The importance of sales & operations planning (S&OP) is increasing and, as a result, so is the interest in this process. The biggest pitfall in implementation is that S&OP remains a party of the supply chain department. Hans van de Sande and Elwin Wolters of BLMC Supply Chain Optimisation explain how this pitfall can be avoided. They emphasise the human factor in S&OP.
Are your suppliers on your doorstep within a day when you place an order? Do you have more than enough production capacity? Do you never have to sell no to your customers? Are you never stuck with excess stock? And is your margin so high that you have no financial worries whatsoever? Yes, then sales & operations planning (S&OP) is probably a completely unnecessary luxury.
For the vast majority of companies, however, S&OP is indispensable to be and remain successful in the long term. S&OP is a structured, monthly, cross-functional process that allows your company to identify and resolve bottlenecks in its operations. Which items will you produce and not produce if production capacity is insufficient? Which customers will you supply and not supply if you are in danger of running out of stock? With S&OP, you will find answers to these and many other questions.
Right questions and right informtion
Most companies come from a situation where once a year a budget round takes place
in which the objectives for the coming year and the resources needed for this are set. S&OP is the process in which these agreements are constantly monitored and adjusted if necessary. Is the market indeed growing as fast as expected? Is that new production line delivering as much capacity as predicted? Can that new product be introduced on time? With S&OP, you not only get the right questions on the table, but also the information necessary to formulate appropriate answers to them.
With a well-oiled S&OP process, the annual budget round effectively becomes redundant. Which is just as well, because by the time that budget round is over, the assumptions and expectations incorporated in it are already outdated. This is especially true in these times when volatility, uncertainty and complexity in business operations are rapidly increasing. Changes in the market follow each other ever faster, forcing companies to react to them faster. As the importance of a monthly S&OP process grows, so does the interest in S&OP.
Mandate from management
Before companies get started with S&OP, two things need to be in place. First, a clear vision needs to be formulated: What are the objectives of the S&OP process? For which markets and product groups will S&OP be set up? What is the planning horizon? It is important to obtain a mandate from the management for this. Without management support, an S&OP process will not have the impact it needs.
In addition, the data must be in order. In other words, the whole company should work with 'one set of numbers'. Decision-making in the S&OP process should not be constantly frustrated by discussions about the accuracy of the data. All functions, whether marketing, sales, purchasing, production, logistics and finance must agree that the data is correct.
Biggest pitfall
The biggest pitfall in implementation is that S&OP remains a party of the supply chain department. Supply chain is the department in which production planning, inventory planning and distribution planning are often already pretty well organised and from where the initiative for S&OP often comes from as well. However, involving the commercial arm of the company - sales and marketing - is the biggest challenge. Within many companies, commerce still holds the view that supply chain should be following: commerce takes care of the sales orders, supply chain has to see how they are fulfilled.
It doesn't work that way, of course. Commerce wants supply chain to have unlimited flexibility, but must understand that more flexibility comes with higher costs. Commercial has to understand that unreliable demand forecasting leads to the wrong products being in stock and its customers not being able to get what they ordered. Time and again, after implementing S&OP, it turns out that commerce, too, improves. Simply because good demand forecasting forces them to better understand exactly what customers want. Take the example of a company that time and again did its best to deliver to a certain customer just-in-time. Until the customer pointed out in a conversation that the rush was not so great at all because the warehouse still had three weeks of stock. With that knowledge, the company is better able to set the right priorities.
Crucial role for people
This pitfall makes it clear that in addition to a clear vision, good data and supporting systems, another element plays a crucial role in S&OP: the people from the various functions that have to carry out the process. They must want to work together, think in common interests, make agreements together and actually honour them. In practice, this means that behavioural change is necessary. Many S&OP implementations do not achieve the desired results because the human aspect is invariably underestimated.
BLMC's Supply Chain Optimisation Method offers a solution. This method consists of nine building blocks - of which S&OP is one - and starts with an analysis of the supply chain. This includes mapping the organisation and how people work together in it. How do they interact with each other? How do they share information? To what extent do they help each other solve problems? Other crucial building blocks are setting up supply chain processes and naming roles and responsibilities. This includes naming the desired behaviours. Specifically, what is expected of everyone in the S&OP process?
Changing behaviour
To realise behavioural change, it is important to be aware of the factors that prevent people from exhibiting the desired behaviour. One important factor can be an ingrained thinking pattern, think of the dogma that all production lines should be planned to be as full as possible. Another common factor is fear: can I perform the desired behaviour? Many people are afraid when they are asked to suddenly start working in a different way after many years. Then it is important to give these people confidence.
A sensible approach is to simply bring people from sales, marketing, purchasing, production and logistics around the table. Let everyone tell what problems they face in their jobs and what hinders them from solving those problems properly. By making these kinds of issues open for discussion, understanding of each other's situation and insight into the contribution people themselves can make to it will naturally emerge. In the words of Cruijff: "You only understand it when you see it."
Securing SCM
S&OP is inextricably linked to supply chain management (SCM). SCM means that the various functional departments in a company work together in streamlined processes. Companies that properly implement S&OP create an additional link between those functional departments. S&OP forces them to share available info with each other, look structurally to the future and think jointly about alternative scenarios. With a good S&OP process, supply chain thinking and acting is secured in the organisation.
Achieving a well-functioning S&OP process is not easy. Unlike an ERP implementation, an S&OP implementation is not a project that runs well overnight after thorough preparation. In fact, the impact of the human factor is too great for that. An S&OP process is a matter of 'learning on the job'. Or in other words, 'the proof of the pudding is in the eating'.
Hans van de Sande and Elwin Wolters are supply chain specialists at BLMC Supply Chain Optimisation and will speak at the Successful SCM implementation conference on 20 June.
