Sales and operations planning (S&OP), or integrated business planning [IBP]—the next evolutionary step if you will, continues to receive much attention as of late. In 2009 and 2010, Technology Evaluation Centers (TEC) produced an exhaustive series of articles on S&OP entitled “APICS 2009 From the Expo Floor: Is S&OP Coming of Age?” as well as a blog post entitled “Linking S&OP and CPFR (For Retailers’ and Manufacturers’ Sake): An Executive Panel Discussion,” for which it received much interest and valuable feedback from both the end-user and vendor communities.
Vendors’ S&OP Experts Continue to Speak Out
The simple fact remains that analysts, pundits, and consultants are not the only S&OP/IBP experts in the market. Therefore, TEC sought to pose similar questions to renowned vendor staffers, giving them the opportunity to voice their opinions and establish their expertise. Karin Bursa, the longstanding vice president (VP) of marketing at Logility, was the first to participate in an interview with TEC, providing much insight into the state of affairs with S&OP. Soon after, Charles Chase, the global business enablement manager of demand intelligence solutions at SAS Institute’s global manufacturing & supply chain practice, chimed in with his views.
Moreover, TEC’s extended coverage of S&OP led to Kinaxis requesting that TEC analysts participate in a guest interview series on the Kinaxis blog on the same topic. The time has come for us to return the favor to Kinaxis resident expert Trevor Miles, director of thought leadership and (chief blogger) at Kinaxis. Miles has focused much of his career with Kinaxis on seeking new market opportunities within the company’s distinctive supply chain management (SCM) competence. As part of the product management and product marketing team, Miles is instrumental in the company’s competitive and market intelligence, and is responsible for identifying market trends and translating them into high-level functional and product requirements.
Additionally, he helps create and maintain the business case for the company’s flagship offering, RapidResponse. Prior to joining Kinaxis, Trevor worked for i2 Technologies, where he held a number of sales & marketing roles. Previous to i2, he worked for Coopers & Lybrand, performing several studies in supply chain reengineering (see complete biography).
What Is Kinaxis?
Ottawa, Ontario, Canada−based and privately held Kinaxis Inc. delivers the aforementioned on-demand and on-premise enterprise software offering dubbed RapidResponse, which enables manufacturers and brand owners to drive SCM and S&OP from a single system. The product is a response management software for enhancing visibility and coordination, helping businesses swiftly respond to the constant changes emerging across their global supply chains and fulfillment networks to improve customer service and operational performance.
Nearly 100 global manufacturing corporations across a broad range of industries use RapidResponse as a decision-making hub for their broader value chain operations, thus gaining a competitive advantage over companies. These enterprises value the ability to analyze alternative response actions before making a decision on a major trade-off. By proactively modeling and scoring different response alternatives, brand owners can communicate a well-understood and optimal action to their suppliers or contract manufacturers. Large, discrete manufacturers with complex supply chain networks and volatile business environments (e.g., high-tech consumer product suppliers) rely on RapidResponse for collaborative planning, continuous performance management, and coordinated response to plan variances.
The company was founded in 1984 as Cadence Computer Corporation, but the vendor’s name was changed to Webplan Inc. in 1995 and then to Kinaxis (a combination of “kinetic energy” and “global axis”) in 2005. Throughout the years and after multiple name changes, the company’s solutions have evolved from in-memory multisite production optimization capabilities (i.e., fast-acting “turbo” manufacturing resource planning [MRP]) into a value proposition of Web-based, collaborative risk trade-off and response, and performance management within a highly distributed supply chain.
In addition, the company’s innovative product architecture enables mining of information from existing back-office systems (and even spreadsheets or flat files, if necessary) as a basis for multiple “what-if” scenarios. This connectivity allows Kinaxis to respond to the many customers that are using standardized enterprise resource planning (ERP) systems from established providers, such as SAP, Oracle, or Infor, to name a few.
