Development and Utilization of a Diagnostic Maturity Model for Sales and Operation Planning (S&OP) Advancement

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Faculty of Social Sciences and Business Studies Business School

Development and Utilization of a Diagnostic Maturity Model for Sales and Operation Planning (S&OP) Advancement

International Business and Sales Management Master’s thesis Narendra Lamichhane Student ID: 268281

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2 ABSTRACT

UNIVERSITY OF EASTERN FINLAND Faculty of Social Sciences and Business Studies Department of Business

International Business and Sales Management

Lamichhane, Narendra: Development and Utilization of a Diagnostic Maturity Model for Sales and Operation Planning (S&OP) Advancement, 2021

Instructor: Saara Julkunen

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The purpose of this master’s thesis study is construction and utilization of diagnostic S&OP maturity model that facilitates S&OP advancement. In the process, various previous literatures related to the subject were reviewed, and unique diagnostic S&OP maturity model in terms of S&OP success factors is constructed. Empirically, the assessment of S&OP maturity of three Finnish manufacturing companies is conducted. Later, through detecting the gaps pretending S&OP success and advancement, solutions are presented. Thus, this study examines the relationship of S&OP diagnosis with S&OP advancement.

Traditionally, S&OP has been utilized just for balancing demand and supply, merely, to assist the manufacturing at aggregate level. In current market-driven world, S&OP is more than just balancing demand and supply. (Grimson &

Pyke 2007). Further, modern S&OP practitioners have confirmed that BPI is the extension to S&OP (Palmatier &

Crum 2013). S&OP is based on a continuous improvement approach (Jayaraman et al. 2016; Reyman 2005), and it is impossible to improve something that cannot be measured (Kalpan,1990). The diagnostic S&OP maturity model in this thesis is constructed following the seven-steps constructive research process explained by Lukka (2003). In the process, numerous S&OP maturity models were reviewed prior restructuring diagnostic S&OP maturity model for this thesis study. Finally, as per research problem and objective, five S&OP success factors mentioned by Muzumdar

& Fontanella (2006) are merged with five dimensions of S&OP maturity stages defined by Grimson & Pyke’s (2007) to form the S&OP maturity model for this thesis study. Further, some criteria explained in Gartner (Barrett & Uskert 2010) and Lapide (2005b) models are also added to make this thesis’ S&OP diagnostic model more distinctive.

Research methodology selected for the empirical study is qualitative approach, and conducted research is interpretive in nature. Case study is applied as an analysis method. Data is collected through primary source and mainly through semi structured interviews. Research is conducted following the ethical guidelines. Likewise, it’s reliability and validity are tested, and the research’s generalizability is also assessed.

Although the effectiveness of the constructed model is not tested in this thesis study, this thesis has been successful in construction and utilization of the unique S&OP maturity model. Thus, constructed model has been successful to assess the case companies’ S&OP maturity level in terms of five S&OP success factors, and able to pinpoints the gaps preventing S&OP advancement. Finding of this thesis shows that S&OP is more than just balancing demand and supply. Likewise, findings distinctly show that S&OP maturity test is crucial for S&OP advancement.This thesis is able to demonstrate the relationship and interdependency of each S&OP success factor with another as well. Findings also demonstrate that S&OP enhancers could play pivotal role in S&OP advancement. Improvement through S&OP advancement is mainly found in forecasting, inter-departmental collaboration, order fill rate, rough-cut planning, risk management, operational performance, and strategic alignment. Study found various demand and supply disruptions as challenges to S&OP success. Recommendations for S&OP advancement provided to the case companies are adoption of formal S&OP, integration of S&OP with business objective, S&OP owner, and measurement of S&OP effectiveness and profitability measurement. Likewise, case companies are encouraged to include or upgrade the missing S&OP enhancers. Importantly, this thesis has performed synthesis of various S&OP maturity models and S&OP enhancers. Finally, this thesis has contributed S&OP research through developing new model for S&OP maturity diagnosis to assist S&OP advancement.

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KEYWORDS: S&OP advancement, S&OP success factors, S&OP enhancers, S&OP maturity model

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This introduction chapter provides overall view of the thesis. First, background and motive of the thesis is demonstrated. Second, research gap and research problem of the thesis is presented. Third, research objectives and question are highlighted. Fourth, diagnostic S&OP maturity model formation is presented. Lastly, structure of the thesis is illustrated.

1.1 Background

Due to the global economic situation and financial instability, cost saving and containment have become the priorities of all the organization. However, a smart organization does not just exert much effort in cost minimization but also involves in figuring out the procedure of making sustainable strategic changes for the firm success (Chase 2013). Determinants of firm success are its resources, assets and capabilities, which drives its market and financial performance (Galbreath 2004). Likewise, Schutjens & Wever (2000) have mentioned good employees, planning and stakeholders as the main determinants of a firm success. In a report prepared by Kuligowski (2020) by interviewing various top level mangers and CEOs, the description of a firm success is found as a profitable organization with good strategy and planning, better organizational culture, regular performance measurement, firm with loyal and happy personnel and stakeholders, clear goals, enough technologic tools and know-how. Fabling & Grimes (2007) survyed about 3000 companies in New Zealand and found R&D, employees practices, organizational structure, IT use and innovation, company’s resources and capabilities as a core determinant of firm success.

In this thesis, S&OP is studied as a breakthrough for the firm success, and demonstrated that with S&OP all the determinants of the firm success can be studied, and with S&OP advancement all the determinants of the firm success get robust. S&OP’s meaning and objective is different as per the viewers, researchers, and practitioners, but all the findings and studies have agreed in one thing that the well-functioning S&OP brings bundle of benefits to the organization. (Wallace & Stahl 2013). Evidently, Lapide (2011) has defined S&OP (Sales and Operation planning) as a tactical planning. Tactical planning has six months to two years planning horizon that uses the time bucket of weeks and months. Basically, this planning is done to set the demand plans that directs the sales, marketing, and introduction of new product over the horizon. Similarly, it sets up the supply plan directing the activities like outsourcing, supplying, manufacturing and storing (inventory) to reach organizational goals. Tactical and S&OP plans both are based on demand forecasts and should

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balance demand and supply in terms of strategic goals and objectives. (Lapide 2011). Further, to lead S&OP towards maximum level, company is required to allocate and integrate their success factors effectively and optimally (Muzumdar & Fontanella 2006).

