Global S&OP:

Parsing the Process

By Larry Lapide

E x E C U T I v E S U M M a R y | The growth in globalization and consumerism has rendered the use of a single, simple
S&OP process unwieldy and cumbersome for many companies. Often the process needs to be divided up or parsed along
a variety of dimensions, and then consolidated in order to harmonize worldwide supply, especially when regions are
contending for limited product supply. This column reports on research conducted at MIT for a medical devices company. The
research was about when and how to parse a Global S&OP process into multiple processes. In this column, we recommend
the criteria to use to break up the process for each of four supply-based scenarios.

L aR Ry L aPI D E | Dr. Lapide is a Research Affiliate at MIT and a Lecturer at the University of Massachusetts,
Boston Campus. He has extensive experience in industry, consulting, business research, and academia as
well as a broad range of forecasting experiences. He was an industry forecaster for many years, has led
forecasting-related consulting projects for clients across a variety of industries, and has researched as well
as taught forecasting. He was also a market analyst researching forecasting and supply chain software. (This
is an ongoing column in The Journal, which is intended to give a brief view on a potential topic of interest to
practitioners of business forecasting and planning. Suggestions on topics that you would like to see covered
should be sent via email to llapide@mit.edu.)

I COMPANY
n 2006 a medical devices
manufacturer (anonymously called
vascucorp) asked us at MIT to
conduct research on how to apply
Sales and Operations Planning (S&OP)
processes across its global business
units (BUs). At the time, it was running
two S&OP processes, one for each of its
two BUs that were focused on different
product portfolios. vascucorp wanted
to know whether that was the best
way to go, whether only one S&OP
process for both BUs might be better,
or should the S&OP processes be
parsed even further. An MIT graduate
student (Chris Honstain) took on the
research project and it became the
topic of his Master’s thesis, titled Sales
and Operations Planning in a Global
Business.
BACKGROUND
vascucorp’s initial thinking was
to establish a common platform
that could be used within each BU’s
planning process. Since the two BUs
marketed products with vastly different
supply-demand characteristics, it felt
that the S&OP processes needed to be

