Whitepaper

Sales & Operations Planning in the Manufacturing Industry: A Current Perspective

Findings from the 2011 Sales and Operations Planning Practices Survey September 2011

Table of Contents:
Survey Methodology........................................................................................ 2 Key Findings ........................................................................................................ 2 Results Interpretation....................................................................................... 3 JDAs Perspective .............................................................................................14 Conclusion .........................................................................................................15

Survey Methodology
Over the first half of 2011, JDA created and delivered a Sales & Operations Planning (S&OP) Practices Survey with the goal of understanding company usage, processes, tools and approach. In addition, JDA sought to understand current S&OP challenges and perceptions about the process. The survey was distributed in printed form May 1-4, 2011 at FOCUS, JDAs annual customer conference, and via an email initiative that directed respondents to an on-line survey. Respondents would receive a copy of completed results and were entered in a drawing for a prize. A total of 47 North America responses (some anonymous) were obtained, tabulated and analyzed. They consisted of executives in supply chain, finance, marketing, new product development, logistics and operations. Industry segments included discrete manufacturing (high-tech, semiconductor, auto, industrial, metals, diversified manufacturing, aerospace and defense) and process manufacturing (chemical, consumer packaged goods, pharmaceuticals, food and beverage). For additional information about survey methodology, please contact Dan Rouse at dan.rouse@jda.com.

Key Findings
Profitable growth and customer satisfaction are the top metrics driving company behavior. Senior executives are leading supply chains, even as companies are centralizing some or all supply chain functions. Demand and supply variability continue to be the top two supply chain deterrents. S&OP adoption is on the rise across manufacturing companies, with 35 percent reporting formal S&OP processes in place for more than five years. Monthly S&OP cycles that comprehend a large portion of business operations are becoming the norm across manufacturing companies. While spreadsheets continue to be used widely, a significant number of companies (35 percent) are using focused technology ranging from data warehouses to S&OPspecific tools to support their S&OP process. Forty-three percent of the companies report that their S&OP process is operating satisfactorily. Others identify the need for specific improvements. The primary challenges identified with executing S&OP are not organizational in nature. Instead, they are related to technology: what-if analyses, data aggregation and analysis across multiple plans. Key functional requirements identified for effective S&OP focus on demand visibility, functional alignment, scenario analyses and reporting. Companies with mature S&OP processes have better business performance. The difference is most striking on forecast accuracy and functional team alignment metrics.

Results Interpretation
Survey Participants
A total of 46 companies, representing a wide set of manufacturing industries took part in the 2011 Sales and Operations Planning Practices Survey. A vast majority of these companies (89 percent) were headquartered in North America; the remainder in EMEA and Japan. Participants represented a good cross section of small, medium and large companies. As shown in Figures 1 and 2, approximately 40 percent of participating companies represented large corporations with annual revenues in excess of US$10B and number of employees in excess of 20,000 across the globe. A little more than one third represented mid-size companies between US$1B-$5B in annual revenues. About one fifth represented companies that had less than US$1B in annual revenues. Forty-three percent of participating companies had less than 5,000 employees. Figure 1: Size of Companies (Revenues)
Size of Company (Revenues) $10B+
18

$5B-$10B 1 %20 20
18

$1B-$5B

17

$500M-$1B

<$500MM 0

10

15

Figure 2: Number of Employees

Number of Employees 20000+

10000-20000

5000-10000

1000-5000

15

<1000 0

10

15

20

%20

Enabling Profitable Growth and Customer Satisfaction

Close to 60 percent of all respondents indicated that the primary metric driving the company was related to profitability and EBITDA goals (see Figure 3). About one fifth indicated that revenue was the primary driver. Clearly, improving financial performance and enabling profitable growth is the top priority for the large majority of companies. Figure 3: Top Metric Driving the Company
Top Metric Driving the Company? Profitability Revenue Inventory Turns 1 Customer Satisfaction (On Time Delivery, Cost & Schedule, etc.) EBITDA Return on Assets 0
4 5
9 16

11

10

15

20

Following financial performance, superior operational performance, measured through high customer satisfaction levels was the next most important priority for most respondents (see Figure 4).

Figure 4: Second Level Metric Driving the Company

2nd-Level Metric Driving the Company? Profitability Revenue Inventory Turns Customer Satisfaction (On Time Delivery, Cost & Schedule, etc.) EBITDA Return on Assets 0 5
3
4 12

15

12

10

10

15

20

Companies face trade-offs between financially sound and operationally effective decisions and need to enable the right balance between the two.