1.2 Research gap and research problem

Even though S&OP is a core process for constructing the game plan of the company (Gray 2007, 1-3), still lots of companies are unware of its potentiality. Due to the fact, these companies are struggling with problems like late deliveries, imbalanced demand and supply, poor customer satisfaction, obsolesce inventory and cash flow problems (Wallace & Stahl 2013, 6-12). Various authors and practitioners have claimed that S&OP adoption and upgradation can solve these problems, and bring organization toward success (see in Lapide 2005b; Grimson & Pyke 2007;

Cecere et al. 2009; Wallace & Stahl 2013; Barrett & Uskert 2010; Muzumdar & Fontanella 2006;

Ventana Research 2006; Viswanathan 2009; Thomé et.al. 2012a). Cecere, et al. (2009) claimed that about more than 85% companies surveyed by them have S&OP process. However, same researchers found that majority of the companies were with unclear goals, unaligned metrics, and with other S&OP implementation failures because of not performing S&OP functions correctly (Cecere et al. 2009). Barrett & Uskert (2010) stated that most of the companies in ‘Gartner model’

maturity test did not pass ‘above stage 2’, and it is stage 3 and 4 that provides true business value.

During the year 2009, Abedreen Group conducted survey in 216 companies and found that just 20

% of the companies were at ‘best in class’ level (Viswanathan 2009). Likewise, Grimson & Pyke (2007) from their study found that none of the company is at stage 5 (final stage). This highlights the role of the S&OP maturity models in pinpointing or addressing the gaps preventing S&OP advancement.

Lapide (2005) argue that final stage of S&OP maturity cannot be achieved, and it should be utilized as a benchmark for S&OP control and continuous S&OP development, and Kalpan (1990) writes it is impossible to improve something that cannot be measured. Jayaraman et. al. (2016) and Reyman (2005) explained S&OP as a continuous process of aligning demand, inventory, forecasts, supply, and production, along with the alignment of tactical and business plan for operational enhancement. Thus, S&OP is based on ‘continuous improvement’ paradigm, therefore, to monitor and control, S&OP needs be assessed with robust maturity model.

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Thomé et.al (2012b) writes despite of increase in S&OP related literature publication, there are still less academic work done in synthesizing overall S&OP publications. Therefore, this thesis attempts to synthesize the various S&OP maturity model and contributes in innovating different S&OP maturity model, which in return, boost the further study in S&OP. Further, in none of the maturity models reviewed for this thesis study have assessed S&OP maturity explicitly in terms of five S&OP success factors, however, this thesis studies the five S&OP success factors, and will attempt to restructure previously made elite S&OP maturity models in terms of S&OP success factors.

To achieve the S&OP objective, the proper evaluation and allocation of S&OP success factors are necessary, and maturity assessment of these five S&OP success factors (people (personnel and stakeholders), process, strategy, technology, and performance measurement) show their exact engagement in the S&OP, and provide the clue for S&OP enhancement (Muzumdar & Fontanella 2006). Likewise, assessment of S&OP maturity of the organization is necessary to see the current status of the S&OP’s components, success factors and dimensions to plan and implement necessary enchnacemnet for better firm performance and success (Grimson & Pyke 2007; Barrett

& Uskert 2010; Ventana Research 2006; Viswanathan 2009; Lapide 2005b).

Six most used S&OP maturity models (Thomé et. al 2012b) were reviewed in this thesis study.

Further, all the S&OP maturity models reviewed for this thesis contain contribution of S&OP success factors within their dimensions. However, due to complexity of the S&OP models, it is hard to understand what dimension is addressing which success factor(s). To illustrate, the table 1 below has highlighted the findings of the main academic articles and white papers reviewed for this thesis study. From table 1, it can be seen that in none of the mentioned article below have included explicit study of all the S&OP success factors instead models are just focused on some of the S&OP success factors. Thus, these models are not able to provide the comprehensive diagnosis of all the five success factor. Likewise, all the important S&OP enhancers are not discussed in single article, they are scattered. Therefore, in this master’s thesis to simply such entanglement, S&OP maturity model is restructured on S&OP success factors peripheral. Thus, diagnostic model in this thesis is formed to provide the better and comprehensive assessment framework by bringing together the missing element in the S&OP maturity diagnosis process.

Similarly, the thesis aims to bring all the main S&OP enhancers facilitating S&OP advancement

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under one study to maximize its practical implacability. (see in detail: ‘S&OP maturity models and formation’ section in the literature review chapter).

Title Author(s) Method Main findings Sales and operations

planning part III: a diagnostic model.

Lapide (2005)

Qualitative Utilization of maturity model helps to assess and enhance the S&OP. Focused mainly in technology, and emphasized active people’s participation.

Sales and Operations Planning: Measuring Maturity and Opportunity for Operational

Performance Management.

Ventana Research (2006)

Quantitative and

Qualitative

Concluded mainly with technologic adoption for S&OP success, however, included people, process, technology and performance measurement in the study but explicit study of strategy is ignored.

Sales and operations planning: an exploratory study and framework.

Grimson &

Pyke (2007)

Qualitative and

Quantitative

S&OP results based on five dimension.

Ownership was not emphasized. None of the studied case company is in stage 5 (final stage). Focused on profit optimization.

Sales and Operations Planning: Integrate with Finance and Improve Revenue.

Viswanathan (2009)

Quantitative Only 20% of studied companies on final stage. Mainly focused on technology and strategy (financial integration). Findings included the importance of S&OP enhancers in S&OP advancement.

Sales and Operations Planning Maturity: What Does It Take to Get and Stay There?

Barrett &

Uskert (2010)

Qualitative S&OP maturity enhancement is a continuous process. Much emphasis on strategy and ownership.

Sales and operations planning: A research synthesis.

Thomé et al.

(2012)

Qualitative Not enough S&OP study is conducted.

Many S&OP drivers like inventory, integrating plans are not defined properly in many S&OP models.

Table 1 : Synthesis of the articles.

