S&OP: Are You Prepared?
Sales and operations planning (S&OP) is a process designed to unite all key constituents across the enterprise to a single goal. Senior level executives responsible for sales, marketing, materials/procurement, manufacturing, transportation, supply chain, and finance (to name a few) meet to consider the needs and constraints of each of their respective areas in light of overall company objectives, and agree on an operating plan for the next month, quarter and year. With so many cooks in the kitchen it can be challenging to make sure your department is heard and all parties agree on the direction forward. Don’t get caught up in the ego game. Truly successful S&OP is based upon compromise and working towards common business goals.
To construct the best overall plan based on sound business decisions, the S&OP team must have accurate, reliable and consistent information – the current status, future conditions, constraints, and concerns about demand, production, inventory, procurement, and finance. They must know how decisions in one area impact performance in another. And, they need the flexibility to evaluate multiple business scenarios—optimistic, pessimistic and realistic. Without this information, executives must rely on experience, intuition and risk assessment.
Leading companies have tackled these challenges head first and have transformed their supply chains from cost centers to customer service and profit centers. Speaking with these companies and working with them through the process, I find the following 5 steps critical to help companies successfully navigate the S&OP meeting.
- Innovation and Strategy Review – understand what products to introduce to the market and when, and strategically identify the optimum time to retire others and
- Demand Review – dig deep into the factors for demand and how they relate to your company/product, be flexible to changes and sense these changes to prepare for them
- Supply Review – identify how to meet the demand through production/procurement optimization along with inventory optimization
Financial Integration – no department can afford to be disconnected from finance and the comprehensive plan needs to translate into multiple units of measure – most notably financial and volumetric views
- Executive Business Review – ensure you leave the meeting with a list of actions and an operational plan for everyone to follow
The best performance in inventory investment, that is, the lowest inventory level, will not yield the highest customer service.
High customer service is expensive without an optimized inventory plan. The most efficient production will likely increase inventory and may lead to higher product obsolescence. Each area impacts another and so forth. This balancing act is at the heart of a profitable S&OP process that ties strategic goals to tactical operational plans across your global business.