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MHD Supply Chain Solutions November/December 2015

THE RISE OF ROBOTS

LORD OF THE RINGS …and the supply chain

AT YOUR SERVICEIBP in retail, medical and scientific organisations

How robots boost warehouse performance

INDUSTRIAL PROPERTY AND WAREHOUSE OPTIMISATIONSPECIAL FEATURE

NOVEMBER / DECEMBER 2015

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MHD Supply Chain Solutions November/December 2015

Introduction Integrated Business Planning (IBP) is the management process of choice for many suc-cessful organisations all over the world. IBP is the modern evolution of Sales and Operations Planning (S&OP), and with its roots in produc-tion planning from the 1970s, it has naturally proved popular with discrete manufacturing organisations. Increasingly, however, it is being adopted by organisations in process manufac-turing, retail, and service, as they observe its success in manufacturing-based environments.

The benefits of Sales and Operations Planning, and its evolved, more sophisticated form, Integrated Business Planning, have long been demonstrated, but there are two somewhat contradictory observations emerging: 1. A number of more ‘traditional’ manufacturing

and distribution based organisations are strug-gling to successfully deploy S&OP and IBP.

2. There is a growing number of avant-garde deployments in non-manufacturing environments. These non-manufacturing organisations are

in a fortunate position: they can learn from the experience of their peers in the manufacturing sector, and avoid the pitfalls many have encoun-tered in implementing their IBP process, thus reducing the time to benefit.

In turn, manufacturing companies can look to the implementations in non-manufacturing industries for lessons in taking the IBP process to the next step, and sustaining improvement to business processes.

Understanding current S&OP/IBP practises A recent study of S&OP/IBP practises by CSCO Insights (2013) surveyed more than 400 organ-isations, including many well-known companies such as J&J, Canon, Mars, Philips, Pfizer and GlaxoSmithKline, revealing some surprising results in regards to current practices of S&OP/IBP. It showed that the majority of companies surveyed still have a relatively immature S&OP process, and only a small percentage of companies have fully embraced S&OP. Although 75 per cent said they had established a regular S&OP cycle, a worrying 75 per cent of these reported that their S&OP process was not led by a senior executive.

Only 13 per cent said they had an actionable culture, and less than 20 per cent have budgets connected with their S&OP plans. This means on both counts, there are decisions being made, and plans being developed, that are happening outside the process.

The research goes on to show that less than 10 per cent are doing a significant amount of scenario planning, and that less than 17 per cent have a strategic orientation.

The Oliver Wight Integrated Business Planning Survey 2015 revealed that, worryingly, only 12 per cent of firms in the Asia Pacific region who participated are planning up to a year in advance, and the majority (58 per cent) are either predominantly looking back, or planning only up to three months ahead.

However, research reveals that there is a clear evolution from S&OP to IBP. Companies that are approaching an integrated business planning process are routinely using their IBP plans and numbers as the first cut of the budget-planning process each year, significantly reducing the amount of work required. With plans going out 24 months, they spend considerable time on the next financial year before committing to it. When it comes to budget time, the first cut is just the numbers and plans that are already there within the process. We can safely say that a robust S&OP/ IBP environment (and culture), makes budget planning a ‘significant non-event’.

Companies that have just embarked upon an S&OP/IBP journey will enjoy some gain.

Those who focus on turning it into their sole strategically-aligned, decision-making process stand to gain tremendously. Unfortunately, some businesses do not succeed in continuing and building upon the initial successes of imple-menting IBP.

So, why do so many companies fail to realise the promise? Unfortunately, S&OP has been pigeonholed well below the benefits that some companies are achieving with IBP. Following are a few statements that are not true, but we often hear. They are: • It is just about supply chain.• It is short-term demand-supply-inventory

balancing. • There is no way I am going to trust numbers

coming out of S&OP – they bounce all over the place.

• It is a junior- and middle-management thing – I have better things to do with my time.

• It hasn’t worked before, why should I put any more effort in now?

• You don’t understand my business … it is dif-ferent … those concepts won’t apply here.

The evolution from S&OP to IBP Sales & Operations Planning was developed in the 1980s, emerging from the need to balance demand and supply. Later, resultant inventory was included, and the ‘heartbeat’ of all man-ufacturing organisations was formed. With the benefits of technology, sales, supply and inven-tory could be projected as far into the future as

IBP: AT YOUR SERVICE ROD HOZACK AND STUART HARMAN

INTEGRATED BUSINESS PLANNING LESSONS FROM RETAIL, MEDICAL AND SCIENTIFIC ORGANISATIONS.

Figure 1. The evolution of S&OP.

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the horizon of the demand plan, which meant the interplay could be seen far enough out to resolve issues before they became today’s problems.