1.3 S&OP maturity formation.

First phase of this thesis objective contains the construction of the unique diagnostic S&OP maturity model in terms of success factor. Applications of ‘constructive research approach’

defined by Lukka (2003) has been applied to restructured a S&OP maturity model for this thesis study. Among the S&OP maturity models reviewed for this thesis study, just Grimson & Pyke model (2007) and Gartner model (Barrett & Uskert 2010) have studied all the five S&OP success factor mentioned by Muzumdar & Fontanella (2006), however, these two S&OP maturity models also have not provided the definite indication of these five S&OP success factors. Therefore, to

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have a comprehensive S&OP maturity assessment, Grimson & Pyke (2007) S&OP maturity model is restructured taking five S&OP success factors in account.

The main reason for selecting Grimson & Pyke model (2007) as a basis for restructuring S&OP maturity model for this thesis’s study is that it represents of numerous S&OP maturity model.

Therefore, it is more comprehensive than other models. Aberdeen Group model (Viswanathan 2009) and Gartner model (Barrett & Uskert 2010) consists the similar characteristics and classification like Grimson & Pyke model (2007) since first two models are derived from latter model. Similarly, Lapide model (2005b) is the foundation for Grimson & Pyke model (2007) and the latter model is extension to the Lapide model (2005b). So, Grimson & Pyke Model includes most of the parameters defined by the Lapide model (2005b). (Thomé et.al 2012b).

Further, it is also found that Grimson & Pyke model (2007) is simpler to use and has more assessment features than Gartner model (Barrett & Uskert 2010). Because former model is explained in five stages and five dimensions, and latter model has just four stages and four dimensions. Likewise, Grimson & Pyke model (2007) consists more features from the success factors described by Muzumdar & Fontanella (2006), and splitting five dimensions of Grimson &

Pyke model (2007) to five success factors defined by Muzumdar & Fontanella (2006) is not complex. In the process, maturity model developed by Grimson & Pyke (2007) is remodeled. Five dimensions explained by Grimson & Pyke (2007) are S&OP converted to S&OP success factors of Muzumdar & Fontanella (2006). Thus, five dimensions explained by Grimson & Pyke (2007) in their S&OP Maturity framework are meeting & collaboration, organization, measurements, information technology, S&OP plan integration, and these dimensions are transformed into the five success factors described by Muzumdar & Fontanella (2006). Further, after fusing Grimson

& Pyke model with S&OP success factors, other essential features are also added from Lapide’s S&OP maturity model (2005b) and Gartner S&OP maturity model (Barrett & Uskert 2010). This is done to form a comprehensive S&OP maturity assessment model for the thesis’ study.

Mechanism regarding the five-dimension fusion in to the five success factors, and additions are explained in this thesis’ literature review.

1.4 Research objectives and research question

The objective of this thesis is to diagnose the S&OP scenario in terms of S&OP success factor of each case company through the restructured S&OP maturity model for this thesis study.

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Simultaneously, to provide the basis for the S&OP advancement through pointing out the elements preventing S&OP progress.

Undoubtedly, S&OP is an essential factor to achieve the corporate objective, which reflects an urgency for S&OP adaptation and improvement. In support, Lapide (2005b) writes S&OP maturity model is utilized as a diagnostic tool for assisting firms to enhance their S&OP. The very approach

‘S&OP as a diagnostic model’ is also applied in this thesis study. After the S&OP maturity diagnosis, this thesis studies the elements preventing the S&OP advancement, and tries to bridge those gap. Role of S&OP enhancers in S&OP advancement is discussed in this thesis. Through reviewing numerous S&OP academic journals, the most essential enhancers for S&OP advancement are highlighted in this thesis. All the mentioned enhancers in the literature review are recommended and mentioned by elite S&OP users, practitioners, and academic publishers.

Most importantly, these enhancers are included in this thesis to supplement the components described in the restructured S&OP maturity model, in return, it provides the comprehensive diagnostic and solution-oriented framework for S&OP advancement

Subsequently, referring above mentioned research problem and research gap, this thesis study is conducted in the sphere of following research question: “How the constructed diagnostic S&OP maturity model assists in S&OP advancement?”

Following research question has been subdivided into two sub-questions to facilitates the deep studies. S&OP success factor is the main driver of the maturity model constructed in this thesis as the S&OP maturity stages are based on success factor’s maturity. The relationship and dependency of each success factor is studied and S&OP maturity is diagnosed in terms of five success factors.

Therefore, the first sub-question of this thesis is to see: “How each success factor is inter-related to each other, and how these success factor contributes in S&OP advancement?”

S&OP enhancers are mentioned in this thesis in attempt to support the S&OP advancement. Their roles have been emphasized to build the complete S&OP advancement framework. Therefore, the second sub-question of this thesis is to assess: “How S&OP enhancers play a pivotal role in S&OP advancement?”

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14 1.5 Structure of the thesis

This master thesis is divided into 5 chapters. Chapter 1 includes introduction of the thesis. To support the research, chapter 2 is presented with strong S&OP literature. Chapter 2 is divided into seven sub-chapters. 2.1 contains S&OP definitions that provides broad understanding of S&OP, it is further elaborated with S&OP fundamentals. 2.2 contains five success factors of S&OP i.e., people, process, technology, strategy, performance. 2.3 describes the maturity models and this sub- chapter also contains various S&OP maturity models’ analysis along with the reasons behind rearranging and selecting the Grimson & Pyke’s (2007) maturity model. 2.4 contains S&OP advancement instruments. Sub chapters five and six contain previous studies on S&OP and theoretical framework respectively. Similarly, chapter 3 explains the research methodology applied in this thesis. Chapter 3 is divided into 5 sub-chapters. 3.1 defines the constructive research approach, 3.2 provides overview of the qualitative research, and applications of case study and interview. 3.3 contains research ethics issues and ethics followed by this thesis. 3.4 includes the reliability and validity testing of this thesis. 3.5 describes this thesis’ generalization potential. At the end, 3.6 is a summary of the chapter.