%20

%20

The Growing Importance of Supply Chains

Thirty seven percent of participating companies had a senior vice president or higher level executive leading its supply chain function. Another 50 percent had vice presidents in charge of the supply chain, leaving less than 15 percent of the companies that did not have a single leader accountable for supply chain operations. (See Figure 5). Figure 5: Supply Chain Leadership
Who Leads Supply Chain Within Your Company? No single leader, managed at divisional level

SVP level executive Chief supply chain officer (or equivalent C-level executive, COO for example) 0 5

10

7
10 15 20 25

Organizationally, as shown in Figure 6, approximately three out of four companies had centralized some or all of its supply chain functions.

Figure 6: Supply Chain Organization Structure

What Best Describes the Supply Chain Organization Within Your Company? Horizontal functions centralized (logistics, purchasing, etc.) with business unit functions for supply chain

16

Supply chain functions are decentralized with each business unit responsible for supply chain management

12

All supply chain functions are centralized

18

10

15

20

The role of supply chains continues to grow in prominence with appropriate organizational support. Centralization of supply chain functions paves the way for a common, companywide sales and operations planning process that drives cross-functional alignment across the board.

%20

%20

VP level executive

23

Variability Continues to Cause Supply Chain Disruptions

Variability in the supply chain was identified as the primary disruptor of well-laid plans. As shown in Figure 7 below, 63 percent of the respondents indicated that market or demand pattern changes caused key disruptions. More than half the participants pointed to changes in customer orders and forecasts. Almost three out of four respondents pointed to supply-side issues or shortages as the primary reason for supply chain disruptions. Figure 7: The Key Disruptors
Key Disruptors: What Events or Changes Typically Undermine Well-Laid Plans?
Surprise events/disasters Supply issues/shortages Plan drift (plant/plan deviations) Product or engineering changes Customer or forecasted order changes Competitor actions Market/demand pattern changes 11 29 6 9 24 13 34

10

15

20

25

30

35

In some ways, these results echo the top two performance challenges reported later. Reliable visibility into the most recent demand, and cross-functional team alignment around that demand, is necessary to prevent disruptions. Companies need the ability to capture and comprehend demand and supply variability as quickly as possible, and then assess the end-to-end impact of those changes rapidly.

S&OP Adoption is On the Rise

Awareness about S&OP has been growing across manufacturing companies, as shown in Figure 8 below. Less than 5 percent of the participants were not sure about their interest in S&OP as a business process. Most believed that S&OP would be beneficial for their departments and the company. Demonstrating their proximity and understanding of S&OP further, more than 60 percent of the respondents saw the need for improving the S&OP process at their company and indicated that they would be able to influence or drive such process improvements within their company.

%20

Figure 8: Interest in S&OP

Your Interest in S&OP? Not sure I would like to learn more. 2 I believe it would be beneficial for the company I believe it would be beneficial to my role/department I would be able to influence S&OP process improvement I would be able to drive S&OP process improvement 0 5 10 15
6

16

20

20

20

25

A large majority of manufacturing companies participating in the survey were well aware of the role of S&OP. Along with increasing awareness, there is also an increasing realization that the S&OP process needs improvement for it to be more effective. Reflecting an increasing adoption of S&OP processes, less than one-fifth of participating companies did not have formal S&OP process guiding the companys actions (see Figure 9). In fact, 35 percent of participating companies have had formal S&OP processes in place for more than five years. An equal number, 35 percent, have had it in place for two-to-five years, while another 13 percent have just instituted a formal S&OP process over the past year. Figure 9: S&OP Process Maturity
How Long Has Your Company Had A Formal S&OP Process?

> 5 years

16

We have a new process in place over the past year

We do not have a formal S&OP process 0 5

8
10 15 20

An increasing number of manufacturing companies appear to be concluding that a formal S&OP process is necessary to keep their company on track relative to its financial and operational goals.

%20

> 2 years

16

%20

The Move to Faster S&OP Cycles

An overwhelming majority of companies with an S&OP process have moved to a monthly S&OP cycle (see Figure 10). This is different from a few years ago, when S&OP processes operated in quarterly cycles, in alignment with a companys financial quarters. The pace of change has driven the need for more frequent alignment between different functions. Figure 10: S&OP Frequency
Current S&OP Process Scope & Frequency? No existing S&OP 1

Monthly

36

Quarterly 1 Once or twice a year, 1 looking a few years ahead

7

We do not have a formal S&OP process 0

10

20

30

40

The cross-functional process discipline required to complete end-to-end S&OP cycles within a month appears to be falling in place at many manufacturing companies. In conjunction, the scope of operations covered by S&OP is another topic of interest. As shown in Figure 11, 39 percent of all participating companies indicated that the scope of their S&OP process was fairly comprehensive and that it included more than three-quarters of their overall business operations. Another 33 percent of the companies indicated that between half to three-quarters of their business was covered by its S&OP process. Figure 11: S&OP Business Scope
Current S&OP Process Addresses What % of Business Scope? Just a pilot, really
4

