What Is xP&A Exactly and How Does it Relate to S&OP?

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Meet the Experts

  • Jay Foster

    Global Director, Solution Management, Supply Chain Planning at SAP

    Expert since 2023

Key Takeaways

⇨ There is no simple one size fits all solution for supply chain issues.

⇨ xP&A is simply the process of aligning both financial and operational planning in meaningful ways that improve all planning processes and provide better corporate outcomes.

⇨ xP&A is not a replacement for S&OP, it includes other planning processes beyond FP&A and S&OP.

Unless you’ve been locked away in a dungeon for the past couple of years (and that is true for some of us), you have heard the term Extended Planning and Analysis or seen its acronym xP&A and wondered about its relationship to supply chain planning. Let’s try and make those connections.

As with any new term or idea, it is probably best to begin with some type of definition and the problem statement that caused this to become a thing. More simply said, why are we even having this conversation?

First, it is necessary to understand that xP&A is a process with evolving definitions – not a defined science or specific piece of software. Second, it is necessary to unpack what is both a simple yet complex and potentially confusing set of statements made by Gartner who is credited with both coining the term and providing the initial definition. This is a rough approximation of the continually evolving definition:

“xP&A consists of Financial Planning and Analysis (FP&A) and multiple packaged operational planning solutions delivered on a single integrated, composable, data-harmonized vendor platform. It ‘extends’ traditional FP&A solutions focused solely on finance into other enterprise planning domains such as workforce, sales, supply chain and marketing.”

These sentences sound reasonable on the surface, so let’s accept them as is for the moment and even augment the definition for clarity’s sake. This definition doesn’t specify or imply that FP&A is performing operational planning, but that financial planning needs to be connected in meaningful ways. It does imply that operational planning needs to have visibility into the financial implications for every decision made and that FP&A needs to have ready access to the financial implications of any operational plan, alternative or decision.

Now for the why. One of the criticisms and accusations that float around many enterprises is that Finance is disconnected from the realities of running the business and there is often some truth to that accusation. A counter-accusation is also made that Operations focuses on delivery at the expense of profitability. Again, there is some truth here. Both of these very real business behaviors and their associated and often conflicting KPIs result in sub-optimal results for the corporation overall and have real financial and operational consequences. Buried in all of this are several inconvenient truths. In this series we will face those truths head-on and discuss and address some big broad questions that will lead to discussions on related topics and other questions that will have to be answered to resolve the bigger questions.

Business executives are desperately grasping for a solution that will help them prevent a repeat of the previous few years’ supply chain insanity. The first truth to reveal is that there is no “one size fits all” answer or “silver bullet” solution or magic pixie dust to sprinkle on and solve all aspects of this recent history and that in some cases there will not be an available answer. Acknowledging all that, then the first big first question to be answered is: What does xP&A bring to the table to help mitigate these challenges? The second question to be answered is: How does xP&A fit in with other operational planning activities? A third and final big question in this series is: How does one get started on an xP&A journey?

Does Extended Planning & Analysis (xP&A) Spell the End of Sales & Operations Planning (S&OP)?

Discussions around xP&A use words and expressions and concepts that sound eerily similar to the process known as S&OP or its more sophisticated and extensive process called Integrated Business Planning (IBP). As we are recovering from the effects of an unprecedented global business disruption; planners, managers and executives are looking for that silver bullet to insulate their companies, their customers and themselves from the stress and uncertainty we have all recently experienced. Simultaneous to this, an interesting conversation is developing in the planning world in general and in supply chain planning specifically. Leaders are now questioning the efficacy of traditional and historical planning practices such as S&OP. For the purposes of simplicity and clarity, we will use S&OP as the label for the S&OP/IBP processes.

Coupled with those probing and challenging questions has been the emergence of the new planning approach called xP&A. Is this a replacement for/ improvement to S&OP? To address those questions, it is necessary to drill into the reasons given for needing xP&A and to get past the hype and focus on truths, however inconvenient they may be.

In the initial chapter of this series, we described the disconnect often found between Finance and Operations. So, the next level questions to be answered are: What does xP&A bring to the table to help resolve this issue and does it render S&OP (and other operational planning activities) obsolete?

Is S&OP dead or just a convenient scapegoat?

Discussions with hundreds of companies over the years have revealed that best practice S&OP or IBP processes are rarely implemented. While most companies have some version of what they call S&OP there are so many deviations from the defined processes that it is right and reasonable to question the efficacy of those processes. The truth that we must face is the answer to that question. The sub-optimal outcomes are not shortcomings of the methodology but failures to understand, implement and support the required discipline and rigor of the process.

The global pain we have all suffered recently has shortened our vision and made us necessarily and understandably more reactive and left us searching for some magical something to protect us from a painful repeat of that experience. Here is the next inconvenient truth: Nothing could have, or can in the future, predict or protect us from such a globally scaled disruption. We haven’t had such an event of this magnitude in any of our lifetimes. There was no data to analyze, no history to draw from, no leading indicator, no tribal experience that could be leveraged to help us buffer our companies from those disruptions.

This was truly a global anomaly, an outlier that machine learning and statistics would routinely exclude for consideration in future plans. Could S&OP, or even should S&OP be able to insulate a company from our recent global insanity? Short and truthful answer, not at all. Searching for a scapegoat or a silver bullet is wasted energy and resources.

Consideration of and inclusion of variability factors in the S&OP and FP&A processes has been, and still is and should be, meaningful inputs to developing both financial and operational plans that buffer for reasonable variability in normal business conditions. These two planning processes, properly deployed and with the right technology, does this extremely well over the relevant planning horizons. This provides significant value to an organization from a tactical decision-making perspective. It also provides meaningful data to support what is now considered xP&A.

So, is S&OP dead? Emphatically and enthusiastically no. xP&A is simply the process of aligning both financial and operational planning in meaningful ways that improve all planning processes and provide better corporate outcomes. It also includes other planning processes beyond FP&A and S&OP. This series will focus on FP&A and S&OP as co-dependent processes with their own unique requirements and perspectives that, when properly aligned, support the concept of xP&A.

Stay tuned for more details as we expand on these topics and describe how SAP Integrated Business Planning and SAP Analytics Cloud combine to augment each other’s processes and support the xP&A concept.

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