In his S&OP article, 'Globalisation Rethink?’ (The Manufacturer, April 2008), John Dwyer reflected on the history of S&OP since its advent in the 1980s and posed the question: “Why did Oliver Wight change the name of S&OP to integrated business management? Who better to ask than Oliver Wight themselves?
“I agree with John that to some extent, S&OP seems to have lost its way in recent years; changes in the economy, and the dynamics of the manufacturing supply chain, plus the actions and attitudes of manufacturers to those changes, have all had their part to play, but it is also true to say that some S&OP practitioners have contributed to the devaluation of S&OP as a management process,” says Oliver Wight partner, Liam Harrington (pictured).
“As John says, Oliver Wight have long been the champion of S&OP, and we were the originators of the process – and yes, Oliver Wight were also the first to coin the phase ‘integrated business management’, but three years on, it is a term in widespread use, not only by the Oliver Wight organisation.”
Although he agrees the degradation of the term S&OP, meant that a rebranding would do it no harm, Harrington explains that rather than just a name change for S&OP, integrated business management, is in fact an evolution of the process itself. “Integrated business management adds a strategic perspective to S&OP; rather than just the demand and supply balancing process S&OP was when it was introduced more than two decades ago, integrated business management runs the entire organisation, linking back to the business and financial plans of the company. Integrated business management can be, and in many cases, is the heartbeat of the organisation,” he says.
“In fact, a central pillar of any robust S&OP process is that it should help an organisation respond to change and to manage change: to abandon S&OP in the face of such change – as some manufactures undoubtedly have – suggests something is fundamentally amiss with the process itself or the company’s commitment to it.”
That is not the case for Manufacture Live award-winner, Smith and Nephew. Smith & Nephew employs over 8,500 people worldwide and generates annual revenues of $2.6 billion. The company’s Wound Management division embarked on an integrated business management programme to align its sales strategy with its operational capability and supply chain design. Headquartered in Hull, it supplies dressings, pharmaceutical products and electronic devices to 38,000 customers in 124 markets around the world.
Paul Adams, Smith and Nephew’s supply chain director: “It’s a classic problem in many big organisations; if the supply chain is poorly designed, there will be a negative impact on profit. If your business objective is to push top line revenue growth, you risk high costs and poor service – you release sales people into the market and you will probably get a whole set of new accounts all generating small orders which cost you more to fulfil than the revenue they generate, so the more you sell, the more you lose.”
Smith and Nephew changed its business model completely, introducing channel intermediaries to service small orders. They’ve seen a 20% increase in manufacturing capacity and added 3 margin points in net profit in one European market alone, whilst maintaining sales growth. Inventory has dropped and Smith & Nephew offices now supply fewer delivery locations with larger orders. Customer delivery time is also faster, with pan-European warehousing delivering to customers within 24 hours. “Forecast accuracy has risen from 60 percent to 80 percent for 70 percent of products and every day people look at better ways to serve our customers,” says Adams.
Harrington says that put simply, integrated business management ensures the business is working to one agenda: it has one set of priorities, which are then managed through one set of numbers, whilst driving the entire business towards its aspirations and strategic goals. It should be a ‘total business management’ process, which integrates the core processes of that business – demand, supply, product management, sales and marketing, and finance – so a picture can be developed over a rolling two-year horizon. No short-termism; no fire-fighting.
“It is often the case that the biggest fans of the process are sales and marketing because they see it driving the business to their agenda of value growth through product and service innovation and sales excellence,” he says.
In recent years, however, he believes that consulting organisations of varying credibility have offered so-called S&OP solutions, which fall well short of delivering on these principles. This Harrington says, has undermined the process and it has led to the situation where many view S&OP simply as a demand-supply balancing process – even pigeon-holing it incorrectly as a logistics or supply chain solution. “It isn’t the right focus,” he explains. “It will not reap the required benefits and it’s why the belief has formed in some quarters that S&OP has not lived up to expectations.”
