Sales and Operations Planning (S&OP) is a function that corporate executives often fail to recognize as a key contributor to success.   From a revenue perspective, an accurate S&OP plan allows for high levels of customer service.  When demand is predicted accurately, it can be shaped and met in a timely and efficient manner.  Of course, accurate forecasts help organizations avoid stock outs and lost sales.  The impact of an inaccurate S&OP plan on profit margins is also profound.  Raw materials and components are more cost-effectively acquired on the basis of advance planning instead of last minute, rush orders.

The impact of excellence in S&OP is profound.  In a number of cases, clients working in tandem with the Steelwedge team to develop, improve or automate their S&OP processes have seen increases in product margins of upwards of five percent and reductions in inventory levels of over fifteen percent.   In spite of such tangible benefits, many companies fail to prioritize this critical executive process.  Although no management function can be reduced to seven items or even seventeen items, there are certain basic S&OP improvement lessons learned that can be generalized across clients and industries.

Each of these steps is summarized below:

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Photo: Comparison of the ship sailed by Christopher Columbus with the giant ships sailed by Zheng  He in 1405 (source:Wkikipedia)

The world of global sourcing, manufacturing and distribution is rapidly turning upside down.  Just a short time ago many pundits relegated India as a place filled with IT genius and broken infrastructure totally inhospitable to manufacturing.  After all, China was the place for manufacturing.  However, with each passing day history is moving in full circle.

It was very precisely 606 years ago that Zheng He, representing the Ming Dynasty, made his first trading voyage from China to India. He visited Calcutta, Cuchin, Sri Lanka and other well know places during his journey, traveling in a fleet of ships in 1405 that dwarfed in both size and number the ships that Christopher Columbus later sailed in 1492.  With these enormous ships Zheng He established a brisk trade between India and China in a twenty-five year period.  At the time it was the world’s largest sea trade.

European ships would not surpass these enormous Chinese vessels in size, sophistication or capacity for another 400 years.   Zheng He also managed to clear the seas extending all the way to the Horn of Africa and Somalia of pirates that had long plagued traders.

Today, analysts predict that the volume of trade in manufactured goods between China and India will surpass that of any other global trade route by the year 2020.  And just a few months ago China surpassed every other country in the world other than the United States in terms of economic output.  Anyone intrigued by the world of maritime shipping is aware that the biggest “post-panamax” ships were recently built by Chinese shipyards and are now operated by Chinese shipping concerns.  Those in involved in…

I’ll be participating in my first Twitter chat tomorrow – I hope you’ll join me! The topic is The Continuing Emergence of Sales and Operations Planning. We’ll be live on Tuesday April 26 at 1pm Pacific time / 4pm Eastern time.

I’m going to be the guest for #SCMchat, hosted by Jeff Ashcroft  aka @SupplyChainNtwk. Here’s what Jeff has to say about it:

#SCMchat allows us to get to know SCM greats better & also get together to discuss cool SupplyChain and Logistics topics.

To chat, simply use the hashtag #SCMchat to be included in #SCMchat transcript. If you aren’t on Twitter, you can follow along using your browser to just listen! http://bit.ly/fJqqdf

Participants will have a chance to ask questions. The challenge will be keeping answers to 140 characters!

Do companies need to substantiate and quantify critical risk scenarios as part of their planning process?

Financial analysts evaluate return and earnings potential on a risk-adjusted basis. In other words, analysts incorporate an understanding of the volatility associated with returns when evaluating the underlying value of a business.

Today the only certainty is uncertainty.  How can one plan in a world seemingly dominated by unanticipated terrorist events, political upheaval in and around oil producing nations, natural disasters striking presumably well prepared, developed economies wreaking global havoc, and energy production disasters of all sorts?

What does this mean for planners? Validated and informed risk management and risk-based decision making is more important than ever.  Quantitative support and innovative solutions can help measure and estimate impacts; facilitate key business, financial and operational scenario management, and reduce the uncertainty attached to strategic growth, budgeting, change, and macroeconomic volatility.  In this environment sales and operations planning must truly be transformed into some sort of risk-adjusted integrated business planning scenarios (IBP).

What Will You Say When Shareholders Ask: “What Happened?”

Accurate quantification and assessment of risk is paramount to an organization’s success.  Executives need to ensure that their organizations are undertaking an efficient and effective process of quantifying risk.

Are key decisions made in the context of risk-adjusted scenarios?  Should we be doing some sort of actuarial analysis?

Is there an understanding of the full range of financial outcomes associated with a particular S&OP scenario?

Can we able to back up our scenarios with substantiated, sound, risk analysis?

Do we know how much risk and/or volatility can be sustained?

Does our organization have the right tools to navigate inevitable “Black Swan” events that will disrupt the best laid S&OP scenarios?

Are we confident that we have posted liabilities to match the risks our organization faces?…