Dedicating an Independent S&OP Process for New Product Planning

In today’s economy, being on top of what is on the consumer’s mind is key, and having a successful stream of new products remains of paramount importance. New product introductions often count for more than 30% of a company’s revenue, and “getting it right” can make or break the year’s bottom line.

What does “getting it right” mean? …Providing the right product, to the right channel, at the right time, and in the right quantity. Integrating new product introduction (NPI) planning in the S&OP process will help drive forecast accuracy and order fulfillment by enabling collaboration, communication, and accountability.

To achieve a flawless execution, NPI teams need to collaborate closely with the demand planning and S&OP functions (e.g., assumptions have to be validated against trends, in-store dates vs. lead times, demand forecast vs. production capacity). In reality, this can be challenging. The timeline of the process is different from the timeline of the audience. New product launches may require demand estimates two or more years ahead, and the recommended audience will be a broader cross-functional team (including go-to-market, marketing, sales, product, demand planning, supply chain, and manufacturing).

A successful practice would be to set up a process dedicated to NPI demand planning, and that process should mirror the overarching S&OP process. A good way to start is to determine where the demand gates (Liquid Zone, Slushy Zone, and Frozen Zone) are, define clear “Launch” KPIs, apply an iterative process to forecasting, and schedule regular reviews.

The NPI Liquid Zone often starts two years prior the planned release date and ends with the first strategic commitment (e.g., capacity allocation). The focus is on early volume estimates. The demand planning and S&OP teams collaborate with the product and marketing functions to validate the range of the projections against economic indicators, market trends, and prior product releases. Estimates at this stage have a high degree of uncertainty, and should be used for strategic decisions; for instance, go / no go of product launch, capacity allocations, and CapEx needs.

Once the initial projections are agreed upon (around 18 months prior to release), the Slushy Zone begins. During this phase the cross-functional team needs to monitor the NPI plan regularly, and adjust estimates and production plans if necessary. Volume estimates can still fluctuate, but they are restricted by the agreed-upon constraints (e.g., max capacity available). The demand planning and S&OP team will be responsible to provide updated volume projections, highlight any gaps to original plan, and ensure alignment with key stakeholders.

The Frozen Zone is the last gate prior to planning / production commitments. At this point, volume forecasts should be considered fixed and not adjusted going forward. This will be the “frozen forecast” used to measure the launch KPIs (e.g., forecast accuracy and fulfillment rates). Establishing a demand consensus process ahead of the frozen zone deadline is a best practice to drive accuracy and accountability. This should be differentiated from the standard demand consensus, and should seek both quantitative and qualitative input from a multi-functional team (marketing, merchandising, sales, product experts, and regional and key accounts leads). To avoid “forecast fatigue,” the level of detail has to be customized to each product launch. For example, product updates and soft launches might focus more on qualitative inputs, while key marketing campaigns will need hard numbers at a more granular level (e.g., region/channel adoption of the campaign, how many doors per account are being targeted, etc.).

Once the frozen forecast has been defined, setting up regular NPI monitoring will support performance measurement. An easy approach is to track demand (e.g., weekly) vs. the frozen forecast for the target period. Paired with data analytics (e.g., expected order fill rate) and qualitative sales feedback, such dashboards will help spot the early risk indicators (on both a product and SKU level) and spark corrective actions.

Collaboration and communication are key to ensure that all who are involved are aware of the inputs and decisions needed at each stage. In order to achieve this there are three common approaches:

1. Adding an NPI section to the monthly demand review meeting,
2. Creating dedicated cross-functional NPI meetings, and
3. Gathering input with dedicated functional meetings and sharing results within the S&OP process.

My preferred option is to use the S&OP meetings as the avenue for distributing regular NPI updates. Demand review meetings are centered on the regular S&OP demand horizon (12-18 months), and rely mainly on sales input. Adding NPI to this session might take focus away from the mid-term and miss the input of functions outside sales. A specific NPI cross-functional meeting is a great tool to divulge information, but they are—by design—disconnected from the key planning processes. Therefore they won’t produce actionable results without lengthy follow up. Additionally, following the “out of sight out of mind” principle, team engagement tends to peak around launch windows and dwindles during “down time.”

