ESSENTIAL S&OP SOFTWARE REQUIREMENTS
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1 ESSENTIAL S&OP SOFTWARE REQUIREMENTS Essential S&OP Software Requirements 1
2 Your Forecast Essential S&OP Software Requirements By Harpal Singh Software Support for the S&OP Process The focus of S&OP is to not only balance supply and demand but also to keep them balanced. Proper implementation of an S&OP process at a company will help improe customer serice, lower finished goods inentory, stabilize production rates, improe material procurement, and improe teamwork among the management from Sales, Operations, Finance, Customer Serice and Information Technology. For successful implementation of S&OP, top management s stewardship and leadership is essential because S&OP affects the Financial Plan and top management is the owner of that business plan. If the business plan is not adjusted to reflect the new Sales & Operations Plan, there will be a gap between the expected financial result and the forecasts and production plans being used to operate the business. During the month, there are daily fluctuations that occur. These reflect changes in capacity or demand and most should not require re-planning. Howeer, when the cumulatie effect of the daily fluctuations reaches a critical point, the plan should be recreated or modified. Implementing a Sales and Operations Planning process requires business process change. Een with management commitment, change is neither easy nor quick. In our experience, it takes anywhere from six to twele months to establish an S&OP process that is fully institutionalized, een though benefits are achieed well before then. The change process can be helped along by proiding suitable software tools to encourage collaboration and information sharing. Software enhancements and business process changes are best implemented simultaneously. Introducing technology alone is not usually helpful because it tends to automate ineffectie processes. Similarly, business process changes are more easily enforced if they are supported by the required systems and tools so that the planners can immediately practice new ways of doing things. Why Not Stick with Excel and PowerPoint? Excel worksheets are the most common tools used to support the S&OP process. Excel is unparalleled as a personal productiity tool. Howeer, the S&OP process is a collaboratie exercise that requires data integration, communication, and the application of appropriate technology. Experienced planners know that productiity suffers if you shoehorn a business problem to fit a tool. In such a case, the analysis can be worse than useless - it might influence you to take the wrong action. The typical S&OP process relies on PowerPoint as a meeting presentation tool. This is fine for presenting summary results, but is quite inadequate when what-if cases and dynamically generated scenarios are needed to be shown graphically. Often the time taken to collect the data in the first place and then transfer the results of the S&OP process from an Excel spreadsheet to a Power Point presentation can exceed the time spent on the analysis itself. Eery business needs to ask itself if using an S&OP coordinator to moe data and make pretty pictures is money well spent. Essential S&OP Software Requirements 2
3 Recently, a number of companies hae introduced software to support the S&OP process. These range from Excel and Power Point add-ons, to meeting management and scenario management tools. As S&OP becomes accepted as the core of a well-managed supply chain, we can expect that additional software tools will become aailable. Companies that are looking at introducing software to support the S&OP process are doing so because: Spreadsheets often don't hae the latest data because the data updates from corporate systems are not automated or systemized. Setting up a collaboratie enironment can be difficult because merging spreadsheets can break down into a manual process. A number of complex spreadsheets are needed to represent the business problem, and these eentually collapse under their own weight. Many of the business rules embedded in the spreadsheets are lost when a planner leaes their job. Excel lacks the required optimization, simulation and/or statistical tools needed to model the business. To get around this, complex rules of thumb are embedded in the worksheet. Unfortunately, these may not be releant as business conditions change. Formats change and considerable manual effort is required to resynchronize the spreadsheets when spreadsheets are passed from one person to another. Power Point is a static presentation tool. It is difficult to make the slides and graphics change automatically when you add new scenarios and alternaties. To alleiate the problem of data integration, companies need to create a supply chain data mart that exposes data from corporate systems for the S&OP process. While expensie supply chain planning software usually does this, such software often uses proprietary database technology. The sensible way to do this, gien current technology, is to use Microsoft tools like the SQL Serer. Such a data mart will be fully compatible with the existing spread sheet applications; moreoer, it will proide a basis for seeral people to make decisions using the same data. Essential Software Requirements Requirement #1: Consistent Data Basis for Planning The data that supports planning has to be internally consistent. What this means in practice, is that inentory, receipts, production, and shipments need to be synchronized and reflect the same state of the supply chain. For example, if inentory data is extracted at the beginning of the day, and shipments and receipts are extracted at the end of day, the inentory number will not reflect the actiity during the day. Essential S&OP Software Requirements 3
