The S&OP process frequently can be challenging to supply chain planning leaders. It’s crucial to business success, but rarely delivers on its full potential. That’s because it relies — more than any other supply chain process — on people from functions outside the supply chain recognizing and addressing the interdependencies between projects, product launches and phase-outs, and all the other things that make up an organization’s business.
“S&OP is the single most important and critical cross-functional process,” says Micheal Youssef, Senior Director Analyst, Gartner. “If S&OP is done properly, it leads to significant returns, including increased revenue and profitability.”
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However, supply chain sales operations and planning is often a struggle, because it consists of so many component pieces and people — all of which must be aligned to work toward a common goal.
Supply chain leaders can begin to drive more business value from the S&OP process by improving in the following five areas.
S&OP must be decision-oriented
In Gartner’s 2020 Agenda Poll for Supply Chain Leaders, one-third of planning leaders cited the lack of effective decision making in the S&OP meeting process as the most critical problem to solve for their function’s overall performance.
S&OP meetings become information-sharing exercises rather than the decision-making process they’re supposed to be for many reasons. Some attendees might want to leverage the meeting to showcase the great work they’ve done; others are interested in doing a “deep dive” analysis on something that went wrong. Neither contributes to the aim of the meeting. S&OP should be about decisions and managing exceptions, not about reviewing data.
Rather than stuffing the meeting presentation with tons of analysis and spreadsheets, it’s better to share those things ahead of time. A good rule of thumb is that 80% of the slides shown at the actual meeting should require a decision to be made based on the analysis and numbers that should already be familiar to all participants.
S&OP must be focused on delivering company objectives
To create an effective S&OP process, it’s important to limit the scope and focus on how the meeting can support the organization’s highest priorities. This works best when a top-down approach is combined with a bottom-up approach.
The top-down approach identifies the small number of outcomes that S&OP will deliver really well based on the priorities of the C-suite. The bottom-up approach is the best method for solving the operational issues — process steps, agenda items, roles and responsibilities. Once this is set up, the planning leader must ensure that the meeting stays in line with the executive priorities and continues to deliver value to the organization.
S&OP must be a medium-term process
A recent Gartner survey shows that 27% of respondents still have an S&OP time horizon that is less than 12 months, and 62% of respondents’ S&OP time horizon is less than 18 months. Short-term S&OP drives more tactical discussions and decisions in S&OP meetings and fails to enable the participants to look beyond the 12-month horizon. However, many decisions need to be made well in advance, such as building and increasing manufacturing or warehouse capacity or negotiating contract volumes with suppliers.
“S&OP should be a medium-term process that looks on the horizon between 3 and 18 to 24 months into the future. By tackling important issues well in advance, planning leaders can ensure that things are done on time and for a reasonable price,” Youssef says.
S&OP must be scenario-based
Most organizations wait for something to happen and then respond, but leading companies plan for multiple eventualities to enable an agile response. For example, companies that have a more mature planning process create multiple supply response scenarios. This enables them to decide on the best solution for the business. Reviewing a handful of scenarios at each S&OP meeting is also a manageable amount, especially if it follows a structured process.
While basic scenarios can live in an Excel sheet, mature S&OP organizations deploy advanced analytics tools to calculate scenarios and their impact on the business in real time. If the database allows, analytics can even provide decision support and make recommendations.
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S&OP must always evolve to improve
S&OP is a process that must evolve in line with business requirements as well as product and portfolio changes. Many improvements are incremental, but the evolution can also occur in much larger leaps, when conditions demand it.
A significant refresh of S&OP may require an enormous level of effort and investment in technology. When the new process is launched, it may be seen as a great success. However, without a program of continuous improvements over time, the new process will become stale, business requirements will change and S&OP effectiveness will decline in the same way as the previous S&OP process. Continuous change that adapts to whatever the business currently needs is less flashy, but more ultimately, more sustainable.