Sales and operations planning (S&OP) is a tactical process
for end-to-end coordination, collaboration, and alignment
with a single plan for the enterprise. The process occurs
over a monthly cycle, with weekly updates and adjustments.
S&OP is critical to the success of a segmentation strategy
because it is the process by which an enterprise aligns its
decisions with profit and customer service plans. These
plans are then executed within the policies that have been
deployed to support the segmentation strategy.
S&OP is critical to segmentation in the following respects:
x It enables financial and operational alignment with cus-
tomer/product service and profitability.
x It provides a monthly forum for discussion about what
is working and not working in regard to segmentation
strategies.
x It includes what-if and scenario analysis to identify pol-
icy anomalies.
Leading companies are now using demand-shaping strat-
egies and are linking their monthly S&OP processes to their
weekly CPFR channel processes for a closed-loop feedback
system. For example, some are using S&OP to synchronize
back-end supply to front-end allocation and order promis-
ing. Supply that is slated for channels with excess inventory
can be diverted to channels that can absorb it, or channel
pricing changes can be made in anticipation of the incom-
ing excess supply. Thus, excesses and shortages are imme-
diately identified, and demand-shaping and cross-channel
coordination strategies can be put in place to synchronize
demand with supply.
9. Implement a business optimization center for continuous learning
Leading companies have implemented “business optimization centers” or “supply chain centers of excellence” whose
mission includes establishing, implementing, and monitoring segmentation policies, and then continuously learning
as such policies are executed over time. This type of center
typically comprises a small team that is responsible for creating the analytics behind segmentation and then sharing and
gaining approval for the deployment of associated policies.
The center is also responsible for the workflows associated
with deploying these policies to the appropriate functional
business processes. At a high level, this means maintaining
the customer service and profit strategies behind each customer/product intersection and the various segmentation
policies associated with each intersection.
The business optimization center typically reports to a
high-level executive, in most cases the chief operating officer (COO). In some companies the center reports to the
chief executive officer (CEO).
An engine manufacturer that makes a full line of engines
for multiple applications, including energy, marine, and
transportation, recently segmented its supply chain in order
to offer different options for its customers. The engines are
highly configurable, meaning that customers can order a
base configuration and then select from a menu of options.
Figure 7 provides an overview of the different segmentation strategies the engine manufacturer put in place to
serve its customers.
The goal of the segmentation program was to offer different value propositions to its customers based on the type
of product ordered. The supply chain fulfillment, inventory,
and manufacturing policies would then be aligned to each
value proposition. The value propositions were primarily
driven by how much flexibility the customer wanted to have
in the ordering process. For different levels of flexibility, the
manufacturer offered different price points and lead times.
As shown in Figure 7, the manufacturer established four
basic segments:
x Standard configurations
x Standard configurations, but greater choice
x Customer-configured from a catalog of options
x Customer-specific requirements that must be analyzed
and quoted
Based on this restructuring of the ordering process, the
manufacturer then established different push-pull points in
the supply chain from which each of the segments would
be served. This dramatically reduced demand uncertainty
by providing different forecasting points in the supply chain,
thus taking advantage of the pooling effect.
For standard configurations, the manufacturer would
forecast end items. For standard configurations with greater
choice, it would forecast the options that went into the end
item. With each level of increasing flexibility the manufacturer was able to move the response buffer and associated
forecast item upstream in the supply chain. This had the
effect of dramatically improving forecast accuracy. Prior
to implementing this approach, the manufacturer had only
been forecasting a wide variety of end items, which had
resulted in very low forecast accuracy.
SEGMENTATION REDUCES DEMAND UNCERTAINTY
