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May, 2011

    Executive Sales and Operations Planning
   Maturity Levels and Key Solution Criterion
Sales and Operations Planning (S&OP) is the key integrated process that the                                                   Research Brief
supply chain organization (specifically the Chief Supply Chain Officer) can                                                   Aberdeen’s Research Briefs
leverage to achieve visibility and transformation across the entire                                                           provide a detailed exploration
organization and throughout the value chain. There are several stages in the                                                  of a key finding from a primary
maturity of S&OP processes, and associated technology enablers that can                                                       research study, including key
help companies reach them. In addition industry specific differences abound                                                   performance indicators, Best-
that complicate the process of gaining success with respect to S&OP. In this                                                  in-Class insight, and vendor
Research Brief, we will explore the current business challenges faced by                                                      insight.
companies, the priority allocated to S&OP, the maturity levels associated
with S&OP and the role of technology enablers.
Business Context
Thus far, 2011 has been an extremely challenging year with unstable
economic conditions, awful and unexpected catastrophic events, and
continued political unrest. As can be seen from Figure 1, the top pressures
that companies are facing today (chief supply chain officer survey, January                                                   "Our top pressure, due to the
2011) include rising costs and the growing complexity of global operations.                                                   economy, as been mostly
The goal of S&OP is to maximize the profitability of the business for which                                                   reducing costs within the
cost control and reduction is a key driver.                                                                                   organization in order to stay
                                                                                                                              competitive within our
Figure 1: Top Pressures Facing Companies with respect to Supply                                                               industry. We have researched
                                                                                                                              alternate suppliers and left
Chain Management from 196 enterprises                                                                                         some open employment
                                                                                                                              positions empty in an attempt
     Rising supply chain management                                                                                           to lower our overall costs.
                               costs
                                                                                         50%                                  While this was difficult at first,
                                                                                                                              we have managed to survive
           Growing complexity of global                                                                                       and now have multiple
                            operations
                                                                              36%                                             employees cross-trained in
                                                                                                                              various departments."
  Escalating demand for service from                                                                                          ~ Supply Chain Planner at Mid-
                                                                          31%
                         customers                                                                                            size Health Care Manufacturer

             Increased demand volatility                                28%


Increased supply chain risk exposure                        13%


                                               0%             20%            40%             60%
                                                         Percent of Respondents
                                                                Source: Aberdeen Group, January 2011
This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and
represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc.
and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.
Executive S&OP Maturity Levels and Key Solution Criterion
Page 2




According the research, the top areas of focus for companies in 2011were          "We are reporting on historical
as follows:                                                                       performance on sales, profit,
                                                                                  mix and inventory. We are
    •   Supply chain visibility (58%). Given the significant levels of            tying all P&L projections
        outsourcing, many companies have lost control and visibility to their     directly to the top line
        processes (Integrated Demand-Supply Networks: Five Steps to Gaining       generated by S&OP and
                                                                                  preparing executive level P&L
        Visibility and Control, March 2009). The growth of the supply chain
                                                                                  reporting with an outline of
        for companies on both the buy-side as well as sell-side has resulted      qualitative and quantitative
        in visibility emerging as their top process area of focus.                risks/opportunities. In addition
    •   Inventory management (56%). The expansion of the supply chain             we are ensuring pricing, trade
        into demand-supply networks necessitates the need for precision in        spend, SG&A are in alignment
                                                                                  with latest movements from
        sizing inventory buffers. The recent capital crunch has shifted the
                                                                                  S&OP."
        focus towards working capital optimization - the key driver of which
        is an organization's inventory levels, (Working Capital Optimization:       ~ Director of Supply Chain at
        Increase Cash Flow in the New Economy, May 2010).                            Large Consumer Electronics
                                                                                                       Company
    •   Supply chain collaboration (50%). Collaboration has gained in
        importance due to the rise in number of trading partners including
        those in emerging countries. Also, the pareto rule no longer applies
        when it comes to trading partners. In the past, companies could
        only integrate and collaborate with the top 20% of their supplier
        base which often formed as much as 80% of the revenue. This is no         Definitions:
        longer the case in many situations. The expanding number of trading       √ Executive S&OP: The
        partners has resulted in the need to expand collaboration                   process by which the
        throughout the entire supply chain including the non-critical (long         management review is
        tail) suppliers (B2B Integration and Collaboration: Trading Community       performed after the
        Enablement for the Multi-Enterprise Supply Chain, March 2010).              operational aspects of supply
                                                                                    review, demand review and
    •   Sales and operations planning (48%). S&OP has always been                   product review is performed
        important to companies but now it is given even more attention in
        today's dynamic business conditions. As past Aberdeen research has        √ Operational S&OP: This is
        identified, it is critical to look at S&OP as not a purely SCM function     the process prior to the
                                                                                    executive S&OP where the
        but as a business planning function that is tightly integrated with
                                                                                    demand patterns are
        finance (Sales and Operations Planning: Strategies for Managing             assessed to create
        Complexity within Global Supply Chains, July 2010).                         unconstrained demand, the
The key pressures that companies are facing with respect to S&OP (in this           supply constraints utilized to
report when we talk about S&OP, we are referring to the executive S&OP              identify the constrained
                                                                                    demand
process defined in the callout box to the right) processes include the need
to reduce supply chain operating costs (53%) and the management of                √ Integrated Business Planning:
increasing demand volatility (49%), which creates the need for balancing            Level 3 of the S&OP
these mutually exclusive business pressures (Figure 2). All of these                maturity which involves tight
pressures are competing against each other amidst an increased complexity           integration with the Financial
of supply chain processes and the global nature of these supply chains. The         Planning and Budgeting
view point of the supply chain organization follows the priority shown              process
above.




© 2011 Aberdeen Group.                                                                  Telephone: 617 854 5200
www.aberdeen.com                                                                              Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
Page 3




Figure 2: Leading Pressures to Improve S&OP

                                                                                        59%
 Improve top line revenue
                                                                        45%


     Reduce supply chain                                                            53%
         operating costs                                                              56%


Management of increasing                                                      49%
       demand volatility                                                45%

  Customer mandates for                                           40%
faster, more accurate and
   more unique fulfillment                             31%

           Need to utilize                       26%
manufacturing assets with                                                      2009   2010
     maximum efficiency                                     35%

                             0%   10%    20%        30%      40%          50%          60%
                                         Percent of Respondents, n=196
                                                 Source: Aberdeen Group, July 2010


