Using S&OP to Reach Equilibrium – 5 Qualitative Factors


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EquilibriumEquilibrium is the state at which market supply and demand are in balance. It’s common sense to want to produce the amount of product that the market will bear, but that has traditionally been a difficult goal to achieve given the nature of change in today’s markets. Sales and operations planning (S&OP) as an integrated business process has been around for more than 30 years. Success, however, still has varying levels of attainment.

Traditional supply chain planning has been focused on improving the work conducted within organizational silos that contribute to operations. From raw materials to production to sales and service, there are many steps and processes that cover the supply chain from end to end. Coordinating these and gaining visibility of the “big picture” is the outcome that S&OP brings to help companies close the variance between forecasted and actual equilibrium.

While there are plenty of quantitative factors that apply to S&OP, including improved inventory management and more predictable revenues, it’s important to consider the qualitative aspects of how a successful S&OP process can transform your business environment.

5 Qualitative Factors for S&OP:

1. Improved Teamwork: Collaboration is one of the key elements of a well-executed S&OP process. Rather than working in organizational silos, people begin to work cross-functionally, applying the insights from one part of the business to how they may impact another. This collaboration also helps direct reports view the business through the “glasses” their bosses use, helping them to see further than the immediate situation they deal with on a daily basis. This improved understanding can help teams to better achieve both short- and longer-term goals for the business.

Question: Has teamwork in your company visibly improved since you’ve implemented S&OP?

2. Decreased Firefighting: If you can’t get demand and supply to balance routinely—not all the time—then your S&OP process is not what it should be. If the norm is expedited firefighting on a daily basis, it’s likely the result of a lack of cross-functional communications. Those communications should enable teams and departments to proactively make adjustments based on timely information communicated from another area that has direct implications to responsibilities in another. Cross-functional collaboration is necessary for the identification and resolution of problems and issues.

Question: Has firefighting decreased since S&OP was put in place?

3. Fewer Surprises: With S&OP driving a consolidated operational plan with improved teamwork and decreased firefighting, issues can be identified more quickly to keep them from becoming real problems. There’s no uncertainty about which numbers to use for decision making because everyone is working from the same numbers. And, with the ability to look down the road, past the immediate time frame, your teams can see things coming and become more proactive and predictive.

Question: When surprises occur such as demands spikes, or supply crashes, does your S&OP process allow for mid period adjustments to be made quickly?

4. Forward Visibility: A best practice for S&OP is to have 18 months of forward visibility. This length of time is important because it covers an entire fiscal year, including the span of time for planning. When you have a forward, rolling organizational plan, each month during review it is adjusted. This way, you not only see things coming, but there is much less work to do during the traditional planning exercise because the plans are being scrubbed continuously to account for changes over time and their projected impact.

Question: Does your annual financial planning process use demand plans and supply plans from executive S&OP or does all of the data it uses come from other sources?

5. One Set of Data: Even though different departments need to view numbers differently—for example, finance in dollars, supply chain in volume, and operations in hours—it’s critical for S&OP that all departments are working off the same set of numbers. When each business unit is calculating from the same starting point, then equilibrium or balance is more likely to be achieved. Without it, the variance between forecast and actual will continue to produce a noticeable gap.

Question: Are all departments working from the same set of numbers?

These qualitative factors are important indications about how well your company will be able to use S&OP to reach equilibrium between demand and supply, and each of them plays a role in how well your company will be able to reach beyond the basics to support strategic initiatives.

Do you have any other qualitative benefits that you measure in your S&OP process? Let us know in the comments.