Sales & Operations Planning (S&OP) is a powerful decision-making process that provides a platform to balance supply and demand on a mid-to-long term horizon. The benefits are numerous – improved service performance, stable production rates, enhanced teamwork and reduced inventories.
Combine this with integrated financial planning and it’s a process that every business should operate. However, there are many issues that will break an S&OP process and in this article, we look at five of them.
1. Poor Demand Planning Input
The S&OP process starts with the input of an unconstrained demand plan. That’s the very first step in the monthly cycle. In its original inception, S&OP was widely considered a communications platform and consequently data-driven demand plans, or supply plans, were deemed important but not critical to the process. That’s simply no longer the case.
In any modern supply chain, demand profiles are growing ever more complex. Demand plans must now consider the complexities of omnichannel sales and the impacts of highly evolved social media promotional strategies. The number of opportunities to get the demand plan woefully wrong has grown exponentially.
As demand planning is the first step of the S&OP process, it is effectively the foundation. If the demand plan is way off the mark then so too will be the supply plan. If both plans are wrong, then the business will make the wrong decisions. This will mean that the S&OP process has failed in its primary objective.
It’s fair to say that demand forecasting and planning is the most challenging and complex part of an S&OP process. Not only do the team need to consider multiple sales channels and marketing strategies, but they also need to contend with the different views of stakeholders.
The sales team will be very much customer-centric and will want to review sales at an account level, whilst marketing will be looking at the brand view and the impacts of promotions and pricing strategies.
Whilst it must always be acknowledged that the demand plan will have a level of error, it’s important that the demand planning step is given sufficient design focus from the start.
If the sales and marketing teams don’t have faith in how the forecast is compiled, then they will struggle to engage and take the accountability required. This will then lead to a ‘laissez-faire’ attitude to the demand forecast which will undermine the entire S&OP process.
The best S&OP processes favour simplicity over complexity. The process will never capture, to everybody’s satisfaction, every possible nuance of a business that potentially has multiple manufacturing sites, logistics centres, sales territories, and product portfolios. The S&OP process needs to focus on the important issues, not the trivial many.
Further to this, it’s very common to see S&OP processes and associated process flow charts that are mind-bogglingly complex. They often stretch across A3-size pages with document, data, and system flows showing multiple interconnections and all surrounded by arrows and annotations.
Such process flows may well be ‘comprehensive’, but the reality is that they’re often incomprehensible to stakeholders. The consequence of this is that individuals, with the best intentions, start to apply their own rules and this can result in confusion and poor compliance.
Keep the S&OP process to simple swim lane process flows. There should be a straightforward one-page overview process for general circulation, and this overview process should then be indexed to clear and stepped processes at a functional level.
It’s also helpful if the overview process has a succinct elevator pitch at the heading, explaining what S&OP is and what the objectives are. Communications on S&OP and instructions on how the process should be executed need to be aimed to maximise understanding in the business – they need to be simple, clear, and concise.
3. Lack of S&OP ‘Education’
S&OP conceptually is not difficult to understand. However, the execution and all its interdependencies between sales, marketing, logistics, manufacturing, and finance can make it a very complex process to have a detailed understanding of. This is especially true in multi-divisional businesses where each division feeds into a core S&OP process.
In most companies, a lot of effort is put into S&OP training through workshops and conference room pilots during the implementation phase. However, once implementation is complete, that training tends to end.
The result of this is that new employees coming to the company, or transferring from other positions, may not fully understand the S&OP process, or potentially even the objectives for S&OP. This lack of ongoing training risks reduced engagement and consequently the integrity of the process itself.
S&OP training should be ongoing and supported by periodic workshops to reiterate the importance of the process and its objectives. These workshops should also provide the opportunity for stakeholders to consensually evolve the process, redesigning what doesn’t work and enhancing what does. S&OP is not a ‘one-hit’ affair, either in terms of training or process design. There needs to be a continuous focus on both.
4. Not Making Decisions
Some S&OP processes just become a perpetual cycle of analysis, presentation, further analysis, and further presentation. There comes a point where decisions simply must be made. When you’re looking at demand and supply plans on a 12 to 18-month horizon, they will never be perfect.
Insisting on multiple cycles of deep-dive analysis until you can be certain of the decision to make wastes time, resource, and disengages stakeholders. People start to see the S&OP meetings as simply a ‘show and tell’, and consequently, the value of the process is diluted.
The reality of the S&OP process is that it’s a best guess on the future sales demand and the supply resources required. Where significant changes in sales demand potentially dictate major changes in supply resource, then decisions need to be made in a timely manner.
If sales demand increases mean that logistics will need to commission additional warehousing, or manufacturing will need to increase capacity, then these initiatives may well need 3 months or 6 months to be deployed. Leaving the decision until the month before will mean the S&OP process has failed.
As soon as any potential change starts to be considered, a strict deadline needs to be imposed on the decision. Furthermore, a clear remit on the assessment to support that decision needs to be issued.
Each stakeholder must be specific about the analysis they want to see to support their final decision from the start. As S&OP is a monthly process then waiting a month to see analysis and then insisting on further iterations for the following month can waste a lot of time.
5. Business Acquisitions and Divestments
Many S&OP processes do not survive business acquisitions and divestments. This tends to be caused by changing personnel, a loss of senior management focus or because the S&OP process is overly complex and very difficult to expand to acquisitions or contract with divestments.
Whichever of these reasons, the overriding issue will have been that the S&OP process did not have enough priority and stakeholders did not get enough value to warrant the challenges of expanding or contracting the process. In other words, if the process cannot adapt then it probably wasn’t working in the first place.
Very often, participants in an S&OP process may not recognise its failings. It’s difficult to get an objective view of how effective the process is when everyone’s activities and minds are set on ‘how it’s done’ instead of how it should be done. The risk in many businesses is that S&OP happens, all the inputs are provided and all the meetings occur, but it is simply seen as another set of meetings and another set of reports to review.
If the outputs of the S&OP process don’t deliver on driving the business forward and consequently the process is not viewed as critical, then it’s very quickly resigned to the bottom of the priorities as soon as any major change happens.
To ensure that the S&OP process remains effective, engaging, and adaptable to change, there needs to be ongoing training, as we’ve already discussed, but also there need to be regular audits. These audits should be aimed at checking that all steps are undertaken, accountability is assigned, there is ownership of the process and outputs, and that decisions are implemented and tracked.
These audits can be undertaken either by external S&OP consultants or the management team. Either way, the objective should be to identify the gaps and put in place plans to get S&OP back on track.