Sales & Operations planning aims to predict, balance and control the integration of supply and demand within the supply chain.
Despite the fact that all organizations endorse the importance of S & OP, they often get stuck in a large sandbox of detailed information and metrices. So much so that directors cannot make the right decisions when it comes to achieving the strategic goals and mitigating risks. Below are the most common pitfalls and how you can best avoid them.
There still appears to be insufficient support from the Executive level, even though the importance of S & OP is endorsed at this level. Often this is caused because the information provided does not contain the correct control information or it is too opaque. As a result, the utility for executives is too low.
For executive level, the information should focus on the horizon, be delivered on time and be precise. Exactly in the sense that it is clear what the information represents and especially what it is not. Based on that, the right ‘what if’ questions can be asked.
Organization wide focus.
Many organizations still operate in silos. Each department has its own metrices on which it is charged. Sales looks at turnover, Finance at Margin and Operations at turnaround times. The transcending metrices are missing, causing conflicts
S & OP supplies these departments with metrices that are purely geared to this. As a result, the common ground in the metrices is missing and the focus on the higher target is missing. Here too, the Executive level can make the difference by harmonizing the metrices at the highest aggregation level. Based on this, S & OP can make a further breakdown and present the information to the departments that best suits their needs. But it must always be clear that the goal is to connect supply and demand within the supply chain.
From the demand side, bottom up information is collected from the Point of Sales about sales. This information is fed back to S & OP as input for the forecast, stock management and production management.
The same information is fed back to S & OP from Sales management top down with projections and interpretation of the market development, partly based on social media analyzes. S & OP is now confronted with 2 types of information from the same source.
This reality interpretation is a joint assignment from S & OP and Sales to ultimately provide the correct information in the chain to production, logistics, but also suppliers. Both parties must also commit to this to prevent conflicts within the organization.
Organizations often look for that one sacred number that can carry all decisions. [somewhat equivalent to GDP which is seen as the measure of things in the economy, but factually incorrect]
Because this number does not exist, many companies get bogged down in a jungle of metrices. Each department has its own huge stack. When combined, this provides a confusing mess of information.
Limit your metrices between 10-15. Where 10 is already better than 15. Avoid getting paralyzed. Use the limited metrices, analyze them, understand them and apply them consistently. Keep in mind that circumstances change over time and so metrices need to be adjusted. So regularly evaluate the suitability of your metrices.
One of the most important things in measuring your organization’s performance is to evaluate results and learn from the “mistakes.” To this end it is important that the relevant information is documented conscientiously. Provide a good management system and the right tools to store your information in such a way that it is always easily available and remains comparable over time.
S & OP can yield a lot of results from your organization. It is important that the positioning and recognition is done correctly within the organization. Typical results you can expect are listed below. Good luck!
Possible S&OP results
- 5% increase in turnover and margin
- 25% reduction in out of stock
- 10-20% reduction in excessive stocks
- 15-30% improvement in forecast reliability
- 50-70% reduction in planning cycle time