Copyright © 2012 Journal of Business Forecasting | All Rights Reserved | Winter 2011–2012 15
separated in order to ensure that each
was planned in the best way possible;
thus, not imposing a single “one-size-
fits-all” process across them.
The first BU marketed the
manufacturer’s high margin, fast-
growing, and expiration-date sensitive
products on a global basis, while the
second BU also globally marketed
its low margin, steady-growing, and
non-expiring products. Each BU
served two regions, the United States
and International, and each BU had
its own distinct supply chain. The
first BU used two multi-plant supply
chains, with each one dedicated to
serving just one of its regions. The
second BU used a single supply chain
comprised of one plant and multiple
contract manufacturers to service
global demand across both regions.
In addition, the manufacturing lead
times were drastically different, twelve
(12) weeks for the first BU and two (2)
Figure 1 | The Oliver Wight Global Sales and Operations Planning Model.
16 Copyright © 2012 Journal of Business Forecasting | All Rights Reserved | Winter 2011–2012
weeks for the second BU.
We felt that the vastly differing
demand-supply characteristics of
vascucorp’s BUs made it a good case
study to research whether and how
to parse an S&OP process in order
to plan complex global businesses.
Much of the concepts developed by
the research could be applied to other
global businesses.
GLOBALIZATION
DRIvES INTEREST
IN S&OP
For the past 15 years or so that I’ve
focused on researching forecasting
and S&OP processes, I’ve noticed a
dramatic rise in industry interest in
both processes. In polling managers
(during my speaking sessions) about
their company’s use of S&OP, I’ve seen
the portion of managers saying that
their company uses the process change
from less than one-fifth to about two-
thirds of the audience. In addition, a
lot more has been written and spoken
about S&OP during this time, and
software vendors and consultants
have marketed enabling software and
services much more aggressively.
If I had to give just one reason for
S&OP’s dramatic rise, it would be the
growth in globalization. It has made
business planning processes much
more complex, rendering a single,
simple S&OP process too unwieldy and
cumbersome to adequately plan for
the more complex and risky business
environments.
To remain competitive, global-
ization has forced companies
into selling and sourcing from
multiple countries. Consumerism’s
rise (especially before the Great
Recession) in Western Europe and the
United States meant that companies
throughout the world focused heavily
on these major markets; selling
into them as well as working with
companies in these markets as their
suppliers and contract manufacturers.
This rendered supply lines longer
and more fragmented as companies
outsourced and off-shored substantial
portions of their supply chains.
Consumerism in the major markets,
as well as its growth in emerging
markets, meant shorter product life
cycles and broader product lines—
broadened organically and through
the merger and acquisition activities
of companies looking to buy customer
bases. Selling and sourcing in more
distant places also meant facing more
risks and uncertainties in both supply
and demand, across a more wide-
ranging supply chain.
RESEARCH FINDINGS
As part of our research, a variety of
practitioners from vascucorp and other
product companies, as well as industry
experts from consulting firms and
software vendors were interviewed.
In particular, the S&OP processes of
three companies were highlighted:
A consumer-product goods (CPG)
company, a pharmaceutical company,
and a petro-chemical company.
The CPG Company, which has
a very large portfolio of popular
branded products, highlighted some
of the best practices in Global S&OP
that we researched. It conducts over
90 distinct monthly S&OP processes
throughout the world by breaking up
the process along BU, product group,
and geographical market-based
dimensions. It clusters its business
entities in order to best represent pure
profit-and-loss (P&L) centers, in which
demand-supply planning decisions
can be made assuming a unique
Copyright © 2012 Journal of Business Forecasting | All Rights Reserved | Winter 2011–2012 17
supply chain or set of supplying plants
for each demand cluster. For each
distinct process there is a BU-based
manager who coordinates the S&OP
meetings, hence is the BU’s S&OP
process owner. In addition, there is
a corporate-wide “process owner” or
“center-of-excellence” that coordinates
the efforts of these BU-based
managers, providing them with rough
process guidelines, self-assessment
tools, and (annual) assistance so
they can measure the performance
of the process. Final S&OP plans are
consolidated and harmonized by
the Finance organization to provide
corporate executives with enterprise-
wide plans that show where the
company is heading from a financial
perspective, from 3 to 18 months out.
Other industry practitioners and
industry experts interviewed confirmed
the need to parse global processes, often
along BU dimensions, because planning
processes were becoming too unwieldy.
However, they also stated that the most
important aspects to consider in parsing
the S&OP process are the supply-
demand characteristics. The demand
characteristics include geographical
factors and product demand patterns,
while supply characteristics include
sourcing, production, and distribution
resources.
It is also important to be able to
consolidate or aggregate the parsed
plans in order to “harmonize” them
whenever there is limited worldwide
supply, and to ensure that they are
aligned to meet corporate goals and
objectives. In addition, the processes
should follow a common set of rough
guidelines and have a consistent set
of process performance measurements.
Otherwise the plans will not be “apples-
to-apples” for consolidation purposes.
Regarding rough guidelines,
I’ve often told an anecdotal story
about having a briefing session with
the Global S&OP team of a large
