Gartner S&OP Maturity

How the Definition of S&OP Has Evolved

Sometimes, organizations have understood S&OP to be purely a supply chain process instead of a key business process.

S&OP as a supply chain management (SCM) concept has been around for several decades. Interestingly, the original definition of S&OP in the 1980s included the notion of the alignment of strategic to operational plans, as well as the harmonization of these plans across disparate planning environments/departments. However, this vertical alignment rarely happened, because most S&OP process deployments grew out of operations/supply chains and never evolved to become the key business planning process in a company. The original S&OP concept was purely based on the process itself; there was no S&OP-specific technology involved beyond the prolific use of spreadsheets to present the various plans emanating out of manufacturing resource planning (MRP) systems.

Today, it is probably fair to say that “S&OP” has a rather vague definition, ranging from demand planning to integrated business planning. To help companies understand what S&OP means for them, Gartner uses its S&OP process maturity framework to define each maturity stage more specifically. A company can then plot its journey through the maturity stages, with the majority of companies aiming to move from Stage 2 to Stage 3 S&OP maturity: in other words, establishing a more business-oriented, integrated planning process that successfully connects longer-range planning with shorter-term operational planning and execution.

How S&OP Matures in Organizations

Gartner recognizes four stages of S&OP process maturity:

  • Stage 1 Process: Operational-Focused S&OP — Reacting
  • Stage 2 Process: Planning-Focused S&OP — Anticipating
  • Stage 3 Process: Profit-Focused S&OP — Collaborating
  • Stage 4 Process: Value-Driven S&OP — Orchestrating

(See “Technology’s Role in Supporting Different Levels of S&OP Process Maturity” for a full description of organizational practices at each of these four stages.)

 

How We Characterize Stage 3 S&OP

At Stage 3, S&OP is mainly an internal but businesswide process that aligns and reconciles the plans up, down and across all relevant functional groups throughout a business. Companies will also start to extend their S&OP processes by collaborating with some key customers and/or suppliers. The focus of Stage 3 S&OP encompasses operational, tactical and strategic plans across the supply chain with strong alignment to finance plans and budgets over an extended planning horizon.

Let’s discuss a few of the characteristics of Stage 3 S&OP:
  • Responsibilities: Although the supply chain organization typically orchestrates the S&OP process, the business (specifically the profit and loss [P&L] owner) sponsors and owns it. The business sees S&OP as the “way we do business,” where all key business decisions are evaluated and made.
  • Alignment: Operational and tactical planning alignment is strong because of the layered and tailored planning processes. A company will align these operational and tactical plans with the long-term corporate finance and strategic plan, and have strong reconciliation with the current financial budget or annual operating plan. The impact of plans and scenarios will be focused increasingly on resulting changes in profitability.
  • Output: A key output of the S&OP process is the current version of the budget/annual operating plan, as opposed to a comparison exercise between a separately prepared budget (typically annually) and an S&OP-derived aggregated plan (typically monthly). As a result, the organization can effectively review and revise all its plans monthly. Another key output is a clear understanding of the tactical and strategic options/initiatives that need to be executed to achieve the aligned corporate plan — which Gartner calls “value tradeoffs.”

Gartner is increasingly seeing companies that want to evolve to Stage 3 S&OP, and some that have achieved this level of maturity. Many companies have a form of S&OP (typically Stage 2), but are unhappy with its current capability, scope and performance. Gartner research shows that approximately 67% of companies have either a Stage 1 or Stage 2 S&OP process.

 

What Technology Organizations Need at Each Stage

The technology requirements change (and build on each other) as the S&OP process moves through the process maturity stages:

 

Stage 1

Typically, in Stage 1, tools such as ERP and Microsoft Excel dominate. Organizations perform operational planning in the ERP system. They may supplement this by deploying commercial planning tools and/or multiple Excel spreadsheets locally. They use Excel and Microsoft PowerPoint to present their plans at various S&OP review meetings.

