The Sales and Operations Planning (S&OP) process is well known and understood in the world of supply chain management. In most companies, the monthly S&OP meeting brings executives from all major departments – sales, marketing, procurement, manufacturing, supply chain, distribution, and finance – together to align operational resources with strategic goals and tactical opportunities. The goal is straight-forward—profitably satisfy customer demand over the next quarter, year and beyond.
Although technology is an important enabler for S&OP, technology alone is not the answer to building a successful program. In a 2009 AMR Research report, Lora Cecere highlighted this fact when she wrote, “Successful S&OP projects focus 50% of their efforts on change management, 40% on process alignment, and 10% on the implementation of technology.” The quote may be a few years old but it holds true today more than ever. This trio of people, process and technology, is your foundation for success. This foundation provides needed structure along with the flexibility to evaluate and respond to a variety of business challenges and opportunities.
Critical to the success of any initiative is the people behind it. You need to ensure you have the right people for the job. Just as important, you must empower them. Provide each person with the authority to make decisions and drive confidence across the enterprise. From this confidence, your sales and operations planning process runs more smoothly, stays focused on the goals and helps ensure buy-in from all parties.
Earlier I mentioned several departments commonly associated with S&OP. Many companies are still working on how and when to engage finance in the S&OP process. The good news is they are engaging finance and have evolved beyond the volumetric or production-oriented view of S&OP. This is an important step which enables a company to align operational decisions with corporate financial budgets to free up working capital, evaluate investments, and drive your long-term success.
The process has to be well defined and aligned with the goals of the organization. Best practices have shown a great foundation is a 5 step process including:
1. Innovation and Strategy Review reminds us this is a forward-looking business process focused on identifying and understanding the impact of various business decisions such as new product introductions, market/channel development, etc. on sales, production, inventory, and finance.
2. Demand Review identifies the unconstrained mix and volume of products you could sell in specific time periods along with the desired level of customer service you strive to achieve.
3. Supply Review is based on the consensus demand plan and allows the supply team to determine how they can satisfy the demand plan. Here, two elements are crucial in determining how to profitably satisfy the demand plan – inventory optimization and production/procurement optimization.
4. Financial Review is an increasingly important step in the S&OP processes. While the demand and supply teams have kept the company’s overall objectives in mind, in many businesses some bias creeps into the process. The financial review step helps remove that bias and enables all constituents to agree on the profitability of balancing demand and supply as well as the ability to evaluate alternative plans that will be presented during the executive S&OP review.
5. Executive Business Review provides the executive management team with the information they need to make critical decisions over the S&OP horizon. Building off the information from the first four steps, this review produces an action list to move the company forward and sets in place contingency plans. Besides reviewing best case and alternative demand and supply scenarios, it is important to also assess internal and external risks to the supply chain.
I like to view technology as the glue that brings together the people and process. The right technology can significantly improve the quality and integrity of data to create a comprehensive plan that can be evaluated based on multiple units of measure (financial, volumetric, etc.), provide visibility into the future and drive the ability to evaluate multiple scenarios. The right tools also allow you to close the loop on the process, to ensure the agreed upon plan can be easily incorporated back into the supply chain, be repeatable and yet flexible enough to evolve as the business grows.
Sales and Operations Planning is critically important as executives try to strike the optimum balance between what generates the most profit and what will satisfy the company’s strategic and operational goals. Regardless of the rhetoric, remember your success it dependent upon the foundation you build with the right people, process and technology.
Contributed by: Karin L. Bursa, vice president at Logility