Chapter 4 includes the case study of three Finnish manufacturing companies. Success factors and S&OP scenario of each case company is diagnosed through S&OP maturity model formed for the study of this thesis. After the assessment, S&OP weakness and loopholes are reported. In the end, suggestions & recommendations for the improvement are provided to the case companies. Apart from that, the S&OP component(s) that each company desired to focus during the S&OP advancement were covered in this thesis. The reason for including very components is that, company should know in what they want to focus on S&OP and which part they want to enhance beforehand (Hirneisen 2015). To provide comprehensiveness to the research, cross company analysis demonstrating similarities and differences among three case companies is conducted.

Subsequently, chapter 5 is the discussion and conclusion of the thesis. This chapter of the thesis presents the final thoughts regarding the thesis. This part includes discussion of the thesis, conclusion, practical implications, limitations to the thesis and recommendation for further research.

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15 2 LITERATURE REVIEW

Literature review provides complete theoretical framework for research objective with understanding of Sales and Operation Planning (S&OP). It contains S&OP definition and fundamentals, S&OP success factors, S&OP maturity models and S&OP advancement instruments, previous studies and theoretical framework.

2.1 Sales and Operation Planning (S&OP)

In modern business world, S&OP is a core process especially for manufacturing companies since it single-handedly drives integration between different functions, geographies, categories, processes and people (Alexander 2013). Moreover, Feng et al. (2008) writes S&OP requires a connection or an attachment of two different businesses function namely: sales function that is centralized in getting sales figures and consumer satisfaction, and another is supply chain which has an impact on operational cost. S&OP establish the link between all the strategic and operational activities within the organization. It is customer oriented and helps in balancing demand and supply (Grimson & Pyke 2007; Lim et al 2014). Likewise, Thome´et al. (2012a) explain S&OP as a process that provides management the handle to strategically and systematically shape the business that assists to gain competitive advantage in a long run through integrating and coordinating consumer centralized marketing policies for both new and existing products including supply chain. Evidently, Vollmann et al. (2005) and Wallace & Sthal (2013, 11-12) also agree that S&OP is a top management’s handle to the business operation.

Cox & Blackstone (2012) and Thomé et al. (2012a; 2014) found form their studies that S&OP is a cross-functional and integrated strategic planning procedure along with combination of several management applications. S&OP unifies various functional and organizational plans to well- integrated specific plan within organization. Externally in a supply chain, S&OP assists in creating organization value and has impact on organization performance. S&OP intends to balance demand and supply through matching tactical organization planning cycle.

According to the APICS dictionary, “S&OP is a process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of

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plans. It is performed at least once a month and is reviewed by management at an aggregate (product family) level. The process must reconcile all supply, demand, and new product plans at both the detail and aggregate levels and tie to the business plan. It is the definitive statement of the company’s plans for the near to intermediate term, covering a horizon sufficient to plan for resources and to support the annual business planning process. Executed properly, the sales and operation planning process links the strategic plans for the business with its execution and reviews performance measurements for continuous improvement.” (Blackstone 2013, 154).

Furthermore, S&OP contains four fundamentals. Understanding them is crucial to have comprehensive knowledge of S&OP. Four fundamentals are volume, mix, demand and supply.

Further, these four fundamentals are divided or grouped in to two pairs: ‘volume and mix’ and

‘demand and supply’. For the best result, demand and supply should be balance with volume and mix. (Wallace & Stahl 2005). S&OP balances demand and supply at ‘volume’ level by dealing with the rates of sales and production, finished goods, average stocks or inventories with customer order backlogs. Thus, it answers the query ‘how much?’ Volume focuses at aggregate level and applied in strategy, policy and risk. Master scheduling balances demand and supply at mix level.

Mix level deals with the decisions like running the product in sequence merely first, second…. and guides in which buyer’s order to dispatch or ship first. It provides the answer to ‘which ones?’.

(Wallace 2006; Wallace & Stahl, 2005; 2007). Further, Wallace & Stahl (2013, 7-8) writes if the volume is handled effectively in early stages, then it is easier to deal with the mix.

2.2 Success factors of S&OP

Muzumdar & Fontanella (2006) strongly agree that S&OP assists in making decisions at every hierarchy of the management as S&OP is based on the integrated business information architecture. Muzumdar & Fontanella (2006) in their article ‘The Secrets to S&OP Success’ have emphasized five success factors as the core drivers of S&OP and write S&OP success orbit around these five factors as demonstrated in figure 1.

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Figure 1: Success factors of S&OP.

2.2.1 People

People is the first and most essential success factor of S&OP. In pareto principle, people is item A, data is item B and computer (both hardware & software) is item C’. Hence, ‘people’ is the most dynamic factor as it drives all other factors. (Wallace & Stahl 2013, 75). Muzumdar & Fontanella (2006) describes outcome of people involvement in S&OP is positive. People in S&OP works using operational measures agreed by the S&OP team, and all the involved personnel and stakeholders are trained to acquire the specific skills to match the requirements (Apics & Protiviti 2016), and to execute and achieve the business intelligence (BI) objectives. In addition, Muzumdar

& Fontanella (2006) explains management should build the framework for the quick and real time decision making, and all the departments and organization units must follow the formal S&OP.

Lapide (2004) also writes in favor of people participation, as it empowers sound decision making in S&OP. He adds, cross-department participation where each member representing their functional area need to provide the comprehensive information and everybody should show up in all meetings and conferences i.e.,100% attendance and participation.

2.2.2 Process

S&OP follows five-step process (Cited as IOMA 2003, 2004b & 2005; Kruse 2004; Rooney and Bangert 2001; Lapide 2004 & 2005a; Mark 2004; Dwyer 2000; Gregory 1999; Wallace 2004) in Grimson & Pyke (2007), see also in (Muzumdar & Fontanella 2006; Wells & Schorr 2007; Lewis et al. 2009; Wallace & Stahl 2013, 53-65; Valentine 2012). Grimson & Pyke (2007) writes S&OP process starts with collecting formal and informal information by sales personnel. Pre-meeting is conducted to develop the foundation for demand forecast through considering what organization can sell to the customers rather than what organization can produce i.e., demand-driven.

Factors for successful

S&OP

Performance measurement Technology

Process

People

Strategy

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Adjustment of the forecast is done by expected or pre-assumed responses to marketing plans (advertising, trade shows & promotions). In addition, process also includes new product information and product obsolescence. (Grimson & Pyke 2007).

