New World Business Solutions on sales and operations planning:
All companies do some form of sales and operations planning (S&OP) to synchronise market data with production output. But most practice a planning process based more on logistics than strategy. Demand is forecast based on last month’s numbers, and historical performance leads the analysis.
Companies rarely solicit a cross section of perspectives from different functional areas or supply chain partners. The practice is static and insular, disconnected from the reality of today’s complex supply chains.
As a consequence, sales and operations planning becomes almost dysfunctional, lacking the communication and the insight into market demands required to carry out business plans and achieve strategic goals. Taking a more strategic approach, however, the sales and operations planning process can be designed to bring a company’s marketing, finance, sales, and operations departments together to continuously monitor and meet customer demand.
As the separate departments collaborate, they create business plans with the latest and most accurate data and begin to develop and measure a common set of metrics. With integrated S&OP processes, companies are better able to synchronise supply and demand, improve revenue, decrease costs, and increase customer satisfaction.
While many companies are reaping the benefits of effective S&OP, many others continue to take a more static approach. By using a five-step review process, however, companies can review and evaluate new products in development and future plans in the context of demand, supply, financial reconciliation, and management analysis. The result is an S&OP process that begins to follow the model of the companies that are leaders in this process.
The best sales and operations planning process creates the framework for five integrated and interdependent business reviews to ensure that tactical plans align and support the company’s strategy. This framework helps develop the consensus among stakeholders necessary to continue the planning process, allows for management understanding and analysis, and forms the basis for the tactical plans necessary to satisfy demand with an integrated and responsive supply chain.
Companies perform specific activities within each process as outlined below:
?New product review: Analyse the potential for new products to impact the market, considering elements such as rationalization with channels, pricing and margin implications, ramp-up projections, and both incremental and cannibalised demand.
?Demand review: Anticipate total market requirements for all offerings from all perspectives, using sources such as quantitative forecasts, input from sales and marketing, and what-if analysis – balancing orders and demand and achieving consensus on various demand scenarios.
?Supply review: Review the supply chain capacity, including inventory requirements, procurement policy, and logistics, to make certain that there is sufficient manufacturing and distribution capacity. In this step you can identify any potential decision points such as the
need to outsource for additional capacity.
?Financial reconciliation review: Translate the supply and demand plan into financial terms of revenue, margin, and working capital requirements. Then balance supply and demand, making decisions with regard to potential supply issues and contingencies for the range of possible demand scenarios.
?Management evaluation and analysis. Evaluate the results of your activities to decide how to run the business moving forward. This includes an evaluation of planned versus actual results, an analysis of profitability by customer, channel, and product, and a look at perfect order, cash-to-cash, and asset performance.
While this approach to S&OP creates an invaluable foundation for clear-sighted decision making, the process adds the most value when integrated with other core business processes including enquiry to order, procure to pay, order to cash, and new product introduction and development. With a full-fledged S&OP program in place and integrated throughout operations, a company can expect to do the following:
- Speed up the commercialisation of new products and improve time to value
- Make budgeting less complex and more accurate
- Enhance sales organisation effectiveness
- Create greater supplier effectiveness, reducing cycle time and procurement costs
- Concentrate more thoroughly on building customer loyalty and greater satisfaction
- Improve collaboration between the company and its external partners
- Lower operating costs and reduce order fulfillment times
- Increase inventory turns and reduce cash-to-cash cycle times
- Improve return on net assets
When more companies follow the lead of best-practice corporations, they will take their S&OP process to the next level – aligning their supply and demand, creating better internal coordination, and maximising their global effectiveness.