously trying to provide unique solutions to their clients in order to meet developing trends. Given the

4 Page 4 global nature of their raw materials supply chain, widely varying lead times are a major issue for them. Green and sustainability is also a major focus for Hallstar. Their customers are requesting green alternatives for their products and in response they have developed a whole line of green products called HallGreen made up of green plastics. For Hallstar, sustainability is all about what they call the 4 E s: Efficiency, Environment, Economy, and Energy. These have brought forward the need to be highly demand driven and market focused. Solutions: Hallstar has moved to a centralized supply chain team in terms of how they are organized. Hallstar leverages St-Louis based Demand Solutions as the solution provider to enable the demand planning process as part of their overall S&OP process. Demand Solutions is one of only three software providers who provide a specialized S&OP module. Using this tool, Hallstar has been able to create a demand management process which considers the challenges of diverse customer and supplier base along with new product proliferation. Benefits: The key benefit for Hallstar has been in terms of adjusting their corporate strategy in the light of the new challenges being faced and continuing to be category leaders in their industry. Recommended Actions / Next Steps / Key Insights The following are key recommendations for companies embarking on their supply chain transformation initiatives: Institute a formal S&OP plan to execute reporting and metrics. Forty-three percent (43%) of Laggards have indicated that they have closed-loop integration of supply chain planning and execution versus 56% of Best-in-Class companies. Implement basic S&OP capabilities with supply planning capabilities and ensure that the S&OP plan to execute metrics are captured. The first area of plan execution is at the manufacturing facilities. Include logistics and distribution metrics in the S&OP plan to execute. Forty-four percent (44%) of Industry Average companies indicate that they have a closed-loop integration of supply chain planning and execution versus 56% of Best-in-Class companies. Expand the S&OP plan to execute closed loop dashboards, and include logistics and distribution related metrics in addition to manufacturing metrics. Create a globally integrated supply chain organization. Thirty-eight percent (38%) of Industry Average companies indicate that they have a centralized supply chain management organization Green is not thought of as a 'compliance' issue at Cisco. Green is now embedded in the DNA of our company and is part of our daily collaboration with partners. Our EcoBoard, which consists of executives from multiple divisions within Cisco including engineering, government affairs, marketing, supply chain and customer services, ensures green collaboration worldwide. Not in order to comply, but because it's the right thing to do. ~ Edna M. Conway, Sr. Director of Advanced Compliance and Social Responsibility, Global Supply Chain Management at Cisco

5 Page 5 versus 67% of all others. No longer can companies run different supply chains for different products within the same business units. Consolidation and rationalization of business processes within supply chain organizations is a reality that has to be embraced. The key takeaway from this research brief is to look into S&OP processes as a key enabler for global supply chain transformation. Demand management is definitely the first area for companies to look into within the scope of S&OP due to diversification of customer base and proliferation of products. For more information on this or other research topics, please visit Executive Sales and Operations Planning: Process and Technology Strategies; June 2007 The Supply Chain Executive's Strategic Agenda 2008: Managing Global Supply Chain Transformation; January 2008 Related Research Demand Management in Discrete Industries: Order to Delivery Excellence; October 2007 Author: Nari Viswanathan, Research Director, Supply Chain and Logistics, Aberdeen Group Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte- Hanks (Information Opportunity Insight Engagement Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen or call (617) , or to learn more about Harte-Hanks, call (800) or go to This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc a

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