The good news: 87% of companies see S&OP as key to driving better agility and growth in a tumultuous business climate. And, the average enterprise has at least five S&OP initiatives in play to handle better balance of supply/demand/ finance. These initiatives cross multiple dimensions including: business units, product families and geographies.
The bad news: Without a connected, collaborative view of S&OP across the enterprise, companies are leaving some pivotal business questions unanswered.
Following are a few questions you should be answering today as well as some perspective on the risk– or cost– of not getting them on your company’s radar. Are you answering the right questions today?
1. What is the variance between my revenue forecast, budget and compensation target by service line?
Cost of not knowing: inability to understand how much of budget should be allocated for each service line; and understanding which service lines are truly improving company performance vs. which are impeding company performance
2. How much revenue does each business unit expect to earn in the coming quarter?
Cost of not knowing: ineffective trade promotion budget allocation. In CPG industries if the revenue projection of each business unit is available then the optimal allocation of trade promotion funds can be made. In high-tech manufacturing environments, allocation of inventory can be done based on expected business unit performance. For instance: either upselling in high performing units vs. storing inventory at component level (rather than finished goods) level for poor performing business units
3. Which Business Units’ forecasts are above corporate plan?
Cost of not knowing : limited availability and awareness of the financial impact associated with the business unit forecast. For example, those BUs that have consistently not met forecasts and if they have provided current forecasts that are above corporate plan implies a level of risk that the executive management team has to understand. The key challenge with existing solutions is that they are designed to be operational supply chain planning tools rather than providing an executive S&OP dashboard with operational and financial metrics.
4. What is the variance between my forecast product revenue and my compensation target?
Cost of now knowing: misaligned commissions structure. For sales organizations , compensation is mainly based on commissions and meeting forecasted sales. Having direct visibility of the variance between forecast product revenue and compensation target will provide positive motivation for the sales force to meet targets versus if the information is not readily available in operational supply chain planning tools This kind of data is usually resident in CRM systems like Siebel or SalesForce.com. It is important for the S&OP solution to provide integrated visibility to sales performance and how it ties to operational performance.
5. Do any business units predict significantly more or less revenue than last quarter? Why?
Cost of not knowing: the potential to miss budgetary and AOP targets. If there is a revenue reduction trend that exists then it is important to know this as soon as possible so that corrective measures can be taken. Revenue is a mix of price and volumes. It is important to know if one unit predicts significantly more or less revenue than previous quarter, why so? This question, in turn sparks more follow ups, such as: Is it because of poor sales or is it because of poor pricing? What is the current margin at the product family level for current quarter versus last quarter? Have there been seasonal factors resulting in reduced volumes? Are there quality issues forcing reduction in volumes?
While good S&OP practices answer supply and demand balancing at either a corporate or a departmental level, great S&OP can take a much tighter look at interdependencies, sort out root causes and impact across both departmental as well as corporate S&OP Processes. What questions aren’t you answering with S&OP? Let us know.