As a recap, Kinaxis RapidResponse combines multi-enterprise visibility, collaborative what-if analysis, and on-the-fly decision support to enable frontline manufacturing and cross-enterprise fulfillment teams to take quick and effective action when faced with constant, inevitable changes in the supply network. This means decision makers are able to make the trade-offs and compromises necessary to respond to unexpected events in their increasingly erratic global supply and fulfillment networks. For more information on Kinaxis RapidResponse, read TEC’s 2008 article series on Kinaxis.
Recently, Kinaxis issued a news release on an outstanding 2010, with the company divulging double-digit revenue growth, continued profitability, and double-digit free cash flow (FCF) growth. Being a private company, Kinaxis does not provide details on its customer base, but it is known that the company has nearly 100 large corporate customers and more than 30,000 users of RapidResponse.
In terms of geographic presence, Kinaxis has a strong presence in North America and in the Asia Pacific Japan (APJ) region. The company recently appointed a new executive leadership for APJ, as well as a president for its Japan office and a director for its Shanghai office. Kinaxis looks to grow the market in Europe for 2011 and beyond. The vendor announced a partnership with Barloworld Supply Chain Software last year, and Barloworld is now a strategic reseller for RapidResponse in Europe.
Entering the S&OP Fray
Kinaxis’ move into S&OP has been a gradual effort for a few years. The vendor has traditionally been supply-side focused, but it started to incorporate demand planning (DP)/demand management (DM) capabilities in early 2008. Within the response management framework, these planning capabilities were positioned to enable customer service and demand management organizations to respond to daily unexpected changes (e.g., order changes, forecast changes, engineering changes, etc.). So with demand and supply information in one place, Kinaxis began supporting the demand-supply balancing activities—the core of S&OP.
In July 2009, the vendor started to productize the S&OP capabilities of RapidResponse in the following ways:
- scenario simulations and forecast types that support range planning
- product hierarchies that support editing and viewing of data at both detailed and aggregate levels
- analytics that support full multi-sourced materials and capacity analysis
- forecast collaboration
Finally, in 2010, Kinaxis launched RapidResponse, S&OP Edition, which is a competitive S&OP solution with statistical forecasting, volume and mix planning, assumption management, role-specific S&OP dashboards, etc. RapidResponse can support longer-term and strategic planning, but Kinaxis has not yet gone away from the shorter-term response management positioning. The vendor is of the strong opinion that companies need to view the planning process as a continuum across both the time and functional dimensions.
The S&OP Discussion
Kinaxis RapidResponse, S&OP Edition was made generally available (GA) in October 2010, and Kinaxis has several customers that are either using it or in the process of implementing the solution. Kinaxis tends to talk about its RapidResponse customers in general terms for a number of reasons, including that it has a number of customers that use previous versions of RapidResponse (the pre-S&OP edition) for S&OP.
The S&OP edition is the same product as the SCM edition (i.e., same code base, same platform, etc.), but has many additional features and functionalities tailored to S&OP stakeholders. A branding effort exists to ensure there is an understanding in the market that Kinaxis can offer a complete S&OP solution (i.e., the vendor is not just jumping opportunistically on the S&OP bandwagon with an existing suboptimal product).
What follows is a question and answer discussion with Trevor Miles.
PJ: What do you believe is behind the surge of interest and activity around S&OP? What are the anticipated benefits?
TM: The surge of interest in S&OP is due to a combination of market drivers, available skills, and technology maturation. The primary market driver is a combination of mass customization/long tail and globalization of demand due to the recession in western economies and the increasing importance of the so-called BRIC (Brazil, Russia, India, China) countries as demand centers. This has led to a big increase in demand volatility, whereas outsourcing, on the other hand, has led to longer supply lead times and greater supply uncertainty. The combination of these factors means that brand owners are keen to regain control of their extended supply chains. There has been a simultaneous arrival of the Millennials (Generation Y) in the workforce, for whom the Internet and computers are natural tools for resolving competing and conflicting goals in a team-oriented fashion, as exemplified by their extensive use of Facebook and other social networks.
