Whenever the topic of Sales & Operations Planning (S&OP) comes up, the question is always “what’s new?” And rightly so as the business process, which has been around since the late 1900s,’ is applied across numerous market segments in the supply chain. And as anything that must evolve with time, S&OP transitioned from a siloed approach—where in many cases, the finance component and supply chain operations acted individually to forecast business predictions—to one that defines the need for an integrated process.
But whether you want your company to improve on its service levels or capitalize on inventory demand, one must adopt a business culture of planning, in the raw sense, before even beginning to discuss the IT systems they must have in place to adopt S&OP technology; the challenges they’re looking to overcome or potential gained benefits with S&OP; or global S&OP initiatives.
Regardless of the case, S&OP is always going to be a work in progress, as one U.S.-based retail company confirmed, which continues to implement S&OP across its business since it began the process 10 years ago. In the company’s case, the need for S&OP stemmed out of a disconnect between its merchandising strategies and operations configuration. What were its sales? What was its buy? How much turns did they need to produce? How much operations flow would occur? The company was able to address such questions over time—but not before first addressing that business cultural challenge.
In fact, the senior leader of S&OP for this U.S.-based retailer confirmed that his company could not have had a successful S&OP adoption rate without that culture of planning—a huge enabler of improved S&OP processes. This meant not only the value planning from a merchandise- and financial-point of view but also valuing it from an item- and operations-point of view.
Avoid the systems of your yesteryears
Yet, while having a culture of business planning may be the first step to S&OP, reality for many companies sets in when they realize that the S&OP processes they had five to 10 years ago no longer work in today’s evolving global environment.
That system infrastructure that companies have in place where the sales component of the business passes their business projects across to the supply chain operational side—those planning processes of S&OP on the front end and back end have yet to evolve successfully, according to Blake Johnson, Consulting Professor, Stanford University.
“That process—while it may work just fine in a more predictable, simpler world where it was relatively easy to get a decent sales forecast—does not work today and businesses are feeling that pain,” said Johnson. “But what’s happened over the last 10 or 20 years is the world became a lot more of an uncertain dynamic. And that is really what’s making S&OP so critical today. Everybody’s systems, all of their organizational processes are still those prior ones. And that’s breaking down today. That is really why everyone is interested in S&OP—they know that it’s the reality.”
Enter the process of Integrated Business Planning (IBP). “That is what companies are really striving towards because they see that S&OP, in its traditional sense, starts to get a little bit dull after time,” confirmed Douglas Kent, Vice President, Avnet Velocity (of Avnet Inc.) “And yes, there is this consistent attempt to build, for example, a demand and supply matching mechanism inside of the company. But most companies have not built that up to that level where they are taking big business decisions upon that as opposed to really more tactical decisions about the attempts to avoid the mismatch in demand and supply. So that’s what the common theme is—what is integrated business planning? How is it different than S&OP? And what’s it going to mean culturally and benefit wise to my organization?” said Kent.