Executive Briefings

The New World of Profitability: Everybody Wins

Hard to believe, but profitability hasn't been the driving force behind sales and operations planning within most businesses - until now. Gregory Schlegel, adjunct professor of supply chain risk management at Lehigh University, explains why.

There's a new focus on profitability in sales and operations planning. Approximately 20 percent of companies today are entering this third of the four stages that make up the S&OP maturity model, says Schlegel. (Stage One is accepting and developing a plan, Two is accelerating the balance of demand and supply, and Four is extending collaboration with customers and suppliers to include "what-if" analyses and risk assessment.)

The focus on profitability requires a shift in metrics and technique alike, says Schlegel. He says that only about 10 percent of companies that practice S&OP are engaging in regular SKU management of their product portfolios. They are good at getting product out the door, but not in dealing properly with individual items. "It just doesn't seem to be in our supply-chain DNA."

Only 2 to 5 percent of manufacturers segment their customers, says Schlegel. "In S&OP, they tend to treat all customers the same, even though 20 percent generate 80 percent of profit."

Companies also tend to be lured by the "false goal" of having one demand-forecasting number that can be shared throughout the organization. In the process, they fail to address product segmentation.

Improvements happen over time. In a complex supply chain, the first maturity stage can take up to two years to complete. The trick is to develop a process for balancing supply and demand on a repeatable basis.

Once companies get to Stage Three, they have "enough firepower [in the form of] tools, street cred, methodology and professionals working in the process to address the issue of product portfolio management and customer segmentation." They can then begin to deploy the metric of gross margin return on investment, based on their margin and inventory turnover ratio.

To view the video in its entirety, click here


Keywords: supply chain, supply chain management, S&OP, sales and operations planning, supply management, demand management, inventory management, inventory control, supply chain planning, retail supply chain, sourcing solutions

There's a new focus on profitability in sales and operations planning. Approximately 20 percent of companies today are entering this third of the four stages that make up the S&OP maturity model, says Schlegel. (Stage One is accepting and developing a plan, Two is accelerating the balance of demand and supply, and Four is extending collaboration with customers and suppliers to include "what-if" analyses and risk assessment.)

The focus on profitability requires a shift in metrics and technique alike, says Schlegel. He says that only about 10 percent of companies that practice S&OP are engaging in regular SKU management of their product portfolios. They are good at getting product out the door, but not in dealing properly with individual items. "It just doesn't seem to be in our supply-chain DNA."

Only 2 to 5 percent of manufacturers segment their customers, says Schlegel. "In S&OP, they tend to treat all customers the same, even though 20 percent generate 80 percent of profit."

Companies also tend to be lured by the "false goal" of having one demand-forecasting number that can be shared throughout the organization. In the process, they fail to address product segmentation.

Improvements happen over time. In a complex supply chain, the first maturity stage can take up to two years to complete. The trick is to develop a process for balancing supply and demand on a repeatable basis.

Once companies get to Stage Three, they have "enough firepower [in the form of] tools, street cred, methodology and professionals working in the process to address the issue of product portfolio management and customer segmentation." They can then begin to deploy the metric of gross margin return on investment, based on their margin and inventory turnover ratio.

To view the video in its entirety, click here


Keywords: supply chain, supply chain management, S&OP, sales and operations planning, supply management, demand management, inventory management, inventory control, supply chain planning, retail supply chain, sourcing solutions