Sales and Operations Planning (S&OP) has undergone a surge in popularity over the last few years, with major improvements in data management systems enabling a shift from a reactive practice looking only at historical data, to a forward-looking practice able to predict customer needs. Consequently, S&OP has become one of the key drivers of an effective growth strategy. Companies with a mature S&OP process are proven to be more successful in executing growth programs, new product launches, market penetration, and pricing. It also promotes better understanding, communication, and collaboration between functions. This, ultimately, leads to a more agile, dynamic and less reactive supply chain.
Best S&OP practices are much debated, and as the business environment changes as a result of new technologies and techniques, these are constantly having to adapt. There is, however, now a commonly agreed maturity structure.
Speaking at the S&OP Innovation Summit in Las Vegas in January, Michelle Davis, Director of S&OP at Cisco, discussed the tech giant’s journey with S&OP. They begin with demand planning, which looks at basic supply and demand. This progresses to S&OP, which entails flexibility planning and some consideration of financial impacts. This develops to partnering with finance, then regional S&OP whereby it is split into regional S&OP so local sales can be aligned, then sales and revenue planning partnerships whereby all are finally aligned before reaching the ultimate goal - Integrated Business Planning (IBP).
IBP aims to fulfil the same functions S&OP does, but incorporates a variety of other elements across the supply chain, including financial modeling and project strategy. A successful IBP will involve the chief financial officer (CFO), whereas S&OP will not necessarily do so. The main difference is on emphasis. The arguments for a shift from S&OP to IBP rest on the principle that in the traditional S&OP process, financials are considered, but are not typically a key driver for planning. IBP is not really a replacement for S&OP; it incorporates and expands S&OP through increased scope, outlook and planning term. They both look to satisfy demand, but IBP is more active in that it helps companies optimize business results through considering more factors over a longer term.
In a recent survey by JDA/SCMWorld, 63% of more than 1,000 supply chain executives questioned said they believe that making the move from S&OP towards IBP has been beneficial, noting that their company’s IBP is effective and impactful, and offers them greater risk management and resiliency capabilities.
The survey also revealed several other benefits for companies that have implemented IBP. The study found that organizations who claimed their IBP is effective and impactful are almost three times as likely to have real-time visibility to risk issues compared to those who lack an IBP process. However, while the benefits are being realized for those companies who do use IBP, another survey conducted by Oliver Wight, the visionary behind IBP, also found that many are failing to align their IBP and S&OP initiatives with the financial piece of the puzzle, with 45% of S&OP professionals saying that they did not account for financial controls when pursuing an IBP initiative, and only 28% saying that those controls were fully aligned with overall financial objectives. Organizations that do not do this are not practicing IBP, they are still practicing S&OP. Such organizations are failing to allocate people to where they need to be, and lacking the necessary tools to operate their supply chain efficiently.
Cisco’s Michelle Davis explained some of the other things the tech giant was looking at to enable the transformation to IBP, noting that, ‘you have to tie the decisions you’re making to the financial impact, and then you have to run scenarios against it.’ This is key. IBP enables you to become a truly forward-looking, it’s not about post mortems, it’s about planning for the future and scenarios are essential for showing how successful the plan currently is so it can be adapted. They have put a center of excellence in place to ensure IBP was used effectively. When implemented successfully, IBP enables complete transparency of operations, making supply-chain risks far more easy to manage and mitigate against, and giving decision makers more in control of the business. IBP at its core is about aligning and synchronizing the company – aligning who does what and synchronizing when it is done. When this process is done right, each operational function, including finance, enables informed decision-making for company executives and their strategic planning for the organization at large.
Companies that do not have at least some degree of S&OP, even if it’s at the most basic level, will invariably struggle to compete against companies that have effective S&OP/IBP processes. It is a long road to IBP, but one well worth traveling.