Many companies embrace Sales & Operations Planning (S&OP) and consider it the perfect tool to balance out supply and demand. In addition, S&OP can act as a perfect link between the business strategy and operational execution.
Sadly all too often, S&OP does not meet expectations. Many companies struggle to implement an effective and efficient S&OP process. Shame, as with the correct approach and priorities, S&OP has plenty to offer. This article will outline how to successfully implement or revitalise S&OP in a number of steps.
Many companies enthusiastically embark upon S&OP but gradually start struggling with the process. A significant hurdle for S&OP is that too much attention is paid to operational execution, whereby focus is on the coming months or even weeks. Many details are exchanged and discussed, yet no real decisions are made. Shame, as S&OP should focus on balancing supply and demand in the medium term (e.g. for the coming 6-18 months).
Naturally, S&OP is joined at the table by different areas of the business such as sales, purchasing, operations and sometimes finance. One of S&OP’s advantages is that they communicate with each other and coordinate their actions. However, at the same time their own (hidden) agendas and interests surface which can complicate coordination and cloud the required transparency. Also a contributing factor is that sales people think differently from people in operations; often results in lack of understanding and frustration.
Many companies are overly ambitious at the start: their priority is a comprehensive S&OP process with all the bells and whistles. But when their expectations aren’t met, people are disappointed and pull out.
All things considered, an S&OP implementation has many pitfalls which may lead to disappointment and eventually failure of the entire process.
Recognisable in your organisation? A review of the S&OP process is a must!
Implementing a successful S&OP – or revitalising the current process – is not rocket science, but does require a well thought-out approach. A successful S&OP process is not a law set in stone; each business is unique and has its own dynamics. Nevertheless, it is possible to lay the foundations for an effective and efficient S&OP process by following a number of specific steps.
Step 1: Establish your targets
The first question that must be asked: what would you like to achieve with S&OP? And does everyone have the same expectations and targets? You have to establish what S&OP can contribute to your business and those involved. Successful companies with a ‘World Class S&OP’ know what they want to achieve and have clearly and explicitly ascertained this. Targets can vary greatly between businesses. Some organisations use S&OP as an operational tool to balance supply and demand for the next six months. Others take it to the next level and use S&OP to plan scenarios, exploring financial and business opportunities and threats for the coming 6 to 18 months. In this case, S&OP takes on a much more strategic character, more finance focused.
The set targets will determine the further implementation of the S&OP process.
Step 2: Establish where are you now
The second question is what the status is of the current S&OP process of your business. What works well and where are the weaknesses? Where are there issues for those involved? How are the meetings structured? Which planning horizon is adopted? And how about the involvement of the different areas of the business in the S&OP process? In order to implement a well-functioning S&OP process, it is key to know your current position. A useful tool is the S&OP Maturity Scan, which based on a number of questions, ‘ranks’ and benchmarks your business in S&OP Process, Supply & Demand Planning, Performance Management and Ownership.
Step 3: Transfer the desired approach into a blueprint
Once the targets have been established and the current situation is clear, a (renewed) S&OP can be drawn up. It is important to create a vision of how the S&OP process must be organised and structured. A blueprint describes the set-up of the meeting structure, the tasks and responsibilities, the aggregation level of information and which information and IT support is required. A clear blueprint will lead S&OP in the right direction and eventually to success.
Naturally, the content of a blueprint very much depends on the type of business. Variety of customers, number of production locations and the market situation are what ultimately determines the implementation of S&OP. A multinational with factories and sales offices all over the world and a wide product range requires a different type of S&OP to a medium-sized organisation whose business is mainly regional with a limited line of products.
Step 4: Step-by-step implementation
For the S&OP implementation to be successful, a number of important and critical factors must be taken into account. Firstly, it is important not to do everything at once. Preferably choose a step-by-step implementation whilst the blueprint will give you guidance. Don’t overcomplicate matters from the start, ensure that the basics are working first. After all, S&OP is a process that people must adapt to. As soon as S&OP begins to take shape, continual improvement can be monitored according to the Plan-Do-Check-Act method.
It is also important to create a group of persons who will push and establish the S&OP process, the so-called ‘leading coalition’. This group will further develop the blueprint and turn it into practice, as well as provide support for the rest of the business.
Successfully implementing and improving S&OP will have its knock-backs. It must eventually become a ‘mindset’ of those involved and not merely a monthly meeting. Balancing supply and demand will be a continual process, whereby continuous trade-off decisions between supply and demand will be made that are in line with the strategy.
S&OP has a considerable impact in terms of change as several positions must work together, communicate with each other and jointly make decisions. Implementing and successfully running S&OP is in reality often more tricky than first anticipated. Is your S&OP process not running optimally or are you about to (re)introduce S&OP? Take a step back and think carefully about the following steps:
Only with a well-thought out set-up and careful implementation can an effective and efficient S&OP be achieved and used to its full potential!
To establish the strengths and weaknesses of your current S&OP process, Involvation has developed a S&OP Maturity Scan together with the VU University Amsterdam. If you want to know more about this scan, contact Jeroen Scheepers.