One of the management challenges in business competition today is to focus on the achievement of operational excellence. Operational excellence is achieved when, compared with competitors, a company generates more revenue and enjoys a higher market share growth with the right amount of stocks at the right place and at the right time with moderate working capital. The focus of operational excellence is not only to achieve sales growth but also the bottom line of economic profit.

Sales and Operating Planning (S&OP) is one of the strategic processes in creating a realistic demand plan, which is achievable by supply that is used by all business functions. The plan starts from listening to the voice of the customer throughout the entire delivery process of product and service by the company. The plan meets general business objectives of the profitability, productivity, inventory or working capital used, competitive customer lead times, assets utilization, etc., as is expressed in the overall business plan.

The objective of the S&OP process is to identify any demand or supply risks as early as possible. Examples of these risks are when demand falls behind budget or when supply cannot keep up with demand. One of the processes in S&OP consists of formal monthly meetings with all process owners that cover at least the medium-term horizon of sales forecast with adequate information to plan resources and effectively meet demand.

Why is S&OP important in every organization? Without a good S&OP process, an organization is faced with difficulty in establishing an integrated plan of sales, distribution, production, procurement, finance, inventory levels and working capital planning. As a result, business performance will suffer from poor product availability, which in turn affects customer service levels negatively. The other implication would be the high level of inventory, thereby increasing the possibilities of write-offs of expired stocks.

Ineffective production capacity loading and the need for extra capacity are other consequences, mainly caused by poor quality in sales forecast accuracy. These problems, however, have become a concern for management. Poor sales forecasting will affect many processes, such as the visibility of supply and demand and the effectiveness of mid-term marketing activities. Multiple functional processes fail to take place, resulting in disconnected plans that do not tie up with the financial performance forecast.

In S&OP, management focus strives to meet or even exceed customer needs all the time. The process owners do what they say they are going to do. Therefore, collaboration among the process owners is aimed in such a way so that the work, timing and/or resources change from unbalanced to balanced conditions in which at least one of the other two components must be changed. The organization believes to "never promise more than they can deliver, but to deliver what they promise". The process owners always try to engage in open and honest communication to perform continuously, use rolling re-planning and a flexible annual budget. Planning, execution and communication must be synchronized.

In S&OP, the process owners should conclude several key success factors. First, there should be a strong commitment from the S&OP champion at the senior executive level. Second, S&OP education and training at all functions of the organization. Senior executives through to the supervisory level in the organization should have a complete understanding of these processes. Third, the ability to achieve measurable results quickly resulting from readily accessible accurate information on demand and supply, new product and financial information that is communicated in a standard and easily understandable format. Fourth, a need to focus on the implementation that includes conducting various review meetings within several days of the start of implementation. The expectation is that the process does not have to be perfect to begin with, and that it will have to be improved every month. Last, dedicated resources to operate the process, supported by software and information technology as needed.

What is the best practice of the S&OP process in the organization? Continuous and routine S&OP meetings with a structured agenda, pre-work to support meeting input, cross-process owners' participation are the best approach to empower the participants to make decisions. These approaches are meant to avoid the vagueness in a responsible organization to run a disciplined process. With the internal collaboration process, it is hoped that consensus and accountability can be made. The baseline of details forecast serves as a catalyst to achieve a balanced supply and demand plan. The measurement of performance is very important. This approach should be supported by integrated and agile supply-demand planning information technology.

The S&OP process is common and based on the demand driven process of which the objective is to regularly and routinely satisfy the needs of customers. Customer expectations vary from one to another, such as market, product, channel and/or locations. These can be quantified by doing what we say we are going to do. By identifying the demand and supply risks and issues early on, the roles of sales and marketing people and demand and supply planner for the customer will be more focused. To effectively deliver this process, the organization of S&OP will have to possibly establish a division named cross-process integration whose focus is on the link among the roles of process owners.

S&OP offers a new way of thinking, one that starts with customer demands and needs and ends with the supply of products and services to serve those needs. Wise advice for supply chain organization is to equip the S&OP approach in a strategic manner so that the flow of information and the need from marketing can be integrated into the fabric of the firm. Finally, with this approach, management will not be flying by with dumb decision-making rules in achieving the organization's objective.

The writer is a lecturer at Pelita Harapan University.

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