< 25%

25 50%

50 75%

15

>75% 0 5 10 15

18

20

S&OP processes have been evolving and are now touching a large percentage of business operations at many companies. Again, this reiterates companies increasing need for improved cross-functional alignment across the board and different business units.
8

%20

%20

Emerging Role of Technology

Spreadsheet-based technology remains prominent across 59 percent of the participating companies. However, an increasing number of companies have started depending on more specialized technology (see Figure 12) to add speed and reliability to their end-toend S&OP process. Approximately 35 percent of the companies are now leveraging an S&OP-specific tool, or capabilities from their SCM and ERP systems, to drive the companys S&OP process. Figure 12: S&OP Process Methods
Current S&OP Process Methods: No existing S&OP Mostly manual 2 %20 30 Mostly spreadsheet based Mostly data warehouse based Leveraged capabilities from SCM or ERP S&OP-specific tool or system 0 5
8
27 6

10

15

20

25

Spreadsheets, it appears, are proving to be inadequate to cover S&OP needs across many manufacturing companies. Later sections in this report highlight functional capabilities sought by most companies to better support their S&OP process.

Efficacy of Current S&OP Processes

Effective S&OP planning requires concerted and consistent effort, as it involves participants from across multiple functions. Not surprisingly, 35 percent of participating companies reported that their S&OP processes need improvement; another 9 percent indicated that their S&OP processes were dysfunctional at this time. However, 43 percent of all participating companies reported that their S&OP processes were satisfactory or good. See Figure 13 below. Figure 13: Current State of S&OP Process
Current S&OP Process Is: No existing S&OP
6

Dysfunctional

Needs improvement

16

OK

10

Good 0 5

10

10

15

20

Recognizing the need for improved financial and operational alignment, it appears that companies are gradually gaining the ability to overcome the initial challenges associated with instituting an S&OP process. In some ways, many have been able to cross the chasm, and others have at least been able to recognize the need for specific improvements.

10

%20

Growing Need for Technology-Based Enablers

Survey participants were asked to provide feedback on key challenges associated with executing S&OP at their company, using a sliding scale shown in Figure 14. Surprisingly, none of the participating companies identified data availability or data accuracy as extremely challenging. This suggests that data management efforts over the years have started to show positive results. The most significant challenge identified across the board was the lack of suitable tools to conduct what-if analyses. The next two most significant challenges were related to technology as well: the lack of tools to see aggregated information, and the inability to link multiple plans. Figure 14: Key Challenges with Executing S&OP

What are the key challenges with executing S&OP at your company? Not Challenging 2 3 4 5 6 Extremely challenging

50 6 0 9 30 9 8 8 0 7 10 6 12 3
Data accuracy

40

3 3 10

4 8 14 17 8

4 6 8 6

3 8 9 9

9 8 8 6 1
Inability to link plans

20

5 6 9
Lack of suitable aggregation tools

6 3 3 6 3 3 2
Lack of suitable what-if tools

6 10 13 3
Lack of sponsorship, organizational alignment

10

13 1
Data availability

6 1
Inability to implement changes to plan quickly

Interestingly, the primary challenges identified with executing S&OP were not organizational in nature. Instead, they were related to technology. Spreadsheets, while commonly used to support S&OP processes across many companies, are unable to provide the necessary support for what-if analyses, data aggregation and analysis across multiple plans.

11

Functional Requirements for Effective S&OP

Survey participants also provided feedback on key functional requirements for effective S&OP. Providing visibility into demand was identified as the most important functional requirement across most companies (see Figure 15). Facilitating process coordination across different teams, creating useful reports and dashboards along with enabling scenario management capabilities were identified among the next most important requirements. Figure 15: Key Functional Requirements

What are the key functional requirements for effective S&OP? Not Important 6 5 4 3 2 Very Important

50 5 40 17 19 30 10 12 10 20 21 14 10 0 7 1
Demand visibility

3 15

5 11 16 14

16

16 13 12 4 5 3 1 12 6 2 2 2 2 2 2 3 1 6 3 1
Risk analysis

20 17

12 7 4 3 2 2 3
Demand to forecast or backing correlation

17 5 11 1 1
Reporting & Dashboard

6 4 2
WIP or finished goods inventory visibility

6 12
Vendor supply availability /capacity

6 3 2

Process/ High-level/ Rough-cut Scenario rough-cut management Team build capacity planning (to (what-if coordination planning determine evaluations/ (feasibility/ volumes/ compare) impact) dates)

Participating companies indicated that the efficacy of S&OP processes is dependent on clear demand visibility and a well-coordinated process that enables scenario analysis together with an intuitive reporting framework. Any successful S&OP process design or supporting technology needs to enable these critical functional requirements.