Other key stakeholders - Finance, Sales and Marketing
However, the finance organization has a slightly different viewpoint in terms                 Best-in-Class Companies:
of top pressures: 59% indicate that the top pressure is the need to improve
top line revenue and 53% indicate that the need to utilize manufacturing                      √ Experienced 81.9% forecast
assets with maximum efficiency is a key pressure. This illustrates that the                     accuracy level for three
                                                                                                months out into the future
perspective of the finance organization does not necessarily reflect the view
point of supply chain organizations. In order to truly obtain engagement of                   √ 97.2% of orders delivered to
the finance organization in S&OP, it is necessary to understand their                           customers complete and on
financial perspective on the business. Then it is easier to explain how the                     time
incorporation of their perspective in S&OP will help alleviate their top
                                                                                              √ Decreased cash-to-cash
pressures and align the organization to the business’s financial objectives.                    cycle time by 0.3% year over
In addition, today’s senior management looks to all functions for ways to                       year
weather the recession, while at the same time taking advantage of any
business opportunities that may arise from the current economic
conditions. The supply chain organization is being asked to deliver more
than just efficiency; it is also being asked to deliver innovative cost reduction
strategies. Capitalizing on such opportunities first requires visibility into the
extended supply chain – something many companies find difficult to achieve.
The sales and marketing organization(s), with their responsibility for
revenue generation and business expansion opportunities, also plays a key
role. Where revenue growth and expansion opportunities are scarce,
today's senior management looks to sales and marketing to enhance margins
and prevent share erosion, at the very least. These objectives are tied both
to extended supply chain costs/efficiencies and new product infusion.




© 2011 Aberdeen Group.                                                                              Telephone: 617 854 5200
www.aberdeen.com                                                                                          Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
Page 4




To assist, product development is being asked to accelerate speed to
market and improve reliability through the product development cycle to
increase the percentage of sales from new products.
Conventional S&OP processes have failed to integrate these broader
lifeblood issues of the sales, R&D/Product Management, marketing and
financial business leaders into the process. Two examples of the broader
scope of the process are as follows:
    •     Product management: an important requirement of the process is
          the integrating the results from portfolio and product life cycle
          management into a Product Review process.
    •     Sales and marketing: the analysis and refinement of marketing plans,
          sales account management tactics like pricing can be used as gap-
          closing actions during the Demand review process.

Maturity Levels of Executive S&OP
Table 1 identifies the three levels of maturity that companies have with
respect to the executive S&OP process. Level 1 is the lowest level
(Laggards) and Level 3 is the IBP level (Best-in-Class).

Table 1: Sales and Operations Planning Competitive Framework
                       Level 1              Level 2            Level 3 (IBP)
Process          S&OP process is       S&OP process is       Is a true integrated
                 ad-hoc, with          more refined with     business planning
                 disparate data        some level of data    process where all
                 sources and there     synchronization and   the organizations
                 is not a single       organizational        involved work
                 demand number         mandates to arrive    collaboratively to
                 based on which the    at a single demand    arrive at a single
                 company performs.     number off of         demand number off
                 Top-down forecast     which the company     of which the
                 is not tied to plan   executes.             company executes.
                 and there is no                             Margin and revenue
                 formal process.                             focus exists.
Organization     S&OP process is       S&OP process is       Collaborative
                 non-standardized      standardized across   balanced cross-
                 across different      different             functional team
                 departments – no      departments with      takes ownership of
                 clear ownership of    one of the            the integrated
                 S&OP process.         departments taking    business planning
                                       ownership of S&OP     process. Finance
                                       process.              organization is
                                                             playing a more
                                                             leadership role in
                                                             the process.




© 2011 Aberdeen Group.                                                              Telephone: 617 854 5200
www.aberdeen.com                                                                          Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
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                      Level 1               Level 2             Level 3 (IBP)       Industry Focus
Knowledge       Pockets of             Some level of          Information           Industry: The research sample
                information known      sharing of             available             included respondents from the
                at different           information across     instantaneously to    four major industry segments -
                departments. No        departments;           all parties with      process, consumer, discrete
                sharing of             however there are      cross-functional      and high-tech/electronics.
                information across     still internal         interdepartmental     Please note: Respondents may
                departments.           barriers to            focus.                identify themselves in more the
                                       overcome like                                one category, thus the
                                       corporate politics                           percentages will not equal
                                       and lack of cross-                           100%. Key demographics are:
                                       functional focus.
                                                                                    √ Discrete (26%): Aerospace
Technology      Usage of               Individual demand      Executive-level         and Defense (4%),
                spreadsheets for       and supply planning    what-if analysis        Automotive (4%), Industrial
                enabling S&OP          modules not            capability along        Equipment Manufacturing
                process or non-        integrated to each     with integrated         (9%), Industrial Product
                integrated             other.                 supply and demand       Manufacturing (9%)
                technology tools.                             planning modules
                                                              with ability to       √ Consumer (40%): Apparel
                                                              optimize on             (3%), Consumer Durable
                                                              financial metrics.      Goods (4%), Consumer
Measurement     Basic                  More advanced          Cross functional        Packaged Goods (8%),
                measurements like      measurements like      metrics like order      Consumer Electronics (4%),
                forecast accuracy,     forecast accuracy at   fill rate,              Wholesale/Distribution (7%),
                capacity utilization   individual SKU         supply/demand           Food/Beverage (9%), Retail
                owned by individual    level, family level,   match, gross margin     (5%),
                departments.           lead-times             measured and          √ Process (21%): Chemicals
                                       measured and           monitored as part       (4%), Metals and metal
                                       owned by individual    of S&OP process.        products/
                                       departments but                                Mining/oil/gas/utilities (10%),
                                       shared with                                    Paper/lumber/timber (3%),
                                       organization.                                  Pharmaceutical
                                                Source: Aberdeen Group, May 2011
                                                                                      manufacturing (4%)
                                                                                    √ High-tech/electronics (20%):
Three Best-in-Class Requirements for the S&OP                                         Computer equipment and
                                                                                      peripherals (2%),
process enabler                                                                       Health/medical/dental
    •   Ability to support scenario management and analytics.                         devices or services (9%);
        Aberdeen research finds that Best-in-Class Companies are twice as             High-technology (2%);
        likely as all other companies to evaluate constrained planning                Telecommunication
        scenarios during supply demand balancing. Simultaneous                        equipment/services (7%)
        consideration of supply, demand and finance is a key requirement.
        Demand, including product / customer profitability and product mix
        optimization should be supported. Financials should be both a
        constraint and an output. All of these elements must be considered
        simultaneously and not in silos
    •   Support for collaboration with internal and external
        stakeholders. Consideration of sales pricing, service policy and
        promotions as a key driver of demand and being able to integrate

© 2011 Aberdeen Group.                                                                    Telephone: 617 854 5200
www.aberdeen.com                                                                                Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
Page 6




        the product management organization within the S&OP process.
        Integrating the sales data into the S&OP process is critical but
        companies are challenged with this due to the lack of a
        collaboration platform that captures sales input in an effective
        manner.
    •   Financial planning integration. Best-in-Class companies are
        twice as likely as all others ability to evaluate and optimize inventory
        and service policy to maximize cash flow and profitability as part of
        the S&OP process. In addition Best-in-Class companies are three-
        times as likely as all others to have the ability to express the S&OP
        plan in terms of revenue and margins
Typical S&OP solutions support the right hand side of the picture (Figure 3)
and move to the left but an ideal S&OP solution should start from the
financial picture in the left and move toward the right towards supply chain
capabilities.