As S&OP is a multi-functional process by its very nature, it lends itself to the multi-enterprise nature of today’s supply chains, particularly in the high-tech/electronics vertical. Software tools are emerging that encourage and support the negotiation, compromise, and consensus building necessary in a multi-function, multi-tier process like S&OP through the use of scenario management and collaboration, including assumption capture. It is the Millennials’ experience with social networks, which are inherently collaborative, and the associated technologies that will drive both the adoption and the need for similar technologies in S&OP.
The most obvious benefit is a more agile and aligned supply chain. How this will translate into hard benefits will depend on the current state of the company and the market in which it operates. In some cases, we are seeing that a good S&OP process is now ‘table stakes,’ required simply to keep up with competition. The benefits are principally those associated with supply chain efficiency—reduced inventory, improved capacity utilization, reduction in excess and obsolescence (E&O). Companies at the head of the pack are using S&OP to improve customer capture and retention through better demand sensing and supply chain agility to provide a profitable response to the market.
PJ: Do you think the definition of S&OP is clear in the marketplace? If not, is that a problem? How do you personally define S&OP?
TM: The definition of S&OP is not clear, but I do not see that as a problem. I see the definition as evolving. S&OP was defined by Dick Ling nearly 30 years ago, and well before the advent of fax machines, PCs, spreadsheets, and the Internet—let alone laptops, iPads, and smartphones. I would be extremely disappointed if our definition of S&OP had not changed over that time. Tom Wallace has commented that an S&OP can be considered a success when there is cross-functional collaboration. I would agree that this is a necessary but insufficient definition of success. However, Tom is absolutely correct to highlight the importance of cross-functional collaboration due to the importance of reaching consensus despite competing goals and measures (figure 1).
In today’s outsourced supply chains, collaboration must include at least the contract manufacturers. But with the ever-shortening product life cycles, how can the engineering/research and development (R&D) departments be excluded from S&OP? With life cycles of cell phones reduced to 6 months or less, running a monthly S&OP cycle focused on a 6−18 month horizon seems pretty pointless.
Figure 1. S&OP—Balancing Competing Goals
S&OP is the process that translates corporate business objectives, which are largely captured in the business planning or budgeting process, into feasible tactical plans that can be executed at the plant or supply chain level. The time horizon and granularity level at which S&OP is carried out will depend on the industry and market. We have some customers that plan as far as 5 years out, whereas others plan only 18 months out, as their product development horizon does not extend much beyond that.
I do not believe that a ‘one size fits all’ approach when it comes to the S&OP process. Instead, I believe that some characteristics define how well S&OP is being carried out or the level of maturity of the S&OP process. Larry Lapide, research affiliate at MIT Center for Transportation and Logistics, captured these characteristics very well in a three-part series in the Journal of Business Forecasting, the last part of which was published in spring 2005, in which he describes the most mature level of S&OP as having the following:
- scheduled when someone wants to consider a change or when a supply-demand imbalance is detected
- demand and supply plans aligned internally and externally
- external collaboration with most suppliers and customers
Full set of integrated technologies
- an advanced S&OP workbench
- external-facing collaborative software integrated to internal demand-supply planning systems
PJ: How important is a maturity model for S&OP? Do companies have to be at the most advanced stages of S&OP to claim to be doing S&OP?
TM: An S&OP maturity model is important for companies to understand how their process, people, or technology needs to evolve over time to achieve maximum benefits. The maturity model helps them to identify both goals and gaps. Companies do not have to be at the most advanced stages to claim to be doing S&OP, but I do think there is a floor below which it is difficult to make that claim.
PJ: Many analysts are advocating the evolution of S&OP into IBP? Are you a proponent of IBP, per se? Tying the financial plan or measures directly into the process is a key component of IBP—what else distinguishes IBP from S&OP?
TM: I see S&OP and IBP as separate topics. One of the greatest fallacies in the industry is that each planning process is unique and isolated, and that each requires a separate tool with a separate data structure, analytics, and user interface (UI). In reality, planning is a continuum, and each stage should be feeding the next and being informed by the previous.
