Top Performer Benefits of Effective Sales & Operations Planning

7/24/2019 Top Performer Benefits of Effective Sales & Operations Planning

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Top Performer Benefits of Effective Sales & Operations Planning

The benefits of effective S&OP are compelling - lower operating costs, reduced inventory

requirements, and top-line growth, and top-performing S&OP companies are realizing these benefits

and in the process gaining competitive advantageBy Len Prokopets

!uly "#, "$%#

Long advocated by expert observers of the supply chain scene, the Sales and

Operations Planning process(S&OP) has reached a point of broad adoption.

A recent study perfored byThe Hackett Groupindicates that alost !" percent of

study participants have ipleented an S&OP process.# $o%ever, the study also

reveals a %ide gulf bet%een S&OP top perforers and those that erely practice

S&OP.

ot only do top perforers apply S&OP best practices to a far greater extent, they also

have begun to ta'e the next step of integrating their S&OP and financial planning

processes to drive true integrated business planning. As a result, top perforing

organiations find that S&OP is * percent ore effective at driving benefits than it is for

other organiations.

+his article outlines study findings, provides 'ey insights on challenges and

opportunities, and offers a path for%ard for those see'ing to oin the ran's of S&OP top

perforers.

Let-s begin %ith a definition. e define Sales & Operations Planning as a collaborative

decision/a'ing process used to develop and align tie/phased deand, supply, and

financial plans in support of the overall business plan. S&OP is, by its nature, a cross/

functional process that involves individuals fro sales and ar'eting, supply chain,

finance, procureent, logistics, and even 0&1 and capital proects.

S&OP Has Entered the Mainstream

2irst eerging %ell over 3" years ago, S&OP has oved fro business bu%ord

status to ainstrea adoption aong the %orld-s large supply chain/focused

organiations. A current 4oogle search turns up over *",""" entries and a search on

professional net%or'ing site, Lin'ed5n, finds ore than #,""" individuals %ho list the

ter 6S&OP7 in their profiles.
http://www.supplychain247.com/search/results/search&category=resources&keywords=Sales+and+Operations+Planning/http://www.supplychain247.com/search/results/search&category=resources&keywords=Sales+and+Operations+Planning/http://www.supplychain247.com/company/the_hackett_grouphttp://www.supplychain247.com/company/the_hackett_grouphttp://www.supplychain247.com/search/results/search&category=resources&keywords=Sales+and+Operations+Planning/http://www.supplychain247.com/search/results/search&category=resources&keywords=Sales+and+Operations+Planning/


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0eflecting S&OP-s ne% ainstrea status, +he $ac'ett 4roup-s recent study finds that

alost !" percent of respondents have adopted an S&OP process %ith defined steps,

ilestones, and revie%s that are executed on a defined onthly cadence (8xhibit #).

Only a sall fraction of study respondents claied 6very liited or no adoption of

S&OP.7

Overall, these study findings are highly consistent %ith %hat %e see on a day/to/day

basis aong our client base9 the vast aority of our large clients %ith physical supply

chains have ipleented a foral S&OP process. And even aong copanies that

have not deployed S&OP enterprise/%ide, any apply S&OP to soe degree in their

business.

Benefts o a Mature S&OP Process+he appeal of S&OP lies in its ability to drive draatic iproveents in 'ey business

perforance etrics. Our experience indicates that effective use of S&OP can help

gro% the top line of the business %hile reducing operating costs and reducing inventory

re:uired (see 8xhibit ;). 2e% business iproveent initiatives atch the econoic

return that ipleenting an effective S&OP process can generate.


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Our study identified a group of S&OP top perforers based on their ability to axiie

benefits of S&OP and operate the process ore effectively. Our findings sho% that

these top perforers have realied that to truly axiie benefits of S&OP they ust

go beyond siply ipleenting a basic S&OP process and conducting eetings on an

ongoing basis.

+hese copanies develop highly ature S&OP processes that leverage 'ey bestpractices and as a result, realie significant perforance iproveents and create anopportunity for copetitive advantage. Our study findings indicate that top perforercopanies- ature S&OP processes are * percent ore effective at deliveringbenefits than are those of other organiations.

