FP&A and S&OP are two of the most important strategic processes for companies to get right. Both departments have grown in stature in recent years as the business world has changed, particularly in companies dealing with the hangover of the financial crisis. They are both now looking to take more of a role in the managerial decision making processes, and have been aided in similar ways by new technologies. Big Data analytics, in particular, is helping them to become more responsive, and has made dynamic forecasting a reality. Asking which one adds more value to their organization is a bit like asking whether Rizzo or Gonzo is the more important Muppet. They’re both in the mix, one’s just a bit more understated about it than the other.
The main benefit of FP&A is that it helps to predict the outcomes of decisions. It does this by analyzing past performance and current actions, requiring the right data to be readily available wherever necessary. Clearly, knowing the outcome of a decision is a tremendous business advantage. Evaluating both the positive and negative impact of decisions is essential to success and mitigating risk, and helps greatly when establishing a number of planning components going forward. Well managed FP&A will not only reduce costs, but add value when it comes to helping partners make choices.
S&OP, on the other hand, is one of the central components of effective supply chain management. It helps to reduce supply chain inefficiencies by creating a holistic approach, getting the whole company working towards the same goals. This enables firms to cut down greatly on the waste that arises as a result of poor communication. The knock on impact of delays that can occur in the supply chain can cost companies large sums, and in smaller and growing companies in particular, cutting down on these could be the difference between failure and survival.
When it comes down to it, measuring which one adds more value to a company is near impossible. The supply chain is becoming increasingly important as a result of globalization, and it must be more responsive than ever to change, and able to react almost immediately to mitigate risk. S&OP can solve these issues when handled correctly. FP&A contributes so much across the entire organization, from budgets to forecasting, without which S&OP may very well be irrelevant.
An American Productivity & Quality Center survey found that 50% of respondents believe the value FP&A delivers in their organization ‘is not optimized.’ S&OP is similarly hard to get right, and many firms are failing in their running of it. The question of which theoretically adds more value is really secondary to the question of how to get both running to their maximum capability. When that happens, they are both vital to an organization that wants to maintain a competitive edge.