1. One Plan
Starting with the fundamentals, perhaps the most valuable benefit to S&OP is getting your organization on "one plan". In a recent discussion with a CFO, he revealed that one of the best leaders he ever worked for was fond of saying, "Our plan may not be perfect – but we are not confused." It’s a great capsule to digest! Consider the effort spent lobbying and coercing when the organization is not aligned. This is a great selling point for those who are considering, and a great reminder for those already engaged in S&OP. Fundamentally, S&OP is about the numbers, but perhaps its greatest value may be as a vehicle for communication and alignment.
2. Establish a formal demand planning process.
The outcome of the S&OP process is the sign-off on the supply/demand match, but it starts with the demand statement, usually from a forecasting/demand planning tool. The capability to aggregate and disaggregate forecasts to and from a product group level to a SKU level, enables forecasting at a product group level and exploding it to all the SKUs. However your organization thinks, and how you can best forecast your business forms the basis for how your process should flow. Overall, there must be discipline so that your organization can see and learn. Establishing a formal demand planning process is key.
Another demand planning component that is becoming a “must have” is demand segmentation. The channel shift from traditional “to and through” DCs to more direct-to-store and direct-to-customer shipments requires knowing “how much” and “to where” volume may have shifted. The aggregate may not change, but fulfillment capacity and profitability may shift dramatically, depending on your business. Take note: Best-in-class companies are 50 percent more likely than their competition to provide demand segmentation.
3. Test, measure and repeat.
The third key to success is testing the plan and measuring the results. Ask yourself,“How do I get buy-in to the plan,” whether it is S&OP or something else. Success usually comes down to convincing the audience you have done your homework. S&OP is no different. Scenario planning or “What if?” analysis is fundamental to getting everyone on board. Showing the “homework” (scenario planning) makes people realize that the “sign-off” decision was made with eyes wide open. When the organization realizes that the upside and the downside demand plans were considered, and that contingencies for increasing or pulling back on capacity were vetted, then alignment comes much easier. The glue to this whole process is reviewing the actual versus plan. Once it is realized that S&OP is the vehicle to plan, allowing for course correction when necessary, buy-in is no longer an issue.
Other factors may ultimately determine the success of the S&OP process, but if you 1) get to one plan, 2) establish a formal demand planning process and 3) test and measure the plan, then you will be well on your way to institutionalizing S&OP for your organization. Aberdeen’s research indicates that Best-in-class companies are 24 percent more likely to have a formal S&OP process in place than their competition.
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