In last week’s blog we talked about the fundamental challenge of connecting tactical S&OP down to detailed execution. Here we look in the other direction and examine the challenge of connecting tactical S&OP up to the strategic plan.
S&OP creates a common framework and view of the business, so different departments with different drivers and measures are able to efficiently communicate. And it also creates a common baseline. But a challenge often comes in managing the gap between this S&OP baseline and the company’s strategic vision. There can be a serious gap between the aspirations of top level executives or the Board of Directors and the more detailed tactical plan.
For those who have used an old style camera with manual focus, the challenge can be likened to finding the right focus. Set the focal point too close and the distant image gets blurry. Focus too far away and the closer image goes out of focus. Similarly with planning, focusing on strategic issues can cause the near-term plan to go out of focus and vice versa.
The solution can be found in the same analogy. By making certain adjustments, it’s possible to “increase the depth of field”; that is to increase the range of focus so that it covers just the right combination of close and far away. So by selecting a model with the right combination of short and long term validity, the gap can be bridged between strategic and tactical planning.
In order to create this model, there is a need to understand what is significant in each time horizon. Some statistically significant events in a one month horizon are insignificant in a longer horizon. For instance, a “Buy One Get One Free” promotion intended to move excess inventory may have a short-term impact, but no meaningful strategic significance. But a major initiative between a consumer goods company and a new retail partner could be significant to both horizons.
A similar situation occurs when dealing with financial horizons such as quarter end or year end. These rather artificial cutoffs may be of little strategic significance, but may significantly impact short term behaviour. In his article “Ghost in the machine”, Professor Richard Wilding explains how at companies focused on quarter end achievement, target-driven behaviours can destabilize the plan reliability and increase supply chain variability at that point on the horizon.
Further clarity on identifying “significant events” can be achieved through a segmented marketplace response. Significance impacts responsiveness, according to Professor Janet Godsell in “Thriving in a turbulent world”. She points out that a segmented approach causes improved customer service and supply chain flexibility, particularly in the “marketplace of one”. The marketplace of one is the concept of truly putting the customer at the centre of how they are provided for; giving them a highly differentiated personalised response. Initially this concept started with logistics flexibility to the consumer, but I predict will roll further up the supply chain with further configuration and choice.
Dealing with both strategic and tactical planning requires robust and integrated systems that manage this uncertainty and enable collaborative conversations “at the margins”. The model should create a “corporate truth” that ties the S&OP baseline with significant events and the strategic plan.
This allows individual business insight and historical analytics to be extrapolated to create a predictive view and add intelligence. For example; one set of new products targeting early adopter accounts can be used to predict launch behaviour (such as pipeline fill, adoption range and launch promotion impact) for another set of new products. Putting detail behind strategic aspirations (such as brand development and new technology adoption) reduces the gap between the aspiration and planning.
At the end of your S&OP cycle; when the plan is signed off and the numbers published and broadcast, ask the question “Is this plan really feasible?” If not, then fixing the structural gaps and bridging those gaps through increased “depth of field” should be part of a longer term S&OP strategy.
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Dave Food is a long term practitioner in the Supply Chain Planning space, having worked with most Gartner Supply Chain Systems of Differentiation. He is currently teaching in boardrooms and postgraduate schools around the world, exploring people, processes and software for the best supply chain impact. Areas of current research at WMG, Warwick University and Coventry University – Business School, include blended planning across time horizons, the use of social media in supply chains, time compression and supply chain visibility. He can be contacted at firstname.lastname@example.org.