Figure 3: Financial Profitability Drives S&OP Tactics

                                                      Ideal Approach for S&OP

                                          Business Goals                                  IBP Levers
                                                                                        Financial Planning
                                                                    Levers
                                       Product Differentiation                               Pricing

             Boost                        Customer Service                             Demand Forecasting
          Shareholder
                                                                                        Demand Shaping
             Value                         Cost Reduction          Results
                                                                                   Rough Cut Capacity Planning
                                           Working Capital                            Inventory Optimization

                                         Revenue Expansion                          New Product Introduction
                                                                                    Profit Optimized Supply -
                                                                                      Demand Planning

                                         Metrics: Return on Net Assets, Profit Margins, Cash-Cash-Cycle
                                                   Customer Service Levels, Forecast Accuracy


                                                        How it is currently done

                                                                                        Source: Aberdeen Group, May 2011

Financial modeling needs to be very deep in order to properly consider and
evaluate impact on working capital, profits, cash flow and other financial
metrics. In addition, the financial modeling needs to replicate the company’s
reporting structure in order to feed directly into the budgeting and planning
process including modeling multi-currency, differential tax rates and partial
ownership situations.

© 2011 Aberdeen Group.                                                                          Telephone: 617 854 5200
www.aberdeen.com                                                                                      Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
Page 7




Industry Specific Capability Requirements of S&OP
Table 2 shows the industry specific requirements of the Executive S&OP
process for the 4 key industry segments (the breakdown is shown in the
callout box).

Table 2: Industry Specific Requirements of S&OP Across Demand,
Supply and Product Characteristics

 Industry          Demand                  Supply                Product
Process       Focus on long term     Long lead-time         Mostly Build to
              statistical            manufacturing          Stock
              forecasting            process which is       Reverse Bill of
                                     campaign focused       Materials
                                     (larger volumes of
                                     production with a
                                     single set up and
                                     long set up times)
Discrete      Statistical            Long lead-time         Build to Order mix
              forecasting at SKU     operations with        with Build to Stock
              level has limited      assembly line          Highly configured
              application.           manufacturing          product with large
              Requires attach rate                          multi-level BOM to
              forecasting at                                SKU level simple
              component level                               products
High-Tech     Highly dynamic         Long lead-time         Configure to Order
              nature of business     operations             Very rapid product
              operations requires    upstream but rapid     lifecycles makes
              that demand            ability to configure   product phase in
              patterns are           products               phase out critical
              updated at high        downstream
              frequency
Consumer      Understanding          Has characteristics    Build to Stock
              demand patterns of     of process             Product lifecycles
              consumers critical     manufacturing but      are short and large
              to business success.   smaller lead-times     number of SKU
              Statistical                                   variants to address
              forecasting                                   consumer demand
              augmented with
              causal forecasting
              (promotion planning
              and event
              management)
                                                Source: Aberdeen Group, May 2011


Role of Technology
Best-in-Class companies are now leveraging technology as a differentiator as
shown in Figure 4. In addition to the traditional areas associated with


© 2011 Aberdeen Group.                                                             Telephone: 617 854 5200
www.aberdeen.com                                                                         Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
Page 8




inventory planning, demand and supply planning, Best-in-Class companies
are also getting differentiation with the areas around executive reporting.
We still see rampant usage of spreadsheets across all the categories - 84%
of overall respondents indicate that they are using spreadsheets to support
the enablement of the S&OP process. Fifty-two percent (52%) of
respondents indicate the usage of integrated ERP modules. Twenty-one
percent (21%) of these respondents indicate the use of best of breed
solutions whereas 31% still utilize custom legacy systems. Thirty-eight
percent (38%) of respondents utilize business intelligence solutions. The
variety of technology adoption approaches is due to the fundamentally inter-
disciplinary and customized nature of the S&OP process for each
organization.
So given the large number of touch points in terms of roles associated with
the S&OP process, the solution adopted by enterprises should enable
integration across planning, business intelligence and optimization. An ideal
approach is to utilize a solution that can perform financial planning and
supply chain planning in the same platform.

Figure 4: Technology Adoption with Respect to S&OP Related
Areas

                                                                                 58%
    Supply Planning                             28%
                                              26%

                                                                          53%
   Demand Planning                                     33%
                                                    30%

                                                                        51%
  Inventory planning                                  32%
                                              26%


            Executive                                 33%             Best-in-Class
reporting/dashboards                         24%                      Average
                                      19%                             Laggard

                    0%     10%       20%        30%      40%        50%          60%
                                      Percent of Respondents, n=196

                                            Source: Aberdeen Group, April 2011


Case Study: Building Material Industry Illustrates the
Importance of S&OP

Owens Corning Utilizes S&OP to Manage Rising Energy Costs and
Housing Market Downturn
Owens Corning offers insulation, roofing, basement finishing, acoustic
systems for building and remodeling, composites solutions and asphalt.

© 2011 Aberdeen Group.                                                                 Telephone: 617 854 5200
www.aberdeen.com                                                                             Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
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Owens Corning is organized into two business divisions – building materials
and composite solutions. Their revenue was around $5 Billion USD in 2010.
The focus of this case study is on the building materials division. The
customers of the building materials division are retailers, distributors and
contractors. The primary products manufactured by this division are asphalt
roofing shingles and glass insulation products. There are 31 plants along with
three distribution centers located in Canada and the US for this business.
The raw materials are purchased from a variety of global suppliers.
The biggest challenge facing Owens Corning is the economic conditions
resulting in a tremendous drop in new house construction. There has been
no precedence to such a drop off in market demand. Previous recession
cycles have been predictable. Exacerbating the challenge is the increasing
energy costs and the tight transportation market. The commercial market
has been affected as well but not as significantly as the residential building
materials market
In order to manage the situation, Owens Corning has initiated a major
S&OP initiative. They have started the focus of their S&OP from the
customer inwards. The big focus has been on getting closer to their
customers and understanding their needs. They are looking to improve
cycles and to provide reliability to their customers. There is a lot of work
happening on inventory management to identify the right mix of products to
be sold. The critical S&OP metrics that are looked at are order fill rate, on
time delivery, working capital, days inventory outstanding, and forecast
accuracy. The organization is focusing significant efforts on S&OP processes
looking at KPIs with the intent to improve service and manage costs
Owens corning has also started a technology initiative to upgrade existing
systems including the ERP and Advanced Planning and Scheduling systems.
Their corporate finance is also using a solution called Business Planning and
Consolidation to rollup the financial data from global organizations. There is
an opportunity to implement an S&OP solution using the same platform.