Our study has identified a doen 'ey best practices that differentiate S&OP processes

of top perforers fro those of other organiations. (See sidebar on page 3< titled 6#;

=est Practices of S&OP.7) +hese best practices fall into three groups> Process,

Organiation, and +ools?1ata. hile adoption rates of the practices across these groups

differ, the study indicates that top perforers consistently adopt best practices at a

higher rate than do other organiations.

On the %hole, top perforers adopted these S&OP best practices at a rate that is


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5n addition, these organiations develop a robust supply plan that defines the

anufacturing and supply operating activities re:uired to eet deand and highlights

supply constraints as %ell as situations %here 'ey paraeters cannot be et (e.g.,

capacity utiliation, inventory levels, operating cost levels).

+op perforers also gear their S&OP processes to loo' out over a horion of at least #*

onths, producing an integrated business plan that balances supply and deand to

eet targeted business obectives over that tiefrae. Organiations that are not top

perforers lag in each one of these best practice capability areas.

Another trait of the top perforers is to aggressively adopt organiational best practices

(see 8xhibit @), surpassing adoption rates by other survey respondents by @@ percent.

5n our experience, organiational effectiveness is a 'ey ingredient to S&OP success,

enabling ongoing governance and continuous iproveent of the process.


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Alost all top perforer organiations report participation by sales, ar'eting, deand

planning, supply planning, finance and procureent functions in their S&OP process.+hey also report that their S&OP processes are o%ned by senior leadership.

Efective ownership by senior leadership typically includes the

ollowing elements:

Setting and communicating goals and expectations for the overall

process.

easuring the entire team as !ell as themselves against the goals

each period.

Participating in the process in a visi"le# active !ay.

$sing all availa"le information to make data%driven decisions to resolve

issues.

O!ning and adhering to the plans developed through the S&OP

process.

+op perforers also set foral perforance targets and assign accountability for

achieving those targets. +he targets are typically specific :uantifiable goals %ith defined

tiefraes in areas such as %or'ing capital iproveent, cost reduction, custoer or

product gro%th, forecast accuracy iproveent, supply gap reduction, and process

participation.

+op perforers also have developed the organiational discipline to stic' to and carryout decisions reached as part of their S&OP processes.


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5n organiations that lac' such discipline, inevitable day/to/day firefighting and changes

in business priorities provide excuses for lac' of follo%/through and failure to execute on

decisions and actions defined in S&OP.

As a result, S&OP effectiveness can be severely liited.

+op perforers also are significantly ahead of other organiations in syste enableent

of S&OP (see 8xhibit


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data interfaces, tools to reconcile and align deand and supply, as %ell as tools that

enable odeling of %hat/if scenarios.

+he lac' of off/the/shelf 80P support for typical S&OP re:uireents also eans that

the systes and tools developedBeven those of top perforer organiationsBareoften hoegro%n using icrosoft 8xcel and Access.

A nuber of pac'aged solutions have recently eerged that provide 'ey functionality toenable and autoate S&OP activities such as planning, reporting, and analysis. Asthese solutions are ore %idely adopted and as 80P pac'ages add S&OP relatedfunctionality in the coing years, %e anticipate further adoption of best practicecapabilities of the tools and data associated %ith S&OP.

Integration with Financial Planning

A traditional, liited, definition of S&OP focuses on balancing the organiation-s supply

and deand and resolving supply disruptions and shortages. 5n our experience,

organiations %ith iature S&OP vie% the process in this liited %ay. 5n fact, our

study indicates that outside the ran's of top perforers, !< percent of organiations

execute this traditional 6bloc'ing and tac'ling7 version of S&OP.

+op perforers, ho%ever, have realied that S&OP can play a role that is uch ore

valuable than that of balancing supply and deand. +hey believe that S&OP can serve

as a process for business anageent and optiiation. +hese copanies have

integrated their S&OP and financial planning processes, enabling true 5ntegrated

=usiness Planning. 5n effect, they have identified a thirteenth best practice that builds

upon the first #;.

Our study indicates that alost ** percent of S&OP top perforers have integrated

S&OP and financial planning as copared to only ;< percent of non top/perforers.

