Ever tried to pick out new carpeting for your home? So many colors, styles, and textures to choose from; where do you start? The first consideration is always whether or not it will work with the wallpaper and furniture in the room. The problem, however, is that the little sample swatch doesn't provide the full picture of whether or not the room will truly come together once the carpet is installed. In essence, the trouble with picking out carpet is that the process is fraught with incomplete information and a communication disconnect.

Shaw Industries Inc., a maker of carpeting, has suffered from a similar type of disconnect when it comes to balancing the supply of and demand for its products. In Shaw's case, the problem stems from an inherent language barrier between manufacturing and sales and marketing -- even the definition of "dollars" differs from one department to the other. Sales and marketing, for instance, thinks about dollars from the perspective of driving revenue. Manufacturing defines dollars in terms of unit price and cost. So, even after years of leaning out the supply chain and deploying technology tools to increase visibility throughout operations, there's still a major bottleneck: communication.

"We can increase visibility into the [business] processes, but we can't increase the communication process," says Chris Whisenant, manager of logistical systems and forecasting at Shaw Industries (Dalton, GA). To some extent, people still function in silos, he says. "They are trying to talk through phone calls and e-mail, but nobody is understanding what the communication process is."

As a result, inventory can be in excess or short supply compared to demand. Marketing promotions can throw off numbers because sales may increase while product prices decrease. There's also the need to make sure manufacturing is prepared to make product when sales forecasts rise.

Finding a Champion

Straightening out that communication process is key to becoming a demand-driven enterprise, which is why sales & operations planning (S&OP) is becoming a supply chain management discipline to which companies are dedicating increasing time, effort, and technology.

For most manufacturers, implementing S&OP involves getting new systems. But technology is only a small slice of the picture -- about 10%. Another 50% of a successful S&OP project revolves around refining business processes, and 40% is organizational -- meaning there needs to be a fundamental culture change within the business, typically spearheaded by an individual who can act as the champion of the effort, experts say.

S&OP involves the aggregation of supply and demand data from multiple systems in different divisions of an organization. It must then be represented in a way that is understandable by all functions within the enterprise. S&OP uses a variety of technology tools -- forecasting, demand planning, scheduling, even business intelligence -- to analyze information. In sum, it is an interconnected system of technologies coupled with business processes that sense and react to real-time demand across a network of customers, suppliers, and employees, according to AMR Research Inc. (Boston).

"It's a deep discussion that goes from the movement of operations to managing capacity to balancing the demand and supply network with external partners," says Lora Cecere, a research director at AMR Research. "Then it gets into better visibility, to management of the external network, to demand [and] sense, to demand [and] shape, to driving profitability through demand response."

Manufacturers have been incorporating aspects of S&OP into their businesses since the 1990s. "What's changed is the importance and complexity of the supply chain," Cecere says, pointing to outsourced manufacturing and complicated channels as two factors that have changed the enterprise dynamic. Also driving the push for improved S&OP processes recently has been the need to react to new product launch and commercialization, accelerate merger and acquisition business strategies, and achieve higher levels of customer service even as more manufacturing is outsourced, according to a recent AMR report. S&OP will be the fourth largest area of SCM investment this year, AMR predicts, but it is an effort that needs a champion and a new way of thinking.