Most probably everyone already knows the famous S&OP acronym … Or its latest variant labeled IBP (Integrated Business Planning) … Yet I’m not so fond of the latter as SAP named a module like this and it thus may well trigger confusion when choosing between an ERP (Enterprise Resource Planning) and an APS (Advance Planning System) … Quite a discussion topic for a coming blog post.
I will not follow the usual S&OP literature that many writers would do much better than me but rather try to apply a mixed point of view from Commercial & Supply Chain.
Does plan accuracy provide opportunities for the company ?
By curiosity or by choice, supported by existing internal resources or by external consultants, the S&OP has been implemented in many companies over last decades. To oversimplify it, it is to have regular meetings with sales & marketing, demand planning, logistics and manufacturing/production sitting around the same table, to look at each set of forecast numbers and tend to align to one landing number. The horizon can be the month, the quarter, or the year end. The main KPI is the best possible forecast accuracy to avoid write offs and keep an acceptable level of inventory.
Accurate, accurate, accurate, it’s also probably what I had in mind 22 years ago when I started my S&OP journey.
But… can accuracy necessarily provide opportunities for the company ?
Remembering that the most accurate number is the one that has the highest probability to be above and below the reality.
After 15 years in supply chain, I moved for a couple of years to marketing and commercial operations to discover they were usually setting themselves… to maximize the possibility to overachieve the plans !
So NO, focusing solely on plan accuracy does not secure the capacity to capture opportunities, an adequate S&OP process which goes way beyond that…
Rightly, meetings have been labelled S&OP and the communication line is open with the other functions, but if we sum the time spent in preparation and in meetings of all the participants does it really have the right return on investment ?
It is fair to recognize that the first objective of the S&OP is to be accurate in forecasting, on target for inventory and minimize backorders and write offs, and you could legitimately be proud if you reached it.
Minimizing the risk to lose market shares is one thing and SCM as a support function should reach as a minimum but wouldn’t you like to turn the function to a Profit Center and generate growth opportunities to your company ?
If yes, the following points (not exhaustive list) should probably also be considered in addition to the S&OP discussion :
Mid- and long-term capacity balance with a best-case scenario
Capacity balancing is probably the most important point to look at as increasing (or decreasing and divest) is taking a significant amount of time (from 9 months to 3 years when needed to set new CMOs)
S&OP is also the place to make business cases to decide on make or buy capacity investments and how to make it happens.
“what if” scenario
What if a competitor falls into backorders, what is my manufacturing capacity flexibility to take market shares ?
Do I internally have the people and processes to make those scenarios ?
Would they need days or weeks to be produced, or do I have a right data management and systems in place to execute in few clicks ?
Can I quickly turn volumes into sales and gross margin ?
NPI process and a launch readiness review
Manufacturing readiness, Supply Chain readiness, Commercial readiness… just to be clear : READINESS = dry run possible, enter an order in the ERP and see if and when the product is received by the customer.
Having the right “to do list” and monitoring progresses is just not an option unless you like surprises at launch time.
A launch sequence associated with different country prices could have unexpected impacts on your supply chain, which also need to be considered.
Portfolio margin contribution
Simplifying the portfolio focusing on the combination profitability & ease of manufacture/source can (1) increase the overall gross margin % and (2) reduce the team workload.
Too often companies do not prepare enough the final S&OP call / Executive S&OP meeting and defocus from the important questions that make SCM successful.
Indeed, a major out of stock unsolved by planning adjustments nor by an allocation plan should be escalated to get an additional level of support and ensure the proper awareness.
It should represent 1/3 of the discussion. Another 1/3 of the time to review the KPIs, but an educated review, off track KPIs should be explained and plans to improve should be provided.
So back to square one, important discussions in the Executive S&OP should be about plans made by the teams, in anticipation of future scenarios, for the top management to approve in Capex or Opex.
A powerful S&OP starts from its series of meeting prior to the Exec S&OP call and focus of this last one should be on the 6 to 24 months horizon minimum.
SCM End to end visibility associated with controlling should let you know where to improve.
Plans, projects, investments should fuel the SCM organization to be a growth contributor in market shares and gross margin.
Capacity to make scenario then enable a sound decision making process.
Are you happy with your current setup ?
Do you need support to reach more return on time invested in your S&OP and avoid too straight Opex cuts to improve profits ?