1. Data review or gathering

During this process, current business situations against the past sales, supply and inventory is determined to set the upcoming plans for sales, supply and inventory (Gray 2007, 5). Thus, data feeding is performed in Information System Department (Wallace & Stahl 2013, 55) where system summarizes all the actuals concerning sales, inventory, backlog, supply and product including its family and sub family (Gray 2007, 5). In a process, line manager is responsible for the verification of collected data and information, and it is done at the end of the previous planning horizon (Wallace & Stahl 2013, 55).

2. Demand review or planning

Process takes next step through reviewing the information from previous step. Sales and marketing personnel do review, discuss it, and develop new forecast for overall organization’s planning horizon. Moreover, demand forecast is done for both new product and existing products. (Wallace

& Stahl, 2013, 55-59). Demand planning is different, and it depends upon the product family (Wallace & Stahl 2013, 55-59; Gray 2007, 6-8). In the case of make to stock, sales plan is derived from the anticipated quantity which is booked and shipped from stock in same period whereas in case of make to order, the sales plan is derived from the anticipated quantity which is booked in one period but delivered in another. Hence, the sales plan is common representation for both cases while estimating the customer’s future needs, and constructing the assumptions and reviewing the information derived during the sales planning process. (Gray 2007, 6-8).

3. Supply review or planning

The main input for the supply planning is well updated S&OP spreadsheet, and it is a responsibility of the operation team. First the operation team modify the plans for each family and sub family, and test for the feasibility. (Wallace & Stahl 2013, 59-60). This stage also includes pre-meetings with operation team. Meanwhile, sales team develops the forecast and operation team collects the information, and data regarding strategy of inventory, internal and external (supply chain) capacity. (Grimson & Pyke 2007). Likewise, Wells & Schorr (2007) writes, supply review deals with the production capacity, stock, inventory, and logistics planning, and in this stage, probable

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material shortage along with organization’s capability of producing above maximum stock level is reviewed.

4. Pre- S&OP meeting

Wallace & Stahl (2013, 60-62) writes pre-S&OP meeting sets the agenda for the executive meeting. Gray (2007, 11-12) defined pre-S&OP meeting as a partnership meeting that provides the ground to figure out the gap between sales and supply planning, and to remodel it as per the organizational objective. However, wherever possible, the participants finalize the sales and operations plan but unsolved matters are passed through course of alternatives (Wallace & Stahl 2013, 60-62; Gray 2007, 11-12). In this phase, checklist for the effective executive meeting is also developed (Wallace & Stahl 2013, 60-62). The key personnel participants show their presence to reconcile everything in overall organization’s plan and objective (Gray 2007, 11-12; Wallace &

Stahl 2013, 60-62).

5. Executive meeting

Sales and operations plan made during pre-S&OP meeting are reviewed by executive team and provides decision regarding its acceptance or modification (Wallace & Stahl 2013, 62-64). Gray (2007, 12-13) writes through executive meetings ties are broken in the ground in which pre-S&OP team was incapable to reach. Moreover, the issues that were unsolved in the previous stage is discussed in this stage to find the solution. Likewise, Dougherty & Gray (2006) writes the objectives of the executive meetings is to provide approval on each product family, accepting the suggestions from pre- S&OP meeting or selecting the alternative solution. According to Wallace (2009), an executive meeting is held to evaluate the cost and benefits of the latest set of business plans. Therefore, changes are made as per sales, marketing, production and procurement, and product development strategies to set the plans back in track through adjusting demand and supply agendas with overall business plan. (Wallace & Stahl 2013, 62-64).

2.2.3 Strategy

Ross et al. (2014) citing Peter Drucker (1973), writes the main objective, or a sole description of the business is to create customers, and it is the customer who determines the existence of the business Further, Stein (2010) writes that the first responsibility of the manager is to get attach with the financial strategy and performance. In S&OP, strategy mainly includes the strategic

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planning designated to obtain the definite S&OP objective. This includes company’s vision supported by finance and investment, and enabled through certain policies (Apics & Protiviti 2016).

As per Muzumdar & Fontanella (2006), there are mainly three S&OP strategic elements which help in mitigating the risk and absorbing the S&OP benefits. First element is ‘formal alignment of supply and inventories to demand’ (Muzumdar & Fontanella 2006, 39) which go simultaneously with overall business planning process without silo culture to achieve the business objective, likewise, the greatest risk is also considered and evaluated. Hence, this approach is mainly used while balancing demand and supply. Since S&OP is not just about balancing the demand and supply, second element is focused in profit optimization. And the third element is to create and corporate with value chain. This involves incorporating customers and suppliers into S&OP.

However, the most important thing in strategy is that company should always focus on the continuous improvement. Moreover, organization should aim its transition more dynamic, and should plan future with short or mid-term horizon as it is difficult to predict the risk and market alternation in longer horizon. (Muzumdar & Fontanella 2006).

2.2.4 Performance measurement

Bitici et al (1997) describe performance measurement as the standards established to determine the extent of the success of the organization in achieving their objectives. Technologically, performance measurement system is the core part of the business activity as it provides required information for formulating strategy and decision making (Gunasekaran & Kobu 2007). Further, Kalpan (1990) writes, it is difficult to improve without any measures or measurements. Muzumdar

& Fontanella (2006) agrees with Kalpan (1990) that it is impossible to improve something that cannot be measured.

Performance measurement is performed in the sales management and supply chain to enhance the effectiveness of the operation and strategy implemented (Ramaa et al. 2009). S&OP requires evaluation regularly within definite time frame (Muzumdar & Fontanella 2006).

Key Performance Indicators (KPIs) are the most common tools that the organizations utilize to assess the formulated strategy, and to increase its effectiveness. (Beatham et al. 2004). Muzumdar

& Fontanella (2006) writes in S&OP, KPIs are interlinked with value chain processes, product and

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customer profitability, order fill rates, customer satisfaction and retention, sales per employee, percentage volume growth and gross margin. The same authors strongly recommend that even the company has informal S&OP process; it should as well perform performance measurement with some definitive metrics.

