Interviewer: Jarmo Ropponen, Tieto Head of Sales and Marketing for Pulp and Paper
Respondent: Alan Cheesbrough, CEO and Founder of I-Plan
1) Tieto and Trading Science have just announced our strategic partnership. I-Plan will now feature as a new product offering in Tieto’s portfolio of manufacturing execution tools. This allows us to broaden our offering into strategic and tactical level planning and particularly to profitability-based sales and operations planning. From the perspective of I-Plan, what is profitability based sales and operations planning all about?
Businesses typically make operational decisions for operational reasons. Production planning is often a repetitive process following a pattern month on month, someway connected with the market but not directly, and really the decisions that should be taken operationally ought to be based on the overall profitability of the business. Profitability based planning is all about making operational decisions with an understanding of the financial consequences.
2) So is it a conceptual idea for a business to aspire to, or is this a common reality in the businesses that you work with?
It’s the reality for many businesses. From a conceptual point of view, it is something that all businesses would aspire to do, but as your question suggests, true S&OP is still an aspiration for most.
3) The use of technology in production execution is by no means a new concept. Why have we only seen a significant investment in strategic and tactical planning technology in the last 5 years?
To implement a successful S&OP process we are talking about the alignment of global strategies for the business. In contrast manufacturing execution, whilst often complex, tends to be an investment in a division, site, or a process that is enabled using technology as a tool.
There are several elements that need to be in play to successfully achieve S&OP, not just investment in technology:
The first of these is a willingness to accept and implement the changes that are required for digital transformation. The Digital element is obviously the tech, but the transformation is the really significant element here. Changing ways of working, changing behaviour to focus on the way the business operates from a profitability perspective the change is significant.
The second element is, of course, the technology, it is the enabler of this change. The processes, the volume of data required to make profitability based decisions is too vast to manage without technology. The delay in adoption of S&OP as I see it, is that these two elements have only just come together for most of the industry.
4) So, in considering a tactical S&OP process, that can drive the strategic decisions right down to execution level, what are the major obstacles to implementing an Integrated Business Planning system? And by IBP, I mean an S&OP process that integrates directly to operational execution?
The ability to run processes to maximise profitability is one part of the process, this is what I was referring to when I said the ‘willingness to change’ and ‘the technology’ need to come together. But it’s really only the first step, it’s one thing to come up with the most profitable solution for the business over a short to medium term horizon. Translating and communicating those decisions to the factories, to the production lines, to the sales offices, to the warehouses so that the whole organisation can operate around the decisions that have been taken is something else entirely.
You can do that in several ways. Obviously, it’s about the flow of information, but with the scale of information that we are talking about can only really be effective if you have some form of integration that drives the systems that control production, the system that control sales, the systems that control warehouses and distribution. It’s the volume of information, but also the reaction times that are required to adapt when the plan falls out of alignment. So just being able to implement that integration between strategic planning systems and execution systems is technologically is quite a challenge.
5) You mentioned reaction times, which I guess is key. You set a strategic plan whilst working to a forecast, which will of course not be the reality. I’m thinking about this in golfing terms, (perhaps because I’ve been watching the masters all weekend). The Strategic Plan is your tee off, the long game, to get you as close as you can to the pin. The execution is your short game around the green, both require different approaches but even at the execution level, you could be forced to significantly change your shot if, for example, you land in the bunker. How do you deal with these changes in almost real time when the reality differs from your strategic plan?
This is the really critical question. You do this strategic planning monthly to do the best you can with the information you have, ie your drive finds the fairway. But this really brings the reason for the integration into focus because you need to be able to re-plan very quickly, and re-execute production around the reality. Without the integration, this becomes basically impossible as you cannot re-plan or re-execute fast enough to retain the value that you were seeking when setting the strategic direction.
6) What, in your view, should be part of any discussion about integrated business planning?
Good question, I think an important question to ask is what is the most common factor that causes these initiatives to fail… And it’s a simple answer, senior level buy-in. It’s the C suite commitment to driving profitability based planning as a core objective through the organisation that will make or break the initiative. As we discussed earlier this is a significant business transformation process that will impact every corner of the organisation. There will be many obstacles through the process that without senior commitment could bring the project to a halt. As soon as you try to ask every person in every department to change their mind set to focus on overall business profitability, you will very quickly understand the size of the task at hand. As obvious as it sounds this is not as easy to achieve, and impossible if the objective is not the priority right at the very top of the organisation.
7) How should a company go about selecting a technology solution that will be able to integrate with their current execution solutions?
It’s got to contain the fundamental elements of the S&OP process: It must be able to handle the demand forecast, it must be able to balance supply and demand and come to conclusions about what to make where, and where to ship to. But it’s also got to be able to adjust according to the reality as previously discussed: it needs a longer-term process for the monthly tactical cycle, and a shorter term process for a daily, hourly cycle. It must have planning and execution components and it needs to have the capability to integrate that into many environments. Typically, a business deploying this kind of objective as S&OP process is, would have several factories, often acquired through acquisitions and mergers, this means lots of different technologies as a starting point and consequently the solution must have very strong and very flexible integration technology.
8) Does the solution need to be cloud based?
As you know I’m a passionate advocate of cloud based solutions, yet it was not in my list of critical elements for success. A cloud solution has lots of advantages, it creates an environment where people inside and outside the business can collaborate, sharing information for the mutual benefit of everybody. The other side of a cloud solution is the speed at which the solution can be implemented, it allows you to bring the technology into play very quickly without having to invest in hardware and support functions, and this of course is what is going to enable the business transformation. A cloud based solution isn’t a prerequisite but I would struggle to think of a solution with the critical functionality I mentioned in the last question that still operates an on-premise model. It’s 2018 and people work in the cloud now, that’s where the best solutions are!
9) How long would it typically take to implement an integrated Business Planning solution from Demand Planning to production execution?
Obviously, this is dependent on business maturity, the culture, technological advancement and of course their willingness to change, so this is always a difficult question to answer, but let’s take the standard case: As mentioned before, this is where a cloud solution really pays dividends in rapid realisation of business benefits. It is possible to have a stable sales and operations process, with a trained and engaged team of users and contributors in place, and adding significant value in less than a year. We (I-Plan) have proven this over and over again. In our cases, we find that more than 80% of this time is attributed to people and process change whilst the rest is the technology.
To drive this process through to the manufacturing execution level: integrated production planning, inventory planning and warehouse and distribution management takes quite a lot longer. Mainly because you are involving a lot of people in a lot of locations, a lot of people to engage and bring on board, a lot of training so to enable that integration of systems, processes and people is realistically likely to take another 18 months in the standard case.
10) What do you see as the future of S&OP in process manufacturing and are there any industries or businesses that you do not see becoming adopters of these ideas?
I think conceptually it will work in any business and its principles will have long lasting effects on any organisation, I cannot think of one that wouldn’t benefit. I think the key thing is that the larger the business and more complex manufacturing network the more value that can be gained from an S&OP function and therefore it is currently the larger and more complex businesses that are compelled to address this quicker.