+he ;


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the ability to understand ipact of decisions on the business as a %hole and can ta'e

steps to 6optiie7 business perforance.

8nabling 5ntegrated =usiness Planning relies on a nuber of 'ey building bloc's. +op

perforer organiations typically bring together the follo%ing eleents to support an

5ntegrated =usiness Planning environent>

)n integrated process for generating and aligning the plans of the

individual functions.

) common*aligned planning calendar de+ning milestone dates.

) common planning time hori,on -for example# / months0.

Planning assumptions that are aligned across the organi,ation.

Standardi,ed and aligned metrics and targets across the organi,ation.

)n integrated cross%functional data model ena"ling rapid integration of

cross%functional plans.

) culture that ena"les e1ective cross%functional colla"oration.

2ross%functional modeling of "usiness scenarios to understand full

"usiness impacts.

3evelopment of a single integrated plan that can "e fed "ack to

individual processes*su"systems.


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2or top perforer organiations, this shift to%ard integrated S&OP and financial

planning processes has coincided %ith a draatic change in the role that finance plays

in the organiation.

2inance-s traditional role has been to 6record the nubers7, 'eep score of perforance

relative to the budget, serve as the source for financial data (costs, pricing, and soforth), and conduct analysis to ans%er the organiations :uestions about perforance.

+he finance role that is eerging is to 6Lead the organiation in a'ing the nubers.7

+his ne% role entails the follo%ing> coordinating the overall 5ntegrated =usiness

Planning process9 defining priorities and targets for 'ey business etrics9 driving

business decision/a'ing9 and supporting a broader range of %hat/if analysis to support

cross/functional business decisions.

Capailit! "aps o the #esser Perormers

+urning no% to the lagging copanies, our experience indicates that organiations thatare not S&OP top perforers struggle %ith a nuber of gaps, hapering full adoption of

the S&OP process and liiting benefit realiation.

+he study confirs this experience9 non/top/perforer organiations reported facing ten

aor S&OP capability gaps, as sho%n in 8xhibit !. Aong those, a aority of

respondents reported five or ore gaps in their S&OP capabilities. +he gaps cited ost

fre:uently are liited %hat/if odeling, a short/ter focus, and inaccurate deand

forecasts.

Case Stud! o an S&OP $op Perormer

+he follo%ing case study highlights any of the best practices associated %ith putting a

successful S&OP into action. +he copany, a C#billion/plus anufacturer, faced a set of

business and operational challenges. +he external business environent %as

unfavorable, %ith %ea' custoer deand and rising costs. At the sae tie, the


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organiation experienced any of the typical capability gaps resulting fro an iature

S&OP process.

+he supply chain %as unstable, providing poor custoer service levels %hile operating

inefficiently. 5n particular>

2ustomer service levels !ere su"%par# !ith order +ll rates averaging

"elo! 45 percent in an industry !here customers expect 4/.6 percent.

Protracted product outages resulted in ma7or disruptions for key

customers# endangering ma7or account relationships.

Signi+cant manufacturing variances arose# driven "y fre8uent changes

in the production schedule# at times made to satisfy unexpected demand

and at others made in reaction to materials or packaging shortages.

Sales and marketing lacked the con+dence to plan promotions and ne!

sales due to concerns that supply chain !ould "e una"le to respond.

2urtherore, financial perforance surprises %ere routine, frustrating senior leadership

and precipitating a onthly gae of 6%hac'/a/ole7 that included chasing and

firefighting the latest set of issues.

2acing pressure to iprove business perforance, the organiation-s senior leadership

tea initiated a proect to put in place %orld/class 5ntegrated =usiness Planning?S&OP

capabilities. +he effort consisted of three phases>

Phase % Preparation

+he organiation too' action to rapidly stabilie its supply chain environent, identifying

and addressing underlying gaps and disconnects in deand, supply, and financial

processes and tac'ling aor issues and ris's for specific products to stabilie the

business.

+he organiation designed and ipleented S&OP capability iproveents in each of

the #; best practice areas in process, organiation, and tools?data. 8xaples include>

'sta"lished a formal monthly S&OP process including repeata"le tools#

templates# and approaches for gap modeling and resolution.