 

Stage 2

The Stage 2 process will usually still rely on spreadsheets to support the S&OP process, displaying aggregated data out of ERP and/or other forecasting or supply chain planning (SCP) applications. Because organizations during Stage 2 require translation across multiple hierarchies and views of data and plans, they often use an integrated SCP application to enable the operational planning processes across a defined supply chain, which includes demand and supply planning. The integrated SCP platform typically feeds aggregate plans into the Excel-based S&OP process, via the inherent aggregation and reporting capabilities of the SCP solutions. Companies without integrated SCP platforms may use their business intelligence (BI) investments to consolidate data from numerous sources to facilitate the aggregation and reporting of plans. Companies having a Stage 2 S&OP process in place for awhile may start to look for more robust tools (other than Excel) to support their process management, simple “what-ifs,” and data management and presentation requirements.

 

Stage 3

In early Stage 3, organizations may still try to use the reporting capabilities of SCP applications, BI and/or spreadsheets to present the plans in the S&OP reviews. As the organization develops its Stage 3 process, it will outgrow this technology fairly quickly and require a more suitable S&OP solution that can support the company-specific S&OP process. (For a full description of the key functional capabilities of a Stage 3 S&OP solution see “Stage 3 S&OP Reference Architecture.”)

 

Stage 4

Few companies have reached this level of process maturity, and as yet there are no fully baked suite-based Stage 4 S&OP solutions available. However, a few vendors are developing capabilities toward this level or have solutions addressing elements of a Stage 4 S&OP process that can be integrated together. Stage 4 technology will likely build on Stage 3, adding much stronger strategic value chain and financial modeling capabilities, and the ability to extend the scope of the planning process fully to the extended value chain.

 

Key Technology Components for Stage 3 S&OP Solutions

“Stage 3 S&OP Reference Architecture” details the key functional/technology components of a Stage 3 S&OP solution. Here is a summary of these components:

  • Collaboration support: The      ability to support a multistakeholder process across a dispersed global      organization, with emerging support for external collaboration with key      customers and/or suppliers.
  • Assumption management: The      ability to capture and manage the underlying assumptions used to justify      input to plan changes and scenarios.
  • Hierarchy management: The      ability to translate base planning data into multiple views, aggregations,      units (operational and financial) and user-defined segmentations.
  • Supply chain modeling: The      capability to generate meaningful feasible scenarios, increasingly in the      area of examining changes to the future operating model of the business
  • Financial impact analysis: The      ability to twist scenarios into meaningful financial terms that can help      to determine the true profitability implications of the options under      consideration, with clear implications as to what can be achieved from an      execution perspective. ROI, net present value (NPV), impact on      profitability and cash flow are some examples.
  • Workflow management: The      ability to support the design, development, management, change and control      of the business process of S&OP.
  • Performance management: The      ability to report and view key performance indicators both vertically      through the supporting operational processes and, more importantly,      horizontally across the end-to-end supply chain to support value      trade-offs and root-cause analysis.
  • Scenario management: The      ability to socialize and version/control/manage the scenarios across the      relevant stakeholder community, as well as across different parts of the      supply chain and time horizons.
  • Integration: Connecting      operational planning, execution and financial planning capabilities —      ideally at the data and process model level — thus supporting a truly      active planning environment that enables decisions to propagate throughout      the planning hierarchy.

An integrated SCP environment will typically form the foundation for further S&OP process support technology. This integrated planning environment provides a planning system of record (see “Hype Cycle for Supply Chain Management, 2012”), creating and managing the underlying detailed operational planning data that the organization needs to utilize in the S&OP process. This planning system of record requirement starts to become evident at Stage 2 planning maturity, when organizations use it as the foundation for more-advanced S&OP functionality as they move into Stage 3 S&OP.

Without this foundational planning system of record, the maturing S&OP process tends to lose connectivity with the detailed operational planning and execution processes — a concern increasingly raised by practitioners. This is why companies tend to carefully evaluate the S&OP technology from their incumbent SCP providers first when looking to invest further in S&OP technology. If a company is evaluating SCP vendors for a deployment of an integrated SCP capability (which will become their planning system of record in effect), and S&OP is not on their radars today, it will likely be in the future. Therefore, companies should consider the strength of the SCP vendor’s S&OP capability for their future requirements. Failure to do could substantially weaken the potential integration between the S&OP planning layer and the operational planning layer, when the company eventually chooses to deploy Stage 3 S&OP and it ends up needing a third-party S&OP solution. This scenario will increase the risk of misalignment across the planning processes.