Executive Briefings

Why Your S&OP Strategy Is Still Lagging in 2015

Analyst Insight: Although sales and operations planning has been a formalized practice since the 1980s, companies still struggle to effectively implement S&OP as both sales and operations become more fragmented. Based on the successes of multiple multibillion-dollar organizations, Blue Hill provides the following recommendations for companies still finding it difficult to effectively start an S&OP program. – Hyoun Park, Chief Research Officer at Blue Hill Research

Why Your S&OP Strategy Is Still Lagging in 2015

When Blue Hill began its research of sales and operations planning, we expected to find a very mature and well-structured set of programs to study. However, what we actually found was that there were a variety of key gaps between all of the aspects of a full rollout of S&OP. Despite the fact that the concept of S&OP is not new, the complex implementation of capabilities and steps needed to fully implement S&OP made these programs difficult to fully scale out to an enterprise level. In general, Blue Hill found that companies struggled to define the full portfolio of appropriate processes, organizational structure, operational roles, data sources, key performance indicators, implementation, internal communications and stakeholder buy-in, skills training, ongoing technical management, and ongoing operational management.

To start S&OP programs across large or multinational enterprises, Blue Hill provides the following suggestions based on successful implementations and projects that we have observed:

Start with S&OP-lite. In reality, any successful company, business unit or subsidiary has found out some way to balance the challenges of sales and operations. Because of the variety of ways to achieve this balance, Blue Hill typically sees between five and 10 separate and well-established S&OP sets of processes in a typical organization that has not focused on standardization. Rather than ambitiously move to a fully standardized organization, focus on the bare-bones minimum S&OP that can be done across the organization before taking serious steps to reduce, standardize and consolidate. This typically means simply starting with defining the financial goals associated with both operational and strategic output.

Standardize S&OP-related language across the organization. Define basic costs, revenue sources, standardized cash flow accounting, and relevant inventory and service levels. As simple as this sounds, internal communications to implement S&OP are often ineffective because key stakeholders and managers are unable to agree on the most basic definitions.

Don’t depend on sales personnel to be forecasters. By nature, sales people are hired to be optimistic despite the fact that companies typically expect less than two thirds of their sales people to hit their quota. In addition, sales managers are often culled from the top sales performers in an organization, which means that the managers will actually be more optimistic about potential opportunities based on the assumption that if they can close a deal, their teams can also close the deal.

Use S&OP to react faster. The reality of S&OP is that bad things still happen to well-planned companies. However, companies that have full visibility to a combined view of sales and operations are better positioned to react to adverse events and external stresses more quickly and effectively. 

The Outlook

In 2015, the biggest challenges to starting sales and operations planning are not finding appropriately functional solutions or articulating the value proposition. Rather, the real issues are with optimizing communications and developing appropriate inputs and responses.

When Blue Hill began its research of sales and operations planning, we expected to find a very mature and well-structured set of programs to study. However, what we actually found was that there were a variety of key gaps between all of the aspects of a full rollout of S&OP. Despite the fact that the concept of S&OP is not new, the complex implementation of capabilities and steps needed to fully implement S&OP made these programs difficult to fully scale out to an enterprise level. In general, Blue Hill found that companies struggled to define the full portfolio of appropriate processes, organizational structure, operational roles, data sources, key performance indicators, implementation, internal communications and stakeholder buy-in, skills training, ongoing technical management, and ongoing operational management.

To start S&OP programs across large or multinational enterprises, Blue Hill provides the following suggestions based on successful implementations and projects that we have observed:

Start with S&OP-lite. In reality, any successful company, business unit or subsidiary has found out some way to balance the challenges of sales and operations. Because of the variety of ways to achieve this balance, Blue Hill typically sees between five and 10 separate and well-established S&OP sets of processes in a typical organization that has not focused on standardization. Rather than ambitiously move to a fully standardized organization, focus on the bare-bones minimum S&OP that can be done across the organization before taking serious steps to reduce, standardize and consolidate. This typically means simply starting with defining the financial goals associated with both operational and strategic output.

Standardize S&OP-related language across the organization. Define basic costs, revenue sources, standardized cash flow accounting, and relevant inventory and service levels. As simple as this sounds, internal communications to implement S&OP are often ineffective because key stakeholders and managers are unable to agree on the most basic definitions.

Don’t depend on sales personnel to be forecasters. By nature, sales people are hired to be optimistic despite the fact that companies typically expect less than two thirds of their sales people to hit their quota. In addition, sales managers are often culled from the top sales performers in an organization, which means that the managers will actually be more optimistic about potential opportunities based on the assumption that if they can close a deal, their teams can also close the deal.

Use S&OP to react faster. The reality of S&OP is that bad things still happen to well-planned companies. However, companies that have full visibility to a combined view of sales and operations are better positioned to react to adverse events and external stresses more quickly and effectively. 

The Outlook

In 2015, the biggest challenges to starting sales and operations planning are not finding appropriately functional solutions or articulating the value proposition. Rather, the real issues are with optimizing communications and developing appropriate inputs and responses.

Why Your S&OP Strategy Is Still Lagging in 2015