Industry November 2014

Unlocking Silos and building Bridges

Why there is a rush on sales and operations planning

When asked about hiring plans for calendar year 2015, one supply chain management partner of a multinational consulting firm said they wanted “no transport or logistics [staff], but we’ll take as many indirect procurement or sales and operations planning (S&OP) people as you can find”.

This response underscores two major trends in supply chain recruitment over the past year: strong demand for indirect procurement talent, and a sharp increase in requests for S&OP professionals.

Why does demand remain strong?
We receive mandates for indirect procurement professionals weekly, and expect that trend to continue into next year.

Despite the slowing of demand for indirect procurement talent in the pharmaceutical industry, almost every other sector, particularly consumer goods, has picked up the baton.

Demand for indirect procurement at all levels has remained strong for the past two years, largely for two reasons.

First, experienced bilingual candidates are scarce in what is still a comparatively new role in Japan.
Second, and more important, procurement as a strategic function remains a largely untapped resource, with staff often languishing in the back office processing purchase orders.

Why is S&OP important?
Even though it barely received a mention prior to 2012, this year the number of firms in Japan building a dedicated S&OP function has dramatically increased.

At Icon Partners, the number of S&OP-related mandates climbed from less than 10 in 2012 to more than 50 so far this calendar year.

Acting as a bridge between the operational realities and financial objectives of an organisation, an S&OP manager reconciles what the business wants and expects—including sales forecasts, targets and budget constraints—with what operations and the supply chain can deliver—production capacity, as well as supply constraints, supply planning and so on.

The S&OP manager straddles both worlds, helping both sides agree on a single forecast and supply plan, while improving demand planning and maximising operational efficiency.

The value of S&OP, therefore, lies in its role as a facilitator of vital functions. These include balancing demand and supply, integrating financial planning with operations, improving customer service and order fulfilment, long-term risk modelling, contingency planning, and enhancing strategic decision-making.

Why the demand for S&OP in Japan?
Japan has been late to adopt S&OP, largely due to an over-dependence—in the interests of competitive advantage—on the Toyota Production System, an integrated socio-technical system and major precursor of the more modern lean manufacturing.

Recent years have seen the rest of the world catch up in utilising lean manufacturing, meaning that, together with the effects of a recession, an earthquake, inflation and exchange rate fluctuations, the lean model alone no longer provides a competitive advantage.

Many organisations in Japan suffer from the silo effect, according to which business units have only limited communication with people in other units, creating a series of isolated silos within the larger organisation.

This situation exacerbates the disadvantage of not having an S&OP function. In fact, in recent years, many organisations have paid dearly for problems associated with poor contingency planning, the inability to deal with demand fluctuations, and supply chain disruptions.

What can S&OP bring to a firm?
In a 2012 survey of 519 firms in 71 countries conducted by the Zurich Insurance Group, some 85% of the respondents said they had suffered supply chain disruptions in 2011.

Half the respondents had suffered more than one disruption. This underlines the fact that modern supply chain executives have to consider a scary portfolio of risks, including natural disasters, supplier and production failures, bottlenecks and inaccurate demand forecasting.

All these situations can cause nasty bullwhip effects further down the supply chain.

S&OP’s popularity derives from its ability to address many of these issues. It is by definition cross-functional, which eliminates silo issues and increases collaboration.

It provides firms with better-optimised supply chains, helping dispel the myth of operations as a cost centre, and keeping businesses competitive.

Finally, S&OP is by nature a mid- to long-term planning model, making it a vital tool for firms concerned with market volatility and external threats to supply chain performance.

We expect the trend to adopt S&OP strategies to continue in 2015, as competition heats up for bilingual supply chain management planning talent. The firms that move quickly to implement S&OP, and truly follow the lean model will be the ones best able to leverage increasing market opportunities in 2015 and beyond.