The S&OP process already comes with a “step” meeting structure, making it the most effective option. All key functional players will be in the room to reach alignment on projections and actions needed in the pre-alignment meetings. If a consensus cannot be achieved, the topic will be raised to the executive team in the monthly S&OP. As an additional benefit, executive S&OP meetings are the right forum to discuss risk management options. For example when faced with demand above forecast and unexpected production delays, leveraging the S&OP enables a quick alignment on correct customer priorities, inventory reserves for strategic channels, production plan changes, and acceptable backorder risks.

I am looking forward to expanding on this topic, at IBF Europe: Business Planning Forecasting & S&OP Conference in Amsterdam, Nov 16-18. Your comments and questions are welcome.

2 Responses to Dedicating an Independent S&OP Process for New Product Planning

  1. Great subject brought up, Valentina.
    It acknowledges the difficulty of organizations to understand the roles and relationships of Strategic Management, S&OP and functional processes.
    From some perspectives, S&OP is the most key process for business management, as it links and coordinates strategic management and operational management, and across all relevant functions/areas of a business. All of this is done in true S&OP with the knowledge and authority of top executives of the business. I.e., the S&OP decisions are final (until the next cycle or until a really dramatic change in conditions require revising).
    The importance of coordinating NPI and the other processes of the business has been recognized by Oliver Wight, the recognized defining entity for leading edge S&OP (or now IBP). Important enough for Oliver Wight to define Step 1 as the Product Review. Not just a side consideration in the Demand Review, but a full review on itself, preceding all the other steps.
    This definition of step 1 makes a lot more sense than the other one, which defines step 1 as data gathering. Data gathering is inherent to each of the steps of S&OP and not a step that can be done once for all the steps upfront.
    Therefore, dedicating a portion of S&OP to NPI or, more appropriately, Product Management, is definitely necessary, and preached by Oliver Wight for many years already. I stress Product Management rather than NPI because it is not about “just” New Products. It is critical for Product Management to manage the portfolio of products (and services), including discontinuation, changes and balancing.
    Nevertheless, there is another critical point to stress that is the relationship between operational processes and the S&OP/IBP.
    S&OP/IBP is a cyclical (rather than continuous) process that analyzes, the recent past and current situation, reviews needed plans for the medium term (18-24 mo), makes decisions on performance management and on medium term plans and policies, and issues the decisions, plans and performance management actions to the operational processes. All of this in line with strategic directions and coordinationg all aspects of the business with a business rather than functional view.
    Demand, Supply, Finance, Human Resources, Capital Resources and other aspects of the business need all be planned, executed, controlled – in summary, managed – by other processes. And Product Management is no different – it needs an operational process to manage products in conformance to S&OP but apart from S&OP.
    One important thing about Product Management is that it tends to start even prior to the S&OP horizon. It may be even 5 or more years in the future. This requires the Product Management to relate not only to S&OP and Master Planning but also to Strategic Management.
    Therefore, we should think of Product Management as a process running in parallel to both Strategic Management and S&OP. Neither Strategic Management nor S&OP should be thought of managing products – this should remain a responsibility of the Product Management process.
    Product Management should interact with Strategic Management on defining the avenues to pursue and then follow the avenues decided by Strategic Management.
    When the Product Management plans and actions start to show in the S&OP horizon, Product Management starts to interact with the S&OP.
    The S&OP then assumes the responsibility to match the plans, decisions and actions of Product Management with the strategic directions, with the plans of other functions and with the management of business resources.
    If Product Management requires some scarce resources in competition with (e.g.) production, it is up to the S&OP to decide on how to allocate the scarce resources.
    If Product Management indicates that the launch of a certain product may be delayed, it is up to the S&OP to analyze that against the financial, marketing and other strategic and tactical objectives and decide on the best choice.
    If some change on the Product plans will affect demand, supply or finance or, conversely, if some changes in demand, supply or finance may affect products, it is for the S&OP to analyze and decide.
    All of these relationships have been chartered by Oliver Wight and been implemented in leading companies for some years.
    Unfortunately, most companies in the market have been laggards with regard to S&OP. This have been favored by education and consulting organizations – including APICS – that have themselves been laggards in the message they transmit to the market.
    Valentina’s post is a very good and timely alert on the subject, with very good arguments!

Leave a Reply

Your email address will not be published. Required fields are marked *

WordPress Anti Spam by WP-SpamShield