The Most Important Performance Measures to Watch in Your S&OP Process


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This blog post was co-authored by Jan Veerman and Freek Aertsen, Partners at EyeOn Solutions. EyeOn Solutions is a valued Steelwedge Consulting Partner

S&OP is hot! Looking at the number of publications regarding sales and operations planning (S&OP) the last couple of years compared to the gross domestic product (GDP) growth, we see an increase of the S&OP publications when the growth of the GDP is declining. Less sales drives companies to look at parameters they can influence: their S&OP processes.

S&OP and GDPS&OP and integrated business planning (IBP) are getting more attention. According to the Gartner S&OP Maturity Model, companies are struggling to promote their S&OP processes from Stage 2 (Anticipating) to the next stage (Collaborating). An astonishing 67% of the companies cannot get beyond Stage 2!

So we know it is difficult to manage and mature the S&OP processes. But are we completely left without tools, tips or tricks to make the best of what we are doing right now? Of course not, there are elements to improve in the processes. It all starts with measuring the performance of the important S&OP processes.

Most important performance measures to watch in S&OP processes

What indicators are important in the S&OP processes? A lot! So we have to select the most important ones. Generally, in a make-to-stock environment, these are the most important measures to watch in your S&OP process:

1. Service Level

2. Forecast Accuracy

3. Stock Level

4. Factory Performance

Four S&OP Measures to Watch1. Service Level

The service level measures the performance of the whole logistics organization in meeting the customer service expectation. On Time In Full (OTIF) can measure the service level, and to reach a good OTIF level, all the functions of the supply chain have to work at their best level.

2. Forecast Accuracy

Forecast accuracy (FA) measures how well the company forecasted the demand compared to the actual demand afterward. The better and more consistent forecast accuracy is, the better the supply chain can handle the expected demand (resulting in lower stock and higher service levels).

Forecast error can be measured in many ways. The most popular are Mean Absolute Deviation (MAD), Mean Absolute Percent Error (MAPE), cumulative error and average error or bias (E).

3. Stock Level

Cash is king nowadays! Suppliers want to have their supplies paid at delivery, while your customers extend their payments terms. One way to deal with a possible shortage in cash (because it is also difficult to lend money), is to free up money invested in the stock levels.

By predicting the demand more accurate (see forecast accuracy) and actively managing the stock levels, a reduction of these stock levels can be achieved and generate the valuable asset: cash.

4. Factory Performance

The performance of the factory can be measured according different measures, like CLIP, RLIP or LAP.

Confirmed Line Item Performance (CLIP) is a performance indicator measuring delivery quality, meaning the percentage of order elements that was delivered at the date as committed to the customer.

Requested Line Item Performance (RLIP) is a performance indicator for the degree in which market demands could be met, measured as the percentage of order elements that are delivered by the company at the date requested by customers.

With the factory performance measures as mentioned above, the overall performance of the internal processes can be monitored and give the ability to look for improvement areas.

Integrated software solution

We briefly touched what we believe are the four most important measures to watch in the S&OP processes. Of course there are many more measures to watch, but we need to start somewhere! Start with your journey to become one of the 33% of companies that made the transition to Stage 3 in the Gartner S&OP Maturity Model.

But processes alone will not do the trick. In order to measure, monitor and react, you need also to have systems in place to facilitate these processes. These systems need to be agile to the same extent that the processes do.

Old-school S&OP software packages tend to take too much time to implement, adjust to the specific needs of the customer, and changes to the software afterward are a source of frustration. Truly integrated Cloud tools can make the difference here. Cloud tools have no hardware to setup and maintain and leverage the data already in your operational systems by connecting to the cloud solution, which comes with predefined calculations, analyses and reporting capabilities.

Steelwedge offers a solution that supports a true integrated approach in managing the supply chain, internally and extended to your suppliers and customers. With the discussed four most important measures to watch in your S&OP, supported by tools like Steelwedge, you should be able to make the leap to the next phase in the S&OP maturity model and reap the benefits: better performance, lower stock levels, increased availability and happy customers and partners in your supply chain.

For more information, contact Jan Veerman – Partner, EyeOn Solutions at jan.veerman@eyeon.nl and Freek Aertsen, Partner, EyeOn Solutions at freek.aertsen@eyeon.nl.

  • operationconsulting

    I’m not convinced that stock level is really an important performance metric. Depending on your setup, stock levels have different optimization points.

    peter – http://operationconsultinggroup.com