Sales and Operations Planning (S&OP) has undergone a resurgence in recent years, driven by greater understanding of its impact on the bottom line and enabled by a number of technological advances.
There are innumerable benefits to putting S&OP at the heart of growth strategies. Companies with a mature S&OP process see greater success in the execution of growth programs, new product launches, market penetration, pricing, and breaking down silos. It also promotes better understanding, communication, and collaboration between sales, operations, and finance functions. The result of this is the kind of agile, dynamic supply chain necessary to confront the challenges of the modern business environment.
However, despite growing recognition of its importance, it is stunning the number of businesses that still lack a mature S&OP process - or an S&OP process at all. In a recent Hughenden Consulting survey, around 85% of respondents claimed they were following S&OP with discipline ‘somewhat to completely,’ but 40% of these believed a mere monthly meeting was enough to qualify them, while 94% were making crucial supply chain decisions outside the process. Gartner have reported similar findings, noting that most S&OP processes never get beyond stage 2 of 5.
Achieving S&OP maturity is not an easy task. It requires investment in the technology and expertise to allow it to run effectively. We spoke to leading S&OP experts from five of the world’s most acclaimed supply chains, where S&OP has been embraced to the tremendous benefit of the company.
Robert Dietz, Vice President of Supply Chain at Charter Steel
The primary objective of an S&OP process is to align supply with demand. To do this effectively, the ‘right’ amount of inventory based on forward looking demand needs to be defined. The supply chain from end to end must also be reviewed so you can identify potential bottlenecks and proactively resolve them as needed. Be aware that non-manufacturing operations such as procurement, warehouse storage capacity or transportation can also be a constraint. On the demand side, know if your short term demand is tracking with longer term sales goals. If not, discuss what actions are needed to resolve the gaps. Include both customer service and financial results in your monthly meetings as execution issues may be preventing companies from achieving their business goals.
I often see companies try to merge both the master planning and scheduling activities into one process. Many companies also believe more complex technology solutions are needed to implement S&OP. Getting the process right is the most important part of an effective S&OP process. (The two most effective S&OP processes I have experienced leveraged MS Excel over existing ERP software.) Other errors include choosing to forecast at the scheduling/order entry level. Only forecast to the detail that capacity decisions are made and ensure the S&OP horizon exceeds the lead time required to change capacity.
Orhan Bazna, Senior Director of the Global Supply Chain, Gum & Candy Category at Mondelez International
The most important aspect of an effective S&OP process starts with designing what is the right supply chain for your business. What supply chain best fits to your business? Is it cost and scale, it is response time, it is customization? S&OP will be integrated with the business and supply chain strategy that is well designed for the purpose.
Michael J. Hassenger, S&OP Process Owner at Caterpillar
The most effective S&OP processes are well led. Leaders are engaged, spark and conduct spirited discussions and hold participants accountable for actions. From there, there are three main elements of an effective S&OP:
1. People: Are people clear on roles / responsibilities and do they have the training necessary to conduct their role properly?
2. Process: Is the process well defined in terms of cadence, sequence, and deliverables?
3. Technology: Are the right tools selected for the organization? Does system configuration support logic and consistent outcomes? Does it match your strategy?
Dwight Critchley, Director of Global Supply Chain Planning at BlackBerry
The biggest benefit is communication. It makes everyone look at the business long term and forces all the pillars to put their cards on the table. It should eliminate the hidden agendas and drive the organization to data-driven decisions. Plans are strategic, results are planned and expected… the business becomes more stable, repeatable, and predictable.
To work, the leadership needs to be willing to see and hear the unpopular. If your S&OP session feels like an Executive 'yes' session, then just stop and use the time for something else.
S&OP sessions also need to be well structured and well planned. They can be confrontational and that’s ok. But real decisions need to be made and sometimes there will be discussions around things that are not terribly popular.
Aparna Singhal, Director of Sales Operations at Google
To me, the most important aspects of an effective S&OP strategy is the connection between engineering, sales, finance and operations. It allows for the ability to hold teams accountable and be aligned to common goals.
Companies fall down when they don't implement a long term planning process and try to force fit short term needs. This occurs mainly when they lose the discipline.