A well-run Sales & Operations Planning (S&OP) process is recognized by almost all companies as a mark of operational excellence. A recent survey of 805 companies for the “Supply Chain Executive’s Strategic Agenda” report by the Aberdeen Group identifies S&OP as the number two area of focus for companies. This recognition has been encouraged by:
• Rising supply chain costs, including transportation and inventory carrying costs
• Increased customer service expectations
• Volatile market resulting in high demand uncertainty.
Although companies recognize the need for an S&OP process, very few companies use it effectively to gain a competitive advantage. Many companies think they are implementing S&OP simply by conducting a monthly supply chain meeting. There are a number of reasons why the S&OP process at most companies is less than optimal.
First, a good S&OP process requires effort in data acquisition and data cleaning. Capacity and demand data is often not defined at the level of detail required to support operational decisions. We often encounter situations where the capacity is defined at too high a level to address critical issues of product mix. For effective S&OP, enough effort needs to be put into developing a consensus on the key inputs like capacity, demand, prices and costs.
Good data leads to a successful S&OP implementation by emphasizing and helping fact-based decision making. According to the Aberdeen report, Best-in-Class companies have been found to be more than twice as likely to have the ability to consider major constraints during supply demand balancing. An integrated planning process must be supported with tools that allow detailed “what ifs” and the capability to compare different options. All too often, the tools used are either derived from the company’s ERP system or spreadsheets, neither of which provides a robust modeling environment for exploring options quickly.
Quantitative models that reflect the major operational constraints can be invaluable in driving to a consensus. They provide an agreed-upon framework for validating assumptions and comparing options. A quality S&OP process is more than a meeting. It is an active exercise which culminates in a forum at which the sales, marketing, production and other departments agree to a consensus plan that is aligned to business goals. In fact, some practitioners have started to call it Integrated Business Planning to distinguish the process from the meeting.
A second key element in ensuring a successful S&OP implementation is active participation from different parts of the organization. Whether it is called “Integrated Business Planning” or “true S&OP,” successful companies most often structure the organization with an emphasis on a centralized S&OP group that is cross-functional and led by a full-time coordinator.
According to the Aberdeen study, Best-in-Class companies are two times more likely to have a full-time S&OP coordinator managing the S&OP process compared to all other companies. Additionally, organizations with an S&OP coordinator are three times more likely to have the involvement of a cross-functional team in the S&OP process.
Supply Chain Consultant’s experience supports these conclusions: wherever Sales and Operations Planning is perceived as a means to competitive advantage, one will almost always find a cross-functional team with a full time coordinator, often at a very high level in the organization.
Aberdeen’s research finds that Best-in-Class companies have either a VP of Supply Chain or Director of Supply Chain, with a new trend toward Chief Supply Chain Officer. By creating these high-level supply chain positions, there is a greater tendency toward elevating the supply chain’s visibility within an organization, and ultimately tying it into a company’s overall business objectives.
Institutionalizing the S&OP process within companies remains a major challenge because a well-run S&OP process can be its own worst enemy. The biggest benefits of S&OP are the problems that it avoids, rather than the ones that it helps to solve. In our experience, companies routinely question whether the monthly S&OP meetings are even necessary if problems are not occurring. All too often, the process lapses and difficulties arise once again. The good news, however, is that the above-mentioned trend of high ranking positions leading the supply chain helps counter this tendency.
Our own experience indicates that implementing a quantitative modeling framework simultaneously (and in steps) with the process changes helps to make the S&OP process sustainable because it captures and stores key business knowledge and experience that is sometimes lost due to personnel changes. This, combined with a central organization and rigorous metrics, can go a long way towards avoiding lapses in the process.
As an ever-changing economy forces even more organizations to examine S&OP, these factors and the knowledge and experience that many Best-in-Class companies bring to the table will be even more critical in ensuring future successes.
As chief operating officer at Supply Chain Consultants, Sujit Singh is responsible for the delivery of software and implementation services. His industry experience includes work in the chemicals, semiconductor, and consumer packaged goods (CPG) industries. For more information visit, www.supplychain.com