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To make informed forecasting and replenishment decisions, many companies bring together operational elements of production and distribution with sales and marketing, executing sales and operations planning (S&OP) collaborative improvement processes. As cross-functional and consensus-based processes, S&OP activities create value by keeping supply and demand in balance.
But most S&OP arrangements fail to consider or fully account for the effects of pricing and promotional strategies on the upstream supply chain. How does the use of sales and marketing instruments affect upstream replenishment capabilities and overall profitability? How do capacity, lead times and production status relate to the company's ability to react to pricing- or promotions-induced demand swings?
This point of view illustrates the need to extend the traditional S&OP process to include joint pricing and operational tactics. Accenture's research and client experience confirms that this combined effort can help maximize a company's profitability and accelerate its journey to high performance. Among other benefits, coordinating dynamic pricing, promotional and operational decisions will help reduce the costly bullwhip effect. In the bullwhip effect, small variations in orders get amplified up the supply chain, causing
anything from inventory shortages, to lengthened lead times and lost sales, to decline in customer service. A synchronized approach also helps improve both the revenue and cost sides of the profit equation.
Extending the footprint of S&OP processes provides an opportunity to link and share pricing and promotional information with supply chain constraints. This extended forum can also help organizations ascertain the responsiveness of their supply chains when prices are adjusted. The following five key questions can help supply chain managers assess how well they are jointly optimizing supply, demand and pricing.
1. How do you ensure that your pricing and promotional activities do not adversely affect the upstream supply chain?
2. How do you link your sales and marketing instruments with critical supply chain factors such as lead times, inventory and capacity constraints?
3. How do you measure the impact of sales and marketing decisions on upstream
4. How flexible are your production and distribution strategies with regards to
fluctuating customer demand?
5. How do you adjust your sourcing strategy and inventory rules to take into account the effects of dynamic pricing and customer margins?
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