The first step in identifying a successful S&OP initiative is to identify the most common points of failure. Many of these failures stem from taking a limited and tactical view of the purpose of supply chain, using it as a tool for simple cost savings. While cost savings are always important, focusing on that benefit only to the exclusion of other benefits will inevitably lead to cost savings fatigue, and ignore the real potential of using supply chain as an engine of meaningful change.
Additional points of failure often include making S&OP decisions in operational silos, rather than looking at each decision and how they impact every functional area of the enterprise. Additionally, this tactical view often leads to an imbalance between demand and supply, which can cause serious financial disruption, and could even negatively impact the customer experience if inventory issues result in delayed shipments.
S&OP and answering the big questions
Every business at some point has to ask itself some basic questions: What are we going to sell? Who are we going to sell it to? How are we going to operate? How will we create a return on investment? S&OP answers every one of these questions.
1. Purchase orders carry with them much more than simple product attributes; they specify quantity, place, price, and time. S&OP drives right product, place, time, quantity, cost and business performance.
2. A good supply chain is one which is not afraid of change, and often that change occurs frequently. Those changes can be planned and anticipated, and some changes, like new tariffs or trade wars, are out of the control of the enterprise. Regardless, S&OP comes into play to help enable more responsiveness, and faster response to any situation. S&OP anticipates those changes, reacts to them and positions the company to respond appropriately.
3. S&OP allows executives to take the long view, seeing the entire ecosystem from the supplier’s suppliers to the customer’s customers.
4. S&OP is a major enabling factor in of Total Value Optimization (TVO), a methodology for dynamically anticipating and meeting demand by synchronizing the buy-make-move-fulfill supply chain to deliver the greatest value to customers and other stakeholders, at the lowest cost.
5. Finally, S&OP helps to change simple and tactical collaboration efforts to single-number business planning, so that the supply chain can move from being a tool for simple cost savings to something which can be used as a competitive weapon.
Leveraging S&OP for an integrated demand/supply chain
Clearly, there are several common points of failure, but these can be easily overcome by adhering to a few basic, underlying principles of S&OP implementation. Success factors for integration include:
• Demand signal capable of driving effective, efficient anticipatory decisions
• Collaboration, integration, synchronization across end-to-end demand/supply chain functions
• Creation of a perpetual learning function
• Advanced data analytics capable of multi-variable, multi-equation optimization
• Unbending dedication to Total Value Optimization (TVO)
• Multi-level S&OP building blocks
S&OP is dependent on removing silos, inefficiencies are borders that may exist in the end-to-end supply chain. S&OP will never work when implemented in isolation, or if functional areas of the enterprise have different goals, or if they do not have an equal say at the decision-making table. S&OP must be synchronized across operations, procurement and logistics.
Perpetual learning is also critical to success, and those most common failures often continue to recur every quarter. A better strategy is to look at each current period’s operations, and correct failures and shortcomings in the S&OP plan to enable a better period next time. A learning system can provide actionable insights for better success on a continuing basis.
Of course, big data and analytics plays a major role in driving the right answers, especially in an environment that is likely to be very complex with multiple variables. And finally, the biggest success factor is a commitment to optimizing the whole, rather than addressing component parts individually. This TVO end-to-end supply chain approach is the backbone of successful S&OP.
Sales & Operations Planning plays an essential role not just in tactical aspects of a company’s operation. As a strategic part of the company’s success, S&OP must be firmly ingrained in the company’s leadership and in its culture.