S&OP: A Secret To Success?

2 comments June 13th, 2006 David Bush - Iasta

Recently, Supply Chain Management Review ran a very insightful article entitled “The Secrets to S&OP Success” by Maha Muzumdar and John Fontanella.

In it, they noted that many companies across industries are struggling with even the basics of balancing supply and demand in their supply chains - retailers, CPG manufacturers, high tech, industrial, and distributors alike. They theorized that all of these symptoms could have a common root and that improvements in S&OP might be able to address them.

They define S&OP as “the set of business processes and technologies that enable an enterprise to respond effectively to demand and supply variability with insight into the optimal market deployment and [the] most profitable supply chain mix” and go on to say that “S&OP strategies help companies make “right-timed” planning decisions for the best combination of products, customers, and markets to serve”. They then go on to say that many executives are unsure of what the key elements of an S&OP program really are and discuss some key results from “The Sales and Operations Planning Benchmark Report”, an Oracle sponsored study of more then 200 companies conducted by the Aberdeen group.

The report found that most enterprise have some sort of S&OP process to align supply and demand and that more than 70% of respondents indicated they are actively engaged in enhancing their S&OP capabilities. Furthermore, it indicated that S&OP practices are evolving toward a holistic process that allows companies to improve revenues, reduce inventory, increase profits, and create a more dynamic product portfolio.

Today’s holistic S&OP processes introduce tools such as scenario-based modeling into the process so that rapid assessment of daily opportunities can be made. Holistic S&OP means the company’s local decisions can be measured against the success of business-unit and corporate goals. Compare this to traditional tactical S&OP processes that simply bring all stakeholders together once a month to agree on a (revised) business plan to be implemented by operations in the coming month.

A successful S&OP Strategy includes the five components of people, process, technology, strategy, and performance. It will encapsulate the supply management and spend management aspects of your Total Value Management Supply Chain Strategy.

(1) People - Obtain executive-level sponsorship, create cross-functional teams that consists of sales, operations, finance, purchasing, product development, and R&D, and define operational metrics.

(2) Process - maintain real-time supply and demand visibility, monitor business intelligence continuously at a strategic level, and maintain alignment with business objectives and associated metrics. Develop contingency plans based on multiple “what if” scenarios to fully assess risks and opportunities. Create a documented plan to drive execution.

(3) Technology - utilize modern technology solutions to insure up-to-date, accurate data across sourcing, manufacturing, sales, operations, marketing, and finance is always available and easily accessible by all stakeholders in a real time environment. Use decision support and business intelligence systems whenever they are available.

(4) Strategy - three strategic elements in the Aberdeen study continually outclassed the others in terms of delivering the most business benefits and the best capabilities for mitigating risks. Formal alignment of supply and inventories in demand, focus on profit, and careful attention to the value chain. Work collaboratively with key customers and suppliers and leverage their capabilities. Emphasize continuous improvement.

(5) Performance - measure! You cannot improve what you cannot measure. Make sure your metrics encompass the two-way impact of demand and supply decisions, like gross margin. Track key KPIs such as product profitability, order fill rates, customer satisfaction or retention, sales per employee, and percent volume growth. Review and, if necessary, update your metrics over time.

The study found that the companies utilizing S&OP best practices shared a common set of approaches: reliance on a phased approach, development of an “outside-in” sequence of initiatives, and a focus on critical information. And none of them ever stood still.

Entry Filed under: Analysts/Research, Functionality, General, Spend Analysis, Supplier Performance, Technology / SaaS