2.2.5 Technology

Organization should have system with internal and external adaptability along with data supporting S&OP software. Besides that, injection of real time data and information into system provides efficient and effective S&OP. (Apics & Protiviti 2016). Muzumdar & Fontanella (2006) also agree that upgrading the technology smoothens the S&OP success. Oracle sponsored report ‘The Sales and Operations Planning Benchmark Report’ includes the study of more than 200 companies conducted by Aberdeen Group. The very study finds many non-repeatable outputs and results from period to period, and poor measurement options for business activities with insufficient information across all the major areas of the organizations viz: sales, marketing, production, finance and operation. Nevertheless, from the very study, it was also concluded that many companies are enhancing their business process and advancing their supporting systems.

(Muzumdar & Fontanella 2006).

Lapide (2005a) suggest that it is better to use the technology enablers through enhancing and practicing the strategy that stimulates transactions, supports business intelligence (BI) competencies in real time. Moreover, Bond (2015) in ‘Modern Materials Handling’ magazine mentioned top five software vendors that provide integrated S&OP function. They are: SAP, Oracle, JDA Software, Quintiq, and Epicor. Similarly, first three are also mentioned by Chae (2009), and recommended for the organizations seeking S&OP advancement.

2.3 S&OP maturity models and formation

Business maturity models are generally designed to assess current business scenario, to assist innovation and to facilitate the change. These models are of multiple phases with advancement facilitated processes, where the final stage is described with the most advance features. Similarly, S&OP maturity model is constructed with the same means and end. (Lapide 2005b). Moreover, five most referred and elite S&OP maturity models are reviewed for this thesis. Maturity model’s

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selection is done through reviewing the article named ‘sales and operations planning: A research Synthesis’ by Thomé et al. (2012b).

1. Lapide model (2005b)

This model is developed by Lapide in 2005. The model contains four stages: marginal process, rudimentary process, classic process, and ideal process. Mainly, these stages are based on IT (Information Technology) evolution for S&OP advancement (Thomé et al. 2012b). From marginal to ideal process, it moves from no meetings and informal meetings to event-driven meetings, involvement of the customers and suppliers in business integrated planning, and from no technology enablement to utilization of the advance S&OP software which is integrated with the organization’s internal IT system. (Lapide 2005b).

2. Ventana research model (2006)

Ventana research model is built to assess company’s maturity through business process evaluation.

This model is divided into four stages. Here, maturity process begins from ‘tactical’, move towards

‘advanced’ and ‘strategic’, and fully mature at ‘innovative’ stage. During tactical stage, organization just performs fundamentals of S&OP i.e. traditional S&OP (balancing demand and supply). In advance stage, company goes beyond the traditional S&OP and includes the functions like formal planning and review meetings. As the process get matured the company enters in to the strategic stage where company’s operational planning is integrated with the organizational strategic objective. During the innovative stage, company does all the functions from last three stages and performs S&OP with various performance management techniques. (Ventana Research 2006).

3. Aberdeen group model (2009)

Aberdeen Group model is popularly termed as a ‘Viswanathan model’, and it is divided in to three stages, i.e., best in class, industry average and laggard. In this model, three metrics has been used to differentiate the maturity class, they are: customer satisfaction level, cash conversion cycle, forecast accuracy. As per this model, best in class can be achieved through mitigating organizational goals, strategic actions, institution’s capabilities, and technology. (Viswanathan 2009).

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4. AMR research model (2009) and Granter model (2010)

Both AMR Research model and Granter model have four different stages: reactive, anticipative, collaborative and orchestrate. Each of these four stages are again divided into three strategic sections. They are: goals, cross-functional alignment and process & technology. Reactive stage contains features for operational plan development. This phase is supply chain driven, consists of unclear goal, and bias in supply chain and operation. Likewise, in this stage, tool is mainly Excel spreadsheets. Anticipative stage follows the traditional S&OP demand and supply balancing which is based in volume. However, it is a strong foundation for supporting supply chain decisions. The operation prevails over sales but the marketing roles and capacity planning are integrated into S&OP. (Thomé et al. 2012b). At this phase, company already realize the essentiality of accurate and credible data in volume. Similarly, constraints related to the volume plan like assets, materials and resources are taken under consideration, and discussed during the pre-S&OP meetings.

Collaborative stage is mainly centralized in mid-term planning horizon i.e. for 3 to 24 months.

Here, objective is to increase the market opportunity, maximize the profitability and customer satisfaction level and minimize the risk. Thomé et al. (2012b) has summarized this stage as the approach of balancing and integrating demand and supply in to the proactive ‘go to market’

strategy. This stage is demand driven and follows sell, deliver, make and source approach. Barrett

& Uskert (2010) writes this stage is developed to navigate the organizational objective, planning horizons and varied value chains. Furthermore, this stage explains S&OP as a forum for the organizational decision-making and cross-functional performance is at maximum level in this phase. Stage 3 is also concerned with financial integration and reconciliation. Orchestrate stage view sales and operation equally and it is described as optimized demand shaping plan. At this stage aim is to minimize the demand risk and maximize the customer service, cash flow, market share through focusing on profitability i.e. profit optimization (Thomé et al. 2012b). Cross- functional participation and performance is strengthened as the collaboration increases. Likewise, the process becomes more dynamic and event driven with strong interlink with strategic planning.

(Cecere et al. 2009; Barrett & Uskert, 2010).

5. Grimson & Pyke model (2007)

Grimson & Pyke model (2007) has five S&OP advancement phases (see Appendix I), and this model is constructed relying on two previous models viz: Aberdeen Group model (2006) and Lapide model (2005b) (Thomé et al. 2012; Grimson & Pyke 2007). This diagnostic model assesses

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S&OP progress through five unique performance measurement dimensions. S&OP stages in this model starts without any S&OP process in absolute silo culture and ends at proactive stage with profit optimization. This stage is associated with S&OP performance measurement as well.

