The sales and operations planning process has taken various forms throughout the decades, but ultimately became standard practice for many organizations. Today’s customer-driven business environment poses new obstacles for companies, particularly in the consumer products industry, that is experiencing short product life cycles in tandem with high demand volatility.
Unlike the common organizational blueprint required for traditional businesses with steadily consumed products, this complex condition mandates a more innovative and flexible sales and operations planning strategy. As a result, many companies tend to be overwhelmed by uncertainty and take the path of least resistance by placing too much emphasis on supporting customer demand or cost optimization in the supply chain, while customer satisfaction, product quality, and product availability are sacrificed.
In a business environment that is more complex and demanding than ever, the primary challenge companies face is balancing total operational cost with customer satisfaction. Implementing the sales and operations planning process is arguably the most fundamental element to maintaining a competitive business model that differentiates your company from the competition.
What is Sales & Operations Planning?
Sales & Operations Planning (S&OP), at its core, represents a strategic alignment between key stakeholders spanning across various business functions, Sales, Marketing, Supply Chain, and Finance. S&OP is an integrated business management process through which a company’s leadership team continually aligns, synchronizes, and manages the supply chain to achieve its strategic business objectives. It is a cross-functional, collaborative process focusing on improving business performance and properly aligning supply levels with demand levels. When all of these business functions are operating as an integrated team, not just working to achieve their individual objectives, the opportunities for growth and improved results are infinite.
A well-executed S&OP strategy drives results and creates unlimited opportunities for companies that execute it effectively. Companies have experienced several of the below key benefits that are a result of a successful S&OP implementation.
Improved demand and supply visibility
A structured approach to utilizing clean data accelerates the decision making process and creates an environment where a cross-functional team can speak the same language and make decisions quickly.
As strategic partners, the entire group can be confident that they are creating a plan that is right for the company. Using the S&OP process, companies are enabled to set a cross-functional strategy that achieves profit margins, rather than achieving independent objectives that result in negative operational impacts.
Accurate Supply Planning
By using the S&OP process, a company is able to be proactive, thus reducing last minute shuffling in the manufacturing and distribution process. This allows an organization to address the supply chain’s capacity constraints and response timing issues long before the end customer is affected.
Improved Risk Management
When Sales & Operations planning is properly executed with the right key partners, a company can perform accurate demand forecasts, inventory levels, raw material purchase projections, production plans, and forecasted labor utilization rates. At a high level, S&OP ultimately drives improved cash flow, superior customer satisfaction, and a scalable process that can be leveraged long-term.
To create a foundation for success, develop a collaborative culture that supports integration, where team members pursue common goals, beginning with your leadership. This can be accomplished by incentivizing behavior that advocates cross-functional teamwork and collaboration. Then, hold these metrics to the same standard as your company’s foundational key performance indicators (KPI’s). The widely acknowledged phrase “what gets measured gets done” appropriately embodies this mindset, highlighting the importance of assessing S&OP results to ensure a sustainable process is maintained.
Create Implementation Timeline
Establish a timeline that clearly illustrates the sequence of events that must take place. These range from organizing objectives between departments to the production of a defined S&OP process
aimed at improving results. The course of a successful S&OP endeavor is more effective when deployed in phases. It is vital to understand that the process is not a silver bullet for solving every business problem within your organization, but it undeniably compliments the goal of continuously advancing your company’s planning operations.
Evolve From Traditional MRP Paradigm
One result of strong S&OP implementation is the creation of a holistic Rate Based Planning (RBP) design that the entire supply chain can use as an indicator of direction. This method helps your company align with building your supply chain operations around a consistent demand rhythm instead of what the next customer down the value stream is requiring, which is typically the result of a standard Material Requirements Planning strategy. Rate Based Planning has developed into a more readily adopted process and is changing the way companies look at supply and demand from a timing standpoint, ultimately closing its marginal gap.
S&OP is a complex process that requires communication and cooperation throughout all departments in your organization. The application of a successful S&OP blueprint is most effective when tailored toward your company’s goals and organizational structure. The aforementioned solutions will provide your leadership with a solid foundation for enhanced visibility, more accurate forecasting, and optimal cost controls, subsequently increasing customer satisfaction and facilitating sustained long-term profitable revenue streams.