Another major concern that has surfaced more recently around S&OP is its purely tactical near-term focus and disconnect from a company’s overall business strategy, which can result in missed opportunities. Too often, while the teams involved in creating sales and operations plans are executing according to one set of numbers, top corporate and financial management may be setting, expecting and communicating a completely different set of financial plans and projections to the board and other key stakeholders. Disparate plans that do not incorporate key functional and trading partner insights can create a credibility gap for a company and its key executives when performance falls short and customers are left unsatisfied.
A perfectly balanced unit-based supply and demand plan could achieve the key objectives of functional leaders from the demand and supply organization but could fail to deliver what the company has committed to the market and key stakeholders from a business plan perspective. This realization is the foundation for the transformation that is now occurring within the process.
Some enterprises struggle with achieving success with S&OP because of the coordination that involves multiple stakeholders across multiple organizations – operations, sales, marketing, finance, as well as outside trading partners – that must unify to determine a cohesive strategy. The path to the next-generation process will require key changes in behavior, process and tools to transition to higher levels of performance.
Next-Generation S&OP: Linking Operations to Business Performance
Industry analysts and leaders in the manufacturing, distribution and retail industries have come to recognize that the gaps that exist between tactical operations planning and strategic business management need to be reconciled if S&OP is to contribute to more profitable business performance. A few of the S&OP best practices that industry-leading firms have been implementing to pave the way to the new ideal of integrated business management include:
- Leadership education, total involvement and accountability of senior financial and corporate management in driving the integration of S&OP with business management processes.
- Formalizing the new S&OP process and implementing a quantitative modeling “what-if” framework based on key performance indicators designed to make the decisions made within S&OP more optimal.
- Enhancing quantitative modeling with qualitative insights tied to each planning category, ncluding the assumptions, risks and opportunities associated with the plan.
- Adoption of advanced supply and demand chain technology to ensure cohesive S&OP collaboration, with integrated workflow processes and the assurance of data accuracy and integrity.
- Leveraging an enterprise information technology platform, as well as advanced supply and demand chain solutions and analysis capabilities, to facilitate data flow and decision-making that enables alignment of the S&OP plan with the company’s financial goals.
- Coming to a consensus on a single operating plan that supports a company’s overall strategy and business plan – the detailed plans are integrated horizontally across business functions and vertically from strategy to execution.
- ocusing on continuous reconciliation, managing gaps and alternative scenario plans.
- Stronger financial modeling beyond the near term to determine the optimal economic responses to changes in customer needs and demand.
- Global alignment across regions and operating divisions involving collaboration with key levels of management, sales and operations.
When executed properly, the new sales and operations planning paradigm will be a formal process led by senior management that, on a monthly basis, evaluates time-phased projections for new products, demand, supply and the resulting financials, over a rolling timeframe ranging from 24 to 36 months. Aligning supply and demand helps ensure product availability with minimal waste and inefficiency. This process is designed to ensure that the plans in all functions and geographies are aligned with and support corporate or division strategy. Once a consensus is reached on a single operating plan, members of the executive and operational management teams hold themselves accountable for allocating critical resources to effectively and profitably meet customers’ needs.
S&OP Best Practices Create Measurable Business Value
As we have seen, the key to driving S&OP benefits through the enterprise and bridging the gaps between the demand and supply side of manufacturing operations, logistics, purchasing and upstream suppliers, is integrating financial profitability analysis at every step – with senior leadership responsible for setting the strategic direction of the firm.