A lot is written about S&OP, Sales & Operations Planning, and I will not resume it here, but S&OP only goes as far. Fundamentally what COE's are confronted with is balancing supply and demand to maximize revenues while delighting customers. To achieve that they have trade-offs make, and these should be made with financials in mind. This is often overlooked in the S&OP process.

Identifying the products with the biggest margins and the customers contributing most of the profit are often not easy as the relevant information is not available. So, building an infrastructure to collect the information is critical for CEO's to be able to truly manage the trade-offs between supply and demand. This is often forgotten in the S&OP process.

Collecting that information within the four walls of the company increasingly become insufficient as an ever growing percentage of costs are managed by other partners in the supply chain. Companies forget that, regardless of where in the supply chain inventory is located, the consumer (the final customer) will have to pay for that inventory or somebody is losing money and will eventually go bankrupt.

In the current environment, where most companies have over capacity, this may not look like a high priority investment area. I actually disagree with that statement as developing such environment not only allows the trade off decision process, but also serves as a key source for lean supply chain activities, and as cost reduction is high on companies agendas these days, one definitely does not want to miss that.

AMR Research developed a concept, called DDSN, Demand Driven Supply Networks , which serves as a base for developing such cross-enterprise infrastructure providing supply chain visibility and trade off management. Developing such environment is an on-going process, starting with the identification of the strategic partners in the value-chain.

A partner can be strategic because he provides a critical component/ingredient, performs a critical task in the manufacturing service, or delivers a key service in logistics or distribution. Identifying these partners is important, as much time and effort will be spent in helping them understand the importance and benefits of sharing data. Once the appropriate level of trust has been developed and the partner understands the advantage he can gain from sharing information, the sharing mechanism needs to be agreed upon and developed. Multiple approaches are possible, starting from simple websites, through using public or private hubs, to the use of the Cloud as a mechanism to consolidate information.

Our experience has demonstrated that in the first phases, the least the partner has to invest, the easier it is for him to agree on becoming part of the integrated eco-system.

Once the chosen approach has been worked out with the strategic partners, others should be included moving forward. It becomes easier to convince them because one can reference the strategic ones.

The technology exists today; it is the process of convincing partners that is the difficult part. But once the data can be gathered, there is a great advantage not just to see what is happening at any given moment in time, but also to look at how things evolve to increase the level of understanding. And here is where our trade-off is coming in again. Understanding the capacities and components/ingredients available, facilitates the balancing of the supply side, while having access to the finished goods inventories in the distribution chain as well as the financial figures on product and customer profitability, facilitates the trade-off process immensely, and will ultimately increase the margins of the company. Now, the major pitfall to avoid is keeping all the additional profits gained in the eco-system without sharing any with partners. Keeping the magic "win-win" concept in mind helps building loyalty, which will often result in partner suggestions for increased benefits. And that is how the eco-system continuously improves.