Beyond the tactical: Five strategies for using S&OP to drive maximum benefit
Manufacturers and wholesalers-distributors are hard hit by an unprecedented confluence of economic conditions negatively impacting consumer spending. The economy is forcing companies to scrutinize their business strategies and better align their changing demand patterns with their capacities, resources, marketing programs, and budgets to ensure they are investing in those product lines and channels of sales that can deliver the highest profits during these volatile times.
Leading companies, recognizing the need to transition from disparate, decentralized business decisions, are rethinking the role that sales & operation planning (S&OP) can play in managing their businesses. They are moving beyond purely tactical approaches of using S&OP as a means of balancing supply and demand within their supply chains, and instead using it to align product launches, marketing & sales programs, production plans, and resource allocations to ensure their investments are being made appropriately to achieve business objectives.
Here are five strategies, based on industry best practices, which can help companies develop, implement, and maximize the benefits of next-gen approaches to S&OP.
1. Transition S&OP from tactical to strategic.
The view of S&OP as a means to tactically balance supply and demand within the short-term horizon in the supply chain is restrictive. Leading companies view S&OP more strategically, shifting from a purely tactical implementation to utilizing S&OP for strategic integrated business planning. A strategic S&OP orientation aligns all supply chain plans with the corporate financial objectives and strategy, eliminating internal and external silos and taking a company to the next level of planning.
| Related reading: Filling the gaps in S&OP
A solution that has the information and workflows to support proven S&OP best-practice processes will then synchronize supply, demand, marketing programs, sales programs, financial goals, and the achievement of a strategic business plan. Using S&OP to focus on the medium- to long-term horizon where decisions can have a strategic impact has delivered significant improvements to companies that have truly adopted S&OP as an integrated business process.
2. Cross-functional people and process integration.
In an industry best-practices survey conducted in April 2008, 89 percent of respondents said they use S&OP or some other process for balancing demand with supply. For 38 percent of the respondents, the supply chain organization was taking the lead to deploy and facilitate the S&OP processes. A majority (60 percent) used their S&OP processes as a means of managing the supply side of their businesses.
Next-gen S&OP processes and solutions are bridging gaps between the demand and supply side of manufacturing operations, logistics, purchasing, and upstream suppliers while also integrating profitability analysis and securing senior leadership involvement to drive strategic business decisions. Synchronizing plans upstream and downstream leads to the best possible decision-making process for demand-side sales, marketing, financial, and supply-side operational plans—for a far faster ROI.
3. Leverage an integrated S&OP solution.
Companies traditionally employ a range of software applications to support S&OP processes, often requiring time-consuming data extracts and manually transposing data into multiple spreadsheets and reports. But disconnected software applications can place a company at risk without dated data lingering on desktops—fostering inconsistencies in terms of analysis assumptions. It doesn’t take long for downstream users to start questioning data integrity, allowing problems to arise. An integrated solution with built-in, best-practice workflows delivers significant benefits by reducing resources spent collecting and analyzing data, building spreadsheets, and transposing the data into presentable formats to support management review.
The right next-gen S&OP solution has effective capabilities for forward-looking views of the business to support the appropriate product, demand, supply, financial, and management reviews in a graphical orientation that quickly identifies business impacts, leading to rapid, informed decision-making.
4. Incorporate key corporate metrics and long-view forecasting and planning.
S&OP has the power to impact key corporate metrics, including improvements in customer service, inventory levels, as well as purchasing, production and expediting cost reductions. The process ideally provides continuous improvement in inventory turns, sales, cost metrics, and manufacturing efficiencies—with relevant benchmarks linked directly to individuals involved in cross-function processes and held accountable to a unified S&OP plan.
Industry best practices have evolved from short-term demand and production planning to a more strategic time horizon and attainment of corporatewide goals and financial commitments. Companies that previously may have had only a cursory understanding of current fiscal year projections are now able to expand their horizon to two to three years or more. Leading S&OP solutions offer unconstrained and constrained views of demand and capacity needs for proactive long-term planning—facilitating optimal responses, as well as shaping future demand to meet business objectives.
5. Formalize leadership structure and accountability for optimal S&OP benefits.
In JDA’s survey, nearly 75 percent of respondents cited corporate culture issues as barriers to effective S&OP implementation. In particular, there was a lack of leadership and support from executive ranks, with only 16 percent of CEOs regularly involved in the S&OP process. Accountability was low across the board. Additionally, demand and manufacturing plans were most commonly cited as the sole outputs of S&OP.
Cross-functional integration optimizes transparency and facilitates better communication from upper management, with clear lines between leadership decisions and their impact on departments and results. The process should be formalized and spearheaded by senior management on a monthly basis, evaluating and making decisions based on accurate time-phased projections that ensure corporate objectives and strategies are attained.
Forward-thinking companies are already implementing best-practice S&OP processes and technology to synchronize their supply, demand, and execution to achieve the desired financial results. While an ambitious goal, the process can be approached incrementally as resources permit. S&OP integration is applicable to virtually all enterprises—regardless of their capabilities, size, and industry. The right strategies can yield dramatic and brisk returns in terms of inventory reductions, improved fill rates to customers, reduced costs, and enhanced revenues. Those companies that succeed in planning beyond near-term forecasts and short-term goals will find themselves well positioned to compete despite volatile market forces and future economic conditions.
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