S&OP in the past years has been demystified and has become a mature process with many successful implementations. Companies reap the benefits in terms of higher revenues and margins and improved supply chain performance. We also know that getting there is not straightforward, mainly because S&OP is tactical and cross-functional. Most companies find it easier to implement operational processes within functions, due to the lower abstraction levels and simpler governance.
Simple checklists will never resolve complex implementations, but they can be helpful in understanding why S&OP is working better in some companies than in others. The next sections therefore give an overview of the ten pitfalls that we have identified over the years and in many implementations.
S&OP should be a fact-based and concrete process. This may sound obvious, but will not come automatically due to the tactical horizon and related higher levels of aggregation and uncertainty. Process, data and systems are therefore essential; they are prerequisites. But when focus is on the hard logic and less on softer aspects, cross-functional buy-in and ultimately the targeted business benefits will certainly suffer.
Based on this insight, we have developed an S&OP Change Model that is based on four pillars: Meaning, Willingness, Logic and Ability. Only when all four pillars are at the right level can we expect a successful process that delivers real business benefits.
S&OP should drive business benefits by taking tactical decisions that align different functions. Demand and Supply balancing in a level 2 process, reconciling financial plans in case of level 3 (Integrated Business Planning). Participants need to be able and empowered to take decisions, without having to validate, re-discuss or get authorisation afterwards. Ideally, the process is formally integrated in the company’s operating model, to unambiguously clarify which decisions can be taken in the S&OP meetings and which can not.
If S&OP is implemented as an on-top-of process and with unclear empowerment, it will certainly suffer and participants will prioritise meetings with real decision power.
S&OP is a means to an end, not an objective in itself. This may sound blatantly obvious, but in many cases we find that it is really not. Nobody will buy new production equipment without specifying what it should be able to produce and at what rate. But how many companies specify the targeted business benefits before investing significant amounts of time, energy and money in a new or improved S&OP process?
Before even thinking about an S&OP project, it should therefore be clear which business benefits it should deliver. How else can we determine whether the implementation is successful? And how else can we realistically expect other functions to buy into the concept and spend time and energy to make it successful, knowing that we have failed to define what successful means in the first place?
This fourth pitfall is linked to the previous one. Once we have defined what success means, we will obviously need to be able to measure how we are doing against these objectives. Tricky, because in most cases they will be impacted by factors outside S&OP as well. Revenues, margins and Supply Chain performance are only partially driven by S&OP at best, but this should be no excuse to not make the S&OP deliverables explicit and measurable. Defining a smart, consistent and reliable S&OP dashboard is a must.
We have never come across an S&OP process in which Supply Chain was not in the lead or at least played an essential facilitating role. That is fine. But the most important and difficult part in general is to get a good understanding of the future market. What will happen with volumes, mix, customers and competitors and what will be the expected impact on our company? Supply Chain can support here by exploiting sales history and related insights, but real market knowledge and understanding will have to come from Sales and Marketing.
More often than not, S&OP is hijacked by Supply Chain’s explanations of recent service failures. This is a double mistake: we are now backward looking and Supply Chain focused, instead of forward looking and demand driven. With obvious consequences.
Gartner’s S&OP reference model with its four maturity levels is extremely useful and should sit at the basis of any S&OP project. Do we envisage an operational Supply Chain planning process, or a full blast IBP with business scenarios and financial alignment? Without understanding the required S&OP maturity level, a company will most likely end up with too senior people for too operational decisions and a process that will never deliver its business benefits. Or a process with too operational participants that are not able nor empowered to take the tactical decisions that they are confronted with.
A second key insight is that company’s have to learn to walk before trying to run. In S&OP terms: you can not skip a level. Without solid foundations, the next level will not have a sufficient basis and will probably cause more frustration than deliver good business decisions.
The issue of planning horizons is related to the previous point of S&OP maturity levels. Short horizons relate to operational decisions, mid-term horizons relate to tactical decisions. To what extent can we still really influence demand for the next three months? Or seriously change production capacity? The reason to list planning horizons as a separate pitfall is that we observe short horizons very often and this can really have an impact. As long as utilisation levels are low, demand is relatively stable and only the mix fluctuates, the operational planning process will suffice and people will be able to firefight their way through. But in case of unseen trends or step changes in demand, most companies will struggle to react without suffering service losses or incurring high costs. Companies without a well functioning level 2 process are looking against a brick wall at a three month distance. Not a comforting thought.
When thinking about S&OP as a process that needs to deliver defined business benefits, it will be obvious that decision taking has to be its raison d’être. Surprisingly though, this is definitely not always the case in real life. Think about your own process: is it 20% information sharing and 80% decision taking, or the other way round? Do not panic when it is the latter, because you are not alone. Do not rest in peace either though, because long meetings in which each function shares its experiences and plans in order to get transparency and bring everybody on the same page, are not sustainable. The moment the agendas start to get populated and require people to set priorities, all this information sharing will certainly fall of the list. Because decisions need to be taken, and S&OP in this case is not the place where that is done.
Since S&OP by definition is a cross-functional and tactical process, it requires at least middle managers from multiple functions. Busy people with serious responsibilities and always too much to do. Any meeting in the S&OP process should therefore last 2 hours at most; not enough for creating good quality solutions during the meeting, for all issues that make it to the agenda. S&OP can not become a workshop. The solution: well prepared options for all decision topics, so we can select the best options based on facts and figures.
Who would ever dare to ask for a decision from a Board meeting without getting all facts on the table and preparing the potential ways forward? So what is different in S&OP?
S&OP is a planning process. That is why it is called Sales & Operations Planning. But S&OP agendas have an unstoppable tendency to grow. QA, Customer Service and Logistics issues to name a few, tend to appear on the agenda, often because S&OP looks like a good forum to ask for input and advice. Or the only forum where the business can request explanations for recent service level losses. Although seemingly logical, the risk is that the actual S&OP objectives get diluted. Additionally, the participants will not necessarily be equipped to take decisions about these additional subjects. What can Sales or Supply Chain really do about quality, other than ask the responsible functions to go and do something about it?
S&OP is simple but not easy. There are many excellent implementations, but also many companies that struggle to get real business benefits. Lists of common pitfalls and success factors will not change this; complex processes requiring professional design and change management can not be caught in simple checklists. But they may help to understand why certain processes are working well, while others do not. As will S&OP mind maps, maturity scans, etc. We wish you luck with getting your S&OP process to the next level and reaping the benefits!