Understanding S&OP

Talking S&OP with Patrick Vialle of Parmalat

Understanding S&OP

Based on a recommendation I got from Julie Egonidis of The Faculty off the back of its recent procurement roundtable series. I caught up with Patrick Vialle of Parmalat Australia to discuss an interesting S&OP (supply and operations planning) project the company has been working on.

Patrick has had a truly international supply chain career, having worked in France, Italy, New Caledonia and now in Australia where he’s employed as the National Demand & Supply Planning Manager for the dairy producer.

For those of you that are unfamiliar with the term, S&OP, put simply, it involves understanding the demand profile for your organisation’s end product and closely linking supply chain (and other functional) activity to mirror this demand.

It’s not just for FMCG

I was keen to get an understanding of how Parmalat was able to connect the dots between its market place demand and the supply and production of its own products. I thought, naively, that due to short shelf lives; S&OP was something that was unique (or at least more common) to the food and FMCG industry. But after chatting to Patrick I began to understand that S&OP is a solid business practice whatever industry you’re in. As Patrick points out, it’s all about being responsive rather that reactive.

Patrick explained how the theory of S&OP can be used by firms that don’t even produce a physical product. If Google, for example, is able to understand the demands that its network is likely to come under over the coming weeks and months, the company can start to make arrangements for the required storage and data processing capacity (their supply) to match these demands, hence avoiding an oversupply or worse, a crash.

Cross Functional by Nature

Speaking of his own experience at Parmalat. Patrick discussed the need for S&OP to be addressed from an organisation-wide perspective. “S&OP is, by definition, a cross functional process” he said. It might make sense that procurement or supply chain lead the project because they have close relationships with the supply base, but stakeholders from every area of the business need to be involved if the project is to be a success.

Patrick explained how the Parmalat team responsible for delivering the project was comprised of a mixture of professionals from Sales, Finance, Marketing, Engineering and Procurement. He also said the team was made up of ‘believers’ (those who were sold on the benefits of S&OP) as well as staff that needed some convincing of the project’s merit. This led to strong debate within the team and gave the group vital preparation for the sort of resistance they would face in the implementation phase.

Patrick went on to discuss that Parmalat rolled out the program initially to one category as a sort of pilot project; this process took about six months to get operational. Once the initial program was returning positive results, the firm looked to roll S&OP out across the business.

It doesn’t have to be Lean

I also questioned Patrick on the ‘lean’ aspect of S&OP projects. I feared that closely linking supply and demand could leave organisations exposed should something untoward or unplanned happen. Patrick explained that S&OP doesn’t need to be lean; you can plan for risks and have buffer stock just like before. “It’s all about being responsive to the different scenarios your business might face and having a plan to manage the impact of each of those situations,” he said.

The Benefits

Parmalat’s program has reaped huge benefits for the organisation. Numerous customer surveys have shown that customer service has improved drastically across the business. Supply is now faster and more reliable. Parmalat has not only become a better supplier, but the firm has become a better customer to its suppliers as they are now able to provide a clearer picture of what they will require and when they will need it.

The S&OP program has improved forecasting accuracy at Parmalat by a remarkable 60 per cent. This has been hugely beneficial in terms of reducing waste and optimising resourcing solutions.

Patrick’s story is another example of the truly innovative procurement work that is being discussed during The Faculty’s Roundtable sessions. If you are based in Asia or Australia and would like to get involved in their upcoming discussions, contact Max Goonan at The Faculty.