It is this continuum of planning that I think of as IBP, which should be supported by a single data model and a single set of analytics. The level of aggregation in the time, product, and geography dimensions as well as the time horizon over which the data is viewed will depend on the process being carried out, but at all times, any changes made at the more aggregate levels during S&OP should be immediately visible to anyone working at a more detailed or tactical level. Similarly, any changes made at the more detailed or tactical level should be aggregated up immediately to the S&OP level.
One of the steps in the planning continuum is S&OP (figure 2). So while I empathize with the idea that the inclusion of finance in S&OP magically transforms S&OP into IBP, I think this is too limiting a view of IBP. Why is finance not included in tactical planning too? Why is the tactical demand plan not part of the business planning/budgeting process?
Figure 2. Integrated Business Planning—the Goal
PJ: Organizational thinking is often inherently bound by the dimensions of the “box” it is currently in because people don’t question working assumptions strongly enough. Do you believe “process inertia” is a barrier to advancing S&OP processes?
TM: I do think ‘process inertia’ is a barrier to advancing S&OP processes. I also challenge the idea put forward by many process consultants that S&OP is 75% process, 20% people, and 5% technology. While change management is of course a critical part of any S&OP deployment, the process that is put into place must make use of the latest technologies, particularly the more mature S&OP processes.
But even this statement is false, because if a less mature S&OP process is not designed with the ultimate goal in mind, which requires technology, how will it be executed? Technology will change nothing until we use it for that purpose. Henry Ford captured this very well in his statement ‘If I had asked people what they wanted they would have said faster horses.’ The automobile, both as a means of transporting the consumer to large retail locations as well and as a means of transporting goods to these large retail locations, has changed the shape of cities dramatically over the past 100 years. Similarly, the Internet is having a dramatic effect on the buying patterns, with some analysts reporting as much as 40% of sales by revenue over the last Christmas season being carried out over the Internet.
It is time for planning processes, particularly S&OP, because of its inherent collaborative nature to drive consensus and compromise, as well as to adapt to new technologies. I believe the arrival of the Millennials to the labor market will drive the adoption of more collaborative technologies, particularly concepts from the social networking world, into the corporate world, particularly for S&OP.
PJ: Can the S&OP process be carried out without technology? Does this relate to the aforementioned S&OP maturity model?
TM: This is the perennial debate. Even Microsoft Office Excel is technology, as are the underlying ERP systems from which much of the data to carry out the S&OP process is extracted. Phone or conference calls and e-mail, both of which allow people to communicate more effectively as a group, are also technology. I find the more interesting question to be: “How can we change the process to better accomplish our goals using technology as an enabler?”
The people who ask this question are the ones who achieve greatest process maturity. As I have already stated, if the S&OP process is designed without the available technologies in mind, then it will inevitably be less mature. Much of what we read as S&OP best practices was designed 30 years ago, before the advent of Excel, the PC, or the Internet—the times they are a-changin’.
PJ: Is it possible to have an effective S&OP process that only looks at the aggregate or “volume” level? How important is it to consider the operational and tactical feasibility of the S&OP plan?
TM: It depends, but I would say that the operational and tactical feasibility of the plan needs to be considered, and this is usually carried out at the so-called product mix level. This is especially true in markets that experience rapid introductions of new products, such as in high-tech/electronics, or when a new product introduction (NPI) takes a long time and has high uncertainty, such as in the pharmaceutical industry.
This point is also a good illustration of the point I made above about the planning continuum. The classical definition of the S&OP time horizon is 6−18 months. What happens when you have a 9 months’ or less product life cycle? What happens when a large part of the revenue for a product family will come from new products being introduced over the next 9 months that require unique parts, due to the introduction of new technologies, and that are in short supply with 14−18 week lead times? Running S&OP for this product family at the ‘volume’ level only is nuts.
PJ: How do you differentiate between executive S&OP and operational S&OP, and what related solutions do you provide for each?
TM: I don’t. The differentiation is spurious. Executives may want to view data at a more aggregate level, but why would they want to view different data? Why wouldn’t executives want to drill into the details of something that intrigues them? Why wouldn’t they want to test the consequences of making a change?
