IBF research indicates that 20% of you are just starting an S&OP process, 35% of you have a basic process in place, 30% of you have an established process, while just 15% of you are at the Vanguard best-in-class level.
That leaves a lot of scope to improve S&OP and a lot of money left on the table. Let’s take a look at what separates a Vanguard S&OP company from the rest, and how you can get there.
Basic S&OP vs Vanguard S&OP
Not all S&OP is equal. For a Vanguard process, we have 3 core elements. The first is the process itself; the second is the organizational placement of the process; and the third is the tools and data and how they are used.
Defined Process: Vanguard companies have a very well-defined cross-functional process that people adhere to every single month. They tend to look 18-plus months ahead which many companies are missing as they think that they have S&OP in place when in fact it’s something different, something shorter term.
That’s unfortunately where a lot of the confusion between S&OE (Sales and Operations Execution) or and S&OP comes into play. While S&OE focuses on the execution changes of short-term schedules and resolving immediate issues on hand, the focus of a mature S&OP process is to proactively identify what constraints the business might face in the future through What-If Modeling to help resolve the constraints ahead of time.
Organizational Placement: Vanguard companies tend to define S&OP as a business process with visible sponsorship from the Senior Leadership Team. As a process with a defined RACI matrix (Responsible, Accountable, Consulted, Informed) the executive ownership and involvement in S&OP helps reinforce the importance of the timeliness and quality of the deliverables that each function needs to contribute.
Data & Tools: Regardless of the nature of the business (service or manufacturing) and the type of demand (MTO or MTS), it is crucial to have a well-structured Demand Planning function in place to initiate the unconstrained forecast. The first step is to have a robust statistical forecast supplemented by documented assumptions gathered from the demand reviews with the customer-facing teams. For that to happen, data accessibility and integrity are two crucial components.
Once the forecast is constrained and the consensus is reached through S&OP, the forecast output needs to be loaded to the ERP system to ensure end-to-end supply chain transparency by having the consensus demand signals drive production and purchasing decisions.
Of note, beyond classic demand planning, demand sensing and shaping have proved to be more welcomed after the uncertainty created by COVID.
Vanguard Companies Have a Bias Towards Decision Making
Remember that S&OP is not a reporting forum; it’s a decision-making platform that aims to proactively identify and solve business problems across a range of functions. It’s the job of the S&OP Champion to facilitate this so there is one person coordinating all of that effort throughout the month.
“S&OP is a decision making platform that aims to proactively identify and solve business problems”
But at the same time, S&OP is a core team that is built around the different participating functions. You need representation from Finance, Supply Planning and the customer-facing teams (Business Development, Marketing or Sales). It is common practice that the Demand Planner tends to be the champion of the whole process and leads this team of cross-functional participants.
Those are the key contributors but – most importantly – we need to assign Director or VP level Executive Authorizers (EAs) from the participating functions to discuss issues and approve or adjust the output at the end of each S&OP step.
This practice encourages consensus at every step and avoids having to address misalignments at the very last step of S&OP making it a self-correcting process where executives are engaged throughout the journey.
The fifth step often referred to as the Executive S&OP Meeting is a forum to brief the General Manager (C-Suite level Executive or head of Business Unit). At this point only the GM should be asking questions and driving decisions that the S&OP team didn’t align on.
“A team environment is necessary for a ‘safety zone’ where we can always question the status quo”
Ensuring S&OP is a decision-making platform, not a reporting forum, also requires giving it its rightful place in the organization where it’s recognized as a process that bridges the gap between strategic planning and operational execution. Building a common culture and team environment is necessary for a ‘safety zone’ where we can always question the status quo and have healthy debates to drive the best decisions for the company.
Vanguard Companies Break Functional Silos
Vanguard companies break functional silos, so each function is working to continuously support the interests of the company in a customer centric way, not just the respective department. Going from siloed thinking to an end-to-end value chain thinking requires continuous education about the mission of S&OP and its benefits.
“Companies that still operate within silos are leaving a lot of money on the table.”
Operating in silos is a thing of the past. Companies that still operate within silos are leaving a lot of money on the table. They can no longer afford to do that – especially with the elongated disruptions and uncertain business conditions COVID created. If we as an enterprise understand that, coming together and driving that bias towards decision making comes naturally.