Case Study: Chemical Manufacturing Industry
Illustrates the Role of Knowledge Management, Data
and Organization

S&OP Anchors Supply Chain Transformation Project at Dupont
DuPont offers a wide range of products and services for markets including
agriculture, nutrition, electronics, communications, safety and protection,
home and construction, transportation and apparel. DuPont operates in
over 90 countries with 2010 revenues of over $31.5 billion with 60,000
employees worldwide. DuPont has over 14 different business divisions
ranging from crop protection, food and nutrition, seeds, commodity
chemicals, refrigerants, polymers, paints, pigments, electronics and
communication technologies.



© 2011 Aberdeen Group.                                                           Telephone: 617 854 5200
www.aberdeen.com                                                                       Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
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DuPont has over 95 + supply chains with around 300 different product
families. It has a very complex supply chain structure with a large number of
SKUs. There is a need to rationalize the number of SKUs to avoid storing
excess inventory of low volume, slow moving SKUs. DuPont has had a
significant focus on S&OP over the course of several years with some
business units making significant progress. However they have realized that
the S&OP process was unsustainable due to a lack of organization, data,
knowledge management and technology capabilities. DuPont had worked
with a leading S&OP process consulting provider to institute a strong
process but faced many challenges institutionalizing it.
The fact that DuPont is in the process manufacturing industry brings about
unique challenges as well. They have to deal with multiple stages in global
supply chain, with a lack of coordination and synchronization across their
end to end supply chain. They have to deal with higher working capital and
poor customer service.
So what are the corrective actions that DuPont is taking?
From a knowledge management standpoint, DuPont is focusing on creating a
Business Process Management (BPM) repository. In other words, DuPont is
documenting their S&OP processes in a single central repository and they
are instituting a core set of people who can keep this going, manage, and
train the people in the execution of the S&OP process. There will be a
central core group of people who will manage this repository. BPM is being
used to highlight the connectivity and integrated nature of the supply chain.
From a data standpoint, it was realized that there needs to be a
reconciliation of data. For example, multiple regions are using different
terminology when it comes to products, customers or services. This causes
challenges in creating a corporate dashboard where aggregation of data is
critical. There is also no standardized relationship defined between various
hierarchies across divisions, which make it difficult to perform ad-hoc
business intelligence reporting.
From an organizational perspective, the General Managers of the business
units are the owners of the S&OP process but they also have a centralized
supply chain competency center.
Finally from a technology standpoint, DuPont realizes that their existing
S&OP technology is inadequate to scale and will evaluate S&OP application
integrated with financial scenario planning for their corporate roll out.

Case Study: Apparel Industry illustrates S&OP Phase I
& II - Consensus Demand Forecasting and Collaboration

Under Armour Gets to a Single Number Forecast to Drive S&OP
Demand Review
Under Armour Inc. is a developer of branded performance apparel,
footwear, and accessories. Founded in 1996, they have been enjoying a

© 2011 Aberdeen Group.                                                          Telephone: 617 854 5200
www.aberdeen.com                                                                      Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
Page 11




meteoric growth to around $850 Million in 2010. They have achieved
tremendous brand loyalty among consumers who range from young people
to professional athletes.
Rapid growth brings with it huge challenges in terms of supply chain. Under
Armour had to deal with rapidly increasing number of SKUs with very short
product lifecycles in a highly fashion centric environment. They did not
really have a consensus forecasting process even though there was feedback
from sales, finance, merchandizing, etc.
They decided to implement a demand management solution from SAP to
create a collaborative, one number consensus forecast. But the process was
instituted first before launching the implementation. Sales planners, demand
planners and merchandize planners all were included in the process
definition stage and had accountability in process design. Once the process
was designed, the implementation was done of the SAP Demand and Supply
planning solutions.
An important part of this implementation was that not only was a consensus
demand planning solution implemented, there was also a business
intelligence solution instituted. This allowed Under Armour to perform
exception management with alerts and provide the ability to visualize the
data and prepare reports. Under Armour also sends the results of the
consensus demand plan to the financial plan which is managed by the BPC
solution also provided by SAP.
These have resulted in both qualitative as well as quantitative benefits.
Under Armour has reduced inventory by around 20% and improved
forecast accuracy by 10%. They have reduced data collection activities by
2/3 of what they used to do previously. This has resulted in better visibility
of customer demand and an improved ability to execute. Now Under
Armour is looking to improve other aspects of their S&OP process and
acknowledge that process improvement is a continuous initiative and they
have only scratched the surface.

Case Study: Apparel Industry Illustrates S&OP Maturity
Phase 3 - Integrated Business Planning

ASICS Creates Cash Flow Statement from Sales Plan and Cost Data
ASICS is a leading designer and manufacturer of running shoes as well as
other athletic footwear, apparel and accessories. ASICS is headquartered in
Japan and ASICS America is headquartered in Irvine CA. ASICS America has
around 300 employees with 2009 net sales of around $567 Million. ASICS
identified that their existing financial planning process had several gaps – it
was driven by static cost drivers, it had an inflexible planning period and had
no real-time adhoc reporting. Overall the planning cycle times were long
and had no collaborative component.
ASCIS decided to do a process reengineering effort wherein they would
integrate the sales and financial planning to streamline the process. This way
© 2011 Aberdeen Group.                                                            Telephone: 617 854 5200
www.aberdeen.com                                                                        Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
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both the top down management budgeting element as well as the bottom up
sales element were incorporated. In order to implement this process with
respect to technology, the SAP Business Planning and Consolidation module
was utilized. The inputs from the sales planning in terms of projected
forecasts as well as the cost budgeting is converted to a cash flow
statement. This is an example of a company that is trying to bridge the
S&OP to the financial planning process. By doing this, ASICS was able to
reduce the planning cycle time by more than 50%.

Recommended Actions
    •   Create the ability to perform detailed scenario
        management, simulation and optimization. Only 23% of Best-
        in-Class companies indicate that they have a strong ability to create
        upside opportunity assessment scenarios to analyze an S&OP plan.
        Ideally, the optimization and what-ifs should include the ability to set
        financials as the objective function and to toggle back and forth
        across different metrics as the objective function for proper
        analysis.
        The ability to support decisions on product line, price policy, capital
        expenditures, financial policy, network design, open/close, supply
        chain policy, etc. are also part of the S&OP scenario management
        framework.
        Without optimization, scenarios cannot be compared on an apples
        to apples basis. Optimization does this by making sure each scenario
        represents “the best the company can do” under the specific sets of
        assumptions. For example, different scenarios might require
        different production allocation, different use of raw materials, etc.
    •   Create the ability to do root cause analysis. Only 25% of
        Best-in-Class companies indicate that they have a strong ability to
        identify the cause of an S&OP metric being off-target. Significant
        time is wasted in organizations in diagnosing the “why” even though
        the “what” is known. This is an area where even Best-in-Class
        companies struggle. Persona based supply chain analytics solutions
        should be leveraged to create detailed business process playbooks
        that are industry specific to support this requirement.
    •   Become adept at providing high-level reporting designed
        for executive management. Only 22% of Industry Average
        companies are able to generate high-level reporting as compared to
        54% of Best-in-Class companies. Given the large number of
        stakeholders involved in the S&OP process, companies must have a
        systematic way of identifying accountability and resolution/escalation
        mechanisms.
For more information on this or other research topics, please visit
www.aberdeen.com.



