Building the case for technology to enable S&OP excellence
Based on a survey of nearly 140 enterprises between June and July 2006, Aberdeen research finds that companies are looking to sales and operations planning (S&OP) processes to help them meet rising customer order fill rate expectations, achieve better return on net assets, protect shrinking profit margins, improve customer retention and better manage extended lead-times due to global sourcing (Figure 1).
However, current S&OP processes are failing to alleviate many of these pressures. While a majority of companies report that S&OP has helped improve forecast accuracy and improved cross-departmental communication, most companies have failed to see improvements in profit-related metrics like gross margin and customer retention (Figure 2). Interviews with executives in both industrial and consumer-oriented business have also confirmed this observation that the companies that have invested in S&OP technologies have made progress in supply/demand matching but inadequate progress towards a profitable S&OP process.
This research indicates that for most companies, traditional S&OP processes do not perform as effectively as they should. In-depth analysis by Aberdeen in 2006 of organizations' S&OP processes finds that companies need to strive toward an Integrated Business Planning process and deploy the supporting technology infrastructure to improve their profit-related metrics.
The key differences of an Integrated Business Planning process compared with a traditional S&OP process are shown in Table 1. Figure 3 shows the elements of an Integrated Business Planning process.
Companies moving to integrated business planning are creating more outward focused processes. "Our company is looking beyond the four walls and extending collaboration to our partners and incorporating requirements of the entire value chain within our S&OP process," says the project manager of a leading networking solutions provider. "Our S&OP process is based on a strong foundation of sound business process as well as a robust enterprise planning platform technology solution."
The aforementioned company had problems matching supply with demand, resulting in inventory surpluses in some instances and order delays in others. To help address these and other problems, the company implemented Collaborative Forecasting and Demand Planning solutions.
Effective forecast quality is fundamental to the quality of the S&OP plan, but that's not enough, as inventory serves as the hedging factor to protect against uncertainty. Some companies are taking planning for inventory to the next level by factoring vendor-managed inventory (VMI) strategies and planning around it in their S&OP process. This allows the consumption of inventory that is not on the balance sheet (e.g. suppliers, manufacturers, partner inventory) with reliable lead-times.
S&OP Technology Adoption
Technology clearly is a vital enabler of integrated business planning. However, according to Aberdeen's 2006 S&OP benchmark results, 61 percent of companies lack enterprise automation for their S&OP processes. Only 16 percent of firms are using Best in Class S&OP solutions for enabling their S&OP process. This lack of technology enablement is making companies rely on traditional spreadsheet based approaches for their S&OP process, which results in reduced corporate performance and being unable to reach the potential of the benefits that S&OP can offer.