Shifted focus of the S&OP process from planning the current 8uarter to

planning a rolling /%month period.

'sta"lished visi"le 2%level o!nership of the process and hands%on

involvement in monthly meetings.


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3eveloped an integrated data model as a 9single source of truth: for

supply# demand# cost# and pricing data ena"ling the linking plans and

metrics across "usiness functions.

3eveloped operating and performance reports to support S&OP.

Built analytical tools to support !hat%if analysis and scenario modeling.

+he organiation integrated its S&OP and financial planning processes, creating a

single onthly process for 5ntegrated =usiness Planning>

S&OP plans and !hat%if analyses !ere translated into dollar terms

focusing decision%making on "usiness performance impacts.

) P&L# generated for each month in the planning hori,on as part of the

S&OP process# "ecame the +nancial plan# eliminating the need for a

separate +nancial planning process.

'sta"lished a frame!ork for continuous improvement of S&OP !ith a

"alanced set of 8uarterly targets for "usiness performance and for

improvement in process execution.

Phase ' Conduct Pilot C!cles

)fter a rapid e1ort to implement improvements in S&OP process#

organi,ation# and tools*data elements# the organi,ation conducted three

pilot cycles of the improved S&OP process.

The pilot cycles !ere used as an opportunity to train processparticipants and prepare them to operate in an ;ntegrated Business

Planning environment.

The S&OP design !as re+ned !ith each successive cycle leading to a

full launch after an executive leadership go*no%go revie!.

Phase ( Implement Continuous Impro)ement

The organi,ation monitored S&OP performance and process execution

measures and de+ned necessary changes and actions to drive

improvement. Tools and templates !ere re+ned over time. The company transitioned

tools that had "een "uilt in icrosoft 'xcel and )ccess to leverage more

po!erful enterprise toolsets such as the '(P system# +nancial planning

system# and supply chain system.


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+he proect yielded exceptional results, providing senior leadership %ith the toolsto better anage the business and driving substantial operational and econoiciproveents.

Dustoer service fill rates rose fro @th :uartile to #st :uartile in four onths,

consistently achieving targeted E*.< percent fill rates.

Siultaneously, finished goods inventory %as reduced by #" percent. 8xpediting

%as substantially reduced enabling reduction in ra% aterial and pac'aging

costs.

2inally, the iproved stability of the supply chain enabled anageent to

redesign and rationalie the anufacturing net%or', reducing overhead costs by

#" percent.

How to Become an S&OP $op Perormer

Achieving S&OP top perforer capabilities and perforance re:uires a focusedeffort, dedicated, 'no%ledgeable resources, and at least six onths.

Such a proect is typically coprised of three phases> Preparation, S&OP Pilot

Dycles, and Dontinuous 5proveent. 8xhibit * provides a saple

ipleentation approach.

5n any organiations, an initial S&OP assessent reveals gaps, brea'do%ns, and

individual supply, deand, and financial and business plans that are ineffective and can

coplicate or prevent ipleentation of overall S&OP capabilities. 5n these

organiations, an additional triage and stabiliation step ay be necessary to address

gaps and disconnects and establish a starting point for developing an 5ntegrated

=usiness Planning process.


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Once the current S&OP environent has been stabilied, the typical next step is

to develop the future state design. +his design should, aong other changes, put

in place the #; 'ey best practices across S&OP process, S&OP organiation,

and S&OP tools?data (see belo%).

%' Best Practices o S&OP

Processes

#. A foral, defined S&OP process.

;. A single consensus deand plan.

3. S&OP that loo's out over a period of #*/plus onths.

@. A supply plan that defines re:uireents to eet deand and highlights

constraints.

Organization


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axiiing perforance. +hrough a strong governance process and continuous

progress, these iproveents can be sustained over tie, leading to a

significant copetitive advantage for the organiation.

Len Prokopetsis a Principal in the Strategy and Operations practice of )rchstone

2onsulting, a division ofThe Hackett Group.
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Top Performer Benefits of Effective Sales & Operations Planning