A natural inclusion in the 90s was product portfolio development and management, which was previously often managed in secret. Eventually, projections were extended, giving a profit picture for 24, or even 36 months, into the future. This could then be aligned with the stra-tegic horizon to identify emerging gaps earlier than was ever possible before.

Businesses were now able to ask themselves: “We know the future is uncertain, so what are the possible scenarios that could arise to limit our ability to meet our strategic goals? What do we need to do now to guard against it, or capi-talise on it?”

This type of conversation is what sets Integrated Business Planning (IBP) apart from S&OP.

Finally, in the last 10-15 years, the process has evolved to include supply chain collab-oration, integrating the integrated business planning processes up and down the value chain and optimising not just one node of the supply chain, but several.

With the demonstrable benefits, it is under-standable why S&OP and IBP deployments are starting to spring up in non-manufacturing organisations. The current state of adoption in these ‘non-traditional’ environments is such that it can provide valuable insights into successful IBP implementations in general.

Non-manufacturing deploymentsNon-manufacturing deployments are not shackled with the paradigms of traditional man-ufacturing and distribution environments. They are looking at the process in a very different way, i.e. as a company framework to surface and solve problems and continually re-optimise plans as circumstances change.

Oliver Wight has been working with a number of non-manufacturing industries and com-panies, including medical services, nuclear medicine and research, military units, the police, and education.

Following are three case studies of non-man-ufacturing deployments and the uncovering of possible common threads.

Retail modelRetail is perhaps the closest to a manufactur-ing-style environment, because it is still managing physical goods. Retail companies, however, are typically not focused on manufacturing, or at best have manufacturing alliances at arm’s length.

Issues that retail companies are trying to resolve require a different perspective and set of paradigms. Some of those are: • Rapid and unpredictable changes in fashions

and consumer preferences.• Online trading and replenishment.• Huge volumes of often bulky merchandise

to manage.• Logistics management for cost-effective and

timely replenishment.• Global and local competition.• Maintaining the excitement and shopping

experience of both the physical AND online shopping environments.While the names might have changed, the

process is ostensibly the same. The merchan-dising director/VP would head up product management review, and by definition this is designed around managing the greatest areas of uncertainty, but also the greatest area of poten-tial reward through the rejuvenation of brands, categories, products, and merchandise.

The demand review, which manages the ongoing product ranges and shopping experi-ences, is still evolving in retail. It may be headed up by the replenishment director, but also stores operations or merchandising directors, as the key demand-generation functions. They would also be responsible for the point-of-sales fore-casting and demand assumption management.

The process then reverts to a more tradition-al approach, in that the supply chain director takes ownership, and the lead role in supply review, with the key output being able to cost-ef-fectively deliver the demand and new product/range plans; the CFO, or IBP process leader, leads the reconciliation review, and hence profit projections coming out of the preceding steps; and the CEO heads up the management business review, where it all comes together and decisions are made.

So, what are the key problems a retail IBP process is trying to solve? In its simplest form, it is trying to manage uncertainty caused by the complexity of having such a broad range of items and retail outlets. When one retail demand

manager asked: “We have 750,000 items, how can IBP manage that?”, the answer was that the IBP process was designed to simplify complex environments enough to facilitate good decision making: it is all about having people who know how to apply the right techniques.

Medical services modelMedical services are centred on people – both from a patient-care perspective, and the care-giver perspective. This introduces challeng-es, which can sometimes be difficult to under-stand and manage.

In the medical services model, the issues that need to be addressed are: • The recruitment and retention of doctors –

they tend to be ‘lone wolves’ and are prone to leaving without much notice.

• A complex multi-tiered pricing and payment structure makes it difficult to model profit projections.

• Generating demand, which can be generat-ed through a limited range of activities, and is tightly constrained by the availability of suitably qualified doctors and allied health-care roles.

• Unique equipment lists per doctor.• Unique treatment and surgical approaches

per doctor.• High level of skill and credentials required

for most other allied medical fields and staff members.

• Out-of-hours care and staffing.The process starts early in the month with

the clinician review, and this is where the most uncertainty lies, but also where the most reward comes from, with the acquisition of new clinicians. While the focus is on attracting new doctors, an important what-if question is also asked every month: “What if a doctor leaves, what are the contingencies?” In many ways it is akin to a portfolio review.

Figure 2. An example retail model.

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The demand review is about maintaining the clinician base and re-optimising activity plans. The outputs are a revised activity plan to ensure continued patient acquisition, as well as gener-ating forecasts by doctor, by site, and by type of procedure, for the next 24 months.

