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:
|#1: Understand the purpose of S&OP||Blurring of the distinction between plans and forecasts||Establish a structured S&OP process that incorporates discrete demand and supply planning steps||The entire company agrees with the priority and goals for S&OP
|#2: Forecast Sales, Plan Supply||Shipment history as the primary basis for forecast||Create a standard process forecasting and then constraining demand. Adopt scenario planning approach.||Improved working capital utilization and customer service levels. Achieve demand-driven supply planning.|
|#3: Collaborate||Duplication of forecasting effort, mistrust of “official forecast”||Integrate financial planning, regional sales feedback and operations into decision process||All relevant information is incorporated into the S&OP plan. S&OP plan results are trusted by the entire organization.|
|#4: Eliminate silos of planning||Each function has its own forecast. Each forecast involves a different unit of measure, time period, or level of aggregation||Build a single, demand-supply planning infrastructure, conduct training and brainstorming sessions across functions||More accurate forecasts, constrained demand optimizes production capacity, reduces inventory levels and matches demand achieving improved customer satisfaction|
|#5: Adopt an S&OP automation solution||Tools are only used for statistical analysis, Spreadsheets are pervasive||Integrate quantitative & qualitative methods, automate workflow||Reduce latency in the planning cycle, more quickly react to unexpected events, develop what-if scenarios, engage executive in real—time decision making|
|#6: Prioritize S&OP||No accountability for S&OP plan
No cross-functional S&OP program
|Company understands implication of poor S&OP process. S&OP process accountability created. Top management supports process.||Team collectively focused on improving S&OP metrics, substantial financial benefits to company|
|#7: Measure Performance||Plan accuracy not measured, plan success measured at wrong level or period, no S&OP key metrics dashboard.||Multi-dimensional metrics created and incorporated into planning process. Accuracy is measured wherever and whenever appropriate.||Adoption of S&OP process is improved through accountability. Sources of error can be isolated and resolved. Improvement in confidence in plan.|
Each of these seven steps offers substantial opportunities for improvement. In coming weeks we will discuss these steps in greater detail. What barriers does your company face to adopting these steps?