tire manufacturer. I was discussing
“unconstrained” versus “constrained”
demand forecasts, and the need
to focus on developing the former.
Afterwards, the S&OP process owner
asked each manager in the room
which type of demand forecast they
provide. The managers from North
and South America, as well as from
the European regions, stated that
they always provide an unconstrained
forecast. However, the Asia/Pacific
manager said he provides the
product levels he thinks he can get
because “they have never gotten
what they ask for.” In effect, his was
a constrained forecast predicted on
anticipated supply. Of course, the
process owner immediately jumped
up and strongly instructed the
manager to provide an unconstrained
forecast so that all regional forecasts
were consistent. This is an example of
a rough guideline.
RECOMMENDED
CRITERIA FOR
PARSING
The MIT thesis makes general
recommendations on how to parse
a Global S&OP process, along the
philosophy of having each S&OP
process best represent a pure P&L
center. It states that:
Within the supply chain, the char-
acteristics of the manufacturing
sites are the deciding factors for
the number of S&OP processes.
The specific characteristics that
are important are the number of
plants within each region, whether
the plant is dedicated to the
region or it is shared between the
 regions, and whether or not the
plant is centrally controlled or
decentralized. (Honstain 2007)
In this context, “regions” are defined
to be demand-side or market-based.
Regions are basically BUs or they
might be marketing and sales areas
such as typically defined by many
global companies as: North America,
South America, EMEA (Europe, Middle
East, and Africa), and Asia. Criteria for
how to parse a Global S&OP process
vary depending on four supply-based
scenarios as follows:
1. Single Worldwide Source: As
the simplest scenario, this is one
in which one and only one plant
manufactures and supplies product
on a global basis to all regions. Under
this scenario, one S&OP process
suffices and there is little reason to
break up the S&OP process.
2. Multiple Regional Source: This
scenario is one in which there are
multiple plants throughout the world
that manufacture product. However,
only one plant is dedicated to supply
product to each region. A plant may
supply multiple regions, but no other
plant serves these same regions.
Under this scenario, breaking up the
S&OP is recommended. Each S&OP
process would be defined to include
all regions that have common
product supply, and the demand
forecasts for these regions would
be consolidated during the process.
This establishes a pure P&L center for
each S&OP process.
3. Dedicated Regional Source: This
scenario is one in which there are
multiple plants throughout the
world that manufacture product.
However, each plant is dedicated
to supply product to one and only
one region; that is, plants do not
supply multiple regions. Under
18 Copyright © 2012 Journal of Business Forecasting | All Rights Reserved | Winter 2011–2012
this scenario, each region would
conduct its own independent
S&OP process since it is a pure P&L
center.
4. Multiple Shared Sourcing: This
scenario is complex, yet it is the
most prevalent among global
businesses. There are multiple plants
throughout the world that manu­
facture product; however, each
region can be served by one or
more plants. This is the most
complex scenario because supply is
shared among regions. Centralized
management is required to ensure
that global enterprise goals and
objectives are met whenever there
is contention among the regions
for constrained supply of product.
In this scenario, each region with
a supply resource should run its
own S&OP process, while regions
that don’t have a supply resource
in them should be grouped into
regions that do. The outputs from
these processes would provide the
inputs to an executive-level S&OP
process to be consolidated, and
to harmonize supply plans on a
worldwide basis. The thesis includes
Figure 1 (The Oliver Wight Global Sales
and Operations Planning Model) to
graphically show how regional S&OP
plans might be consolidated and
reworked based on what transpires
during the executive Global
Corporate S&OP process meetings.
CONSOLIDATING TO
MEET ENTERPRISE
GOALS AND
OBJECTIVES
Based on the supply-based
criteria above, it was recommended
that Vascucorp split its first BU’s
S&OP process into two parts. Since
the U.S. and International regions
had distinct supply chains supplying
product, there was virtually no benefit
from running one S&OP for both
regions. Additionally, a problem was
uncovered during the research that
dealt with the fact that there appeared
to be a disconnection between the
Marketing and Finance organizations
that manifested itself into the frequent
misalignment of updated financial
business plans and updated S&OP
plans. To solve this, the Finance
organization needed to get more
involved in the processes, and the
S&OP plans needed to be translated
more precisely into financial terms.
Lastly, since most global companies
are comprised of some combination
of the four supply scenarios described
above, consolidating and harmonizing
multiple S&OP plans at an executive
level is a critical aspect towards
getting a good global picture of the
future. Many companies that I have
dealt with need to do a better job of
translating their unit-based plans into
monetary-based financial plans. This
is critical when assessing whether
consolidated S&OP plans will meet
enterprise-wide financial goals and
objectives.
Whenever I’ve discussed having
to parse a Global S&OP process, I’ve
talked about the cautionary Humpty
Dumpty nursery rhyme. When he fell
off the wall, “all the King’s horses, and
all the King’s men, couldn’t put Hump-
ty together again.” In S&OP, you can
use the criteria discussed here to parse
your Global S&OP process, but like
Humpty, it is not an easy task to put
the S&OP plans back together again.
So tread carefully! (info@ibf.org)
Reference
1. Honstain, Christopher M. MIT Master of
Engineering in Logistics Thesis. June 2007.