The traditional supply review is replaced with resource reviews – in this case, nursing, admin-istration, scientific, and clinical – all based on the updated demand plan, with the focus on making sure the right staff profile is available at the right time, and in the right place both in the medium and long term.

Heads of department meet in the manage-ment business review, which is predominantly a revenue and cost review, after which the finan-cial projections are rolled up in preparation for the board meeting.

Scientific research modelProbably the most unusual of environ-ments to implement an integrated business planning process in recent years is a scientific research model.

Some of the different scenarios that this model has to deal with are: • Understanding and matching the required

balance of research capabilities to the strate-gic goals of the organisation, the research pri-orities of its key stakeholders and the funding opportunities available.

• Successfully generating cash to be able to fund the organisation through grants, collabo-rative arrangements with other scientific insti-tutions and partnerships with industry.

• Purchasing and maintaining scientific equip-ment and infrastructure.

• Identifying individuals with the right scientific qualifications and experience to conduct the research.

• Ensuring that quality and quantity of research

outcomes enhance the reputation of the organisation and its employees.

• Increasing the collaboration between the core research platforms to most effectively utilise the scientific assets of the organisation.However, the steps taken are actually not

too far removed from a traditional model;: they have a strategy, they develop new things, in this case new research areas and platforms (portfo-lio review), they need to generate and manage demand (marketing and funding review), and they need to cost-effectively supply people and equipment to meet that need (supply and resourcing review).

What are the common themes?Even in industries that, on the surface, seem dissimilar to a traditional manufacturing envi-ronment, there are common elements, and therefore lessons to be gleaned. The common themes in these examples are aligned with what we would expect to see in a more ‘traditional’ IBP environment:

• Strategy remains at the heart.• There is an acute awareness of where uncer-

tainty and complexity lie. • Perhaps most importantly, demand is

defined as what is important to each indi-vidual organisation, and supply is defined as what is needed to meet that demand cost-effectively.From this, we can establish a common set of

questions or themes that apply equally well in every industry and company. They are:• Where does the greatest reward-uncertainty

in continuing to grow the organisation sit? • Where is the 80:20 in on-going demand gen-

eration, and where is the greatest volatility? • What are the primary cost drivers in being

able to deliver that demand? • How can the financial projections best reflect

the above, and be kept visible in the process? • Is the current model flexible enough to

evolve, or indeed rapidly change, to meet changes in circumstance, as well as re-cali-brate and re-align back to strategy?It seems it does not matter whether a

company is making widgets or providing services, the value in deploying an IBP process is great. Folding these questions into your S&OP/IBP process is the key to taking your process to the next level of evolution and benefit realisation. When it comes to your current IBP process, are you asking the right questions to empower the process?

Implications for a manufacturing & distribution environmentManufacturing companies can learn a lot from these examples of successful non-manufac-turing IBP implementations, and turn previous weaknesses into strengths by re-examining their own IBP process, beginning with the very next cycle.

First and foremost, is strategy driving the process? Regardless of industry, this is key.

Figure 3. An example medical services model.

Figure 4. An example scientific research model.

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Strategy then drives getting the ‘new stuff’ in, and the clutter out through the management review.

Supply and demand management identifies and focuses on areas of inherent uncertainty and the 80:20 of, respectively, cost drivers and demand generation. Treating every SKU, channel, category, product facility, distribution hub, and customer the same, is a ‘no-no’. Defining and setting up the planning and exe-cution parameters around the 80:20 rule is the key to optimising current offerings until the ‘new stuff’ comes along.

Businesses in any industry report better results if management business reviews focus on looking forward at the 13 to 24-month horizon, to facilitate the delivery of strategy; but it’s also vital to ensure that everyone understands how to manage all levels, i.e. daily, weekly, monthly, and yearly planning and execution processes.

Sometimes it is good to look back to be able to look forward, which facilitates the continual challenge to prevailing paradigms. S&OP and IBP are constantly evolving, and so should your process. The benefits of benchmarking your progress against organisations in your own industry are well documented, but, by examin-ing IBP implementations outside the immediate

environment, it is clear that different industries can offer insights into what appears to be uni-versal business success criteria.

Rod Hozack of Oliver Wight Asia Pacific has a wealth of experience in industry and hands-on practice, leading many Class A and integrated business planning assignments. Stuart Harman has over 20 years experience working in major organisations around

the world. As well as helping boost their performance and productivity, Stuart has specialist expertise in strategy management, Integrated Business Planning, purchasing and Agile, Lean and Sigma. For more information contact Oliver Wight Asia/Pacific on +61 3 9596-5830, email information@oliverwight-ap.com, or visit www.oliverwight-ap.com.

Figure 5. An Integrated Business Planning model.

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