Apparently, other intermediate stages are reactive, standard, and advanced respectively as the progress pass (Thomé et al. 2012b; Grimson & Pyke 2007). As per this model, S&OP is mainly concerned with organizational structure, performance measurement, plan integration, information systems and supply chain collaboration, thus, company’s overall progress. (Grimson & Pyke 2007). In detail, Grimson & Pyke’s five dimensions of S&OP integration framework includes:

Meeting and collaboration: This dimension measure the effectiveness of the human capital i.e.

people in S&OP (Grimson & Pyke 2007). In stage 1 of this dimension, lack of formal S&OP, there is no co-relation between sales and operations departments. It defines sales personnel are working in silo culture and not reacting until the complaint such as late deliveries and poor quality form the customer is received. Besides that, sales personnel prepare frequent false demand forecast working aloof from operation, as a consequence, late deliveries and poor quality. In stage 2, S&OP related problem is discussed at senior level meetings. However, the purpose here would be just financial and still no plans for integration. Silo mentality still exists in stage 2 along with low level of inter- personnel and inter-departmental collaboration. Like in stage 1, there is a risk that sales efforts, promotions, pricing and other related performance are driven by corporate financial goals. And there would be little understanding of a true impact of market and operations.

Process get formalized from stage 3. Here, S&OP becomes function oriented and pre-meetings exists. Silo culture gets breakdown and inter departmental co-operations strengthen. Sales and operations’ parameters are considered during decision making. Likewise, key customers’ and key suppliers’ data are incorporated in this stage. Moreover, pre-meetings and executive meetings are mainly focused in integration and in previously unsolved issues. Importantly, key customers and suppliers also actively join the meetings. Stage 5 is an extension to stage 4. Event driven meetings replaced the scheduled meetings. Real time internal and external data access is granted to personnel and supply chain partners. Upgrading S&OP to stage 5 provides the organization an early warning of disruptions which facilitates controlling. (Grimson & Pyke 2007).

Organization: This dimension explains the stages of the S&OP process. Stage 1 is described as an organization with no S&OP at all. In stage 2, S&OP exists but it is performed informally. In 3^rd

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phase, S&OP becomes the function of another position i.e. of operation manger or sales manager.

Still in this stage, the S&OP might be done informally with the existence of informal or no S&OP team. In Stage 4, formal S&OP and formal S&OP team along with participation from executives exist. S&OP responsibilities of all the personnel are clearly defined. Similarly, the stage 5 has a formal team with executive participation. This stage mainly focuses on continuous improvement of S&OP. (Grimson & Pyke 2007).

Measurements: Performance measurement is already discussed above in the literature as a one of the success factors of S&OP. In the S&OP framework, performance measurement denotes to both measurement of company performance and S&OP effectiveness. In stage 1, there is no measurements beside some general accounting and financial standards. Managers have problem during the decision making. In 2^nd phase, organization weighs operation department standards against sales plan in monthly and quarterly basis. In this phase, surprisingly, sales managers are not responsible for their plans. Operation is totally directed through the sales order and there is very less margin for the improvement due to the capacity strain and other operational issues. In Stage 3, company along with measuring the effectiveness of the operation also assess the sales with forecast accuracy. In stage 4, two new KPIs are included: new product introduction and S&OP effectiveness, these additions take S&OP beyond the fundamental financial and operational standard. New production introduction also includes the assessment of its development cost, time to market entry, ramp up time and numerous successful introductions. Stage 5 deals with profitability extension. Company reports the profitability to the S&OP team and team is partially accountable for the profitability. Here, operation managers are not only responsible for achieving the sales plans, and sales managers are not only responsible for forecast accuracy. Significantly, both are responsible for inventory adjustments, formulating pricing and planning production and integrating all to accomplish more profitable results. (Grimson & Pyke 2007).

Information Technology: This dimension is mainly centralized in information process rather than business process. In stage 1, organization has less numbers of spreadsheets accounted to individual personnel without information consolidation. However, in stage 2 some of the information is manually consolidated where spreadsheets are accounted and updated separately. In Stage 3, information system is engaged and, the revenue and operations planning software is deployed.

Likewise, in stage 4 too, company employ revenue and operations optimization software.

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However, the plans are still optimized individually in series rather than collectively. Revenue optimization software evaluates the old record. For example: evaluating the promotions to speculate the optimal discount rate. Operations optimization software assists in determining the definite scheduling, assess multiple production series and scenario and select the optimum one. In this stage, organization also establishes the S&OP workbench providing access throughout the company. S&OP work bench is defined as a general ‘automated tool’ for collecting and sharing the information regarding the S&OP within the members. In Stage 5, organization achieve fully integrated and optimized S&OP software, similarly, interface with ERP, accounting and forecasting facilitating real-time problem solving capabilities. (Grimson & Pyke 2007).

S&OP Plan integration: This dimension evaluates the effectiveness of the organization’s ability in constructing S&OP, and how well these plans are consolidated i.e., S&OP strategy. In stage 1, there is no S&OP planning, no effort from operations to fulfill the customer order and no clue of sales forecast. In stage 2, operations plan is driven by sales plan and termed as a one-way process.

In this stage, operations side and capacity utilization consensus is totally ignored. In stage 3 company deploys the series of process in which sales plans is used as a road map for the operations.

In this stage, some of the information from the operation may be taken to adjust the plans. In this phase, organizations mainly develop their plans bottom-up rather than top-down approach. Those plans are aligned with business and financial objectives to increase the degree of integration and real-time. From stage 4, S&OP plan integration becomes company’s culture. Here, aim is to prepare more collaborative S&OP plans, and capacity issues are embraced by both marketing and operations. In this stage, planning process leaves its sequential approach and becomes concurrent.

This stage smoothens and concise the planning process where demand and supply are optimized simultaneously to obtain the maximum profitability rather than just sales growth and efficient operation. (Grimson & Pyke 2007). Likewise, Muzumdar & Fontanella (2006) presents S&OP integration with three distinguish strategic elements: 1. alignment, 2. profit integration, and 3.

collaboration. Thus, all these authors have explained the same features in different way.

Subsequently, the maturity model is constructed through injecting Grimson & Pyke’s (2007) S&OP maturity model’s five dimensions features into five S&OP success factors described by Muzumdar & Fontanella (2006). However, the maturity stages are maintained as of Grimson &

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Pyke model (2007). The table 2 below demonstrates the common features described by each author in their respective model.

