Sales and operations planning (S&OP) has been around for some 30 years now, during which time it has risen and fallen in terms of importance. The economic challenges and technological advances of recent years have seen it enjoy something of a resurgence, with it being more vital than ever for companies to balance supply and demand, maintain inventory levels, and hit projected revenue and profits.
S&OP is one of the key drivers of an effective growth strategy. A company that has mature S&OP processes will be more successful in executing growth programs of new product launch, market penetration, and price/promotions. It helps develop better understanding, communication, and collaboration between functions - improving agility, while at the same time making organizations more dynamic and less reactive. However, this is when they get it right. Many are still getting it wrong.
In a Hughenden Consulting survey, roughly 85% of respondents claimed to be following S&OP with discipline ‘somewhat to completely,’ yet just 40% said they thought a monthly meeting was enough to qualify as S&OP, and 94% were making crucial supply chain decisions outside the process. This complete lack of understanding in what qualifies as good S&OP is reinforced by a wealth of other evidence. Gartner, for one, tell us that most S&OP processes never get beyond stage 2 of 5, while the S&OP Pulse Check 2015 found that 32% did not believe there was a difference between S&OP and IBP, while 20% said they didn’t know. The key to S&OP is collaboration, and if people can’t even agree on a definition, obviously this is going to suffer.
This lack of understanding about what S&OP processes are, is reflected by senior management, with 63% of respondents citing a lack of senior leadership support as one of the main roadblock to implementation. This shows little improvement from 2010, when 68% said the same. Meanwhile, the survey also found that 51% claimed that process discipline was a major obstacle, something that would be easily fixed with effective leadership.
In order for S&OP to operate effectively, everyone first needs to understand what it actually is. They then need to implement it properly and maintain lines of communication. Many businesses are struggling to get everyone talking and working together as they should, but there are many solutions for this. Too many companies develop and manage separate demand plans and supply plans in isolation, only coming together with an aggregate or volume plan during the S&OP meeting. A mere monthly, or even weekly, S&OP team meeting is not enough, and communication needs to be continuous, but it also needs to be structured. S&OP discussions typically take the form of unstructured communications, which mean that a wealth of valuable knowledge for decision making and risk management is being lost because it is taking place in channels unsuited to the activity. Comments are mislaid, misconstrued, and there’s an audit trail. Even basic tools like Slack can provide these things.
With the technology available, it is stunning that companies are still getting such basic things wrong. Whether this is down to a lack of understanding, or simply just not having an awareness of how important S&OP is, organizations need to buck their ideas up.