Nonetheless, he points out that S&OP is still bringing dramatic benefits to major organisations around the world. Indeed, independent research by leading research and analyst firm Aberdeen Group shows that those companies that successfully implement S&OP– regardless of size or sector – will routinely outperform their competitors by a factor of 20% or more*. Meanwhile Gartner says S&OP is a corporate imperative and that 70 percent of companies will be forced to upgrade their S&OP processes by the end of the decade**.
At DSM NeoResins, being ‘best in class’ is not a matter choice but of survival. Headquartered in Waalwijk in the Netherlands, DSM NeoResins operates across five sites, including the USA, China and Spain. The €multi-million turnover company employs nearly 650 people, producing waterborne technologies, such as acrylic emulsions and polyurethane dispersions, for application in paints and coatings, printing inks, varnishes and adhesives. It depends heavily on new product introduction for its market-leading position and achieved Class A performance in 2006.
With origins in the US going back to the 1950s, the company first started work with Oliver Wight 14 years ago, when it was part of the ICI Group. Regular corporate changes over the years had played havoc with the long-term vision of the business and this had previously hampered the programme; two troublesome SAP implementations added further complication, but In 2005 NeoResins was acquired by Dutch chemicals giant DSM and with the new owner came a cultural and business synergy that provided a fresh impetus.
Caroline Moon, finance and supply chain director, says the benefits of the programme have been far-reaching: “We work to one set of numbers right across the globe with a 24-month rolling forecast by customer, product, segment and plant. We’ve eliminated three layers of process and saved five man-days a month on the paperwork for S&OP, and there are no more endless debates on the accuracy of the figures. The working-capital-to-sales ratio has reduced from more than 18% to less than 11%; we’ve seen a substantial increase in stock turns – confirming the optimal alignment of our processes – whilst increasing OTIF out to the customer.”
However, even as it was integrating with its new owners, NeoResins faced a sudden surge in demand, matched by an equally sudden shortfall in the availability of raw materials, causing its usual 95%-plus on-time-in-full (OTIF) performance to drop significantly in a matter of months; the company’s proud reputation for delivering orders on-request was under threat. The experience proved to be a clear demonstration of the importance of effective S&OP and incontrovertible evidence that it was truly embedded into the culture of the company: Senior business director, Sjaak Griffioen, says, “It was a difficult time; our customers helped us but Class A saved us because the willingness to put things right was already in place.” OTIF was restored to a sustainable 95%-plus inside a few months.
And there’s rare evidence of the retail sector learning from manufacturing’s experience for once – the retail division of energy supplier npower was recognised for the success of its integrated business management programme at the CIMA Financial Management Awards 2007.
Faced with dramatic changes in market dynamics and a new CEO, plus major company restructure and increasing shareholder demands, npower implemented integrated business Management to align its business and raise the bar on performance. Just six months into the programme, the company’s CEO, David Threlfall was already describing integrated business management as “the way we run our business.”
Integrated business management has been rolled out across the whole of npower Retail and Trevor Yeoman, business excellence programme leader, says integrated business management has turned the 8,500-employee company into “retail business with a single agenda”.
Integrated business management has broken down a silo mentality within the organisation and encouraged interaction, communication and co-operation between departments. This ensures end-to-end decision-making, which allows the business to be more proactive in its forward-planning and scenario-planning, and to move quickly in the dynamic utilities sector.
The final word goes to Liam Harrington. “Things never stay still; there is now an emerging ‘third-generation’ of S&OP,” he says. This latest evolution of S&OP, known as integrated business planning (IBP), incorporates integrated business management with corporate performance management (CPM) – a holistic approach to the measurement of performance of the organisation at the corporate level – and product performance management (PPM) – the monitoring of product performance in the market place. “These are not only business terms already in common use but real solutions, which organisations can deploy to outperform their industry peers.” But that’s a subject for another day.