Five dimensions of Grimson &

Pyke (2007)

Common ground Five success factors Muzumdar &

Fontanella (2006) Meetings and

collaboration

S&OP team, real-time access, formal S&OP, incorporating suppliers and customers, top management involvement

People

Organization Formal S&OP process, executive S&OP process, five-step process, business ownership, formal S&OP team, top-down process

Process

S&OP plan integration

Profitability integration, top-down approach, constrained and unconstrained planning, profit optimization, collaborative process

Strategy

Technology Avoidance of relying just on excel spreadsheets, utilizing technology enablers, technology upgrading and advancement, ERP systems, S&OP software, linking S&OP with CPFR, practicing APS

Technology

Measurements Measurement with KPIs, forecast accuracy, Profitability measurement, S&OP effectiveness measurement

Performance measurement

Table 2: Common grounds of five dimensions and five success factors.

2.3.1 Maturity model extension

Different S&OP maturity models with Grimson & Pyke’s maturity model (2007) were compared and found that adding more features to it will make the diagnostic maturity model more robust and explanatory. However, missing element in Grimson & Pyke’s maturity model are found in Lapide (2004; 2005b) model and Gartner model (Barrett & Uskert 2010). Combination of these three S&OP maturity models include all the features found in the various S&OP maturity models reviewed for this thesis.

Undoubtedly, these four extended elements along with Grimson & Pyke’s (2007) maturity model formed more comprehensive diagnostic model:

1. Ownership from Gartner model (Barrett & Uskert 2010)

During review, core-focus of ownership is not found in the Grimson & Pyke’s (2007) model whereas Gartner model (Barrett & Uskert 2010) has emphasized ownership. In S&OP, ownership is matter on how company has designed its S&OP. Owner can be either from sales or supply chain, either can be head of the department or VP of the certain region. In stages 1 and 2, Gartner model

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(Barrett & Uskert 2010) has mentioned supply chain as a S&OP owner. In stage 3 and stage 4, senior executives and management owns the S&OP process. Here, supply chain still facilitates the process, but senior management take the process in their hand especially for the decision making.

Thus, at this level, it is the business that takes the ownership for decision making and evaluation not the supply chain. (Barrett & Uskert 2010).

Grimson & Pyke (2007) has discussed S&OP Ownership stage 3 but not in next advanced level.

During reviewing the works from various academics and practitioners (Alexander, 2013;

Muzumdar & Fontanella 2006; Lapide 2005b & 2006), it was realized that without a S&OP leader or owner, S&OP advancement progress could hinder, thus, it is necessary to have dedicated personnel for maintaining and controlling S&OP. Therefore, ‘ownership’ is included in this maturity model realizing its significance. In this thesis’ maturity model ‘ownership from executives and finance’ has been added in stage 5 in the success factor ‘strategy’ and same component is in Gartner model (Barrett & Uskert 2010) at Stage 4.

2. Strategic connection with S&OP from Gartner model (Barrett & Uskert 2010)

Strategy linkage with planning and implementation is not discussed explicitly in Grimson &

Pyke’s model (2007) but in Gartner model (2010) it has been emphasized in every stages.

Nevertheless, both models agree with essentiality of business strategy and S&OP planning linkage.

So, this factor is included in the maturity model to provide the completeness in the study. Gartner model (2010) has described that there should be absolute inter-connection among strategy, planning and S&OP implementation in the final stage of the maturity. However, in the maturity model design for this thesis, the very topic is in 4^th stage of success factor ‘strategy’. It was thought that if the strategy linking with planning and execution already begins from the 4^th stage then at stage 5 the very term can get more matured. (Barrett & Uskert 2010).

3. 100 % Attendance and Participation from Lapide model (2005b)

Lapide model ascertains attendance as a mandate task of S&OP. This term is mentioned only in the Lapide model (2005b) among the models reviewed for this thesis study. Absolute attendance and participation in S&OP meeting play a vital role in having effective S&OP, since the discussed issues in the meeting is perceived by all the key personnel. This term has been described in a 3rd stage of the Lapide Model (2005b) and in thesis’s maturity model, it is included in stage 4 of the success factor ‘process’. (Lapide 2005b).

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4. APS System from Lapide Model (2004 & 2005b)

Muzumdar & Fontanella (2006) has strongly suggested to include the APS system tool to strengthen the S&OP effectiveness. Lapide’s diagonstic model (2005b) has included the tool from the stage 2 and in this thesis this factor is mentioned in ‘Technology’ factor at stage three.

Throughout the literature review, the importance of the schedulling and planning is discussed.

According to Lapide (2004) in mid stage of S&OP, company uses the separate software for demand and supply planning i.e. ‘stand alone enabling software’. This addition assists in transferring the results to the system through supply-side multi-facaliated APS (Advanced Planning and Scheduling). (Lapide 2004 & 2005b).

2.3.2 Maturity models assessment and selection

All the maturity level has its own metrics and variants (Thomé et. al 2012b). Table 3 below demonstrates all the reviewed maturity model for this thesis study.

S&OP Model No. of Stages Areas of Scope

Lapide (2005b) 4 Meetings (people), process, and IT integration (technology).

Ventana (2006) 4 People, process, technology, and performance measurement.

Grimson & Pyke (2007)

5 Meeting & collaboration (people), organization (process), performance measurement (performance), information technology (technology), and process integration (strategy).

Viswanathan (2009) 3 Forecast (performance), cash conversion cycle (strategy), and customer satisfaction (people).

Granter and AMR research (2010)

4 Organization objective (people, strategy), cross-functional

alignment (strategy), process, technology, and KPIs (Performance).

Table 3: Maturity models cross analysis.

Grimson & Pyke model (2007) and Gartner model (Barrett & Uskert 2010) include all the five- success factor described by Muzumdar & Fontanella (2006), which is considered as a comprehensive approach to S&OP study. (Thomé et.al 2012b), however, these two S&OP maturity models as well have not provided the definite indication of these five S&OP success factors.

Therefore, to have a comprehensive S&OP maturity assessment, Grimson & Pyke (2007) S&OP maturity model is restructured in to five S&OP success factors’ basis.

Development and Utilization of a Diagnostic Maturity Model for Sales and Operation Planning (S&OP) Advancement

Contents