Technology Evaluation Centers | October 22, 2010
Uncertain economic times accentuate the importance of sales and operations planning (S&OP). Companies must doggedly monitor their return on investment (ROI) while maintaining a long-term perspective, and senior management must be unequivocally engaged in this process. One key success factor is fostering education in S&OP among professionals involved in financial planning, demand forecasting, product development, inventory management, marketing, and capacity planning throughout all levels of the organization.
Demand management becomes increasingly important in a recessionary environment as well as keeping sales & marketing, finance, engineering, operations, and the entire value chain on the same page and with reconciled holistic goals and metrics. TF Wallace, a frequently quoted authority on S&OP, has claimed in his numerous presentations and webinars that businesses that invest heavily in S&OP are able to make fewer excruciating but necessary cuts than those that do not, citing Lehman Brothers, AIG and Citibank as bad extreme examples of the latter cases.
S&OP also facilitates marketing promotions, new product development (NPD) and launches, and higher levels of involvement of each component of a supply chain at the various stages of a launch. For example, there is an apparent overlap of marketing and demand planning in product launches. These two factions of a company must work closely in tandem to execute a successful product launch, continuing throughout the entire lifecycle of the product.
The renaissance of IBP and S&OP tools comes from their ability to allow all of the corporate participants to learn from the past and understand which assumptions have (or have not) worked, and why. They are also able to better assess the future by sensing the market drivers and evaluating risks and opportunities scenarios. Finally, everyone has to arrive at a consensus after analyzing trade-offs between the “Make”, “Source” and “Deliver” options.
The importance of change management when implementing or revising S&OP processes in an organization cannot be over-emphasized.
Definition
Sales and operations planning (S&OP) is an integrated business management process through which the executive/leadership team continually achieves focus, alignment and synchronization among all functions of the organization. The S&OP plan includes an updated sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the industry. Short product life cycles and high demand volatility require a tighter S&OP planning as steadily consumed products. Done well, the S&OP process also enables effective supply chain management.
A properly implemented S&OP process routinely reviews customer demand and supply resources and “re-plans” quantitatively across an agreed rolling horizon. The re-planning process focuses on changes from the previously agreed sales and operations plan. While it helps the management team to understand how the company achieved its current level of performance, its primary focus is on future actions and anticipated results. Companies that have an integrated business management process use the S&OP process to monitor the execution of the company’s strategies.
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