Supply Chain Frontiers issue #3. Read all articles in this issue.
Sales and Operations Planning (S&OP) is an old process that has found a new market. S&OP is attracting renewed interest because when implemented properly it aligns supply with demand at a time when growth is back on the corporate agenda.
During the boom years of the 1990s enterprises were preoccupied with finding enough capacity to meet soaring demand. When the recession hit the focus shifted to cutting costs. Now companies are "chasing demand" in an improving market said Larry Lapide, Research Director, MIT Center for Transportation and Logistics. "Companies want to take a top-line approach by integrating supply with demand," he added.
The economic upturn is not the only reason for S&OP's revival. Companies are revisiting the process "to leverage the $ 12 billion they spent over the last six years on supply chain planning software applications," noted Lapide. These solutions tend to focus on point applications such as demand forecasting, and logistics and manufacturing planning, without providing the cross-functional linkages that companies need to effectively match supply with demand. Also, decades-old S&OP processes are already unbalanced because they are driven largely by operations people to the exclusion of marketing and sales departments. A more collaborative approach is needed where all departments reach a consensus on planning cycles, and are able to create, review and revise production plans when necessary.
Also problematical is that advances in supply chain technology have overtaken traditional S&OP processes. According to Lapide, old-style processes make insufficient use of downstream information, and lack connectivity to external systems. This is particularly the case since the growth in outsourcing has led to the expansion of trading networks both organizationally and geographically.
Software vendors are aware of these shortfalls and have begun to address them. "They are re-packaging what is out there to make solutions more amenable to S&OP," explained Lapide. But more work is needed to create "dashboards" that provide an interface that links the different constituencies both within enterprises and without. "This is a new world for an old process," Lapide said.
The challenges of matching supply with demand will be discussed at the MIT Center for Transportation & Logistics symposium "Demand Management: Integrating Demand and Supply in Real Time" planned for September 22-23, 2004, Cambridge, MA. The event will address some of the core disconnects between traditional supply chain management activities and the demand generation and management processes.
For further information go to ctl.mit.edu. To register for the Demand Management Symposium, contact Nancy Martin at 617- 253-1547/ nlmartin@mit.edu.