Why do I need a Sales and Operations Planning process? We can get caught in the trap of thinking about S&OP as an organizational exercise. While this is true to some degree, ultimately the companies that derive the most benefit from an effective S&OP process have one thing in common:
Leadership has asked and answered this “why” question.
I’m not saying that every successful S&OP implementation starts here, but for the process to really work and stick within the culture of an organization, at some point the leader must come to a clear understanding of the outcomes and benefits of Sales and Operation Planning.
I use the terms outcomes and benefits on purpose. Many S&OP implementations start with a focus on the hard benefits of the process. This makes sense; if you are going to invest in a new process, it’s important to know what the return will be. Typically, these include service level improvements (RDSL, PDSL, OTIF, etc.), inventory right sizing (trade working capital improvements), improved efficiency, and reduced expedited freight among others.
Interestingly, nearly all the executives I’ve asked over the past 20 years answer the “why is S&OP important” question not with hard benefits, but with what the process gave them in terms of leading their business. These are the outcomes.
So as an executive, what should you expect from an effective S&OP process? Here are my top five.
1. A clear link between strategy and execution.
The process needs to cover the short (execution), medium (planning), and longer (strategic) horizon. Accountability for execution is the feedback required to adjust execution and planning. The clarity of the S&OP plan is important to ensure that everyone understands and is aligned around the strategy. This is particularly important when managing growth/significant business volume changes whether planned or unplanned.
2. A place to set the "flow rate" for the business.
Flow rate applies to all businesses. It’s the number of units, customers, goods, or services that your business is capable of producing in a period of time. S&OP is where you can validate your current flow rate for the family and, most importantly, set your future flow rate (capability) to meet your business plans. The need for changes to capability should be clearly visible and presented as part of the process.
3. A place to establish clear accountabilities: RACI (particularly Responsibility and Accountability).
A good process not only covers RACI for it’s plans and results, but also for the steps of the process. You should be able to hold the key players, sales, operations, supply chain, and product management, accountable for their part of the overall plan. Each person KNOWS their part.
4. A regular and repeatable management process.
It starts with an unconstrained, externally focused view of demand: the demand meeting. Next, in the supply meeting, you determine your output rate based on capability. The team then resolves any imbalances between the demand and supply plans and the impact on your buffers. The executive meeting provides a focused, data-driven presentation highlighting the risks and assumptions, trade-offs, and decisions required. This should happen like clockwork.
Ultimately S&OP needs to be measurable. While measurability ties to the other outcomes, it’s worth highlighting on its own, because for a process to really stick and change the way the business is managed, it needs to be measurable in the following areas:
Data: Forward looking plans need to be data-driven and linked to the execution and planning systems. Disconnects should be identified early and drive improvement processes.
People: Roles need to be documented, and expectations set on who brings what to the process. Only by measuring this will the accountability and responsibility stick within the organization.
Process: A clear monthly process should be laid out and adherence to the process should be measured.
If your S&OP process is effective, you should expect your executive meeting to enable you to put your finger on the pulse of the business. This happens in one to two hours each month. Your team will know their roles, be prepared, and present data at the right granularity to support effective decision making.