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.
Mastering S&OP is not something that happens overnight. At Shaw Industries, Whisenant and a team of about five people have dedicated the last year or so to the company's S&OP initiative. "It is complicated... any company will struggle with it, as we are, but the benefit is there," Whisenant says. The benefit is clear communication of constraints and issues that impact supply and demand.
One Version of the Truth
At many manufacturing companies, when an executive planning meeting is called, business managers enter the room with a spreadsheet of data that shows exactly how the department is operating. The problem is, all of these individuals -- from sales, marketing, manufacturing, procurement, and demand planning, for instance -- may have inconsistent data. So when it comes time for decision-making, everyone is working from their own information, which means everything must go through some kind of reconciliation at the top.
"The challenge for a number of years has been getting one version of the truth," says Dominick Corigliano, vice president of marketing at Wilmington, DE-based Supply Chain Consultants (SCC). SCC markets supply chain software, called Zemeter, that breaks the S&OP process into clear steps. The newest version, Zemeter S&OP, introduced last fall, is a five-step program segmented into functional and logical stages: Business Analyst to help companies understand demand variability; Inventory Planner to position the company to support demand; Demand Planner, a collaborative process; Supply Planner, which supports building a quantitative framework to balance multiple plants and constrained resources; and Business Knowledge Repository, a central place to store procedures, business practices, and the S&OP plan.
The systematic approach can help an organization measure the benefits of S&OP. According to Corigliano, SCC has mapped out clear money-saving opportunities. According to the company, the completion of step one should reduce late shipment of products by up to 10%. Step two should reduce excess inventory by 12%. Step three can increase forecasting accuracy up to 25%. Step four starts to reduce crises in the production line by up to 20%, and step five -- which culminates with an entire S&OP process in place -- can increase total throughput by at least 2%, Corigliano says.
Shaw Industries, which has become an approximately $7 billion business following its recent acquisitions, has around 30,000 employees across six divisions managing hundreds of thousands of SKUs. For the past several years the company has used Logility Inc.'s (Atlanta, GA) Voyager Supply Chain Management software product. So when it embarked on its S&OP journey, it added Voyager Collaborate as a tool to aggregate information across the organization.
Voyager Collaborate provides a framework that automates and manages collaboration between sales and order forecasting as well as planning, including promotional planning and business trend analysis. Multiple people at different levels within the organization can see the data, customized to their needs. At Shaw Industries, for example, a divisional manager would see sales numbers and product styles. But eventually those numbers will have to move back down to the plant manager who needs to convert the sales forecast dollars to product yards and capacity (which is expressed in feet per hour). Rather than forcing Shaw's managers to reconcile all the data at each point, Collaborate does the translations so that everyone is working from the same numbers.
"The goal [of S&OP] is to make the best possible decision for the company," says Karin Bursa, Logility's vice president of marketing. This, she says, includes, "where to allocate constrained resources or accelerate new product introductions to provide a competitive stance." In short, she explains, it's about synchronizing business decisions.
But putting a successful S&OP process in place requires cultural change as well as new technology. Managers in different departments must buy into the idea that they will all be working from the same play sheet, using the same numbers. More often than not the change has to originate from the top. In some cases, in order to get the point across, experts say, the CEO must do something as drastic as taking the Excel spreadsheets from every department head entering the executive planning meeting and throw them in the trash. The message: Out with the old way of doing things, in with the new.
Since S&OP depends on everyone in the enterprise working from a single set of numbers, experts say it is crucial that the numbers be correct, and that demands validation. "It's not easy to create the data to put into the collaboration tool because it has to be at a detailed level," Whisenant says. "If you convert [the data] but don't validate it, is it any good? Nobody knows."
That's why Whisenant is validating everything, which means looking at database tables built over the years, pulling files from mainframes, and comparing each invoice number with sales. Currently, Shaw Industries is live with Voyager Collaborate at two divisions, with plans to get all six divisions onboard by the end of this year and possibly even getting key customers into the mix.
Once in place, S&OP will give Shaw Industries a fresh new look at its business. Kind of like rolling out that new carpet for the first time and realizing it was exactly what the room needed to pull it all together.