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Encouraging integration in S&OP process

To date, practitioners in value chain management believe that the Sales & Operations Planning (S&OP) concept is one of the best solutions to achieve operational excellence

The Jakarta Post
Wed, August 26, 2009

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Encouraging integration in S&OP process

T

o date, practitioners in value chain management believe that the Sales & Operations Planning (S&OP) concept is one of the best solutions to achieve operational excellence.

As I explained in my article "Weaving marketing into the fabric of a firm" published on this newspaper's management page on April 15, 2009, the S&OP process is very simple, that is, it is based on the demand driven process with the objective to meet customers' needs.

Customer expectation varies from one person to another, such as when it comes to market, product, channel and/or locations. Through this process, by identifying the demand and supply risks and issues early, the roles of the sales and marketing team as well as the demand and supply planner for customers can be more focused.

The S&OP process comprises regular meetings held on a regular basis. Today, many companies hold them monthly. During the process, they conduct three types of meetings.

First is to focus on establishing an unconstrained demand plan and forecast.

Second is to establish a draft of supply plan and a constrained demand plan.

The third meeting is for fine-tuning and aligning the demand and supply plans.

Since meetings are held regularly, usually the process is followed by a fixed agenda in a specified period of time.

The meetings include a review of how well previous plans were met, find the root of past achievements and make an analysis of any plan variances.

The meetings ultimately should lead to a discussion of results in the alignment of "demand-side plans" of marketing and sales with "supply-side plans" of production, supply chain and logistics.

Key Success in Demand Plan: Since meetings need to be conducted regularly and on schedule for a certain duration, they need to be organized by a responsible team. This team takes on a charter to run an extremely disciplined process that starts from scheduling and mediating meetings, setting the agendas and ensuring that the pre- and post-meetings work is done in a timely manner.

A baseline of demand and supply plans need to be carried into the S&OP meetings.

Initially, the baseline demand forecast is unconstrained and then incorporates all known factors that could impact future demand.

These factors include new product introductions, promotion activities and details on marketing and sales actions. At this point, the key element that should be the center of attention by the "demand-side managers" is forecast accuracy!

As the name implies, the S&OP process needs to be cross-functional that involves demand-side managers from sales, consumer and trade marketing, supply-side managers from procurement, production, supply chain and logistics. In line with the focus on alignment, finance staff members are also involved to help consolidate the operational plans established with the financial objectives.

Integration as Key Factor: To ensure that the outcome of meetings is accountable and is accepted by all stakeholders of the organization, a collaborative process designed to lead to consensus-based plans is required.

This means that all stakeholders need to be able to quickly create, review and revise plans.

To ensure balance within joint supply and demand planning, the S&OP process entails developing supply plans that meet the demand forecast based on relatively inflexible marketing and sales plans.

When this is the case, the meetings are driven by supply-side managers largely trying to adjust rough-cut supply plans to meet a pre-specified demand plan. At this stage, there are at least two associated problems.

The first is that there is almost no role for marketing and sales to play at S&OP meetings. They tend to not actively participate.

The second, and the most important problem, is that it tends to hide potential revenue opportunities that could be generated by taking advantage of opportunistic and/or excess supply capacities.

During meetings, don't forget to measure the performance of the process so that it can be improved upon through learning over time.

In fact, most current S&OP processes tend to measure demand forecast accuracy, which is pro-bably the most important metric to track.

However, to help improve the process, other metrics should also be tracked over time, such as variance in baseline forecasts and budgets, as well as effectiveness of marketing effort, service level, on self availability, product assortment and other operations plans.

Today, many S&OP processes are run and supported by myriad spreadsheets that are not congruous. Companies tend to solve this by implementing a demand forecasting or planning software package.

While this helps to fully support the process, supply-side software applications need to be integrated with these types of demand-side packages.

In the end, the integration of those applications will prove capable as an executive dashboard that is used to bring together the views of supply and demand to the company objectives.

The S&OP processes in place today mainly use internal supply-demand data, such as customer orders, service level, on-hand inventories and plant capacities as input.

More recently, with co-managed supply chain strategy, the information can be broadened to cover Vendor Managed Inventories (VMI), Collaborative Planning, Forecasting and Replenishment (CPFR) and the sharing of retailers' Point of Sale (POS) information.

Such information gives companies greater access to external information, such as future supply and demand.

In fact, some leading companies are starting to incorporate it all as additional information to support the process.

There are dozens of aspects to being successful in achieving operational excellence. The aforementioned checklist is one aspect that can be used to gauge how well the S&OP process in your organization is doing in improving and sustaining operational performance.

The writer is a lecturer at Pelita Harapan Graduate School. Website: www.totoksugiharto.com.

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