© 2011 Aberdeen Group.                                                             Telephone: 617 854 5200
www.aberdeen.com                                                                         Fax: 617 723 7897
Executive S&OP Maturity Levels and Key Solution Criterion
Page 13




                                             Related Research
 Supply Chain Intelligence: Adopt Role-                      Integrated Demand-Supply Networks: Five
 Based Operational Business Intelligence                     Steps to Gaining Visibility and Control;
 and Improve Visibility; Feb 2010                            March 2009
 Sales and Operations Planning: Strategies                   Multi-enterprise Manufacturing: The Role
 for Managing Complexity within Global                       of Visibility and Collaboration in Driving
 Supply Chains; July 2010                                    Responsiveness; July 2009
 Author: Nari Viswanathan, Vice President / Principal Analyst, Supply Chain
 Management (nari.viswanathan@aberdeen.com)
For more than two decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class.
Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide
organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why
our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of
the Technology 500.

As a Harte-Hanks Company, Aberdeen’s research provides insight and analysis to the Harte-Hanks community of
local, regional, national and international marketing executives. Combined, we help our customers leverage the power
of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional
information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call
(800) 456-9748 or go to http://www.harte-hanks.com.

This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies
provide for objective fact-based research and represent the best analysis available at the time of publication. Unless
otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be
reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by
Aberdeen Group, Inc. (2011a)


© 2011 Aberdeen Group.                                                                                                   Telephone: 617 854 5200
www.aberdeen.com                                                                                                               Fax: 617 723 7897

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Aberdeen executive sales and operations planning maturity levels and key solution criterion (may 2011) (1)

