S&OP is a business process and a set of best practices, and at its core, S&OP is a philosophy that allows companies to collaborate and make trade-offs and reality-based compromises among departments to balance sales and marketing requirements with operations and logistics realities. Key to the S&OP process is the involvement of executives and top managers to ensure a company’s operational resources and business goals can be balanced and aligned to control supply and demand.
S&OP uses a collaborative approach to bring all business functions and departments on board with a formal plan agreed to by all stakeholders. Traditionally, these functions and departments were siloed and often in contention with one another due to competing internal goals. But with the application of S&OP, all relevant departments—operations, purchasing, sales, marketing, finance, and executive management—can all work together to develop a consensus-based plan, with ownership of the initiative vested in the hands of all key decision makers.
Benefits of S&OP
As the holiday season approaches and this year comes to a close, you’re probably thinking about your plans for 2019. You might be wondering what you can do to truly add value to your organization in the coming year. The benefits of S&OP are gifts that will keep giving and adding value across all departments of your organization next year and on and should therefore not be overlooked!
Let’s take a look at the specifics…
Operations: Your operations team is stuck dealing with facts and everyday reality, and therefore often feel caught in the middle. With sales pushing conflicting demands and rush orders through no matter the cost and finance watching the bottom line, operations managers have long sought ways to create a common language that would bring both sides together in order to improve efficiencies. S&OP allows operational realities to be matched and balanced with the needs of other departments. Because it involves front-end collaboration between executives, data and information are “un-siloed.” This allows for clear communication from the start on what can and can’t be accomplished.
Perhaps nowhere does this benefit operations more as in the creation of accurate forecasting. With common and accessible data, a single version of the truth can emerge, removing the proverbial “surprise of the week” from the equation. Because the collaboration between department leaders is done at the tactical level and an overall strategy is built for the business, demand planning, staff scheduling, inventory availability, and other components critical to operations can have actionable schedules that help control and reduce costs.
Supply: Your supply chain is a critical component of S&OP. Many companies have long supply chains that stretch globally, and some have ones that include both long and short supply chain legs for various components. In traditional environments, a company’s purchasing and inventory teams are often tasked with managing a wide range of lead times for supply. Without proactive planning, this complexity often leads to shortages, overstocks, or increased expediting costs. With S&OP and the accurate sales forecasts it enables, your company will have a better idea of incoming demand. You’ll be able to sharpen your purchasing and inventory functions and take advantage of better inventory management practices such as an improved use of FIFO and JIT implementation. Coupled with appropriate inventory planning software integrated with your ERP system, the trends that emerge can set the stage for continuous improvement across the supply chain from the acquisition of product or components through to final product delivery to customers.
Sales: The sales world has always been tricky. But in today’s hyper-competitive global economy, accurate supply and demand forecasts are more important than ever. S&OP benefits sales by allowing sales teams to confidently forecast product volumes. It also allows them to understand available capacity and production rates so they can proactively predict what contingencies and costs may be needed if sudden market shifts occur. This prevents sales teams from overselling or underselling their positions and getting ahead of supply. It also significantly reduces the need for expensive expediting and profit-killing discount campaigns because the dynamics of meeting demand have been agreed upon by all stakeholders up front.
Marketing: Marketing is often tasked with the impossible. In many companies, data and communication center around operations, and sales and marketing are often left to interpret the babble. With a true S&OP initiative, the needs of sales and marketing are bridged with operations and logistics in a way that was previously lacking. One of the key benefits of S&OP best practices is that it creates quality communication between departments that allow them to create accurate marketing campaigns. With that gap closed, marketing is freed to be fully creative in driving value through promotion rather than tying up creative resources with administrative tasks. Marketing plans can be balanced and aligned with sales plans, financial goals, and realistic product acquisition. Everyone wins and most importantly, customer satisfaction is enhanced.
Finance: Traditionally, finance teams spend a lot of time reconciling company performance after the fact to understand profitability and determine how to further allocate resources. This often involves using disparate units of measure from multiple sources that have to be “dollarized” to be useful from a financial perspective. With the cross-functional nature of S&OP, and with measurement and data reconciled at the start into commonly usable data sets for all departments, most backend reconciliation can be eliminated.
With accurate forecasting across the company, S&OP can provide finance departments with the ability to utilize “what-if” planning strategies for different contingencies. With all departments working off common data and an agreed upon strategic plan, a clearer picture of cash flow and planned expenditures can be realized. By using S&OP, finance departments can shift their focus from the old habit of deciphering after the fact to a more analytical and proactive approach to manage financial functions to support accurate operating schedules, agreed upon sales strategies, and real-time market shifts. By aligning financial plans with demand plans and realistic sales projections, finance can improve both the accuracy and predictability of their forecast.
Executive Management: Most popular disciplines and programs including Lean and Six Sigma require executive buy-in. But S&OP goes a step further in making the executive group and key managers an integral part of the ongoing planning process. As a top-down business operation strategy, S&OP as a methodology requires tactical decisions be made and agreed upon to achieve strategic goals. By adopting a methodology that is data-driven, and by defining the language used between departments at the top level, companies can improve their overall performance. S&OP results in higher quality communication and removes often contentious personality driven fiefdoms among executives and key managers, by delivering commonly agreed upon tactical decisions and a unified single version of the truth. It allows executive teams to become more cohesive and strategy-driven and eliminates the need for risky gut reactions.
Unwrap the Gift of S&OP Today
The gifts offered by S&OP are far-reaching. S&OP brings together functional areas in ways that were unheard of in the past. And, what it offers as a philosophy and a methodology aren’t exclusive of other initiatives. In fact, the gift of S&OP can enhance benefits from other programs like Lean and Six Sigma. Additional value can also be realized by implementing an S&OP process that is supported by a purpose-built software program, such as DemandCaster. In this way, S&OP becomes a gift that keeps giving, and aren’t those the kind of gifts on top of all of our lists this year?
If you’d like to learn more about the benefits of S&OP, check out our on-demand webinar: Move from Reactive to Proactive Planning.