Breaking silos goes beyond having a good communication stream and an ongoing collaboration between the various functions. Vanguard companies that have an international footprint focus on a global integration of the various regional S&OP processes.
I see COVID as a blessing in disguise because it highlighted how supply chains can no longer be taken for granted and reinforced the need for decision-making forums like S&OP. We need to build on this momentum.
Vanguard Companies Don’t Care What you Call it
There is confusion in our field surrounding the differences between S&OP and IBP (consultants are to blame for this redundancy). They’re the same processes with different names and what we call it doesn’t matter; as IBF research shows, there is zero correlation between what you name it and the success of the process.
“There is zero correlation between what you name it and the success of the process.”
The important thing with S&OP or IBP is integrating the various business plans that the company has to ensure that we are all operating under one set of numbers.
The biggest risk is when Planning Executives don’t want to hire the right talent and start the S&OP process with the tools they have; they often believe they need to have planning systems with specific IBP modules which is a misconception. The logic and basics of S&OP haven’t changed much over the years. Delaying implementation can be costly as operational efficiency only happens with a structured, cross-functional collaborative framework.
Vanguard Companies Don’t See S&OP as Just a Supply Chain Process
A myth that people must overcome is thinking that S&OP is strictly a supply chain process. Although it tends to be championed by demand planning, S&OP can really fall under many umbrellas within the company. It fits well under the supply chain because that’s the field that benefits the quickest as S&OP bridges the gap between strategic planning and master scheduling and material requirement planning.
“Vanguard companies don’t believe S&OP has to be owned by a Demand Planner or Supply Planner.”
Demand forecasters often report to the supply chain and S&OP all start with a forecast, so that’s another reason Demand Planners take the lead and why S&OP often emerges from the supply chain.
Vanguard companies, however, don’t believe that S&OP has to be owned by a Demand Planner or Supply Planner; it has to be owned by the Senior Leadership Team because, at the end of the day, it is a process that supports major decision making that can impact rough rough-cut capacity planning, cash flow, capital expenditure, and many other considerations at the strategic level.
Vanguard Companies Strive for Continuous Improvement
Because of how dynamic market conditions are, what a company did yesterday might not work today and will certainly not work tomorrow, so the ability to be agile and quickly pivot when needed is necessary. The need for continuous improvement in sales and operations planning makes it a dynamic process. The steps are the same but the inputs that you are willing to incorporate in the process should be regularly questioned and the assumptions revised. That’s why assumptions documentation is a key aspect of S&OP.
“When S&OP is done right, we’re talking about 2% being added to the bottom line.”
When S&OP is done right, we’re talking about 2% being added to the bottom line of the company so we should be open to improving the process and challenging the status quo on an ongoing basis.
Continuous improvement also comes back to stakeholder engagement in the process, having people willing to improve because they have a voice and the motivation to do so. Engagement isn’t’ about ping-pong tables and bean bags; it’s about educating, empowering and trusting the core S&OP team members to do what is right while measuring outcomes and celebrating even the smallest wins. This ensures that their work is meaningful and their time is not wasted.
The Next big Thing for Vanguard S&OP Companies
In the beginning there were 5 basic steps in S&OP including a data gathering step. Most companies have moved away from allocating a full week to gathering data, however. This is a shame because if you don’t have data at your fingertips, the journey towards Vanguard S&OP will be slower.
Of course, things change over time, and nowadays instead of data gathering I support moving to more of a portfolio deep dive and analyzing your SKU rationalization.
AI is the next thing to consider in terms of how advanced technology contributes to the evolution of S&OP. Beyond the various causal factors impacting projections, real time inventory and telematics data collection and analysis can cut costs and enhance the inventory optimization efforts.
Note from the Editor: As mentioned at the start of the article, only 15% of companies are operating at the Vanguard, best-in-class level. That leaves a lot of room for improvement and a lot of money left on the table. Even if you’re one of the Vanguards, check out IBF’s self-assessment maturity model for a comparative benchmark looking at best practices across People, Process, Data and Technology, and see what specifically can be improved in your organization.