  • 1. May, 2011 Executive Sales and Operations Planning Maturity Levels and Key Solution Criterion Sales and Operations Planning (S&OP) is the key integrated process that the Research Brief supply chain organization (specifically the Chief Supply Chain Officer) can Aberdeen’s Research Briefs leverage to achieve visibility and transformation across the entire provide a detailed exploration organization and throughout the value chain. There are several stages in the of a key finding from a primary maturity of S&OP processes, and associated technology enablers that can research study, including key help companies reach them. In addition industry specific differences abound performance indicators, Best- that complicate the process of gaining success with respect to S&OP. In this in-Class insight, and vendor Research Brief, we will explore the current business challenges faced by insight. companies, the priority allocated to S&OP, the maturity levels associated with S&OP and the role of technology enablers. Business Context Thus far, 2011 has been an extremely challenging year with unstable economic conditions, awful and unexpected catastrophic events, and continued political unrest. As can be seen from Figure 1, the top pressures that companies are facing today (chief supply chain officer survey, January "Our top pressure, due to the 2011) include rising costs and the growing complexity of global operations. economy, as been mostly The goal of S&OP is to maximize the profitability of the business for which reducing costs within the cost control and reduction is a key driver. organization in order to stay competitive within our Figure 1: Top Pressures Facing Companies with respect to Supply industry. We have researched alternate suppliers and left Chain Management from 196 enterprises some open employment positions empty in an attempt Rising supply chain management to lower our overall costs. costs 50% While this was difficult at first, we have managed to survive Growing complexity of global and now have multiple operations 36% employees cross-trained in various departments." Escalating demand for service from ~ Supply Chain Planner at Mid- 31% customers size Health Care Manufacturer Increased demand volatility 28% Increased supply chain risk exposure 13% 0% 20% 40% 60% Percent of Respondents Source: Aberdeen Group, January 2011 This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.
  • 2. Executive S&OP Maturity Levels and Key Solution Criterion Page 2 According the research, the top areas of focus for companies in 2011were "We are reporting on historical as follows: performance on sales, profit, mix and inventory. We are • Supply chain visibility (58%). Given the significant levels of tying all P&L projections outsourcing, many companies have lost control and visibility to their directly to the top line processes (Integrated Demand-Supply Networks: Five Steps to Gaining generated by S&OP and preparing executive level P&L Visibility and Control, March 2009). The growth of the supply chain reporting with an outline of for companies on both the buy-side as well as sell-side has resulted qualitative and quantitative in visibility emerging as their top process area of focus. risks/opportunities. In addition • Inventory management (56%). The expansion of the supply chain we are ensuring pricing, trade into demand-supply networks necessitates the need for precision in spend, SG&A are in alignment with latest movements from sizing inventory buffers. The recent capital crunch has shifted the S&OP." focus towards working capital optimization - the key driver of which is an organization's inventory levels, (Working Capital Optimization: ~ Director of Supply Chain at Increase Cash Flow in the New Economy, May 2010). Large Consumer Electronics Company • Supply chain collaboration (50%). Collaboration has gained in importance due to the rise in number of trading partners including those in emerging countries. Also, the pareto rule no longer applies when it comes to trading partners. In the past, companies could only integrate and collaborate with the top 20% of their supplier base which often formed as much as 80% of the revenue. This is no Definitions: longer the case in many situations. The expanding number of trading √ Executive S&OP: The partners has resulted in the need to expand collaboration process by which the throughout the entire supply chain including the non-critical (long management review is tail) suppliers (B2B Integration and Collaboration: Trading Community performed after the Enablement for the Multi-Enterprise Supply Chain, March 2010). operational aspects of supply review, demand review and • Sales and operations planning (48%). S&OP has always been product review is performed important to companies but now it is given even more attention in today's dynamic business conditions. As past Aberdeen research has √ Operational S&OP: This is identified, it is critical to look at S&OP as not a purely SCM function the process prior to the executive S&OP where the but as a business planning function that is tightly integrated with demand patterns are finance (Sales and Operations Planning: Strategies for Managing assessed to create Complexity within Global Supply Chains, July 2010). unconstrained demand, the The key pressures that companies are facing with respect to S&OP (in this supply constraints utilized to report when we talk about S&OP, we are referring to the executive S&OP identify the constrained demand process defined in the callout box to the right) processes include the need to reduce supply chain operating costs (53%) and the management of √ Integrated Business Planning: increasing demand volatility (49%), which creates the need for balancing Level 3 of the S&OP these mutually exclusive business pressures (Figure 2). All of these maturity which involves tight pressures are competing against each other amidst an increased complexity integration with the Financial of supply chain processes and the global nature of these supply chains. The Planning and Budgeting view point of the supply chain organization follows the priority shown process above. © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 3. Executive S&OP Maturity Levels and Key Solution Criterion Page 3 Figure 2: Leading Pressures to Improve S&OP 59% Improve top line revenue 45% Reduce supply chain 53% operating costs 56% Management of increasing 49% demand volatility 45% Customer mandates for 40% faster, more accurate and more unique fulfillment 31% Need to utilize 26% manufacturing assets with 2009 2010 maximum efficiency 35% 0% 10% 20% 30% 40% 50% 60% Percent of Respondents, n=196 Source: Aberdeen Group, July 2010 Other key stakeholders - Finance, Sales and Marketing However, the finance organization has a slightly different viewpoint in terms Best-in-Class Companies: of top pressures: 59% indicate that the top pressure is the need to improve top line revenue and 53% indicate that the need to utilize manufacturing √ Experienced 81.9% forecast assets with maximum efficiency is a key pressure. This illustrates that the accuracy level for three months out into the future perspective of the finance organization does not necessarily reflect the view point of supply chain organizations. In order to truly obtain engagement of √ 97.2% of orders delivered to the finance organization in S&OP, it is necessary to understand their customers complete and on financial perspective on the business. Then it is easier to explain how the time incorporation of their perspective in S&OP will help alleviate their top √ Decreased cash-to-cash pressures and align the organization to the business’s financial objectives. cycle time by 0.3% year over In addition, today’s senior management looks to all functions for ways to year weather the recession, while at the same time taking advantage of any business opportunities that may arise from the current economic conditions. The supply chain organization is being asked to deliver more than just efficiency; it is also being asked to deliver innovative cost reduction strategies. Capitalizing on such opportunities first requires visibility into the extended supply chain – something many companies find difficult to achieve. The sales and marketing organization(s), with their responsibility for revenue generation and business expansion opportunities, also plays a key role. Where revenue growth and expansion opportunities are scarce, today's senior management looks to sales and marketing to enhance margins and prevent share erosion, at the very least. These objectives are tied both to extended supply chain costs/efficiencies and new product infusion. © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 4. Executive S&OP Maturity Levels and Key Solution Criterion Page 4 To assist, product development is being asked to accelerate speed to market and improve reliability through the product development cycle to increase the percentage of sales from new products. Conventional S&OP processes have failed to integrate these broader lifeblood issues of the sales, R&D/Product Management, marketing and financial business leaders into the process. Two examples of the broader scope of the process are as follows: • Product management: an important requirement of the process is the integrating the results from portfolio and product life cycle management into a Product Review process. • Sales and marketing: the analysis and refinement of marketing plans, sales account management tactics like pricing can be used as gap- closing actions during the Demand review process. Maturity Levels of Executive S&OP Table 1 identifies the three levels of maturity that companies have with respect to the executive S&OP process. Level 1 is the lowest level (Laggards) and Level 3 is the IBP level (Best-in-Class). Table 1: Sales and Operations Planning Competitive Framework Level 1 Level 2 Level 3 (IBP) Process S&OP process is S&OP process is Is a true integrated ad-hoc, with more refined with business planning disparate data some level of data process where all sources and there synchronization and the organizations is not a single organizational involved work demand number mandates to arrive collaboratively to based on which the at a single demand arrive at a single company performs. number off of demand number off Top-down forecast which the company of which the is not tied to plan executes. company executes. and there is no Margin and revenue formal process. focus exists. Organization S&OP process is S&OP process is Collaborative non-standardized standardized across balanced cross- across different different functional team departments – no departments with takes ownership of clear