When I meet prospects and customers, I often hear of the Chambers Report, the Lazaridis Report, or whatever other CEO/COO report. These are reports that are inspected on a daily basis. But senior executives not only inspect them, but also want to get quick answers to the financial and operations consequences of changing assumptions or values. Essentially, these executives want to perform what-if analysis in real time and to know that the values reported are based upon feasible plans.
Feasibility cannot be evaluated at the aggregate or volume level. Perhaps feasibility can be tested at the volume level in slow moving industries with relatively few NPIs and fairly stable demand. But in high-tech/electronics, feasibility can only be tested at a fairly granular level. With key component lead times of 14−18 weeks, product life cycles of 6 months or less, and a forecast accuracy of greater than 60% difficult to achieve, S&OP has to be performed at both a lower level of granularity and over a short horizon. Of course, executives will want to view results and change data at the more aggregate level, but why does this require a separate data model and separate analytics? This is merely a matter of presentation of the information.
Kinaxis RapidResponse is a single solution that covers multiple time planning horizons and supports planning as a continuum, not as a set of unique and divorced processes supported by islands of information. Scenarios can be created in a fraction of a second, which are then used to make changes at both the ‘volume’ and ‘mix’ levels.
RapidResponse provides alerting capability for early detection of key metrics that are diverging from the planned values. For example, the marketing folks may make a change to the assumption of market share for a product family over the next 6−12 months. Based upon historical or projected mix ratios, the change in market share may lead to a shortage of capacity for one item and excess and obsolete commodities for another item. Clearly, several people need to be alerted that this change to the market share assumptions has been made because of issues that come up at the mix level. As described, RapidResponse alerts users to not only events, but also the consequences of these events.
More importantly, RapidResponse supports the notion of responsibilities, which are used to identify whom in the distributed supply chain should be notified of the consequences and pulled into a new scenario used to propose and evaluate different alternatives for resolving, or at least reducing, the impact in minutes if not seconds. Scenarios can be compared side-by-side in RapidResponse to understand their impact of corporate targets for both financial and operational metrics, such as revenue, margin, inventory levels, customer service, etc.
PJ: Do you see a link between S&OP and multi-echelon inventory optimization (MEIO), and what do you offer in that regard?
TM: There is a wider link between S&OP and multi-tier visibility, planning, and control. S&OP has been traditionally seen as an internal process focused on getting consensus among different internal functions. But S&OP was conceived well before the advent of pervasive outsourcing and offshoring: a time when the manufacturing, let alone commodity management and procurement, were just ‘down the hall’—a time when most customers were in the same country and spoke the same language.
The intervening years haven’t reduced the level of visibility needed. In fact, offshoring has increased the need for multi-echelon visibility, while outsourcing has reduced multi-echelon visibility. So I am absolutely convinced that multi-echelon inventory visibility, and of course demand visibility, is closely linked to S&OP. How inventory levels will be set will depend on the contractual agreements between the original equipment manufacturer (OEM)/brand owner and the contract manufacturer. In addition, S&OP is often referred to as sales inventory operations planning (SIOP) and production, sales, inventory (PSI)—both cases emphasizing the inclusion of inventory management in the overall S&OP process.
RapidResponse provides ways to determine ideal inventory levels given the customer service level targets and historical demand and supply patterns. Scenarios can then be used to test the financial and operational consequences of changing safety stock or reorder point (ROP) values.
PJ: There is indeed a great deal of cross-functional cooperation and collaboration that is required for managing S&OP. How are companies enabling this, and are they doing it successfully?
TM: From a process perspective, it is difficult to get people to work across functional boundaries, let alone across organizational boundaries. In addition, technology is often a barrier when each function has its own data and systems for analysis. Not only are there arguments about the results, but also about the data. Another barrier is that often, particularly in outsourced environments, people don’t even know whom to call in another function or company to resolve an issue.
As discussed above, we enable cross-functional cooperation and collaboration by providing a solution that has a single data model, a single set of analytics, and a single UI. Naturally, we have a full security model and the ability to filter and aggregate the data to make it relevant to the person and their role. If anyone makes a data change that has a significant impact on someone else, the person affected will be alerted immediately and can then collaborate on resolving the issue. Naturally, more than two people can collaborate in a given scenario. Any changes are immediately visible to all participants in the scenario.
