Back to the Future: Sales & Operations Planning (S&OP)

Rich Sherman

For the past 30 years, the definition for Sales & Operations Planning (S&OP) has evolved within many organizations. It has manifested itself to include inventory (SIOP) and has morphed into Integrated Business Planning (IBP). However, only within the last five years, has it been heralded and crossed the chasm to mainstream business practice. We think it may only be the tip of the iceberg.

We believe that collaboration is the key to becoming a leading company. It is the key to unlocking the hidden wealth in supply chain operations. Without visibility to the causes of demand variability, demand can drive planners crazy. For that reason, S&OP is among the most important collaborative best practices and processes a company can implement. It can also be a top down planning process if not defined and implemented properly. But, what’s wrong with that?

Without the capability to realize the benefits of accurate planning on the day to day operating level, much of the benefit of the S&OP process can be unrealized. The S&OP process generates plans. The daily planners and schedulers drive operations execution. They make $million working capital decisions every day. They reconcile daily demand and supply variability and generate the results. If the results are not reconciled to the plans on a daily basis; if the S&OP process is not based upon daily reconciliation, it will be wrong. Even worse, it will not be in synch. It will not deliver on the potential. It will be better than not; but, often not a step change better.

And, the major constraint to using daily operating results to update the S&OP process (enterprise application) is that most of decisions made by the day to day planners and schedulers are custom spreadsheets based on tribal knowledge. And, for many companies, there is a gray tsunami of talent about to retire and with them much of the tribal knowledge.

Over past decade or so, we’ve seen new financial applications to support budgeting, tracking and control of daily transactions and financial plans. We’ve seen new customer relationship management applications implemented to automate, track, and support sales plans. What we think is needed for S&OP to go to the next level are day to day operations planning and scheduling tools that can be integrated with the enterprise planning application and close the loop on S&OP. Companies like Lead Time Technology, Ultriva, ToolsGroup, Steelwedge, Terra Technology, DCRA, and others have been developing tools to address the unique operating characteristics that differentiate one plant/operation/machine from another.

These unique configuration requirements inhibit the use of traditional enterprise applications or the development of “standard” applications like finance and CRM, especially when you consider that the characteristics and variables considered by the tools vary daily. But, as many executives are learning, the only way for the potential of S&OP to be truly realized, it must be top to bottom and back up again. The supply chain is becoming a smart supply network. It is a system of supply and demand nodes that operate separately and together to determine its behavior. In the absence of “systems thinking” the supply network behaves erratically often bullwhipping the participants. The Leaders are collaborating, analyzing, and outperforming their median competitors with a 2-1 or more cost advantage!

Rich Sherman
Principal Essentialist
Trissential LLC

Here Richard Sherman speak on S&OP on how to develop better collaboration up and down the chain at IBF’s Supply Chain Forecasting & Planning Conference in Scottsdale Arizona USA February 23-25, 2014

 

2 Responses to Back to the Future: Sales & Operations Planning (S&OP)

  1. “Without visibility to the causes of demand variability, demand can drive planners crazy. ”

    Great point. What causes those unusual spikes and dips? Is there actually a trend there that you are missing? The more transparent your data becomes the easier it is to plan accordingly.

  2. Events, such as promotions, competitive activity, seasons, weather conditions, entertainment or sports, and other events that create and cause changes to consumer or business behavior result in demand variability. Identifying and explaining the causes of demand variability are critical, yet often overlooked, to the accuracy of planning. This can be done with technology and a history can be maintained for recurring causal factors and used to predict the impact of future demand based on the predicted presence of a causal factor in the future. Most common recurring causals are marketing created events such as promotions, specials, new products, new store openings, pricing actions, etc. Our consultancy is focused on helping companies improve and innovate their processes in response to change from any direction.

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