ownership of one of the the integrated S&OP process. departments taking business planning ownership of S&OP process. Finance process. organization is playing a more leadership role in the process. © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 5. Executive S&OP Maturity Levels and Key Solution Criterion Page 5 Level 1 Level 2 Level 3 (IBP) Industry Focus Knowledge Pockets of Some level of Information Industry: The research sample information known sharing of available included respondents from the at different information across instantaneously to four major industry segments - departments. No departments; all parties with process, consumer, discrete sharing of however there are cross-functional and high-tech/electronics. information across still internal interdepartmental Please note: Respondents may departments. barriers to focus. identify themselves in more the overcome like one category, thus the corporate politics percentages will not equal and lack of cross- 100%. Key demographics are: functional focus. √ Discrete (26%): Aerospace Technology Usage of Individual demand Executive-level and Defense (4%), spreadsheets for and supply planning what-if analysis Automotive (4%), Industrial enabling S&OP modules not capability along Equipment Manufacturing process or non- integrated to each with integrated (9%), Industrial Product integrated other. supply and demand Manufacturing (9%) technology tools. planning modules with ability to √ Consumer (40%): Apparel optimize on (3%), Consumer Durable financial metrics. Goods (4%), Consumer Measurement Basic More advanced Cross functional Packaged Goods (8%), measurements like measurements like metrics like order Consumer Electronics (4%), forecast accuracy, forecast accuracy at fill rate, Wholesale/Distribution (7%), capacity utilization individual SKU supply/demand Food/Beverage (9%), Retail owned by individual level, family level, match, gross margin (5%), departments. lead-times measured and √ Process (21%): Chemicals measured and monitored as part (4%), Metals and metal owned by individual of S&OP process. products/ departments but Mining/oil/gas/utilities (10%), shared with Paper/lumber/timber (3%), organization. Pharmaceutical Source: Aberdeen Group, May 2011 manufacturing (4%) √ High-tech/electronics (20%): Three Best-in-Class Requirements for the S&OP Computer equipment and peripherals (2%), process enabler Health/medical/dental • Ability to support scenario management and analytics. devices or services (9%); Aberdeen research finds that Best-in-Class Companies are twice as High-technology (2%); likely as all other companies to evaluate constrained planning Telecommunication scenarios during supply demand balancing. Simultaneous equipment/services (7%) consideration of supply, demand and finance is a key requirement. Demand, including product / customer profitability and product mix optimization should be supported. Financials should be both a constraint and an output. All of these elements must be considered simultaneously and not in silos • Support for collaboration with internal and external stakeholders. Consideration of sales pricing, service policy and promotions as a key driver of demand and being able to integrate © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 6. Executive S&OP Maturity Levels and Key Solution Criterion Page 6 the product management organization within the S&OP process. Integrating the sales data into the S&OP process is critical but companies are challenged with this due to the lack of a collaboration platform that captures sales input in an effective manner. • Financial planning integration. Best-in-Class companies are twice as likely as all others ability to evaluate and optimize inventory and service policy to maximize cash flow and profitability as part of the S&OP process. In addition Best-in-Class companies are three- times as likely as all others to have the ability to express the S&OP plan in terms of revenue and margins Typical S&OP solutions support the right hand side of the picture (Figure 3) and move to the left but an ideal S&OP solution should start from the financial picture in the left and move toward the right towards supply chain capabilities. Figure 3: Financial Profitability Drives S&OP Tactics Ideal Approach for S&OP Business Goals IBP Levers Financial Planning Levers Product Differentiation Pricing Boost Customer Service Demand Forecasting Shareholder Demand Shaping Value Cost Reduction Results Rough Cut Capacity Planning Working Capital Inventory Optimization Revenue Expansion New Product Introduction Profit Optimized Supply - Demand Planning Metrics: Return on Net Assets, Profit Margins, Cash-Cash-Cycle Customer Service Levels, Forecast Accuracy How it is currently done Source: Aberdeen Group, May 2011 Financial modeling needs to be very deep in order to properly consider and evaluate impact on working capital, profits, cash flow and other financial metrics. In addition, the financial modeling needs to replicate the company’s reporting structure in order to feed directly into the budgeting and planning process including modeling multi-currency, differential tax rates and partial ownership situations. © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 7. Executive S&OP Maturity Levels and Key Solution Criterion Page 7 Industry Specific Capability Requirements of S&OP Table 2 shows the industry specific requirements of the Executive S&OP process for the 4 key industry segments (the breakdown is shown in the callout box). Table 2: Industry Specific Requirements of S&OP Across Demand, Supply and Product Characteristics Industry Demand Supply Product Process Focus on long term Long lead-time Mostly Build to statistical manufacturing Stock forecasting process which is Reverse Bill of campaign focused Materials (larger volumes of production with a single set up and long set up times) Discrete Statistical Long lead-time Build to Order mix forecasting at SKU operations with with Build to Stock level has limited assembly line Highly configured application. manufacturing product with large Requires attach rate multi-level BOM to forecasting at SKU level simple component level products High-Tech Highly dynamic Long lead-time Configure to Order nature of business operations Very rapid product operations requires upstream but rapid lifecycles makes that demand ability to configure product phase in patterns are products phase out critical updated at high downstream frequency Consumer Understanding Has characteristics Build to Stock demand patterns of of process Product lifecycles consumers critical manufacturing but are short and large to business success. smaller lead-times number of SKU Statistical variants to address forecasting consumer demand augmented with causal forecasting (promotion planning and event management) Source: Aberdeen Group, May 2011 Role of Technology Best-in-Class companies are now leveraging technology as a differentiator as shown in Figure 4. In addition to the traditional areas associated with © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 8. Executive S&OP Maturity Levels and Key Solution Criterion Page 8 inventory planning, demand and supply planning, Best-in-Class companies are also getting differentiation with the areas around executive reporting. We still see rampant usage of spreadsheets across all the categories - 84% of overall respondents indicate that they are using spreadsheets to support the enablement of the S&OP process. Fifty-two percent (52%) of respondents indicate the usage of integrated ERP modules. Twenty-one percent (21%) of these respondents indicate the use of best of breed solutions whereas 31% still utilize custom legacy systems. Thirty-eight percent (38%) of respondents utilize business intelligence solutions. The variety of technology adoption approaches is due to the fundamentally inter- disciplinary and customized nature of the S&OP process for each organization. So given the large number of touch points in terms of roles associated with the S&OP process, the solution adopted by enterprises should enable integration across planning, business intelligence and optimization. An ideal approach is to utilize a solution that can perform financial planning and supply chain planning in the same platform. Figure 4: Technology Adoption with Respect to S&OP Related Areas 58% Supply Planning 28% 26% 53% Demand Planning 33% 30% 51% Inventory planning 32% 26% Executive 33% Best-in-Class reporting/dashboards 24% Average 19% Laggard 0% 10% 20% 30% 40% 50% 60% Percent of Respondents, n=196 Source: Aberdeen Group, April 2011 Case Study: Building Material Industry Illustrates the Importance of S&OP Owens Corning Utilizes S&OP to Manage Rising Energy Costs and Housing Market Downturn Owens Corning offers insulation, roofing, basement finishing, acoustic systems for building and remodeling, composites solutions and asphalt. © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 9. Executive S&OP Maturity Levels and Key Solution Criterion Page 9 Owens Corning is organized into two business divisions – building materials and composite solutions. Their revenue was around $5 Billion USD in 2010. The focus of this case study is on the building materials division. The customers of the building materials division are retailers, distributors and contractors. The primary products manufactured by this division are asphalt roofing shingles and glass insulation products. There are 31 plants along with three distribution centers located in Canada and the US for this business. The raw materials are purchased from a variety of global suppliers. The biggest challenge facing Owens Corning is the economic conditions resulting in a tremendous drop in new house construction. There has been no precedence to such a drop off in market demand. Previous recession cycles have been predictable. Exacerbating the challenge is the increasing energy costs and the tight transportation market. The commercial market has been affected as well but not as significantly as the residential building materials market In order to manage the situation, Owens Corning has initiated a major S&OP initiative. They have started the focus of their S&OP from the customer inwards. The big focus has been on getting closer to their customers and understanding their needs. They are looking to improve cycles and to provide reliability to their customers. There is a lot of work happening on inventory management to identify the right mix of products to be sold. The critical S&OP metrics that are looked at are order fill rate, on time delivery, working capital, days inventory outstanding, and forecast accuracy. The organization is focusing significant efforts on