PJ: What is your take on the link between S&OP and collaborative planning, forecasting and replenishment (CPFR), and what are your customers doing in that regard?
TM: CPFR, in the strictest terms, has been a failure largely because it was a burdensome process and because of the expectation on the part of consumer packaged goods (CPG) manufacturing companies that it would improve the forecast accuracy of the retailers. If instead we take CPFR to simply mean a more collaborative and inclusive planning process between trading partners, then I would say it is on the rise. As already discussed, outsourcing of manufacturing has led to the need for CPFR between the OEM and the contract manufacturer by extending internal cross-functional cooperation and collaboration to contract manufacturers in particular.
PJ: If you had to name the top three priorities for a company looking to evolve their S&OP process, what would they be?
TM: I would say the following:
- Do S&OP more frequently, preferably continuously.
- Do S&OP collaboratively and consecutively, not sequentially through a traditional five-step process.
- Understand that S&OP is one step in a planning continuum, and that all steps need to be synchronized constantly.
PJ: What role does exception management play, or should play, in S&OP?
TM: All planning, let alone S&OP, should be governed by the principle that execution against the plan should be monitored continuously. In addition, if there are major market shifts, a company must react quickly by regenerating the S&OP plan. But exception management is important not only in monitoring execution of the plan and market shifts, but also in detecting big changes in the plans being generated. But the exceptions need to be relevant to the person receiving the alert, and the supporting data needs to be packaged in a manner that is relevant to that person.
PJ: How and where do "what-if" capabilities fit into the S&OP process? Is it a priority capability for an effective S&OP process?
TM: I don’t see how S&OP can be carried out effectively without strong what-if capabilities. It is more than a priority—it is a core requirement! Humans are so much more creative than machines. What they need is a rapid way of testing alternatives and evaluating the consequences in a timely manner. If they have an effective manner to understand the effect of the decisions on financial and operational metrics, they will inevitably make the right decision, particularly when several alternatives can be compared side-by-side.
PJ: What is the role of master data management (MDM) in S&OP, and what is Kinaxis doing in that regard?
TM: Because of our long history in the outsource high-tech/electronics space, we have had to deal with MDM-like issues for a long time, particularly equivalent item numbering, including bill-of-materials (BOM) structures. We focus a lot of attention on data quality and have a number of workbooks that identify missing and incomplete data. Without a doubt, MDM systems do increase the quality of data, but I do not see any reason to delay the deployment of RapidResponse until the MDM system is in place.
Clearly, the business is being run with the existing data, and using the existing data in a more effective manner would only be beneficial. However, I would not recommend waiting for perfect data. If an MDM system or data warehouse already exists, we can integrate it.
PJ: Some S&OP/IBP players offer functionality (often via acquisitions) for DP, trade promotions, financial consolidation, strategic network optimization (SNO) (what-if simulations of networks), and even PLM capabilities for NPI/PPM. What is your plan of action for successfully competing with these much broader and strategic-level S&OP offerings?
TM: As stated above, we provide a single solution to satisfy many supply chain processes using a single data model, a single set of analytics, and a single UI. We believe we already have a broad and strategic-level offering. Our analytics either currently covers all of the capabilities you list above or will shortly.
We have a fundamental issue with the concept that S&OP can be satisfied effectively using an overlay solution that has a separate data model and analytics from other planning tools. How can NPI be separated from DP/forecasting, supply planning, and capacity planning? By extension, how can you finance these other functions? The relative importance of these adjacent capabilities will depend on the industry, and clearly we have broader coverage and deeper capabilities for the industries we focus on, namely high-tech/electronics, aerospace, industrial, and pharmaceutical.
PJ: Do you have any other observations and trends related to S&OP that haven't been mentioned in the previous questions?
TM: Without a doubt, there is a trend to a broader description of S&OP, particularly in outsourced environments where the contract manufacturers, at the very least, need to be included in the S&OP process. But, this is not only broader in ‘geographical’ coverage, but also in departmental function and time horizon.