"An organism at war with itself cannot survive," said the famous astronomer Carl Sagan. Yet in today's competitive manufacturing environments, many sales and operations departments continue to wage war one another—to the detriment of the organization, writes John Boyer in a recent white paper. "If we waste time trying to figure out how we can 'get 'em next time,' the competition will surely 'get us,'" writes Boyer.
So, how can sales and operations stop bickering—and give themselves a fighting chance to win against their real competition?
There's no magic bullet to this age-old problem; however, there are proven management practices being used today that are helping organizations achieve cooperation and teamwork, namely, Sales and Operations Planning (S&OP).
S&OP is a way for companies—at a strategic level—to balance demand and supply on a consistent basis, over a given planning horizon and level of detail. It requires two basic building blocks, according to Boyer:
- Sales people describe what they believe the business will sell.
- Operations people describe what the business can supply to meet those sales.
The difference between the two is the change in inventory investment.
By balancing demand and supply, businesses keep costs down, and customers happy.
For example, say demand becomes greater than supply. Typically that means overtime hours, excessive allocations, outsourcing, and premium freight—just to name a few problems.
Now suppose supply becomes greater than demand. What happens? Underutilized fixed costs, excess inventory, reduction in force expense, etc.
Most industry experts agree: Costs rise when demand and supply are out of balance. However, when they are in balance, a company is better positioned to operate at the lowest cost base, ship product on time, and minimize inventory investment.
S&OP is indeed a "practice of choice," as Boyer writes, that enables the critical balance of demand and supply.
Successful S&OP brings sales people and operations people to the same table.
S&OP creates an environment where all functions (sales and marketing, manufacturing, materials, finance and accounting, engineering, information technology, and human resources) together are working to improve business performance, not trying to bury each other!
A formal S&OP process provides formats, data, structure, timelines, facts, and agendas for building an accountable decision making group. It replaces fragmented, opinion-based foxhole management tactics that drive us to self-competition.
Tell us about your experiences and challenges in balancing Sales' and Operations' goals.