S&OP processes looking at KPIs with the intent to improve service and manage costs Owens corning has also started a technology initiative to upgrade existing systems including the ERP and Advanced Planning and Scheduling systems. Their corporate finance is also using a solution called Business Planning and Consolidation to rollup the financial data from global organizations. There is an opportunity to implement an S&OP solution using the same platform. Case Study: Chemical Manufacturing Industry Illustrates the Role of Knowledge Management, Data and Organization S&OP Anchors Supply Chain Transformation Project at Dupont DuPont offers a wide range of products and services for markets including agriculture, nutrition, electronics, communications, safety and protection, home and construction, transportation and apparel. DuPont operates in over 90 countries with 2010 revenues of over $31.5 billion with 60,000 employees worldwide. DuPont has over 14 different business divisions ranging from crop protection, food and nutrition, seeds, commodity chemicals, refrigerants, polymers, paints, pigments, electronics and communication technologies. © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 10. Executive S&OP Maturity Levels and Key Solution Criterion Page 10 DuPont has over 95 + supply chains with around 300 different product families. It has a very complex supply chain structure with a large number of SKUs. There is a need to rationalize the number of SKUs to avoid storing excess inventory of low volume, slow moving SKUs. DuPont has had a significant focus on S&OP over the course of several years with some business units making significant progress. However they have realized that the S&OP process was unsustainable due to a lack of organization, data, knowledge management and technology capabilities. DuPont had worked with a leading S&OP process consulting provider to institute a strong process but faced many challenges institutionalizing it. The fact that DuPont is in the process manufacturing industry brings about unique challenges as well. They have to deal with multiple stages in global supply chain, with a lack of coordination and synchronization across their end to end supply chain. They have to deal with higher working capital and poor customer service. So what are the corrective actions that DuPont is taking? From a knowledge management standpoint, DuPont is focusing on creating a Business Process Management (BPM) repository. In other words, DuPont is documenting their S&OP processes in a single central repository and they are instituting a core set of people who can keep this going, manage, and train the people in the execution of the S&OP process. There will be a central core group of people who will manage this repository. BPM is being used to highlight the connectivity and integrated nature of the supply chain. From a data standpoint, it was realized that there needs to be a reconciliation of data. For example, multiple regions are using different terminology when it comes to products, customers or services. This causes challenges in creating a corporate dashboard where aggregation of data is critical. There is also no standardized relationship defined between various hierarchies across divisions, which make it difficult to perform ad-hoc business intelligence reporting. From an organizational perspective, the General Managers of the business units are the owners of the S&OP process but they also have a centralized supply chain competency center. Finally from a technology standpoint, DuPont realizes that their existing S&OP technology is inadequate to scale and will evaluate S&OP application integrated with financial scenario planning for their corporate roll out. Case Study: Apparel Industry illustrates S&OP Phase I & II - Consensus Demand Forecasting and Collaboration Under Armour Gets to a Single Number Forecast to Drive S&OP Demand Review Under Armour Inc. is a developer of branded performance apparel, footwear, and accessories. Founded in 1996, they have been enjoying a © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 11. Executive S&OP Maturity Levels and Key Solution Criterion Page 11 meteoric growth to around $850 Million in 2010. They have achieved tremendous brand loyalty among consumers who range from young people to professional athletes. Rapid growth brings with it huge challenges in terms of supply chain. Under Armour had to deal with rapidly increasing number of SKUs with very short product lifecycles in a highly fashion centric environment. They did not really have a consensus forecasting process even though there was feedback from sales, finance, merchandizing, etc. They decided to implement a demand management solution from SAP to create a collaborative, one number consensus forecast. But the process was instituted first before launching the implementation. Sales planners, demand planners and merchandize planners all were included in the process definition stage and had accountability in process design. Once the process was designed, the implementation was done of the SAP Demand and Supply planning solutions. An important part of this implementation was that not only was a consensus demand planning solution implemented, there was also a business intelligence solution instituted. This allowed Under Armour to perform exception management with alerts and provide the ability to visualize the data and prepare reports. Under Armour also sends the results of the consensus demand plan to the financial plan which is managed by the BPC solution also provided by SAP. These have resulted in both qualitative as well as quantitative benefits. Under Armour has reduced inventory by around 20% and improved forecast accuracy by 10%. They have reduced data collection activities by 2/3 of what they used to do previously. This has resulted in better visibility of customer demand and an improved ability to execute. Now Under Armour is looking to improve other aspects of their S&OP process and acknowledge that process improvement is a continuous initiative and they have only scratched the surface. Case Study: Apparel Industry Illustrates S&OP Maturity Phase 3 - Integrated Business Planning ASICS Creates Cash Flow Statement from Sales Plan and Cost Data ASICS is a leading designer and manufacturer of running shoes as well as other athletic footwear, apparel and accessories. ASICS is headquartered in Japan and ASICS America is headquartered in Irvine CA. ASICS America has around 300 employees with 2009 net sales of around $567 Million. ASICS identified that their existing financial planning process had several gaps – it was driven by static cost drivers, it had an inflexible planning period and had no real-time adhoc reporting. Overall the planning cycle times were long and had no collaborative component. ASCIS decided to do a process reengineering effort wherein they would integrate the sales and financial planning to streamline the process. This way © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 12. Executive S&OP Maturity Levels and Key Solution Criterion Page 12 both the top down management budgeting element as well as the bottom up sales element were incorporated. In order to implement this process with respect to technology, the SAP Business Planning and Consolidation module was utilized. The inputs from the sales planning in terms of projected forecasts as well as the cost budgeting is converted to a cash flow statement. This is an example of a company that is trying to bridge the S&OP to the financial planning process. By doing this, ASICS was able to reduce the planning cycle time by more than 50%. Recommended Actions • Create the ability to perform detailed scenario management, simulation and optimization. Only 23% of Best- in-Class companies indicate that they have a strong ability to create upside opportunity assessment scenarios to analyze an S&OP plan. Ideally, the optimization and what-ifs should include the ability to set financials as the objective function and to toggle back and forth across different metrics as the objective function for proper analysis. The ability to support decisions on product line, price policy, capital expenditures, financial policy, network design, open/close, supply chain policy, etc. are also part of the S&OP scenario management framework. Without optimization, scenarios cannot be compared on an apples to apples basis. Optimization does this by making sure each scenario represents “the best the company can do” under the specific sets of assumptions. For example, different scenarios might require different production allocation, different use of raw materials, etc. • Create the ability to do root cause analysis. Only 25% of Best-in-Class companies indicate that they have a strong ability to identify the cause of an S&OP metric being off-target. Significant time is wasted in organizations in diagnosing the “why” even though the “what” is known. This is an area where even Best-in-Class companies struggle. Persona based supply chain analytics solutions should be leveraged to create detailed business process playbooks that are industry specific to support this requirement. • Become adept at providing high-level reporting designed for executive management. Only 22% of Industry Average companies are able to generate high-level reporting as compared to 54% of Best-in-Class companies. Given the large number of stakeholders involved in the S&OP process, companies must have a systematic way of identifying accountability and resolution/escalation mechanisms. For more information on this or other research topics, please visit www.aberdeen.com. © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 13. Executive S&OP Maturity Levels and Key Solution Criterion Page 13 Related Research Supply Chain Intelligence: Adopt Role- Integrated Demand-Supply Networks: Five Based Operational Business Intelligence Steps to Gaining Visibility and Control; and Improve Visibility; Feb 2010 March 2009 Sales and Operations Planning: Strategies Multi-enterprise Manufacturing: The Role for Managing Complexity within Global of Visibility and Collaboration in Driving Supply Chains; July 2010 Responsiveness; July 2009 Author: Nari Viswanathan, Vice President / Principal Analyst, Supply Chain Management (nari.viswanathan@aberdeen.com) For more than two decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen’s research provides insight and analysis to the Harte-Hanks community of local, regional, national and international marketing executives. Combined, we help our customers leverage the power of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. (2011a) © 2011 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897