4 For this reason, transaction systems that proide only an online capability to get information cannot be effectiely used for the planning process because the data is constantly changing. Planning systems require a separate data store than can hold snapshots. Each snapshot is a complete set of internally consistent data that can be used as a starting point for discussions. Requirement #2: Embedded Performance Management The measurement of how well the plan is executed is a key component of the S&OP process. If the software used to run the S&OP process has an integrated performance management system, it facilitates creating dashboards and charts needed for measurement. Otherwise, data has to be gathered from different systems and locations. Requirement #3: Collaboratie Input The S&OP process collects data from a ariety of people in sales, marketing, production, and others. This includes customer forecasts, oerrides to demand, production rates, shutdown schedules, and cost and price information. Collaboration is neer a one-way street. It inoles exchanging data. Users must be able to extract the information they need quickly by drilling down to specific elements in the data. At the same time, the data that a user proides should be made aailable to others in a readily accessible fashion. For example, the only forward looking information that a sales manager has about a region may be in terms of expected reenue by month. The software must be able to take this information and easily combine it with price and recent shipment information to project the product sales for that region. Requirement #4: Scenario Management S&OP is all about ealuating different alternaties and what-if cases. While these scenarios are being ealuated they need to be maintained in a central place so that participants can hae access to the alternaties. A good S&OP system not only allows alternatie scenarios to be created and maintained, but also proides the tools to quickly ealuate the differences. This is particularly important for those processes where decisions are made during the S&OP meeting. The system must be able to create alternaties interactiely and compare the alternatie scenarios dynamically. Requirement #5: Strong Modeling Ability The S&OP process can often be improed by using quantitatie models to balance supply and demand. Often, the models use such technologies as mathematical programming, statistical calculations, and computer simulations. Models must be simple to use but not simplistic in construction. Say companies are able to extract significant alue from the supply chain by applying the proper technology. Requirement #6: Multiple Views of Data Different functional organizations are expected to participate in the S&OP process. Participation is enhanced if the single set of S&OP numbers can be iewed in ways that are releant to the different participants. The different business functions in a company get alue from different iews of this data. Sales needs a customer oriented perspectie, manufacturing has a product focus, and distribution is interested in modes of transport. In Essential S&OP Software Requirements 4
5 order to support these different iews, the system has to be able to aggregate and disaggregate data dynamically. The modern software systems that can do this, organize the data in a relational manner, rather than in a hierarchy. Requirement #7: Detailed Views of the Planning Data Sales and Operational planning is best done at an aggregated leel. Howeer, there are cases when the only way that a decision can be finalized is by breaking down the sum of the aggregated numbers into details. For this reason, the software that supports the S&OP process must be able to store, and maintain data at the detailed SKU leel. While the detailed iew is rarely used in the S&OP process itself, it is aailable when needed. Requirement #8: Adaptable to Business Changes Perhaps the most important requirement for S&OP software is that it should be adaptable to changes in business requirements. A process that does not eole is a dead process. As business conditions change, the software needs to accommodate the changes. Otherwise, participants graitate to desktop tools like Excel, which creates problems of data integrity. In a systems context this means that the S&OP software should be able to: Add Additional Attributes for Slicing and Dicing Data. The data organization in an ERP system should not be changed without deliberation because this affects the system of record. Howeer, the S&OP process needs to adapt constantly to a dynamic business enironment. For this reason, it is common to add and delete attributes and aggregation leels to display the S&OP data. This is best done in the S&OP software because it allows the systems of record to be insulated from these changes. Accommodate Changes to Systems that Feed Data to the S&OP Software. This is facilitated if the software system utilizes a standard database which is easily interfaced with other systems. Easily modify any quantitatie models used to balance supply and demand by adding and deleting constraints. Support Different Quantitatie Models for Balancing Supply and Demand. In many companies, different segments of the business are consolidated into one S&OP process. The different business segments may hae ery different manufacturing and distribution constraints that cannot be dealt with by a single, quantitatie model. Create, modify, and change reports and dashboards easily. These are the key features to look for in software for S&OP support. S&OP is not just a meeting, but also a detailed process for generating a realistic forecast, balancing supply with demand, and projecting inentories and reenues. With the appropriate software and supporting business processes in place, S&OP proides the headlights needed for a business to foresee and preent potential problems. Essential S&OP Software Requirements 5
6 ABOUT US Since 1993, Arkiea tools hae been used in more than 200 unique applications around the globe, and most of our clients leerage Arkiea software to support collaboratie planning teams in North America, Europe, and in Asia. Essential S&OP Software Requirements 6
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