12

Overall Company Performance

Companies participating in this survey were asked to rate their performance on a sliding scale across a variety of performance metrics. Their feedback, shown in Figure 16 below, indicates that demand variability and cross-functional alignment constitute the top performance challenges for most companies. Reflecting challenges associated with demand visibility, only 17 percent of companies that participated in the survey ranked themselves performing reasonably well on forecast accuracy metrics. Gaining effective cross-functional team alignment was an equally common challenge, with only 15 percent of the companies able to do that reasonably well. Given unpredictable demand and difficulties with cross-functional alignment, a majority of companies also reported challenges performing against stated plans and maintaining inventory at target levels. Figure 16. Company Performance Metrics

How well does your company perform against the following metrics? Poor 2 3 4 5 6 Well

50 2 40

2 6

12 16 14 16

2
15

1 12

16 22 20

30

20 14 11 10 5 3
Forcast accuracy

15 13

13 9

8 6
Inventory performance

8 1
On-time delivery performance

10 1 2
Increased revenue

10 6 2
Performance to plan

1
Functional team alignment

Capacity management (or utilization)

As challenging as it may be, a renewed focus on comprehending future demand is essential for companies that are striving for profitable growth and customer satisfaction. Enabling effective and rapid cross-functional team alignment through revised business processes and technology is the key to improving visibility into demand, forecast accuracy and overall performance against stated plans.

13

JDAs Perspective
Companies With Mature S&OP Processes Have Better Business Performance
Does effective S&OP help make a difference to a companys business performance? Examining the correlation between a companys S&OP maturity (Figure 9) and its business performance (Figure 16), it appears that companies with mature S&OP processes tend to have better business results. For purposes of this analysis, scores of five or greater on the sliding performance scale were considered high scores. Also, for purposes of this analysis, companies with more than five years of formal S&OP experience were ranked high on S&OP maturity. Of the 46 participating companies in this survey, there were 16 companies with high S&OP maturity (see Figure 9). Here are the results of that analysis: Of the companies with high S&OP maturity, 63 percent reported a high score on forecast accuracy. By comparison, only 45 percent of the companies with low S&OP maturity reported high scores on forecast accuracy. Of the companies with high S&OP maturity, 69 percent reported a high score on inventory performance. By comparison, 61 percent of the companies with low S&OP maturity reported high scores on inventory performance. Of the companies with high S&OP maturity, 81 percent reported a high score on ontime delivery performance. On this metric, 81 percent of the companies with low S&OP maturity reported high scores as well. Of the companies with high S&OP maturity, 69 percent reported a high score on capacity management. By comparison, 68 percent of the companies with low S&OP maturity reported high scores on capacity management. Of the companies with high S&OP maturity, 75 percent reported a high score on increased revenues. By comparison, 71 percent of the companies with low S&OP maturity reported high scores on increased revenues. Of the companies with high S&OP maturity, 75 percent reported a high score on performance-to-plan. By comparison, 68 percent of the companies with low S&OP maturity reported high scores on performance-to-plan. Of the companies with high S&OP maturity, 75 percent reported a high score on functional team alignment. By comparison, 58 percent of the companies with low S&OP maturity reported high scores on functional team alignment.

Across almost every performance metric, companies with more mature S&OP processes fared better. The difference is most striking on forecast accuracy and functional team alignment metrics.

14

Conclusion
S&OP is certainly not a new concept and has been around for decades. However, the volatility in todays business environment is prompting more and more companies to explore business processes that enable alignment between financial and operational goals. At this point in 2011, survey results suggest that manufacturing companies investments in nurturing S&OP processes appear to be yielding tangible fruit. Understanding current challenges these companies are attempting to overcome, technology enablers should continue to pave the way for more effective functional alignment that delivers profitable growth and customer satisfaction.

About JDA Software Group, Inc.

JDA Software Group, Inc. (NASDAQ: JDAS), The Supply Chain Company, is a leading provider of innovative supply chain management, merchandising and pricing excellence solutions. JDA empowers more than 6,000 companies of all sizes to make optimal decisions that improve profitability and achieve real results in the discrete and process manufacturing, wholesale distribution, transportation, retail and services industries. With an integrated solutions offering that spans the entire supply chain from materials to the consumer, JDA leverages the powerful heritage and knowledge capital of acquired market leaders including i2 Technologies, Manugistics, E3, Intactix and Arthur. JDAs multiple service options, delivered via the JDA Private Cloud, provide customers with flexible configurations, rapid time-to-value, lower total cost of ownership and 24/7 functional and technical support and expertise.

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09.22.11