Executive Briefings

Aligning Business Goals with Supply Chain Strategies

The S&OP process should be complemented by a strong root cause analysis and execution framework that ensures that the S&OP plan is continuously tracked with respect to the financial goals set forth by the company. In other words, the S&OP lifecycle should precede the financial reporting lifecycle of a company and should be in lock-step.

S&OP processes need to involve extensive collaboration between the various roles of the organization and need to enable the unification of business goals and strategies rather than just being a functional supply chain process. In order to identify how companies view their S&OP processes and its impact towards the broader business strategy, Aberdeen recently conducted a survey, Sales and Operations Planning: Aligning Business Goals With Supply Chain Strategies.

In the survey, the four broad strategies that companies usually adopt were assumed as: product differentiation (17 percent), customer service differentiation (26 percent), cost reduction (25 percent), and profitability (32 percent). For each business strategy, Aberdeen has identified that there is a misalignment of business goals and the area where respondents indicate that their S&OP process impacts the most. For example, 52 percent of respondents who indicate that profitability is the primary business strategy say that is not the area S&OP impacts the most. However,  Best-in-Class companies are two times more likely than All Others to be able to align their S&OP plan with the company's financial goals. The following are characteristics of the Best-in-Class companies:

Best-in-Class Focus on Demand: Best-in-Class companies are 50 percent more likely to adopt advanced demand sensing and management capabilities. The S&OP journey for the majority of companies needs to start with the demand planning process. The majority of companies have some form of demand forecasting system in place; however, they need to focus on becoming real-time in their approach to becoming demand-driven. They need to set up demand signal repositories based on customer demand and ensure that sales is highly engaged in this process as well.

Constrained Planning: Best-in-Class are more than twice as likely to be able to consider major constraints during supply demand balancing. Having the ability to manage constraints within the S&OP process is highly linked to the technology tools available. By definition, the process is extremely difficult to do manually and through spreadsheets. The best approach is leveraging lightweight solutions that can do scenario analysis and rough-cut capacity planning within themselves but also provide the ability to link to an advanced planning and scheduling tool.

New Product Introduction: Best-in-Class companies are 2.8 times as likely to have the ability to consider phase-in/phase-out of new products during the product review process. Only 25 percent say their engineering/R&D teams are involved in the S&OP process. Product design differentiation is a key business strategy that is highly misaligned with the S&OP process. The primary reason for this is the highly siloed nature of the organizations as well as the software solutions.

Price and Profit Optimization: Best-in-Class are two times as likely to have the ability to consider pricing as a parameter to shape demand. Sixty-one percent indicate marketing is involved in their S&OP process, but only 4 percent of companies indicate a strong process capability with pricing. From a needs perspective, it has to be noted that only 15 percent of companies have indicated a strong need for this capability.

The Outlook

Fifty-three percent of respondents indicate that they will have an increased budget in respect to S&OP in the next fiscal year. In terms of actual spend, only about 40 percent indicate they will spend more than $100,000 on new S&OP technology projects in 2008. Twenty percent of indicated a budget of $500,000 and above. This includes costs for software, hardware, services, implementation, and other fees.

S&OP processes need to involve extensive collaboration between the various roles of the organization and need to enable the unification of business goals and strategies rather than just being a functional supply chain process. In order to identify how companies view their S&OP processes and its impact towards the broader business strategy, Aberdeen recently conducted a survey, Sales and Operations Planning: Aligning Business Goals With Supply Chain Strategies.

In the survey, the four broad strategies that companies usually adopt were assumed as: product differentiation (17 percent), customer service differentiation (26 percent), cost reduction (25 percent), and profitability (32 percent). For each business strategy, Aberdeen has identified that there is a misalignment of business goals and the area where respondents indicate that their S&OP process impacts the most. For example, 52 percent of respondents who indicate that profitability is the primary business strategy say that is not the area S&OP impacts the most. However,  Best-in-Class companies are two times more likely than All Others to be able to align their S&OP plan with the company's financial goals. The following are characteristics of the Best-in-Class companies:

Best-in-Class Focus on Demand: Best-in-Class companies are 50 percent more likely to adopt advanced demand sensing and management capabilities. The S&OP journey for the majority of companies needs to start with the demand planning process. The majority of companies have some form of demand forecasting system in place; however, they need to focus on becoming real-time in their approach to becoming demand-driven. They need to set up demand signal repositories based on customer demand and ensure that sales is highly engaged in this process as well.

Constrained Planning: Best-in-Class are more than twice as likely to be able to consider major constraints during supply demand balancing. Having the ability to manage constraints within the S&OP process is highly linked to the technology tools available. By definition, the process is extremely difficult to do manually and through spreadsheets. The best approach is leveraging lightweight solutions that can do scenario analysis and rough-cut capacity planning within themselves but also provide the ability to link to an advanced planning and scheduling tool.

New Product Introduction: Best-in-Class companies are 2.8 times as likely to have the ability to consider phase-in/phase-out of new products during the product review process. Only 25 percent say their engineering/R&D teams are involved in the S&OP process. Product design differentiation is a key business strategy that is highly misaligned with the S&OP process. The primary reason for this is the highly siloed nature of the organizations as well as the software solutions.

Price and Profit Optimization: Best-in-Class are two times as likely to have the ability to consider pricing as a parameter to shape demand. Sixty-one percent indicate marketing is involved in their S&OP process, but only 4 percent of companies indicate a strong process capability with pricing. From a needs perspective, it has to be noted that only 15 percent of companies have indicated a strong need for this capability.

The Outlook

Fifty-three percent of respondents indicate that they will have an increased budget in respect to S&OP in the next fiscal year. In terms of actual spend, only about 40 percent indicate they will spend more than $100,000 on new S&OP technology projects in 2008. Twenty percent of indicated a budget of $500,000 and above. This includes costs for software, hardware, services, implementation, and other fees.